Surging pork purchases by China helped lift hog prices over the summer and boosted profit for top U.S. processor Smithfield Foods Inc., though any decline in Chinese demand could undercut the market, agribusiness analyst Heather Jones said.

Smithfield’s earnings “should be strong” in the company’s fiscal 2012, which began in May, according to an Aug. 22 report by Jones, who’s with BB&T Capital Markets.

“However, we have some concerns regarding China’s staying power in the market,” Jones said, noting that U.S. pork shipments to Japan, Mexico and Russia fell in June. “If (China’s) recent buying pulls back significantly, it could pressure cutout values and, thereby, live hog prices.”

China scaled up pork imports amid efforts to rein in food inflation after disease outbreaks in recent years led to a decline in the country’s hog herd. During June, China bought 22,888 metric tons of U.S. pork and related variety meats, nearly quadruple the purchases from the same month in 2010, according to the U.S. Meat Export Federation.

For the first six months of 2011, China bought 122,293 metric tons of U.S. pork, a nearly eight-fold increase compared to the same period in 2010. The shipments for the first half of 2011 were valued at $188.7 million, according to the export federation.

Jones raised her earnings forecasts for Smithfield’s current quarter and for the full year, citing high prices and “solid” pork processing margins. However, China “is somewhat unreliable (and) specifically poses a material risk” to BB&T’s estimates, Jones said.

Smithfield will earn 67 cents a share during the May-July quarter, up 4 cents from a previous projection and up 21 cents from the same quarter a year ago, according to Jones’ revised estimates. She raised her full-year forecast by 39 cents, to $2.25 a share. Smithfield earned $3.02 in its fiscal 2011.

Jones’ outlook offers a caution flag for U.S. pork producers, for whom soaring corn costs have been mitigated to some extent by a robust export market. Hog prices are already expected to decline 16 percent from current levels by the end of the year, based on Chicago futures, and any slide in exports could further pressure the market.

On a carcass basis, slaughter-ready hogs averaged $1.0118 a pound nationwide last week, up nearly 25 percent from a year earlier, according to U.S. Department of Agriculture data. Pork carcass cutout values, a wholesale benchmark, averaged $1.0779 a pound, up 15 percent.

Hog prices typically drop 15 percent to 20 percent from mid-August to mid-October, Jones said, and she expects a normal seasonal decline this year. Still, tight animal supplies and strong exports probably will underpin the market, Jones said.

In trading Aug. 22, CME Group lean hog futures for December delivery rose 0.275 cent to 85.15 cents a pound. Earlier this month, CME hog futures, which reflect carcass values, hit a record high at $1.0735, based on the nearby contract.

Jones estimated Smithfield turned a profit of $15 to $20 per animal during the May-July quarter and believes margins are “comparable” for the current quarter, partly reflecting the feeding of lower-cost wheat, Jones said.

Smithfield’s leading share of U.S. pork exports and “significant” exposure to high-value-added markets, such as Japan, “likely propelled very high realized carcass values,” Jones wrote.

In the fiscal 2011 fourth quarter, Smithfield had per-head profit of $21, according to a company statement June 16. Hog production profit averaged $14 per head for all of 2011, up 8 percent from 2010.

Virginia-based Smithfield raises about 17 million hogs a year and also has capacity to slaughter more than 112,000 pigs a day at eight U.S. plants

In the three months ended May 1, Smithfield posted net income of $98.4 million, compared with a loss of $4.6 million a year earlier. Revenue rose 7.2 percent to $3.12 billion. The company is scheduled to report quarterly results Sept. 8.