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Analyst sees more hog price weakness, cuts Smithfield forecast
Story Date: 9/4/2012
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Source: MEATINGPLACE, 8/31/12
Anticipating further deterioration in hog prices, BB&T Capital Markets analyst Heather Jones lowered her profit outlook for Smithfield Foods.
While there are indications the industry has begun to reduce production, the impact may not be felt until mid-2013 due to sow kill capacity limitations, Jones said.
“We believe hog prices could fall further, despite the recent deterioration,” she wrote in a note to clients.
In many years, hog prices drop more than 20 percent from Labor Day to late November. A surge in Chinese demand buoyed prices in 2011, but that is not likely to be repeated this year, she added.
Hog producers will work to bring down weights, accelerating the flow of hogs to market. With domestic demand sluggish, hog prices could approach $50 in the December timeframe, she predicted.
Although Smithfield should continue to generate strong packaged meat results and will benefit from locking in feed costs at advantageous levels, weak hog prices will more than offset those benefits over the next two quarters, Jones wrote.
Jones reduced her 2013 profit estimate for Smithfield to $1.59 a share from $1.66, largely reflecting a cut in her first-quarter estimate to 42 cents from 48 cents. She lowered her fiscal 2014 estimate to $2.25 a share from $2.35.
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