Record pork supply seen as U.S. farms profit again

Smithfield Losses

Hedging curbed losses from hog production for Smithfield, which reported net income of $183.8 million in the 12 months to April 28, from $361.3 million a year earlier. The Smithfield, Virginia-based company, which earned money in its pork and packaged-meat units, said it lost about $7 a head. The hog unit had an operating loss of $119.1 million, compared with profit of $166.1 million a year earlier.

Smithfield, in a June 18 filing, predicted “lower raising costs and improved efficiencies and productivity in our hog- production segment should result in improved operating margins in the mid-single digits on a per-head basis” for the 2014 fiscal year.

U.S. consumers may pay as much as 2% more for pork this year, compared with a 3.5% increase in overall food costs, the government predicts. Global meat prices rose 2.1% in June, the biggest gain since September, and are up 4.5% in the past 12 months, United Nations data show. Global food costs gained 5.4% in the past 12 months.

Maple Bacon Sundae

Pork was one of the main contributors to commodity price inflation for Denny’s, a restaurant chain with 1,689 locations, Whit Kincaid, a senior director of investor relations for the Spartanburg, South Carolina-based chain, said on a conference call April 30. The company offered a “baconalia” menu as a spring promotion that included a Maple Bacon Sundae and Caramel Bacon Stuffed French Toast.

U.S. warehouses held a record 700.98 million pounds of pork in April, government data show. At the start of peak demand for the summer grilling season in May, supplies were the most ever for the month, according to the USDA.

Shipments from the U.S., the largest exporter, slid to 2.045 billion pounds in the five months through May 31, 13% less than a year earlier, USDA data show. China, including Hong Kong, bought 36% less as it sought to limit meat with ractopamine, a feed additive used by some U.S. farmers to add lean muscle in livestock.

The dollar’s rally to a three-year high on July 8 also has eroded the appeal of U.S. imports to overseas buyers.

Domestic demand has slowed as wholesale pork surged to $1.1133 a pound on June 26, the highest since at least October 1997, when government data begins. While prices have dropped 8.8% since, touching a four-week low of $1.0075 on July 11, they are 13% higher than a year earlier.

“I’m feeding my hogs heavier,” said Bill Tentinger, who markets about 10,000 hogs a year near Le Mars, Iowa. “The price of my inputs is still quite high, but the value of these hogs is so high. It just makes sense to put a few more hogs on and walk a few more pounds to town because of that.”

<< Page 3 of 3

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome