Cattle herd rebuilding means lower margins for packers like Tyson Foods

Lower beef packer margins for Tyson Foods and other processors will continue as the U.S. beef cattle herd rebuilds, according to Derrell Peel, livestock marketing analyst at Oklahoma State University Extension.

Packers like Springdale-based Tyson Foods lost about $10 per head on the beef they processed for the week ending June 3. The loss per head widened from $5 per head the prior week. Packers profited about $87 per head a month ago and $265 per head a year ago, according to Sterling Beef Profit Tracker.

Packer margins are being squeezed by higher live cattle prices driven by fewer cattle supplies which has pushed processing capacity utilization down to 79% in recent weeks.

Peel said the beef cow herd will likely decrease this year with a low occurring in the January report. He said that is the point where the industry will try to rebuild. He said drought-forced beef cow herd liquidation made the beef industry smaller than it needs or planned to be. He said there has been recent improvement in the remaining drought regions in the central and southern Great Plains which could halt liquidations.

“The first step to stabilizing the beef cow herd is the reduction of beef cow slaughter and a lower rate of cow culling. Following record beef herd culling in 2022, beef cow slaughter is down 11.5% so far in 2023, a sign that herd liquidation is slowing,” Peel said.

He expects beef cow slaughter to decrease more sharply in the second half of the year.

Tyson Foods CEO Donnie King recently said the cattle market is a long way from recovery. He said Tyson would manage the metrics within its control. Tyson Foods expects its beef segment to break even for the next couple of fiscal quarters as cattle availability is likely to worsen and export demand remains soft.

Fewer cattle to buy has sent live cattle prices higher to $180 per hundredweight, up 28.5% from a year ago and 38.4% above than the five-year average, according to Stephens Inc. Commodity report from June 6. Packers have purchased fewer cattle, pushing slaughter and production numbers down about 5% from a year ago.

Wholesale beef prices continue to trend higher amid the lower production. Wholesale choice boxed beef closed Friday at $332.93 per hundredweight, up 7% from the prior week, according to Peel. Select boxed beef closed Friday at $305.71 per hundredweight, rising $14.78 higher for the week. Choice beef prices rose above $7.75 per pound in late spring, up from $7.50 per pound a year ago and 15% higher than the five year retail average.

Shares of Tyson Foods (NYSE: TSN) closed Monday at $50.64, up 27 cents. Shares have traded between $47.11 and $88.76 over the past 52 weeks.