“Producer profitability” is now largely driving the new “paradigm shift” in livestock and poultry supplies, Donnie Smith, President and Chief Executive Officer of Tyson Foods, told participants at USDA’s Agricultural Outlook Forum today.  Expanding export sales are also a driver, he added. 

Smith noted that the “old paradigm” was that livestock and poultry supplies were driven by domestic consumer demand.  Less meat and poultry are being produced because feed costs have risen to record levels, resulting in a squeeze on producer profitability.  With corn the primary component of chicken feed, it accounts for 55 percent of the wholesale cost of a whole, ready-to-cook (R.T.C.) pound of chicken.  Tyson Foods uses 3.7 bushels of corn to produce 100 pounds of boneless-skinless chicken on an R.T.C. weight basis.  By comparison, it takes 8 bushels of corn to produce 100 pounds of boneless-skinless pork, and 11 bushels to produce 100 pounds of boneless-skinless beef.

High corn prices have been “great news” for corn growers, but “challenging” and “a huge dynamic” for the livestock and poultry industry, Smith explained.  “Extremely volatile” corn and soy pricing led to producer losses in 2008, 2009, and 2011.  Producers worldwide responded to the volatility by cutting back herds and flocks.  The result was reduced global supplies of animal protein.  More specifically, in the United States, 10 poultry companies between 2008 and 2011 either ceased operations, declared bankruptcy, or were acquired by other companies.  These affected companies represent 28 percent of U.S. poultry production.

It should come to no surprise to anyone here, Smith said, nor was he expecting unanimous consent that a major factor behind the spike in corn prices is the large amount of corn being diverted into ethanol.  The increased usage of corn for ethanol has contributed to tightened stocks, high corn prices, and food inflation, he added.

Another factor affecting producer profitability is the rising cost of energy.  For example, in Springdale, Arkansas, the home of Tyson Foods, there has been a 57-percent increase in the cost of diesel over the five years from 2007 to 2012.  Smith said that the decline in per capita consumption of meat and poultry in the United States does not, by itself, mean that consumer demand for meat and poultry has declined.  Demand is “consumer interest” while consumption is “disappearance,” he noted.

Looking at exports, Smith pointed out the rising share of U.S. meat and poultry production that is being exported.  At the same time, more foreign investments are being made in the United States protein business.  Tyson Foods is investing in operations in other countries and looking to expand overseas investments as the market truly becomes more global.  American food production is already a modern miracle allowing consumers to spend about 6 percent of their disposable income on food consumed at home–the lowest share of any country.

Meeting the demands of a growing global population will be challenging, especially to do it with limited land, less water, and likely more government regulation.  Adding to the challenge is the lack of understanding and appreciation for modern agriculture, the so-called “agricultural illiteracy.”  Some think agriculture is a “dirty word” with U.S. food produced by an “uncaring machine,” Smith said.  This misconception must be dispelled as U.S. agriculture seeks to improve its ability to help feed the world.  Despite the high general unemployment rate, Smith referenced AgCareers.com posting of almost 40,000 job openings in 2011, a 16-percent increase over 2010.

Feeding a hungry world over the next few decades is a great opportunity, Smith said.  Government regulations and issues, however, are increasingly impacting agricultural businesses.  His company and agricultural producers are eager to engage in policy and regulatory discussions and work collaboratively with policy makers to ensure that future regulations do not add additional cost without a commensurate benefit to consumers around the world, allowing U.S. food producers to compete on a level playing field in the world market, Smith concluded.  He added that we must continue to tell the key audiences how U.S. agriculture operates reasonably.  If the public is not educated about modern agriculture, someone else will try to tell agriculture’s story and “they may not get it right,” Smith said.

 

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