Tyson Foods CEO: Beef Prices Driven by Consistently Strong Demand, Constrained Production and Record Inflation
Tyson Foods President & CEO Donnie King testified before the U.S. House Agriculture Committee, highlighting the impact of supply and demand on beef prices. He noted that labor shortages due to the pandemic and escalating costs of feed, transportation, and geopolitical issues drive prices higher. Since March 2020, corn prices have risen by 127%, and soybeans by 90%. Despite high beef prices, King asserted that the beef processing industry's structure has not changed significantly over the past 30 years and emphasized the company's commitment to quality and investment in American agriculture.
- Tyson Foods continues to invest over $15 billion annually with independent farmers and feedlot operators.
- Implemented $500 million in wage increases and bonuses for hourly team members.
- Advancements in cattle sourcing and production have improved beef quality significantly.
- Ongoing labor shortages have constrained beef production.
- Soaring input costs, including a 127% increase in corn prices and a 90% rise in soybean prices, impacting profit margins.
“It’s a question of basic supply and demand,” says King
SPRINGDALE, Ark., April 26, 2022 (GLOBE NEWSWIRE) -- A combination of market forces, including consistently strong demand for finished beef, constrained production due to labor shortages caused by the global pandemic, and record inflation, have been driving current beef prices, Tyson Foods President & CEO Donnie King says in prepared testimony delivered to the U.S. House Agriculture Committee. The testimony, which can be found here, was presented in advance of a hearing on Wednesday.
King makes the following points in his testimony:
- As with nearly every other product, basic market forces drive beef prices: “Tyson does not set the prices for either the cattle we buy or the beef our customers purchase. These prices are set by straightforward market forces, namely available supply and demand.”
- An ongoing labor shortage – largely the result of the pandemic – has constrained beef production while consumer demand for beef continues to skyrocket: “We just didn’t have enough people to fully staff our plants,” which resulted in a “sudden and swift rise” in the oversupply of cattle and a corresponding drop in cattle prices. At the same time, “the price for finished beef—the beef that consumers buy at grocery stores—was rising, driven by skyrocketing consumer demand” and “basic economics holds that when demand is high and supply is low, prices will rise, which is precisely what they did.”
- The situation has been deepened by geopolitical issues, which are resulting in higher costs: “The dramatic rise in input costs is reflected in the prices American families pay at the grocery store.” For example, since March 2020, the cost of corn is up
127% and cost of soybeans are up90% . Both are used in livestock feed, which comprise65% of the cost of chicken and approximately30% of the cost of finished beef. Freight transportation costs are also rising, with international shipping container rates up68% and diesel fuel up104% year over year. - Economists agree that American businesses are not to blame for inflation: “Experts, policymakers, and government regulators understand that the cause of the current inflationary environment is some combination of constrained supply, high consumer demand, and continued unforeseen disruptions to the global supply chains caused by COVID-19 and exacerbated by geopolitical unrest.” Lawrence Summers, the former Treasury Secretary, observed that “Rising demand, with capacity and labor constraints, are fully sufficient to account for what we observe in meatpacking.”
- High prices have nothing to do with industry consolidation: Concentration in the beef processing industry has remained virtually unchanged over the last 30 years. During that time, data shows that ranchers more-often-than-not achieve higher profit margins than beef processors. “In fact, in several years, ranchers made historic profits on live cattle while beef processors either lost money or barely broke even.”
- Tyson Foods produces quality food at market prices: “With advancements in how we source cattle and improvements in modern cattle production, the beef we produce today is consistently higher quality. For example, choice and prime beef grades have increased from 60 percent in 2000 to 85 percent in 2020.” Tyson Foods’ returns “are also strengthened by our efforts to become a more agile and efficient company through innovation and automation” helping the company to “keep costs to consumers lower, enable us to pay our team members more and allow us to further reinvest in our business.”
- Tyson Foods continues to invest in America, and the people who call it home: In America, the company invests more than
$15 billion a year with more than 11,000 independent farmers and feedlot operators who supply cattle, pigs, chickens and turkeys. The company has facilities in 30 states and last year implemented$500 million in wage increases and bonuses for hourly team members. Tyson Foods is also piloting childcare programs and health clinics and recently announced the expansion of educational opportunities that will be offered to team members for free.
King is the second Tyson Foods executive to recently testify before Congress on beef industry matters. Shane Miller, who leads the beef and pork unit of Tyson Foods, testified before the Senate Judiciary Committee in July 2021.
About Tyson Foods
Tyson Foods, Inc. (NYSE: TSN) is one of the world’s largest food companies and a recognized leader in protein. Founded in 1935 by John W. Tyson and grown under four generations of family leadership, the company has a broad portfolio of products and brands like Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®. Tyson Foods innovates continually to make protein more sustainable, tailor food for everywhere it’s available and raise the world’s expectations for how much good food can do. Headquartered in Springdale, Arkansas, the company had approximately 137,000 team members on Oct. 2, 2021. Through its Core Values, Tyson Foods strives to operate with integrity, create value for its shareholders, customers, communities and team members and serve as a steward of the animals, land and environment entrusted to it. Visit www.tysonfoods.com.
Contact: Gary Mickelson, 479-236-9022
Category: IR
FAQ
What are the main factors driving beef prices according to Tyson Foods?
How much does Tyson Foods invest in American agriculture annually?
What increases in wages has Tyson Foods implemented recently?
What improvements has Tyson Foods made in beef quality?