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Ethanol Fuels High Costs at Tyson Foods

Cramer and Texas Governor Rick Perry aren’t the only people crusading against U.S. ethanol mandates. Tyson Food CEO and President Richard Bond is just as opposed to using a huge portion of our food crop for fuel.

Speaking to Cramer via satellite during Wednesday’s Mad Money at the Half, Bond said he is “disappointed” the Environmental Protection Agency turned down Perry’s request that Washington reduce its federal biofuels mandate.

Bond estimated that over 1 million bushels from this year’s upcoming corn crop will go toward fuel, saying, “That’s just plain not right.”

Both corn and soybean prices played a big part in the unexpected increase in yesterday’s Producer Price Index, and they’ve accounted for $550 million in costs for Tyson . Bond expects that trend to continue into 2009.

“The consumer hasn’t really felt the effect” of these increasing costs, Bond said, because his company has so far been absorbing them.

Governor Perry had told Cramer that Republican presidential hopeful John McCain would get rid of these mandates, but Bond said that there are other factors weighing just as much, if not more, on food prices. Demand for corn is up around the world. Still, the CEO figured that removing the mandates could take down the price per bushel up to $1-$1.20. A stop in speculation by hedge funds and index funds might bring the price down almost $2.

On the brighter side, overseas demand is definitely helping Tyson’s business. The company has two joint ventures already going in China, and Bond is looking to expand. Poultry consumption in China is about 20 pounds per capita. Bond said the number should jump to 30 pounds in five to six years – “and that alone is the size of Tyson Foods.”

A food product a lot of people might not identify with Tyson is tortillas, which were up huge in the third quarter. Bond said tortillas have largely replace bread as the “carrier of choice” during breakfast, lunch and dinner.

“You have done a remarkable job in the face of a federal mandate to ruin your raw costs,” Crame said to Bond. “And I congratulate you for what you’re doing.”

Investors stand to gain “a ton of money” with TSN, Cramer said, if Washington gets rid of these ethanol mandates.




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