Tyson Foods is scaling back its beef production, costing 400 Iowa workers their jobs, after a drop in available cattle caused the company's beef division to lose money, the company announced Friday.
Steve Stouffer, president of Tyson Fresh Meats, a subsidiary of Tyson Foods, said the realities of the beef business have changed.
"The cattle supply is tight and there's an excess of beef production capacity in the region," he said. "We believe the move to cease beef operations at Denison will put the rest of our beef business in a better position for future success."
The plant, in Denison, Iowa, closed on Friday. The company is offering financial incentives to former hourly employees of the Iowa plant who qualify for openings at a beef plant in Lexington, Nebraska -- about 280 miles away from Denison.
The beef sector is Tyson Foods' biggest division, accounting for 42 percent of group sales in the last year.
Beef sales brought down the company's latest quarterly earnings, according to documents filed with the Securities and Exchange Commission earlier this month.
Donnie Smith, Tyson Foods' chief executive officer, said slowdowns at U.S. West Coast ports and high prices of cattle from feedlots drove the poor beef performance in the last quarter.
Tom Troxel, associate head of Animal Science for the University of Arkansas System Division of Agriculture, said a drought that hit in 2012 is responsible for the low supply and high cost of cattle from feedlots, which fatten cattle until they are market weight and can be sent to slaughter.
"Right now cattle producers are trying to regrow their herd," he said. "We are seeing fewer heifers go to the feedlot because they are keeping them back in the farm to bring the herd back up."
A record low of 32.5 percent of cattle on feed were heifers in July, according to a report by the U.S. Department of Agriculture.
This means the feedlots have fewer cattle to sell to meatpackers, including Tyson.
"The feedlot segment of the industry is having a very difficult time making a profit," Troxel said. "The price they had to pay for their calves is very high."
So the feedlots raise the cost of the cattle that they send to companies.
Tyson wouldn't pay what it viewed as over-inflated prices for cattle. The company cut back on hours at plants "resulting in inefficiencies and added costs," Smith said during the earnings conference call.
"It becomes a battle between feedlots and the packers," Troxel said.
Because of the low beef supply, Tyson posted weaker than expected quarterly earnings and cut its profit outlook -- to $3.10 to $3.20 per share for the year, down from the previous range of $3.30 to $3.40.
"Unless beef market conditions improve rapidly, we will not achieve our previous guidance," Smith said.
Travis Justice, executive director of the Arkansas Beef Council, said he expects the number of cattle to rebound in the next year. He said that three years after the drought, farmers should have regrown their herds to a point where they can start sending heifers to feedlots.
He said the effects of the drought are more noticeable in beef because cattle herds take longer to regrow than a chicken or pig farm.
"They can turn and adjust to market conditions quicker just because of the biology of the animal," Justice said.
He said consumers have been faced with high beef prices in grocery stores and restaurants for the last few years, but as cattle herds reach better sizes, retail prices should start to go down.
"All packers are facing a declining cattle supply," Justice said. "They've been kind of forced to scale back."
Business on 08/15/2015