Hog glut gains as U.S. exports drop most in decade

Largest Exporter

Cracker Barrel Old Country Store Inc., the operator of 622 restaurants across 42 states, expects food commodity costs to rise 4% to 5% this fiscal year, with pork among the biggest increases, Chief Financial Officer Lawrence E. Hyatt said on a conference call in February.

Declining output in the European Union, the second largest exporter, may also limit world supply. The 27-nation bloc will produce 3% less than last year because farmers will cull herds in response to new regulations increasing the amount of space required for breeding sows, Rabobank International estimates. The EU Commission, the administrative arm, expects exports to retreat 14%.

The U.S. is “well positioned” to make up for any drop in EU sales, Smithfield Foods Inc. Chief Executive Officer C. Larry Pope told analysts on a conference call March 7. The Smithfield, Virginia-based company is the world’s biggest hog and pork producer. Its shares rose 19% to $25.57 this year and will reach $29.89 in 12 months, the average of nine analyst estimates compiled by Bloomberg show.

Frozen Stockpiles

Prices are already falling outside the U.S. China’s hog production, the world’s biggest, may climb to a record 690 million animals this year, the USDA estimates. The government is stockpiling frozen pork across more than 20 provinces to stem the plunge in prices, the National Development and Reform Commission said April 7.

“Assuming we get a more normal year weather-wise then feed prices are more likely to come down than go up,” said Stephen Howarth, a senior analyst at the U.K. Agriculture & Horticulture Development Board’s pig unit in Kenilworth, England. “There will be opportunities for expansion fairly quickly.”

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