Soggy Start to Grilling Season Is a Double Whammy for Meatpackers
The U.S. faced the wettest 12 months in more than a century through May, delaying planting for corn and soybeans for animal feed.
(Bloomberg) -- America’s meat companies can’t seem to catch a break.
As if rising feed costs weren’t enough, this year’s biblical rains have also poured cold water on the grilling season, slowing springtime consumption of everything from ribs to sausages and chicken wings. That’s bad news for processors like Tyson Foods Inc., the U.S.’s largest meat company, which usually sees a boost in the Spring period leading up to July 4.
The U.S. faced the wettest 12 months in more than a century through May, delaying planting for corn and soybeans used for animal feed, government records show. Continued rain through the summer may spur a closer look at the impact on meat demand by Wall Street analysts.
“The challenge here is that we’ve had a lot of rain, and that has had a material impact,” Will Sawyer, a lead economist CoBank ACB, a $138 billion lender to the American agricultural industry, said in a telephone interview. “I don’t like to grill in the rain, nobody likes to grill in the rain.”
Beef and pork will be hardest hit as their consumption is the most seasonally-driven, Sawyer said.
The delayed grilling season is helping push prices down amid prodigious meat production. Wholesale prices for pork and chicken are trading at their lowest level for this time of year in a decade, according to data from the U.S. Department of Agriculture data. Even beef, which has been enjoying a boom as pork and poultry markets struggle, has seen a 6% drop in prices since reaching a two-year high in April.
“The problem with the meat business is you sell it or smell it -- you’ve got to keep it moving,” said Len Steiner, owner of Steiner Consulting Group in Manchester, New Hampshire. “When it’s cold and rainy in big parts of the country, people’s tendency to have a barbecue slow down quite a bit. It’s those rib eyes, strips and sirloins that really carry the cattle to higher levels.”
The delayed grilling season is coming on top of concerns about rising feed costs. A 10-cents-a-bushel move in corn or $10 a metric ton increase in soybean meal equates to an impact of about $25 million for Tyson, Mizuho said in report last month, citing information from the company’s investor day.
Some investors had also flagged concerns about costs for Sanderson Farms. The company still had some of its feed costs to hedge for the current fiscal year that ends Oct. 31.
To be sure, hamburgers are a bright spot for meat companies. Retailers were featuring burgers and ground beef in advertisements well in excess of seasonal norms, said Florida-based Olvera. Lower prices have also given retailers an opportunity to promote meat at good price points and “everyone’s looking for a deal,” according to Steiner.
Earnings Season
“This is definitely shaping up to be the year of the burger,” Olvera said.
Investors may have to wait a little longer to find out what impact the rains have had on demand. The earnings season for American meatpackers kicks off in August, when the U.S.’s second-largest chicken producer. Pilgrims Pride Corp., reports earnings. Tyson’s and Sanderson Farms’s are currently scheduled for August.
But if results from McCormick & Co. are any guide, there may be some pain. The firm already flagged a slowdown in the spices and seasonings category in the U.S. due to the delayed start of the grilling season following a late Easter and recent wet weather, Sanford C. Bernstein & Co. analyst Alexia Howard wrote in a report.
Poor weather “hurt beef and pork all spring long,” said Dennis Smith, senior account executive at Archer Financial Services Inc. “We went through the spring season without a good weekend for meat demand, and that’s been a real problem.”
To contact the reporters on this story: Isis Almeida in Chicago at ialmeida3@bloomberg.net;Lydia Mulvany in Chicago at lmulvany2@bloomberg.net;Michael Hirtzer in Chicago at mhirtzer@bloomberg.net
To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net, Reg Gale, Joe Ryan
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