Source:  Tom Johnston, MEATINGPLACE.COM, 2/12/10

 With characteristic humor and candor, Smithfield Foods Inc.'s CEO had meat processors both laughing and consternating here Thursday at the National Meat Association's annual conference, as he roasted himself on the company's performance amid economic doldrums but pointedly expressed a grim outlook for the industry's future.

Larry Pope, who succeeded Joe Luter III as CEO of the world's largest pork producer in 2006, jested that his third year on the job would be the worst year in Smithfield's history, that the company's stock price would plummet to $5 from $30, and, among other things, that his company would be blamed for the spread of H1N1.

"The world has thrown an awful lot at us," Pope said. "In fact, in our last conference call, I said, 'God, do you have anything else left?'" Well, the fact of the matter is he did. He brought us the worst winter we've had in about 50 years, and I think every one of our processing plants has been down at least one day in the last six weeks."

Having warmed up the crowd, Pope was quick to warn that the industry's challenges are not over and will continue for a long time, with near-term threats including unfavorable federal policies such as increased ethanol production and long-term threats including increasing pressure from the media and a deteriorating public image.

"We have to educate other people," Pope said. "I don't know how involved any of you stay with our elected representatives, and I think that most of the issues are coming out of Washington. … I don't think that inside the Beltway they're getting the message."

Sunshine?

The bright spot over the last 18 months, Pope said, has been in processed meats, noting that Smithfield consistently has been generating record profits. Meat processors have been benefitting from producers' woes, which have afforded them plentiful raw materials at bargain prices. (In later comments to Meatingplace, he said meat processors have done an outstanding job in developing products that suit consumer's needs in terms of improving ease of use and should continue to innovate.)

Pope expressed concern, however, about the sustainability of such success in processed meats. "When you see the losses that are going on in live production, these folks are not going to be able to continue operating like they are," he said. "And so what has to happen is that meat prices have to go up," because eventually corn prices will return to the $8-per-bushel range.

Pope added that it's difficult to raise prices because meat processors these days are under intense pressure by customers such as Wal-Mart to not raise prices, so processors are going to have to focus on getting their costs in order. Beyond selling meat to customers, processors increasingly have to explain their positions with regard to issues such as animal handling and sustainability.

"Just this week I promoted somebody — and I can't even believe I'm saying this word here, folks — to a chief sustainability officer," Pope said, prompting laughter.

Exports also have been successful partly on the diminished value of the U.S. dollar, but Pope warned against the industry investing too much of its production in foreign markets given their potential for abrupt closures.

For more stories, go to www.meatingplace.com.