October 20, 2006

New Smithfield-ContiGroup plant to impact beef industry

A state-of-the-art beef processing plant of Smithfield Beef Group and ContiGroup Companies could spell doom for the beef industry.

According to a financial analyst quoted by an industry news source, the 650,000-sq-foot processing plant in Texas County, Oklahoma could increase the industry's current head per day capacity, at 137,000, by 3.6 percent.

Annualised spreads for the industry, at US$20 per head, may take about 5 years to return to the more normal US$25/head.

The Morgan Stanley analyst added that mega plant, which costs US$200 million to build, may be a ploy by Smithfield to goad HM Capital Partners into selling off Swift, the third largest beef and pork processor in the US.

He added that Smithfield stands to gain if HM Capital indeed bites the bait and sells Swift over, which may halt the building of the new plant. But if Swift is sold to another company, and the Smithfield plant goes into construction, "then we would be concerned about the impact on SFD's EPS as well as its higher debt load," the analyst was quoted as saying.

In another development on mergers and acquisitions in the US meat industry, Nebraska Meat Corporation announced Oct 19 its acquisition of LSK Smoked Turkey Products.

No debt liability of LSK Smoked Turkey Products will be assumed, said Nebraska Meat Corporation.