Source:  MEATINGPLACE.COM, 9/3/10

BB&T Capital Markets analyst Heather Jones reduced her forecast for Smithfield Foods’ first-quarter profit, saying she expects further mark-to-market losses on the company’s lean hog contracts to erode profits.

Jones lowered her earnings estimate for the quarter to 49 cents per share from 57 cents, saying her earlier forecast did not account for any mark-to-market loss. She expects the loss from the hog contracts to be much more modest than in the fourth quarter, she noted.

Jones maintained her full-year earnings estimate of $1.88 per share for Smithfield, anticipating that bullish fresh pork and hog production margin fundamentals will bolster profits in the third and fourth quarters.

August was a very good month overall for the industry, Jones said, with pork prices remaining very strong due to sustained export demand. Domestic demand has also remained solid despite robust pricing, she said.

Pork price increases have outpaced live hog increases, resulting in strong margin expansion, Jones said. Smithfield also has locked in attractive feed costs for most of the year, which should boost margins, she said.

Jones noted USDA recently released combined U.S. and Canadian inventory numbers that showed how tight North American hog supplies are currently. The U.S. and Canadian sow herd declined 3.4 percent year over year and is down 8.5 percent from 2007.

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