October 8, 2008

Protein shares, livestock futures fall on slowing global economy 

Both protein stocks and livestock futures plunged as concerns about a strengthening dollar and a weakening global economy fed fear that meat exports could be the next casualty.

Livestock analysts, Steve Meyer and Len Steiner in the CME Group's Daily Livestock report commented that never before had US beef, pork and poultry producers been so dependent on global markets.

The report went on to say in the short term, the strength of the US dollar is a significant negative factor for the livestock industry, predicting lower domestic and export sales could lead to further reductions in output and more consolidation along the supply chain.

According to Reuters, futures traders on the Chicago Mercantile Exchange tended to agree. US cattle futures closed down the daily limit on Monday, 6 October 2008 and hog futures were mostly lower as investors fled the market amid worries a global economic crisis may drive consumers here and abroad away from meat.

Pilgrim's Pride was again the biggest loser in the meat industry, shedding 26 percent of its value as it fell 78 cents per share to close at $2.17 per share on the New York Stock Exchange.

The fall reflected growing concern on the poultry processor as it would not be able to secure favourable credit terms from increasingly stressed credit markets when its current credit reprieve ends at the end of the month.

While the Dow Jones Industrial Average ended the day down 3.58 percent, Smithfield Foods shares closed down 6.22 percent; Hormel Foods closed down 3.98 percent; and Sanderson Farms fell 3.31 percent. Tyson Foods gained just 0.69 percent on the New York Stock Exchange.

Fortunately, meat processors may have falling feed grain prices on their side and the reduced demand for grain that the slowing global economy may create. Corn prices are down over 40 percent since Friday, 27 June 2008. Favourable grain crops are expected to further help prices.