June 20, 2008

 

US meat stocks all washed out after floods inundate farmlands

Midwestern floods and the prospect of soaring grain prices following it have driven down shares of US meat giants such as Smithfield, Tyson and Pilgrim's Pride to sharply lower levels compared to year ago levels. 

 

Shares of Smithfield were trading Wednesday at a 52-week low of US$22.96, this is compared to a high of US$35.79 last July 19.

 

Tyson stock, which rallied Thursday on an analyst's endorsement, were trading recently at US$14.53, up 84 cents, or 6 percent. Their 52-week low was US$12.81 last Jan. 23. Their 52-week high was US$24.32 nearly a year ago, June 21.

 

Pilgrim's Pride shares also are trading near their 52-week low earlier this week. They were priced at US$15.40, up 45 cents, or 3 percent, in recent New York Stock Exchange trading. Their 52-week range is US$41 last Sept. 4 and US$14.85, on Wednesday.

 

Tyson's stock had dropped more than 8 percent on Wednesday after Fitch Ratings downgraded some of the company's debt to junk-bond status. The rating service said it had "expectations that Tyson's credit statistics will continue to deteriorate in the near-term due to lower-than-anticipated operating earnings and cash flow."

 

Fitch said the time required to pass along higher feed-grain costs was reducing the profitability of Tyson's huge poultry business, adding that its negative outlook "reflects the risk that operating cost pressures could accelerate significantly."

 

Other meat processors have warned that their ability to recoup soaring grain expenses could take months.

 

Credit Suisse downgraded Pilgrim's Pride, the nation's largest poultry processor, to neutral from outperform, because chicken price increases were taking longer to kick in. The firm said that pricing would need to rise 23 percent to offset rising feed costs and get the company back to a normal margin.

 

While big feeders such as Tyson and Smithfield typically hedge their grain needs, such measures are thought unlikely to fully offset unprecedented feed costs, especially after recent floods in the Midwest.

Some big processors such as Smithfield are liquidating their breeding herds, meaning that consumers will soon see higher prices.

 

Reviewing its 94 percent plunge in fiscal fourth-quarter results earlier this month, Smithfield blamed "dramatically lower live hog prices and sharply increased raising costs". Hog production posted a US$129 million operating loss compared with a $41 million profit a year earlier.

 

"We are looking at a grain market that none of us has ever seen," Smithfield Chief Executive Larry Pope said.

 

Agricultural analysts at Merrill Lynch have issued gloomy grain-market outlooks in recent days. Even before overflowing rivers washed out many farmers' fields, the brokerage had expressed concerns about lower yields due to late planting and wet weather.

 

Chicago commodity forecaster AgResource Co. told The Wall Street Journal it estimates that about 800,000 corn acres were badly flooded in recent days, and that another 1.2 million acres would not be planted in time to produce a crop this year.