Across America, people are gearing up for Labor Day weekend. Gatherings are being planned, yards are being mowed, and grills are being cleaned.
This is all a setup for the main event: the meat being thrown on those grills. No backyard shindig is complete without some beef burgers. (Apologies to my vegetarian readers.)
But beneath the veneer of your perfect barbecue is a host whose wallet is hurting. Beef is ultra-expensive these days, but who would they be to disappoint those craving burgers?
If you’re one of those hosts and looking for someone to blame, don’t point your spatula at the meatpackers. They’re also being pinched by a national cattle shortage, which has driven up prices. Even if they can charge more for their products, cattle costs are rising even faster, tightening their margins.
Processors are getting squeezed
Wall Street got a reminder of this on Thursday when Tyson Foods, America’s biggest meat processor, cut its annual revenue-growth and profit outlooks, citing — you guessed it — margin pressure stemming from the cattle shortage.
That triggered a 7% stock sell-off that weighed on food stocks more broadly.
Tyson isn’t alone. Brazilian rival JBS’s North American beef business lost $100 million in the second quarter despite posting record sales. The reason? The rise in cattle prices outpaced the increase in beef.
It amounts to a no-win situation: Beef is expensive enough to strain the budgets of barbecue hosts nationwide, and the companies processing it aren’t cashing in, either.
The policy fix could make things worse
In an attempt to lower the consumer prices of beef products, the Trump administration temporarily waived tariffs on up to 300,000 metric tons of imported ground beef.
Cattle ranchers aren’t exactly fond of the idea. The imports may help bring down prices at the grocery store, but they could also pressure domestic cattle prices. That could reduce the incentive for ranchers to grow their herds, the only lasting fix for the shortage.
“Cattle prices need to be strong enough for ranchers to make money, and that’s how you can rebuild the supply,” Ben Spell, the cofounder of an American meat and seafood delivery subscription company, recently told BI.
Long-term struggles for packaged food stocks
What’s happening with Tyson is indicative of a broader problem facing food stocks. The industry’s usual practice of raising prices to cover higher costs only works until shoppers pull back. And with commodity prices so volatile, companies have little room for error.
Tyson is an especially extreme version of the issue, since its beef, chicken, and pork businesses all run on separate commodity cycles. A strong quarter for one protein might be offset by weakness in another.
All in all — as evidenced by the chart below — it’s been a tough time to be invested in the meatpacking industry. Since the start of 2021, Tyson shares are down 20%, relatively in line with a 16% drop for the S&P 500 Packaged Foods & Meats index.
