Source:  Lisa M. Keefe, MEATINGPLACE.COM, 12/14/09

Comments that Smithfield Foods' CEO C. Larry Pope made last week during a conference call with analysts and media are prompting discussion about the future of some of the company's Midwest plants.

Specifically, Pope said in his overview of the company's second-quarter results that reduction in hog herds has been lagging in the Midwest section of the country, but he also noted that when those reductions are completed, the resulting tighter hog supply could put some plants out of business.

"I have not seen the significant Midwest reduction that would probably be needed to put this industry back in balance," Pope said, in part. "I think there is some going on out there now and we have seen the tightening of supplies to our plants."

Later in the conference call, Cleveland Research analyst Christine McCracken sought to clarify Pope's information. "Larry, you had mentioned that some of or your plants are beginning to see the impacts of herd reduction in the Midwest. … Is it your expectation that we will have to shut a plant? Are we going to be out of balance again and what does that mean for hog prices and your overall efficiencies in your plants?" she asked.

'One, maybe two'

In response, Pope said, "In the Midwest, we have begun to have trouble getting enough hogs to run these plants. For the first time we are really having days when we are having trouble filling the kills out. … If we see this 3 percent or 4 percent or 5 percent [reduction in the hog herd] occur I think you will see a plant go down, if not one, maybe two. … I think the cutouts could be real crappy and these inefficient plants would be at risk."

When asked if closing an inefficient plant is in the cards for Smithfield, or if Pope was addressing the broader industry trends, Pope said, "I will reserve that comment, except to say that I think this is something that the industry will do and we may or may not be part of that."

Pope's careful wording did nothing to curb some speculation about the future of some of the company's Midwest plants, however. Smithfield's hometown newspaper, the Daily Press of Newport News, Va., reported that Pope "hinted that Smithfield may move to close more plants in 2010, particularly those in the Midwest where the company has had trouble keeping operations at capacity."

A detailed analysis

In Sioux Falls, S.D., the Argus-Leader newspaper was more direct, noting that the future of the 100-year-old local John Morrell & Co. plant looked shaky.

"Speculation about whether the plant could close and throw 3,000 people out of work has ramped up since 2005," when Smithfield announced a $100 million modernization project for the facility, then backed off, according to the newspaper.

Noting Pope's contention that the industry likely will need to close one or two plants in the Midwest, the Argus-Leader said the issue was brought up at a forum for candidates running for mayor, in the wake of the findings of a Sioux Falls economic assessment committee that determined that food processing is "not a growth industry to focus on for the city's future."

But the plant produces the packaged meats that have contributed heavily to Smithfield's profits in recent quarters. Also, its capacity has been increasing over the past 10 years, to 19,000 a day in 2009, the second-highest capacity of Smithfield's nine packing plants, the newspaper said.

Age may not be factor

Furthermore, the newspaper counted 46 hog packing plants owned by various companies operating the Midwest, as tracked by the National Pork Board.

"We've been kind of speculating that the oldest plants are the most vulnerable," the Argus-Leader quotes pork industry analyst Steve Meyer as saying. "That may or may not be the case here."

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