Chicago - Abundant beef, pork and poultry supplies have hurt beef company earnings and forced some beef processors to cut output in attempts to halt the flow of red ink.
Monfort Inc., said it will reduce beef production for two weeks at its four beef plants beginning Monday. The Greeley, Colo.-based company is a unit of ConAgra Inc., and industry sources rank it third in U.S. beef production.
A Monfort statement attributed the cutback to “present economic conditions.”
Beef and pork production combined, for the first four months of 1998 was up 4.3% from a year ago, with pork up 10% and beef up about one. Poultry production for 1998 was forecast by the U.S. Agriculture Department to be up nearly 3.3%.
“When you have this much total meat, the retailer doesn't have to push one particular meat,” said Chuck Levitt, Chicago-based senior livestock analyst with Alaron Trading Corp.
This large meat supply has resulted in stiff competition for consumers' dollars and taxed meat company earnings, forcing beef companies to reduce production. Analysts estimate beef companies are losing about $20 for every head of cattle they process.
“Market economics are not positive and we are not running at full capacity,” said Gary Mickelson, spokesman for beef industry leader IBP Inc.
Excel Corp., a unit of Cargill Inc., another large beef processor said it also has been operating a reduced production.
For meat processors to move into profitable territory, lower cattle prices are needed, possibly near $62 per hundredweight, said Levitt. On Thursday, cattle sold in Kansas and Texas at $64.00.
Production of all three major meats has increased so far this year, but the 10% rise in pork particularly, has hurt profits in other segments of the meat industry.
“Because of large supplies of low-priced pork, beef is just not competitive,” said Joe Kropf, analyst with Kropf and Love Consulting of Shawnee Mission, Ks.
Kropf said beef company earnings may improve in May or June when pork production decreases and pork prices rise. At that time beef should be a price competitive meat on supermarket shelves.
However, the next two years may be difficult because a smaller cattle herd may force processors to pay more for cattle.
“Because of where we are in the cattle cycle, they (processors) are going to have tough sledding for the next two years,” said Kropf.
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