Lower protein supply expected to boost chicken profits

Lower protein supply expected to boost chicken profits

Tyson Foods is “optimistic” on the outlook for its chicken business over the next two years, as it expects the unit to be boosted by improved market conditions.

Speaking at the CLSA AsiaUSA investor conference, Tyson COO Jim Lochner told investors that the US meat giant's chicken business would benefit from the declining availability of protein in the US, which has been forecast to continue until 2011.

"US per capita consumption is projected down due in part to reduced supplies, which should mean higher prices," Lochner said. "Long-term protein supplies are driven by profitability - or the lack of profitability. Beginning with the 2006-2007 crop, corn and soybean prices became extremely volatile, coupled with a supply-demand imbalance. Most livestock and poultry producers lost money in '08 and '09, which led to cutbacks in the herds and flocks and less protein available in the marketplace."

Although the chicken business has underperformed in recent years, Tyson management insisted that operational changes had positioned the unit to capitalise on the growing opportunity in the market.

"We expect our chicken segment to be in the 5-7% normalised operating margin range for fiscal 2010," CFO Dennis Leatherby revealed.

"Strong cash flow has enabled the company to reduce its net debt level significantly," Leatherby added.

Tyson has used cash and restricted cash on hand to repurchase and retire US$510m of the company's debt.

The company has also focused on developing new revenue streams, including renewable product initiatives such as its renewable diesel made from non-food grade fats, greases and oils.

Dynamic Fuels, Tyson's joint venture with energy group Syntroleum, is set to open its first plant this summer.

Tyson also launched a line of 100% natural premium pet treats under the True Chews(TM) brand in February.