US meat giant Tyson Foods has played down the potential impact of the Russian grain crisis on its bottom line.
Despite the market’s fears that the Russian ban on grain exports will impact its income, Tyson president and CEO Donnie Smith yesterday (9 August) reassured analysts in its earnings call that this would not impact the company’s prices in the short term.
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“Back a couple of months ago on a dip, we bought some calls to protect our Q4 and Q1 position at somewhere in the US$4 area, just in case something – well, frankly like what happened, happened,” he said.
“You couple that with the corn that we bought against fixed price positions and some of the cost, plus stuff, we feel very comfortable that we’ll end Q4 just fine. Q1’s going to be in good shape. We’re going to get off to a good start in 2011. So, I think we’re in pretty good shape going into the year.”
COO Jim Lochner added that outside of Russia, some forecasts are calling for “record production in corn, record production in the US in beans” and that South America had “very strong crops”.
“This corn crop, as Donnie said, is in very good shape and again, couple that with the south American crops and we’re not really looking at a major feed grain shortage across the world, absent this drought situation in Russia which has accelerated the whole complex from a price standpoint,” Lochner said.
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By GlobalDataQuestions, meanwhile, remain about Russia’s ban on poultry imports from the US producers. Lochner stressed the importance of Russia to the US poultry sector, saying that, in the past three years, the country has imported some 5% of the total US chicken production. Tyson, he explained, is “hopeful that all these issues get resolved throughout and they’ll be back”.
US poultry producers are currently unable to export to Russia after Moscow slashed the amount of chlorine processors could use as a disinfectant back in January. Following the intervention of President Obama at a summit with Russian President Demitry Medvedev in June, Russia agreed to import poultry meat disinfected with substances other than chlorine. The deal, however, has hit a snag with Russia making additional demands to inspect the meat processing plants.
Referring to the situation in Russia, Lochner said: “Although they have announced they will allow US imports, the details are not yet resolved. I’m optimistic that exports will increase fairly sizeably in 2011, predominantly driven by the difference in chicken.”
However, he conceded that he had no more information on when exports to Russia will resume, beyond what has been revealed in the media.
Moscow’s ban has had knock-on effects in the US. When asked about oversupply in the US, Lochner said that whether Russia is in or out will mean a significant difference in the domestic availability of chicken.
“I’m not at all pessimistic that we have any oversupply of protein going into 2011 when I tie everything back together,” he said. “I know how the numbers year-over-year look there, but put it all back together, if Russia jumps back in there and it starts importing again, they are fairly big consumers, at least in 2007, 2008 and 2009 of that total chicken supply.”
However, despite the company’s faith that feed prices won’t be heavily impacted by the Russian grain crisis, and that it will exports to Russia are set to resume shortly, shares in the company fell 4.9% yesterday at the NYSE’s close.
