Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 6/12/09

Wall Street analysts are factoring the prospect of rising grain prices into their outlooks for meatpackers including Smithfield Foods and Hormel Foods and lowering earnings forecasts.

KeyBanc Capital Markets analyst Akshay Jagdale said in recent note to investors that while Hormel's near-term outlook is enhanced by its recession-friendly products like Spam and Dinty Moore stews, higher grain prices could hurt Hormel profits. He lowered his earnings forecast for fiscal 2010 to $2.52 per share from $2.60 per share, according to media reports.

Rising grain prices is only one of the reasons BB&T Capital Markets analyst Heather Jones lowered earnings estimates for Smithfield. In a note to investors she pointed to pork cutout values trending 25 percent to 30 percent below a year ago. Hog prices have plummeted in recent weeks at a time in the season when prices typically rise.

"Based on current feed costs, we estimate that most producers are losing north of $50 per head," she wrote in a note to investors.

BB&T widened its fiscal fourth quarter 2009 loss estimate for Smithfield to 65 cents per share from a loss of 45 cents per share previously, pushing the fiscal 2009 estimate to a loss of $1.40 per share. It lowered the fiscal 2010 profit forecast to 15 cents per share from its previous estimate of 75 cents per share.

"Our estimate reductions would have been more severe but for the very impressive performance from packaged meats," wrote Jones.

Smithfield is projecting packaged meats profitability of $375 million, up $100 million from last year. Jones attributed the success to greater efficiencies in costs and sales, as well as much lower input cost due to low hog prices.