Lower corn prices send Tyson shares higher

Shares of Tyson Foods continue to rally on lower corn prices and slightly better outlook for the balance of this year.

Tyson shares were trading at $26.42 on Tuesday morning slightly off the new 52-week high price of $26.50 set on Monday July 1. It was third time in recent weeks Tyson shares have registered new highs.

The meat giant’s shares have rallied more 33% year to date and 11 analysts polled by Thomson Reuters still rate Tyson Foods as a buy.

There are a couple of catalysts behind his recent rally, namely better forecasts in the grain markets, which were expected to impact Tyson to tune of $450 million in added costs this year.

But corn futures are flirting with their lowest levels since October 2010 as mild summer temperatures work to improve harvest forecasts for corn and soybeans, the main feed ingredients purchased by Tyson Foods and other poultry companies.

The U.S. Department of Agriculture said last week the 97.4 million acres planted by farmers this spring was the most acreage since 1936.

A wet spring meant late planting throughout much of the grain belt which put the crop in jeopardy of lower yields if hotter temperatures prevailed throughout July. But cooler than expected temperatures throughout an extended forecast has mitigated much of the risk previously reported.

Corn futures for December delivery fell 0.7% to $5.0725 a bushel on Monday July 1. Prices have slid 11% over the past week, the longest downward streak since February,

The USDA forecast a record harvest this year of 14.005 billion bushels, up 30% from last year’s drought-damaged crop.

Soybean futures for November delivery dipped 0.5% to $12.46 a bushel on Monday, after touching $12.38, the lowest for a most-active contract since February 2012.

HIGHER MARGINS
Aside from lower grain costs, Tyson is also working to raise its operating margins within its chicken and prepared foods segments by offering more value-added products that command higher prices at retail and wholesale levels to its foodservice customers.

In May, Tyson CEO Donnie Smith said the company remains committed to growing its value-added sales and moving further away the commodity market. In the second quarter Smith said value added sales grew 3.3%, which is a good start toward the 6 to 8% annual growth he projects. (Value-added sales offer higher profit margins in an otherwise pennies-per-pound commodity business.)

Last year roughly 45% of Tyson Foods’ sales came from value-added products. That was $15 billion of the $33.3 billion the meat giant posted in total revenue, according to analysts with Fitch Rating Service. Smith has pledged to grow value-added sales by $1 billion annually.

This year Smith said Tyson will bring 90 new retail products to market not to mention dozens of additional products for its food service customers. Some of the products consumers can expect to include gluten free and no antibiotic ever.

Smith said consumers are clamoring for these products and willing to pay more them.

Tyson expects total sales revenue to be $34.5 billion this year.