Smithfield Foods Inc. said smaller pork supplies and strong exports should push up prices and offset higher feed costs for its hogs and drive profits going forward.
“We have supplies and demand in very good balance at this point,” chief executive C. Larry Pope told Wall Street analysts on a conference call. “I don’t see anyone out there looking to build a big (pork) plant over the near term. I don’t see any expansion of any magnitude in the live production side.”
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A key driver for Smithfield’s results has been exports, which have been strong because of less production overseas and better global economies that have people adding meat to diets.
“For the quarter, 24 per cent of our fresh pork volume went out of the country,” said Pope. “Countries like Japan, China, Russia, Korea, Canada, they all have double-digit increases in export volumes,” said Pope, who forecast exports should continue to increase.
Higher pork prices, largely because of exports, have offset pressure from more expensive hog feed as corn topped $7 per bushel.
“We are very bullish on pork margins,” said Diane Geissler, an analyst with the brokerage CLSA. “I’m looking for pork exports to be up 15 per cent year on year for 2011 versus 2010.”
The U.S. Agriculture Department forecast on March 10 that U.S. pork exports in 2011 will be more than 10 per cent on top of a 3.3 per cent increase in 2010.
“A lot of people in the Far East are trying to improve their diets and they have the money to do it. That is really driving the demand for proteins,” said Tim Ramey, an analyst with D.A. Davidson and Co.
The hog unit, the nation’s largest, posted a much smaller loss of $2.3 million compared with a year-ago loss of $78.3 million, as higher feed costs were partially offset by higher hog prices. The company expects the unit to be profitable in fiscal 2011 and beyond.
