As the deadline for submitting comments about the proposed USDA’s Grain Inspection Packers and Stockyards Administration (GIPSA) rules, several industry associations have released their final comments, detailing what they feel to be potentially destructive changes to the industry.

Members of the poultry industry called the proposed changes to the production and marketing of poultry and livestock unconstitutional, unsupported by any meaningful economic analysis, and in defiance of court rulings and Congressional mandates. The proposed regulation should be withdrawn and rewritten, the industry said.

"The proposed rule is ill-advised, exceeds GIPSA's statutory authority, and, for some provisions, is unconstitutionally vague," said a 45-page letter signed by George Watts, president of the National Chicken Council, and John Starkey, president of the U.S. Poultry & Egg Association. "GIPSA fails to provide an adequate justification for imposing such sweeping and detrimental changes to the poultry industry and does not explain corresponding benefits to counterbalance the hundreds of millions of dollars of detrimental effects this proposal will have on the U.S. economy."

The industry comments said the proposed rule is unconstitutional because it has so many vague and undefined terms that people and companies who have to comply with the rule will not know what is illegal and what's not.

The industry comments also objected to the changes proposed by GIPSA in the so-called "tournament" system of compensation for poultry growers, in which more efficient farmers are paid premiums based on their performance.

"The result would be increased production costs for poultry dealers coupled with a decreasing incentive for growers to deliver high quality chickens because compensation would not be tied to performance or quality," the comments said.
GIPSA should withdraw the rule as proposed and rework it to meet the Farm Bill mandate, the industry said.

The National Turkey Federation (NTF) told USDA its proposed regulations could wind up hurting the very producers the department claims it is trying to protect. NTF said the agency failed to conduct a thorough economic analysis before proposing the rule and that the rule contains vague and ill-considered language that will create regulatory and legal uncertainty for all segments of the turkey industry.

“To fail to fully grasp, or even contemplate, the long-term economic implications of the rule does a grave disservice to the very growers the agency aims to assist,” NTF President Joel Brandenberger said in the comments.

NTF’s comments pointed out that the current production model in the turkey industry was developed to allow processors to meet the exacting product quality and price demands of the industry’s customers while at the same time protecting growers from market volatility.

“Since early 2006 . . . as feed costs began their steepest climb, and then as the general economy faltered in 2008 and 2009, the market for turkey products and their resulting prices plunged dramatically. Yet, because of the production contract model, growers were largely sheltered from this volatility,” the comments said.

The comments also pointed out that in 2008, when turkey processors saw a steep drop in net returns from 2007, turkey growers actually experienced a price increase.

About 80 percent of all turkeys in the United States are raised via a production contract in which a processor/integrator owns the turkeys throughout their life and contracts with family farmers to raise the birds. Another 10 percent are raised on marketing contracts, in which the farmer owns the turkeys being raised for the processor and assumes some market risks, especially in relation to feed costs. The remaining 10 percent are raised on company-owned farms where the processor hires employees to raise the turkeys.

NTF’s comments said the current production model has preserved a role for the family farmer in turkey production and cautioned that this regulation could create regulatory and legal uncertainty that might lead to a reexamination of that model.

On the red meat aide, the American Meat Institute stated that the rule would exceed the Congressional mandate of the 2008 Farm Bill, eliminate more than 100,000 jobs, destroy partnerships between livestock producers and meat companies that have improved product quality and raise meat and poultry prices paid by consumers.

“In addition to exceeding the direction it received from Congress and containing numerous provisions that are legally infirm, GIPSA’s proposed rule, if finalized, will cost the meat and poultry industry dearly in jobs, revenue and productivity,” said AMI Senior Vice President of Regulatory Affairs and General Counsel Mark Dopp. “Unfortunately, GIPSA is hurtling down a path, based on anecdote and innuendo, but with no regard to the truly significant adverse economic and social consequences this rule would have on livestock producers, consumers, and the meat and poultry industry.” Dopp said.

Sources: NCC, NTF, AMI

Tyson reports improved Q4, year-end sales

Tyson Foods Inc. reported fourth-quarter sales of $7.41 billion, up from last year’s total of $7.2 billion. Operating income for the quarter was $391 million, an improvement of last year’s loss of $322 million.

“Our results this quarter and this year are directly due to our diversified protein business models and our operational improvements, which have raised the level of expectations for Tyson’s performance,” said Donnie Smith, president and CEO of Tyson Foods.

“We produced record sales and earnings despite some market headwinds,” Smith said. “Operating margins for the year were in or above their normalized ranges in each of our four segments. We generated more than $1.5 billion in operating income. Strong cash flows allowed us to repurchase or redeem nearly $1.0 billion of notes in the fiscal year. This reduced gross debt to $2.5 billion and net debt to $1.6 billion, bringing our debt to its lowest level in nearly a decade.”

For the fiscal year, the company reported sales of $28.43 billion, an improvement over last year’s $26.704 billion. Operating income for the year was $1.556 billion, over last year’s operating loss of $215 million.

“In 2011, overall protein (chicken, beef, pork and turkey) production is expected to increase,” the company said in a statement. “Because exports are likely to grow as well, we forecast that total domestic availability of protein should be relatively flat compared to 2010.”

Tyson said in its statement that it expects chicken production to increase, though domestic availability will depend on export volumes. The company is expecting higher grain costs in fiscal 2011, and the company says it will offset that increase with operational and pricing improvements.

Tyson added that it expects beef and pork supplies to remain strong in FY2011. There may be a gradual reduction in cattle supplies of 1% or 2%, but it is not expected to significantly impact the company’s beef business. Tyson also says that operational improvements and increased pricing for prepared foods will more than offset the likely increase in raw materials costs.

At a conference call, Tyson did announce that it would be curbing chicken production in the next quarter after “perfect growing conditions resulted in heavier weights, and excess pounds on the market,” Chief Operating Officer James Lochner said, Bloomberg reports.

After hot weather caused poultry weights to drop during the summer, Tyson increased its “live supply” and bought meat on the market to fill consumer demand, Smith said on the earnings conference call. Improved conditions in the fall then spurred the company to “produce more pounds than we intended,” Smith said.

“Frankly, we ran a busted play,” Smith said. “So we pulled another play out of the playbook, and we’re going to cut our production.”

Tyson will extend cuts into the quarter starting Jan. 2, after starting to reduce output this quarter, “so that our inventory is where we want it to be,” Smith said, without specifying how much production will be eliminated.

Source: Tyson Foods Inc., Bloomberg

Bushman Family Farms facility begins operations

Production at a chicken processor in Charles City, Iowa, has begun, processing 100,000 chickens a week for specialty markets. The Bushman Family Farms facility will produce organic and antibiotic free chickens, according to AP reports. It is located in the former All-States Quality Foods building, which was remodeled and expanded.

The Charles City Press is reporting that the company expects to hire another 40 workers in March and increase employment to 182 by 2012 when it plans to process 300,000 chickens a week. The plant began operations last week.

Source: Associated Press

Ramah Navajo Foods to open processing plant

Ramah Navajo Foods has announced plans to open a meat processing and wholesale distribution center in McKinley County, reports the Associated Press.

Ramah Navajo Foods is a joint venture between Blue Mountain Meats of Monticello, Utah, and the Navajo Nation's Ramah Chapter in western New Mexico. State officials say this will be the first tribal, public and private economic development project in the state. State, federal, county and Gallup, N.M., agencies are expected to help with the project. Ramah Navajo Foods has purchased 15 acres of private land and will begin building a processing plant by next spring. It will be the first medium-sized USDA certified plant in the state. The company expects to process 2,000 animals annually and will initially employ 12 people.

Source: Associated Press