The Beef Boom Has Come To An End: Here's Why It Matters To Tyson's Investors

Tyson Foods, Inc. TSN, a leading food company that operates under many well known national brands including Tyson, Jimmy Dean, Hillshire Farm and others, could come under pressure.

According to a Bloomberg report, 2016's beef industry was characterized by one of the fastest expansions of the American cattle herd in four decades which helped boost the margin profile for meat packers like Tyson Foods. However, although 2017 is a mere few weeks old the complete opposite trend is being observed.

Tyson Foods Investors Pay Attention

Bloomberg noted that tightening animal supplies and tepid demands will now put Tyson Foods' profits and margins under pressure.

Specifically, cattle futures in Chicago have risen 23 percent since it bottomed in mid-October of 2016 and the price packers receive for their wholesale beef has fallen over the past year due to heightened competition from chicken and pork products.

Bloomberg, citing data from HedgersEdge.com, added that losses for U.S. beef packers rose to $67.15 per head as of January 25. This also marks a complete reversal when the profit per head averaged $43.79 throughout 2016 and peaked at $147.20 on October 18.

The Bloomberg report continued that the reversal in trends in 2017 could prove to be a major setback for Tyson Foods, whose outgoing CEO Donnie Smith called the turnaround in its beef segment "a great turnaround story" last year.

Wall Street analysts have also taken notice and lowered their consensus price target on Tyson's stock by 1.1 percent in the past month although the bearish sentiment in Tyson Foods' stock can be traced back to at least November 2016.

Heather Jones, an analyst for Vertical Group, was the most recent analyst to take action and downgraded her rating on Tyson's stock to Hold from Buy on Wednesday while citing a "rough start" for the beef industry this year.