CHICAGO — Imitation meat may be all the rage at the moment, but producers of the real stuff are doing just fine.
Sure, the vegan burger maker Beyond Meat Inc. stole the headlines this year with a wildly successful market debut and a dizzying 200% gain. But conventional beef companies Minerva SA and JBS SA aren’t too far behind. Even U.S. meat suppliers like Tyson Foods Inc., hamstrung by the China trade war, have posted their biggest stock gains in years.
Fueling the traditional meat rally is a protein shortage in Asia, which has seen demand for imported pork, chicken, and beef surge. African swine fever is decimating hog herds from China to Vietnam, and the resulting shortfalls are poised to alter meat trade for years.
While the United States is seeing record meat supplies, demand has started to show signs of picking up. Ham prices are near seasonal records amid a frenzy in overseas purchasing, lifting pork values. Companies such as Springdale, Ark.-based Tyson are reporting “extreme” interest in chicken from Chinese buyers after a multiyear ban ended.
Domestic demand is also robust, with meat consumption increasing along with consumer incomes, according to Mike Sands, owner of the Memphis-based consulting firm MBS Research.
The rally has legs, according to Heather Jones, an equity analyst who owns Heather Jones Research. About 8% of global protein has been wiped out by swine fever, and supplies are expected to trough in the first half of next year.
“As investors have begun to work out the implications for earnings power, it has become clear that there is very strong upside from the current run-rate and that has propelled the shares higher,” Jones said.
The surge in animal-protein shares is coming just as faux meat enters a nascent boom. In November, alternative-meat sales surged 40% as more products hit shelves, according to data from the researcher IRI. While plant-based substitutes make up just 1% of the $86 billion U.S. meat market, sales could reach as high as $15 billion in the next five to seven years, according to Hormel Foods Corp., which has introduced its own imitation product.
For now, traditional meat companies don’t appear too concerned about losing customers. Even beyond the swine-fever-fueled rally, a swelling global population means food production will have to increase 70% by 2050, according to Food and Agriculture Organization estimates. Rising income levels typically mean higher protein consumption.
U.S. beef processors also benefited after a fire took out one of Tyson’s plants in August. The reduced capacity created a glut of live animals that drove down cattle prices. At the same time, beef buyers panicked at the prospect of shortfalls and started paying higher prices. Margins for beef processors touched record levels.
In the United States, beef processing is dominated by four large companies. Some producers, strained by the lower cattle prices, cried foul, and the U.S. Department of Agriculture launched an investigation to look for evidence of any unfair competitive practices.
“Ultimately packer margins improved to where it made economic sense to run aggressively not just on weekdays but on Saturdays as well,” said Sands of MBS. “While beef margins have been very good, they were necessary to keep the industry from ending up with over-finished, out-of-condition fed cattle.”
Pork processors are also benefiting from record-high margins. Ham exports surged with holiday seasons being celebrated around the world amid the swine-fever-induced shortages. At the same time, the United States is seeing huge production, driving down live-animal prices.
Chicken is expected to be the main substitute for pork, and China recently lifted a 2015 ban on U.S. exports. “Renewed access to China will present significant opportunities for growth and value creation for our team members, our growers and our business,” Pilgrim’s Pride Corp. said in a statement to Bloomberg.
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December 16, 2019 at 05:52PM
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