Protein trend, piglet virus both impacting Tyson Foods' strategy
May 22, 2014
by Keith Nunes
NEW YORK — Calling the outbreak of porcine epidemic diarrhea virus (PEDv) in the United States the “disease du jour,” executives with Tyson Foods, Inc. said heavier hogs coming to market will help the company get through the supply challenges that are expected to occur during the second half of the year.
“We see every industry always has something that pops up on occasion,” said Steve Stouffer, president of fresh meats for Tyson Foods, during the BMO Farm to Market Conference, held May 21. “This one here seems to be a lot more severe. There’s been a lot of press about it here in the last six to eight months. Right now, our expectation is over the average of the industry to expect the number of head available to be down somewhere between 4 percent and 5 percent.
“Now, having said that, we also have to remember that because there is a gap in production the producers are able to retain those hogs in the system to get more weight on the animal. So we are seeing an offset on that per cent decline in number of head by heavier weights. And we are seeing some considerable weight increases within that industry.
“We do think PEDv will slow down expansion in the pork herd. It is something they have not found a complete remedy for. It’s not a game stopper by any stretch of the imagination. It’s just one of the many hurdles in our business that we always face, and that we will come up with solutions as an industry and overcome.”
The protein trend combined with the consumer’s migration away from the center of the retail store to the perimeter is viewed as a positive for Tyson, said Donnie Smith, president and CEO.
“We’re seeing shoppers move away from the center store into the perimeter of the grocery store,” Smith said. “So what this means for us is there are freshness cues that are important to the consumer. And a lot of our products are in the perimeter of the store.
“So folks are moving into the categories in which we play a key role. Protein is a very important category. So we expect protein to continue to take a more prominent role in people’s diets. We see opportunities for innovation to put protein in more affordable and convenient forms for our consumers. The fact is we’re going to go where the consumer takes us and we’ve got the capability and the flexibility to meet changing consumer needs and their expectations.”
Unfortunately, the run-up in pork prices has hindered some aspects of Tyson’s strategy to add value to its products.
“Over the last quarter or so, the rapid run-up in raw materials, which you saw on the pork slide, that cutout value is largely the raw materials that our prepared foods businesses use to make their products,” Smith said. “The rapid run-up in those raw materials and the lag in our ability to get the pricing on top of that has created a kind of shift or a delay in getting the results.
“But let me back through all of these short-term things and look at that business. As of last November, we reorganized our business to put a lot more focus on prepared foods. So we’ve now got Donnie King and Wes Morris who are focused on prepared foods and making sure that we’ve got the right footprint and the right business models, all that stuff. They’re making very good progress and we expect to see next year’s prepared foods results much more in line with what our investors would expect than what we've seen this year.”