Source:  MEATINGPLACE.COM, 8/9/10

Shares of Smithfield Foods rose after BB&T Capital Markets analyst Heather Jones upgraded her rating on the pork producer to “buy” from “hold,” citing tighter supplies and strong export demand.

Lower market hog inventories, a smaller breeding herd, declining pig imports from Canada, lower domestic slaughter volumes and low pork inventories all are contributing to the tight supply situation, Jones said.

“The continued disruption to Russian poultry trade is a risk as it results in more protein on the domestic market, but we believe hog supplies are tight enough at this time to support pricing at relatively attractive levels,” Jones wrote in a note to clients.

Meanwhile, strong pork prices have lifted live hog prices, resulting in very strong hog production margins. “In our view, this indicates that strong hog pricing is not just a reflection of tight supplies, but also solid demand,” Jones said.

Smithfield has likely hedged some of its live hog exposure at attractive prices for the next six months and aggressively locked in forward feed needs at lower prices, which should help protect margins against a recent uptick in feed costs due to concerns about global wheat supplies, Jones said.

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