Tyson Foods and its chicken processing competitors stand to benefit in the near term because the federal government plans to purchase $14 million of leg quarters which will reduce freezer supplies up to 25 percent.
The Springdale meat giant said it appreciates the government’s purchase from the U.S. poultry industry and considers every sale helpful.
That said, the government’s purchase is relatively small in comparison with the billions of dollars in sales the industry generates annually, according to Tyson spokesman Gary Mickelson.
Agriculture Secretary Tom Vilsack said in Tuesday’s release the purchase would help poultry producers experiencing lower wholesale prices from excess supplies that have accumulated in the past six months because of Russia’s ban of U.S. chicken.
The purchase will shore up leg quarter prices, trading at roughly 33 cents per pound domestically, down from 49 cents a pound a year ago, said Farha Aslam, analyst with Stephens Inc.
She said export orders for dark meat are between 5 cents and 10 cents lower than the domestic prices because of excess supplies sitting in cold storage.
Analysts agree selling about one-fourth of the freezer supply will allow the companies to keep production levels up, which in turn helps growers who are anxious to recoup money lost last year from steep production cuts.
U.S chicken companies have managed to stay profitable this year without the valuable Russian market, but the National Chicken Council has estimated the ban is costing the industry roughly $1 million per day in sales.
For Tyson Foods the lost sales potential amounts to about $75 million in chicken exports to Russia since January. And while the company continues to find other markets for the dark meat, last year Tyson sold $160 million in chicken to Russia, which was 10 percent of the company’s total international chicken sales.
Aslam said government negotiations about the ban will resume Tuesday when Russian President Medvedev visits the United States.
“Optimists believe that a deal to reopen the market is likely because the U.S. has already agreed to many of Russia’s conditions. Others, however note that Russia does not seem to be in any hurry to resolve the issue that has already lingered far longer than anticipated,” Aslam said.
Tyson has said it is eager to see the market reopen and continues to work with industry trade associations and the U.S. government in hopes of resolving the impasse soon.
Though smaller processors like George’s and Simmons Foods don’t rely as heavily on the fickle export market, they too stand to benefi t fromhigher leg quarter prices.
The purchased product will go to federal nutrition assistance programs and is a timely action that also helps relieve the industry of excess product, said George Watts, president of the National Chicken Council.
The USDA referred companies interested in selling chicken to the government for this program to its Agriculture Marketing Web page.
Tyson already does a large amount of business with the federal government. In fiscal 2009 Tyson cashed more than $469 million in payments from Uncle Sam from the sale of meat and other food items.
In fiscal 2010, which began Oct. 1, Tyson has contract sales to the federal government totaling $180 million, according to a government website that tracks all federal spending.
Business, Pages 17 on 06/20/2010