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Plant-based meat substitutes were supposed to topple King Beef bellowing from its throne. But high prices and concerns about excessive processing meant sales of faux meats have not matched the hype. At the same time, higher interest rates have sapped investor appetite for funding the lossmaking sector.
Beef is finding that the biggest threat is coming from itself.
Beef prices in the US are at a record high. Years of drought have made cattle more expensive to raise. So have higher labour and fuel costs.
These factors prompted ranchers to send animals to slaughter instead of keeping them for breeding. The US cattle herd is the smallest since 1962. Beef production is expected to decline this year and next.
Paying more for cattle is eating up meat producers’ profitability. Their ability to pass on higher costs to consumers is limited. Shoppers are trading down to cheaper alternatives. They are preferring ground beef, chicken or pork to high-margin sirloin steaks.
Tyson Foods is feeling the squeeze acutely. Operating margins at its beef business, its largest unit, was a negative 6.4 per cent for the fiscal fourth quarter that ended on September 30.
Record beef prices and the strong dollar have also made exports to other countries less attractive. The pressure is not expected to let up soon. Tyson’s $333mn impairment charge on the beef business during the quarter hints as much.
Chicken and pork — which suffered from lower market prices — offered little support. Tyson swung into a loss of $450mn for the quarter on a 2.8 per cent decline in sales.
JBS, the Brazilian meat packer, has also seen margins come down sharply for its US beef business. Shares in Tyson and JBS have fallen about 29 per cent and 24 per cent over the past 12 months.
JBS has a more diversified profile but trades at a discount to Tyson on a price-to-forward earnings basis. With real meat facing real problems, Tyson investors should cut back their exposure.
