Production, profitability now driven by grain costs and exports, says Tyson COO
Ethanol has contributed to high feed costs
Jim Lochner, chief operating officer of Tyson Foods Inc., has said a new paradigm exists in the supply and demand fundamentals in U.S. protein production: grain costs and exports are replacing domestic demand as chief drivers of profitability and production.
This shift in input costs began in the mid 2000s, which coincides with the U.S. government's mandate that a portion of the nation's gasoline be mixed with ethanol at a level of 10%. Ethanol in the U.S. is made primarily from corn, which is also a primary ingredient in livestock feed. Today, about 40% of the U.S. corn crop is used in ethanol production.
This new demand has contributed to high corn prices for producers. High input costs, along with increasing global demand for protein, have reduced the amount of meat and poultry available, according to Lochner. "Total production of major proteins appears to be about flat versus last year, but with extremely strong exports, it's likely there will be even less meat and poultry per capita," he said.
According to Lochner, Tyson is dealing with this paradigm shift by focusing on customer service, innovation and insight-driven food solutions; optimizing commodity businesses and driving out inefficiencies; focusing on multinational expansion, particularly in Mexico, China, Brazil and India; and upgrading raw material through initiatives like renewable energy from animal fat and other technologically advanced platforms.