Tyson Foods, the biggest meatpacker in the country, is shrinking its beef operations again.
This is not the first round of cuts. Earlier this year, Tyson closed a different beef plant in Nebraska. But those earlier closures did not stop the bleeding. Processors are still paying top prices for scarce cattle, and the math is not working out in their favor.
The root of the problem is simple: there are not enough cows. That keeps cattle prices high, and meatpackers are the ones stuck paying them.
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The latest government data, as of July 1, shows ranchers are holding back some female cattle, known as heifers, to rebuild their herds. That is good news for the long-term supply picture, but it does not help right now. Tyson said the limited heifer retention means the tight supply situation will probably stick around for a while and require more strategic action.
Last week, the company cut its annual profit forecast and projected a larger adjusted operating loss for its beef division.
For investors, the shakeout in beef processing shows how much damage the cattle shortage has done to margins. Tyson's decision to shrink from a network of plants to just three in Nebraska, Kansas, and Texas is an admission that running more sites no longer makes financial sense when cattle are this scarce. The company's lowered profit forecast and its projection of a larger adjusted operating loss in beef are the direct result of that math. At the same time, the planned return of the Amarillo plant to two shifts and the gradual restart of Mexican cattle imports offer reasons to expect the pressure to ease over time.
Tyson is not alone in this squeeze. Other meatpackers have also shut plants to ease the competition for cattle and improve their margins.
JBS NV recently said it will turn its closed Pennsylvania beef plant into a facility for value-added products. Cargill closed a plant in Milwaukee. And earlier this week, JBS's incoming CEO Wesley Batista Filho admitted that his company's U.S. beef unit has not yet seen benefits from its restructuring.
The USDA plans to restart imports of Mexican cattle gradually, after those shipments were suspended for over a year due to screwworm. Imports are expected to start in late August at one Arizona port, which will help meatpackers over the long term.
Tyson's Amarillo, Texas, plant, which had been reduced to a single shift, is set to go back to two shifts when cattle supplies allow. That is a sign the company expects conditions to improve eventually, even if it has to shrink first to get here.
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