Meat Industry Saved from Shutdown

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The meat industry heaved a sigh of relief as according to media reports, the U.S. Congress decided to set aside the furlough of meat inspectors by the United States Department of Agriculture (:USDA).

The government allotted $55 million in order to prevent the proposed furlough as a part of the federal budget cuts. The spending cut and tax increases to cover the deficit by the U.S. government was scheduled to begin in Jan 2013, but was eventually pushed back to March. This was because the differences between President Obama and congressional Republicans had yet to be resolved.

Up to 8,400 inspectors appointed by the USDA were supposed to be furloughed for the equivalent of 15 days to effect the savings required under the automatic cuts. This would result in complete shutdown of meat plants for two weeks as by law, meat processors cannot sell beef, pork, lamb and poultry meat without the USDA inspection seal. According to Agriculture Secretary Tom Vilsack, the impact of the furlough of inspection personnel could have amounted to 15 days of lost production costing over $10 billion.

The proposal was accepted as it did not involve any new spending. The $55 million would instead come from $30 million previously allotted to maintain USDA buildings and $25 million for a new USDA program to upgrade school kitchen equipment.

Meat processing giant Tyson Foods Inc. (TSN) and Sanderson Farms Inc. (SAFM) welcomed the decision. Tyson Foods hailed the bill and commented that the setting aside of the proposed furlough would be beneficial for the meat industry, groceries, restaurants and schools. The prevention of furlough would also provide uninterrupted supply to chains like Supervalu Inc. (SVU) and Kroger Company (KR).

In its fourth quarter fiscal 2013 earnings conference call held in Feb 2013, Tyson said that it expects sales to grow by 3% to 4% in fiscal 2014. Value-added sales are expected to rise in the range of 6% to 8% in 2014. Moreover, international production is expected to grow at an annual rate of 12% to 16%.

The company expressed that its second-quarter loss was attributable to contracting margins in the beef and pork segment. The chicken segment is however improving due to favorable demand shift from red meat.

In April 2013, the company expects to further boost the segment by introducing the NatureRaised Farms brand, including natural chicken reared without use of antibiotics or added hormones. Currently, Tyson Foods carries a Zacks Rank #2 (Buy).

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