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The food supply chain is breaking': Tyson Foods Chair

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Tyson Foods is the latest meat producer to warn of a slowing food supply chain, as the brand closes doors on more of its processing facilities amid the coronavirus pandemic. Yahoo Finance’s Heidi Chung joins Zack Guzman to break down the details.

Video Transcript

ZACK GUZMAN: Today, another dire warning from a large food processor here in the United States, that being Tyson Foods warning that millions of pounds of meat will disappear from the supply chain across the country as, again, the coronavirus pandemic pushes these food processors to the brink. It's again one of those warnings that we've heard similar from Smithfield, another large food processor.

But for more on Tyson's warning, I want to get to Heidi Chung who has the details. Heidi.

HEIDI CHUNG: Hey, Zack. Yeah, the US meat industry under some serious pressure amid this COVID-19 pandemic. Yesterday, Tyson Foods ran a full-page newspaper ad in the "Washington Post," "New York Times," and "Arkansas Democrat-Gazette." And in it, Tyson warning that the COVID-19 outbreak could severely disrupt the US food supply and raise the price of meat for consumers.

We had John Tyson, then who is Tyson Foods chairman of the board, warning in the ad, quote, "the food supply chain is breaking. We have a responsibility to feed our country. It is as essential as health care."

Now, of course, this comes as at least 13 different meat-production facilities had to shut their doors since March as a result of this COVID-19 pandemic. Tyson announcing last week that it would be closing its largest pork-processing facility in Iowa and a plant in Indiana. The company also closed a beef-processing plant in Washington.

And now this ad that the company put out seems as if it was a response to the heavy criticism the company has been getting that perhaps it wasn't really creating a safe work environment for its plant employees. Some recent reports have cited employees complaining that they were not given proper masks to wear in the facilities in March and in early April, and the employees also said that they were given very confusing instructions and were actually told to come into work even if they were feeling a little bit sick here.

Tyson also asking the government for help during the crisis, saying that if this issue is not dealt with soon enough, farmers are going to have to depopulate the chicken, pork, and beef that they have in their farms right now. And that's something similar to something we've heard from the dairy industry. If you recall a couple of weeks ago, farmers were saying that they had to dump perfectly good milk because of the distribution bottlenecks that they were facing.

And also, Zack, do you remember at the end of March we were talking about how commodities had gone wild? We were talking about orange-juice futures as well as lean-hog futures and cattle futures. Those were surging at the end of March.

But if you take a look at their performances this month, we're seeing lean-hog futures are down about 8% and cattle futures are down about 9%. So demand is still running high. It's all a question about whether or not supply can meet the demand here, Zack.

ZACK GUZMAN: Yeah, I mean, we had seen this benefit alternative-meat companies as well, though. When you look at Beyond Meat, those shares have surged. They've almost doubled in the month of April alone. Incredible demand there, but we are seeing them fall off by about 7% today, Beyond shares, on the wave of one analyst saying that it might have run a bit beyond where it deserves to be trading right now, right, Heidi?

HEIDI CHUNG: Yeah, Zack. The analyst at UBS saying that the stock might have run a little too far, too fast. If you recall last week, shares soared 41% for its best week ever. The analysts are downgrading the stock to sell and slashing the price target to $73 per share. Now that price target represents about a 27% move lower from the current trading levels, and that is because a lot of what the stock has priced in right now is the fact that the US meat industry is under a lot of pressure as well as that really large deal that we talked about last week between Starbucks China and Beyond Meat.

But we have to keep in mind here that the COVID-19 outbreak will probably not bode well for the company, and a recessionary environment could also put a lot of pressure on Beyond Meat. That being said, we have to mention that Beyond Meat food-services partnerships accounts for 51% of total revenue, so that could be why there are a lot of concerns about this run up that we have seen, Zack.

ZACK GUZMAN: Yeah. I mean, the problems that we've seen in the supply chain for traditional meat-- real meat as farmers would say it should be called. If those do continue, though, a very interesting situation shaping up here between alternative-meat companies and traditional-meat companies out there as well. But Heidi Chung, thank you for bring us that.