January 19, 2011

Smithfield await strong hog prices to balance high corn costs

Smithfield Foods Inc. anticipates firm hog prices will stabilise rising corn costs throughout the year, the company's chief executive said Tuesday (Jan 18).

Larry Pope, speaking at Smithfield's investor day, said the company is positioned to return a profit in its hog production and processed products units despite expectations of US$6 a bushel corn this year.

In 2008, feed costs skyrocketed as corn prices rose to record highs of more than US$7.50 bushel, yet hog prices didn't keep pace. The company has reduced its hog production and is more balanced in its production and slaughter capacity, Pope said.

The company also closed its outdated Sioux City, Iowa, pork plant in early 2010, citing the facility's age and inefficiency.

Other streamlining during the company's restructuring included consolidating its fresh pork, retail packaged meat and export sales units. It also significantly reduced its number of brands from more than 50 to just 12. The company said it had too many small regional brands that didn't generate enough volume or profits to maintain them.

Consumers have not yet felt the full impact of the rising hog prices, said George Richter, Smithfield's president and chief operating officer. Grocers have absorbed some of the increase so far but high feed costs will eventually force retailers to pass on the higher prices to consumers.

Smithfield Foods is working to become mainly a packaged meat company with ham and bacon key target areas, Richter said. He also foresees potential growth in international sales of these products.

Smithfield shares were recently down US$0.01 at US$20.50.