Shares of Tyson Foods Inc. have something in common with the steaks, burgers and chops the company churns out: All are getting increasingly expensive.
Tyson’s stock has soared more than 60 percent so far this year, outpacing both cattle futures (up 15 percent) and wholesale beef prices (up 20 percent).
In recent days, however, cattle futures and Tyson shares have declined from multiyear highs, raising questions whether both have peaked, at least for the near future. While surging beef and pork prices have been a feast for Tyson’s profit margins, some analysts wonder if the best news is already priced in.
“It’s starting to feel that this is about as good as it’s going to get” for Tyson’s beef business, said Stephen Share, an analyst with Madison, Wis.-based Wisco Research. “At some point, consumers will slow down and start buying less beef, or more meat comes onto the market because the prices are so good.”
Late today, shares of Springdale, Ark.-based Tyson traded around $19.78. That’s a drop of more than 3 percent from an April 15 close at $20.40, the highest since September 2007.
Strength in wholesale meat markets is trickling down to the grocery store, with average retail beef prices rising each of the three previous months, according to government data.
Earlier today, choice boxed beef values reached $1.6711 a pound, the highest since July 2008. Pork carcass cutout values averaged 85.34 cents a pound at the end of last week, up 27 percent this year.
Retail beef and pork prices probably will climb further this month to reflect higher wholesale markets, analysts said. But with the economy still shaky and unemployment still high, some observers caution that buyers will start balking at pricier meat.
“The fundamental demand relationship for beef is such that higher prices will reduce the quantity consumed,” said Jim Robb, director of the Livestock Marketing Information Center. “Once wholesale prices are fully reflected in retail prices, consumers will begin to react.”
Beef and pork prices are rising because meat processors are competing for smaller supplies of slaughter-ready animals, after high feed costs the past two years prompted widespread herd reductions.
While retail meat prices are up from the end of 2009, they remain below year-ago levels.
Choice sirloin steak averaged about $5.63 a pound nationwide in March, compared with $5.77 during the same month a year earlier, according to U.S. Labor Department statistics. Boneless pork chops averaged $3.57 a pound, down from $3.68 a year earlier.
In futures trading, April live cattle in Chicago today rose 0.2 cent to 98.95 cents a pound. A week ago, April cattle touched $1.002 a pound, the highest price for a closest-to-expiration contract since September 2008.
Tyson, the nation’s largest meat processor, benefitted this year as sales of beef, chicken and pork improved after the recession led to a deep industry-wide slump.
In the quarter ended Jan. 2, Tyson posted net income of $160 million, as sales rose 1.8 percent, to $6.64 billion. In the same quarter a year earlier, Tyson had a loss of $102 million. Tyson is scheduled to report its next quarterly financial results May 10.
During the that quarter, Tyson had a 4.4 percent operating margin in its beef business – reflecting the difference between the prices the company paid for cattle and the prices it got for the beef it sold.
Longer-term, Tyson will be hard-pressed to duplicate that kind of margin, considering its historical average is closer to 2 percent to 3 percent, Share said.
“As some point, you’re going to see a dip, and margins will go back to that 2 percent to 3 percent range,” said Share, who has a “hold” rating on Tyson shares.
Whether the recent slide in Tyson shares is any sort of harbinger for beef or pork markets remains to be seen. For Tyson, any drop-off in beef or pork demand may be offset by cheaper feed costs or the company’s dominant position in chicken.
Longer-term, Tyson shares probably have “more downside than upside,” Share said. Still, the stock’s rally this year is an encouraging sign for beef, pork and poultry producers, he said.
The meat business “is certainly much healthier than it was six months ago,” Share said. “We’ve gotten through the worst of the financial crisis, and are in a healthier market for meat in general.”