Profiteering by Meat Packers?

[jsharmon7]

As meat prices soar, we are being told it’s due to supply chain issues and inflation. The meat packers, however, are enjoying record profits:

Profits Up 300%

Profit margins up 300%, 500% increase in net income, 120% increase in gross profits.

Tyson increased prices on beef by 35%. They sold less beef and made more money.

Response from the beef industry is the White House is cherry-picking data so they don’t look bad about inflation. Anybody in the beef industry have a take?

 

[BigRed]

I am in the industry...as a consumer.

Beef is delicious!!!!

 

[snapping turtle]

profit is what a company uses to stay afloat.
If the consumer buys it at what the price is well it must be priced correctly. Yeah. Right.

Many of us knew the prices were going up.
I have the chest freezer full of meat the secondary drink fridge is also chuck full and the main freezer in the main fridge is full of the normal items plus a little bacon extra.

Canned meat has been stacked when Costco had it on sale. I also have personally canned up some stuff.

Looks like I should be able to ramp up meat production this spring and the freezers only need to be overflow. Garden will need to be oversized this year and hopefully the chickens will be healthy.

Stack it to the rafters.

 

[Itchytriggerfinger]

Well I mean, Jussie Smollett is probably going to get a book deal.

 

[Leadeye]

Meat packing is a big value added step in the chain of getting things from cow in the field to hamburger on the table. This, like so many things we are experiencing today, I remember it from the 70s inflation.

 

[BehindBlueI's]

The White House is suffering from the same misconception that much of INGO often does. Underlying costs do not set price. You can't just "pass the cost on to the consumer" for anything but the truest of commodities because consumers do not care what it cost you to make when deciding the value to them. Nor are you required to lower prices if your costs go down, there is no set percentage profit margin. If I make a toaster for $50 or $5, that doesn't change what the consumer is wiling to pay for a toaster. Beef is a commodity, but unlike oil, there are multiple alternatives and if pricing exceeds what the consumer values it at, they will use those substitutes.

Supply/demand sets price. Unless they are racketeering/profit fixing via collusion this is the way the market is supposed to work. If demand is higher than available supply, prices will rise. They are allowed to make extra profit. If demand crashes, prices will crash, and they will make less profit.

Now, I don't care enough to read the financials for all of those companies nor am I looking at the foreign companies. I just picked Tyson since it was first. Revenue is up 11% compared to 2019, 17% compared to 2018. That's a big stretch from 500%. Gross profits are up roughly 50% over both years, and net profits are also up 50% over 2019 but the same as 2018.

2018 is an outlier because of a negative tax rate that year. Net profits are actually higher than gross profits thanks to $291M in negative taxes. Note that this is the first year Tyson's taxes will be the same or higher as 2017. Remember that big drop in beef prices once their tax rates were slashed? No? Oh, well I guess that's another nail in the coffin of costs set price.

As far as stock buybacks, that's a smart play. They have a *ton* of cash on hand. $318M in 2017 vs just over $2B today. Debt load is slightly lower, and at today's interest rates nobody is in a rush to pay off debt if they want maximize returns.

So at least for Tyson the numbers are up but nowhere near as dramatically as the WH would have you believe. I completely believe they are cherry picking data to make the producers the bad guy. If you want me to believe you, prove collusion and price setting. If not, welcome to capitalism.

 

[JeepHammer]

As meat prices soar, we are being told it’s due to supply chain issues and inflation. The meat packers, however, are enjoying record profits:

Profits Up 300%

Profit margins up 300%, 500% increase in net income, 120% increase in gross profits.

Tyson increased prices on beef by 35%. They sold less beef and made more money.

Response from the beef industry is the White House is cherry-picking data so they don’t look bad about inflation. Anybody in the beef industry have a take?

Since private business and government employees change jobs all the time, the food producers & processors know exactly how to work the system.

What's happening now is by region.
Short a region and the price goes up, then they resupply and short the next region.
They don't draw national attention at the same time this way.

Increased labor for processing & packaging, and transportation costs are being handed to the consumer, which is natural.
What's not natural is them PROJECTING costs that have nothing to do with real world costs, and you see profits increase 300% because they used fictional numbers in the first place.

Don't forget much of US production heads to China because the producers are Chinese owned or controlled.
They simply 'Bid' more for the products, and off they go to China.

Now, this makes no difference to them where they get the profits from,
Hauling US dollars to China, or selling US production once it hits China.
In the end, it all goes the same place.

So that family farm down the road isn't looking too bad about now...
Although we have our problems,
Livestock stealing is up, modern day 'Rustlers'...

 

[Leadeye]

Starbucks is one of those business models I've never understood, to me it's coffee. People pay a lot of money and stand in line to get, coffee, from Starbucks. I never paid attention to the place when it got going, but somebody made good decisions on how to generate a demand for their product.

 

[BehindBlueI's]

Increased labor for processing & packaging, and transportation costs are being handed to the consumer, which is natural.

Go read the financials. Total operating expenses vs gross revenue has swung by 1-3% for each "pandemic year" vs 2017. And again, companies can't just pass costs to consumers for anything but commodities without substitutes.

Labor cost is a tiny portion of these companies costs, but they always use it as a scare tactic to get you to not support American workers. Or illegals, since we're taking meat packing plants.

 

[Leadeye]

The turkey plant next to one of the factories I work for has an almost completely hispanic workforce. I've wondered if they are organized like the maquilas in Mexico as I can smell food cooking at regular intervals. Maquila plants by contract have to provide two meals a day to their workers, so all have big cafeterias.

 

[JeepHammer]

Go read the financials. Total operating expenses vs gross revenue has swung by 1-3% for each "pandemic year" vs 2017. And again, companies can't just pass costs to consumers for anything but commodities without substitutes.

Labor cost is a tiny portion of these companies costs, but they always use it as a scare tactic to get you to not support American workers. Or illegals, since we're taking meat packing plants.

The business has to pass costs onto consumers to stay in business, that's the way it works...

1-3% doesn't explain the 30-40% cost increases.

1-3% is normal inflation...

If you think labor is a "Tiny Cost" then you have never been in business.
Without labor, there is no business.
Wages, plus insurance, plus retirement/profit sharing, plus, plus, plus...

Until January 2020 I built a lot of the food grade stainless equipment for a meat packers, so I have a pretty good idea of what their costs are by talking with the actual people that run the companies.

And I also know what they are up too to gouge the customers,
Like injecting too much water into the meat, that water weight sells for meat prices...

 

[churchmouse]

The turkey plant next to one of the factories I work for has an almost completely hispanic workforce. I've wondered if they are organized like the maquilas in Mexico as I can smell food cooking at regular intervals. Maquila plants by contract have to provide two meals a day to their workers, so all have big cafeterias.

Are you referring to Perdue farms in the Washington Ind area?
When I took care of the powerhouse in those facility's the labor force was nearly all Hispanic. They took over entire neighborhoods.
Had a few issues with some of the more tatted out of them. Asshats.

 

[Leadeye]

Are you referring to Perdue farms in the Washington Ind area?
When I took care of the powerhouse in those facility's the labor force was nearly all Hispanic. They took over entire neighborhoods.
Had a few issues with some of the more tatted out of them. Asshats.

This is the Farbest plant in Huntingburg. Whatever they are cooking smells good, and reminds me of my time in Mexico.

 

[churchmouse]

This is the Farbest plant in Huntingburg. Whatever they are cooking smells good and reminds me of my time in Mexico.

I love the cooking those folks do. The sauces etc really make the food.
I have not been to that plant.

 

[Farmerjon]

The four big meat packers have made money all along. They create their own profit margin. Now the cow calf producer is barely making any profit. Beef, it's what's for dinner.

 

[jsharmon7]

So this is just a “capitalism gonna capitalize” situation. I’d rather it be that than some big shortage I guess.

 

[BehindBlueI's]

The business has to pass costs onto consumers to stay in business, that's the way it works...

1-3% doesn't explain the 30-40% cost increases.

1-3% is normal inflation...

If you think labor is a "Tiny Cost" then you have never been in business.
Without labor, there is no business.
Wages, plus insurance, plus retirement/profit sharing, plus, plus, plus...

Again, read their financials. Here: https://www.reuters.com/companies/TSN.N/financials

There is no 30-40% cost increase as long as you look at it as a percentage of revenue. It's 1-3%

If you could just pass costs on to the customer nobody would ever go out of business and there would be no incentive to drive costs down. Cost does not set price, though it can affect supply and demand. Supply and demand set price.

Labor is a small fraction of the total costs of most agricultural/food related industries. Their relative value to the company is not the same as the percentage of cash flow they occupy.

 

[BiscuitsandGravy]

Well I mean, Jussie Smollett is probably going to get a book deal.

cuties agree...

 

[Jsomerset]

People pay any price for what they need and won’t for what they want. It’s all perception. I remember my stepmother raising the price by a nickel per cup for coffee making it about .50 some cents per cup. You should have seen and heard the gnashing of teeth over it. Those same exact people would sit at bob evans and pay $1+ and swear they were getting ambrosia from the gods.

 

[two70]

Again, read their financials. Here: https://www.reuters.com/companies/TSN.N/financials

There is no 30-40% cost increase as long as you look at it as a percentage of revenue. It's 1-3%

If you could just pass costs on to the customer nobody would ever go out of business and there would be no incentive to drive costs down. Cost does not set price, though it can affect supply and demand. Supply and demand set price.

Labor is a small fraction of the total costs of most agricultural/food related industries. Their relative value to the company is not the same as the percentage of cash flow they occupy.

Partially correct. Supply and demand generally sets the upper end of the price scale, cost sets the lower end. No one is producing anything to sell below cost for long. Demand can and is easily manipulated by marketing. For example, grass fed, organic, and angus beef are all examples of marketing campaigns designed to increase demand for artificially limited supplies. Supply is also easily manipulated in this case in the form of environmental regulations, COVID mandates, Welfare programs, etc.