April 28, 2009

Swine flu outbreak hammers Smithfield, Tyson shares

The swine flu outbreak undercut shares of pork producers Smithfield Foods and Tyson Foods on Monday (Apr 27), while prices for hog futures and grains also fell on concerns of meat demand.

JP Morgan increased its full-year loss estimate for Smithfield and Tyson due to the already weak pork processing margins and consumer fear about the swine flu, a name that the World Organisation for Animal Health said was unjustified.

The weak pork processing margins had pressurised hog futures before the swine flu scare.

Smithfield shares fell 13 percent to US$8.97 while Tyson shares dropped 11 percent to US$9.76.

Lean hog futures for June settlement fell 4.2 percent to 68.65 cents per pound, or the maximum drop of three cents under Chicago Mercantile Exchange limit rules.

Corn fell nearly one percent to US$3.73 per bushel for May delivery, while May contracts for soy fell 1.5 percent to US$10.26 per bushel.

Although official releases said pork and pork products are safe to consume, the scent of fear remains thick in the air.

During Asia's 2003 bird flu outbreak, poultry exports fell, supplies built and prices slipped, a dangerous predicament the pork industry could find itself in particularly if the swine flu outbreak worsens.

To avoid a similar fate for pork, the hog and pork industries need to undertake an aggressive and widespread informational marketing campaign, according to BB&T analyst Heather Jones in a research report.