Tariff and trade policies are also affecting supplies of beef and pork.
Record levels of beef, pork and chicken coming to market are cutting into profits for the biggest U.S. meat processing companies.
Companies like Tyson Foods Inc., Pilgrim’s Pride Corp. and Sanderson Farms Inc. confront declining prices and uncertain demand as rising meat production and tariffs levied by major importing countries threaten to curtail a prosperous period for the U.S. meat sector.
“Intertwined with uncertainty on trade policies and tariffs are increasing supplies of relatively low-priced beef and pork that are competing with chicken,” said Tom Hayes, Tyson’s chief executive, on a conference call with investors on Monday.
Tyson, the biggest U.S. meat supplier, reported a 21% increase in quarterly earnings on Monday but cut its profit forecast for the year a week earlier, and tariffs already have cut into its revenue. Pilgrim’s, the second-largest U.S. chicken processor, last week reported a 54% drop in second-quarter profits. Analysts polled by Thomson Reuters expect Sanderson’s quarterly profits to drop by nearly three-quarters from the prior year when the company reports its results later this month.
As meat piles up, investors are losing their appetite for meat-centric stocks. Shares of Tyson have declined 27% so far this year, falling 6% in the week after cutting its profit outlook July 30. Pilgrim’s Pride shares have fallen 41%, and Sanderson Farms 25%. Hormel Foods Corp., which has a smaller business in meat-processing, has gained 2%.
The meat glut, spanning Minnesota turkey barns, Iowa pork plants and Southern chicken hatcheries, has been building for years.
Cheap grain encouraged U.S. farmers and meat companies to expand and meet rising demand from consumers in the U.S., Mexico, China and other countries. Cattle ranchers and turkey farmers raced to rebuild herds and flocks after drought and disease slashed populations earlier in the decade. Pork and chicken processors have built some of the industry’s largest and most-efficient plants ever.
Now that meat is coming to market in pounds by the billions, pressuring prices and ratcheting up competition between red meat and poultry. Meat processors will produce a record 102.7 billion pounds this year, according to estimates from the U.S. Department of Agriculture.
Tariffs on U.S.-produced meat, meanwhile, threaten to erode demand. Duties implemented by Mexico and China — two major markets for U.S. pork — have forced meat companies to slash prices to prevent products from piling up.
“We need to have those markets clearly open to us,” said Tyson’s Mr. Hayes. He estimated that declines in beef and pork prices, if they remain around current levels, will shave about $1 billion from Tyson’s annual revenue this year, largely because of pressure created by Mexico’s tariffs. Cheap cattle and strong prepared foods profits have benefited Tyson, but Mr. Hayes said he couldn’t predict when the trade picture will improve.
“We just don’t know,” Mr. Hayes said. Meat prices have been coming down for retailers, restaurants and food distributors. Wholesale pork prices fell 10% over the past year, according to USDA figures published in July. Wholesale beef prices declined 9%, and while chicken prices for most of 2018 were running above last year’s levels, those gains nearly vanished in July, the USDA said. In some cases, that has meant cheaper burgers and bratwurst for U.S. consumers’ summer cookouts.
In grocery store meat cases, relatively lower prices are helping sausages and ground beef push aside chicken breasts, Pilgrim’s Chief Executive Bill Lovette told investors on a conference call last week. “We believe retailers in general were featuring less chicken in favor of more beef and pork,” Mr. Lovette said.
Retailers could start shifting back toward their normal chicken-featuring behaviors “as soon as late summer,” Mr. Lovette said.
Mike Cockrell, chief financial officer for Mississippi-based poultry processor Sanderson Farms, estimated that jumbo boneless, skinless chicken breast prices have fallen by nearly one-third from their 2017 peak, partly because restaurants are pushing beef and pork, which has also come down in price.
“We’d rather compete against higher priced meats,” Mr. Cockrell said. The U.S. meat sector spans billions of chickens and tens of millions of hogs and cattle, and is tough to change quickly. Some cattle producers already are shrinking herds as feedlots take losses, said Vertical Group analyst Heather Jones, with more beef cows being sent to slaughter and fewer animals seen moving to feedlots over the remainder of the year.
If chicken prices don’t pick up by next year, meatpackers could begin breaking chicken eggs instead of placing them in industrial-scale hatcheries, a practice that is faster and cheaper than culling breeder birds, she said. Ms. Jones wrote in a note to investors: “The down cycle will not be quick and painless.”