This has been reported by Stephens Inc. analyst Farha Aslam.

Significant cuts

"While the beef cuts are positive, the chicken cuts are truly significant. This is the first time in the 12-month industry downturn that there is any indication that Tyson is willing to rationalize production," Aslam wrote in a note to investors.

According to Aslam, Tyson has a 20% - 25% market share, meaning its cuts could have a significant impact on the overall poultry industry's supply and pricing.

 

Aslam estimates that Tyson is cutting chicken production by 5%, as industry estimates indicate demand is down 4% to 6%.

Tyson spokesman Gary Mickelson has said that "While we would rather not share details of our current poultry production levels, we can tell you we continue to closely evaluate market conditions in an effort to match customer demand with our supply."

 

A 5% production cut by Tyson would amount to 1% to 2% fewer poultry pounds produced for the industry, augmenting industry production cuts that range from 6% to 8%, based on egg sets. "The industry has never cut production to this degree before, but demand for chicken has never contracted to this degree either," Aslam stated.

 

Aslam has further stated that the net effect is that shares of Tyson and Sanderson Farms will increase. Better discipline in the poultry market also is favourable for the profitability of the beef and pork markets, she said.