Short Pork/Long Chicken For Tyson

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Includes: SFD, TS
by: Hard Assets Investor

By Brad Zigler

Judging from the news coming out of Tyson Foods Inc. (NYSE:TSN), I should have spread poultry against pork. But not the way they do it.

Tyson, the world's largest meat processor, has been busy talking down rumors of discussions with China about pork sales. No talks, says Tyson CEO Richard Bond, are currently under way.  Tyson, in fact, was talking with COFCO, China's state-owned food importer, about a pork deal. Those talks are apparently over and no deal is pending. Neither is it likely the company will sell pork there anytime soon, according to Bond.

But chicken? Well, that's a different matter.

Tyson said Friday it is partnering with a Chinese poultry breeding company to run a chicken processing plant near Shanghai. The joint venture with Jiangsu Jinghai Poultry Industry Group is to be 70% owned by Tyson and will market chickens under the Tyson brand name.

The plant is expected to initially produce 400,000 birds a week with plans to increase weekly production to 1 million birds.

"Demand for high quality, fresh chicken in China is growing faster than the existing domestic supply," says Tyson's Bond.

So why not pork?

After all, China could be an enormous market for pork shipments. A viral infection, affecting some 100 million hogs, has swept through the country. China's hog market could be slashed by a whopping 20% due to the disease.

China, however, insists that any pork it imports be free of ractopamine. Ractopamine is a common U.S. feed additive that increases lean meat production. China isn't willing to pay enough for ractopamine-free pork to make it worthwhile for Tyson, says Bond.

"It costs more for the hog producer to produce ractopamine-free pork. The pork that China is interested in buying and the prices that it is interested in buying that pork for don't match up," Bond says.

Apparently that's not a problem for competitor Smithfield Foods Inc. (NYSE:SFD), though. Smithfield recently announced a deal to deliver 60 million pounds of additive-free pork to China. A small deal, mind you, but it puts Smithfield's, er, trotter in the door.

Tyson's reticence to cut deals with the Chinese is hard to understand. The company has cranked out near-record pork margins in its first fiscal quarter. It's the company's beef and chicken margins that are thin or negative.

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