Source:  Tom Johnston, MEATINGPLACE.COM, 5/11/10

Tyson Foods officials said Monday they're taking a measured approach to chicken production as the company continues to improve that segment's operational efficiencies and profitability.

Investors participating in a call following Tyson's second-quarter earnings report were particularly interested in Tyson's view following an announcement last week by Pilgrim's Pride Corp. that the latter would reopen three poultry plants and boost production by 10 percent.

Tyson CEO Donnie Smith declined to comment directly on Pilgrim's move, saying, "As we grow, we'll look at forward demand, then we'll determine inventory levels necessary to fill that demand and then we'll adjust our supply plans to optimize margins by either buying the parts we need — if the demand is not in the whole-bird increment — or by adding to our production base if it is."

Tyson bought breast meat in the second quarter, Smith said, explaining that the company didn't want "to grow a bird in the whole-bird increment" and put excess dark meat in the marketplace, especially while Russia has a ban on imports of U.S. poultry. "It made more sense to buy the breast meat we needed than it did to ramp up in whole-bird increments as we moved into [the third quarter]."

Tight supplies

Jim Lochner, Tyson's chief operating officer, noted that production cuts across all protein segments in 2007 and 2008 to stem profit losses will take time to reverse. He said breeding herds and laying flocks are still "substantially below" what they were before those cuts were made.

"You cannot simply flip a switch and start to rebuild the infrastructure to grow the supplies back," Lochner said, adding, "I don't expect to see the supply come up anywhere soon out into the next couple years."

Lochner also called analysts' attention to USDA figures for pullet placements and egg sets. January-March pullet numbers are down 1.5 percent compared with the same period in 2009 but "more astoundingly" down 4.2 percent compared with the same period in 2008. Egg production also has declined due to reduced flocks of laying hens, he said.

"Supply is, overall, constrained," Lochner said.

For more stories, go to www.meatingplace.com.