The primary inputs required by Tyson Foods, Inc. (TSN) are commodities such as chicken, live cattle, live hogs, corn, soybean, flour, vegetables, etcetera. In this part, we’ll look at each segment’s requirements and at the price movement of these commodities.
Corn and soybean meals
The Tyson Foods Chicken segment is vertically integrated as we saw in Part 4 of this series. The company operates its own feed mills to develop chicken feed according to its in-house nutritionist’s recommendations. At Tyson Foods, corn and soybean meals are the primary commodities used as feed. Combined, they represent 68% of the Chicken segment’s total costs.
Sanderson Farms, Inc. (SAFM), Hormel Foods Corp. (HRL), and Pilgrim’s Pride Corporation (PPC) each have vertically integrated chicken operations. To learn more about this, read Why vertical integration is beneficial for Pilgrim’s Pride.
Tyson Foods and some of these other companies can be found in the SPDR S&P 500 ETF (SPY).
Live cattle is the main input for the Beef segment. Unlike the Chicken segment, the Beef segment isn’t vertically integrated. The company employs cattle buyers who purchase live cattle from public auction and feed yards at spot prices.
Live hog is the main input for the Pork segment. Unlike the Chicken segment, the Pork segment isn’t vertically integrated. The company procures live hogs from independent producers. Like with cattle, Tyson Foods employs hog buyers to purchase hogs at spot prices or through purchase agreements.
Chicken, beef, and pork for the Prepared Foods segment is provided by the company’s other three segments. This segment also requires turkey, vegetables, flour, corn, etcetera. Tyson Foods corn, and other raw materials, are purchased from outside manufacturers and suppliers.
As you can see in the chart above, the prices of corn and soybean meals have declined since October 2012. Yet the prices of beef, pork, and chicken have increased. This should translate into increasing margins for at least the Chicken segment. We’ll look at the Tyson Foods’ profitability in the next part of this series.