Smithfield Foods Inc.’s quarterly loss narrowed to $4.6 million as the nation’s biggest hog producer proclaimed a new era of profits ahead for the pork industry.
Losses stemming from high feed costs and slumping demand in recent years have abated as the herd shrank and hog prices rallied, Smithfield said in a statement today.
As a result, pork producers are returning to profits after what the Smithfield, Va.-based company deemed one of the industry’s longest and deepest downturns ever.
“Finally, the hog market has turned,” Smithfield chief executive officer C. Larry Pope said during a conference call with analysts following the release of the company’s quarterly results. “The hog production side has sharply improved.”
Smithfield’s results received a boost from hog prices that jumped more than 20 percent in the company’s fiscal 2010 fourth quarter, compared with a year earlier.
But the sharp price rally also turned Smithfield’s hedging positions into money-losers, as the company recorded a loss of $58.1 million on open derivatives contracts. Smithfield previously announced the hedging losses in April.
Also today, Smithfield said it made an offer to purchase North Carolina-based Maxwell Farms, Inc.’s 51 percent stake in turkey producer Butterball LLC, for $200 million. Smithfield owns the other 49 percent.
Buying Maxwell Farms’ interest “will afford Smithfield the opportunity to build the Butterball brand unconstrained by the restrictive terms of our current investment agreement and disagreements with our partner in respect to the development of the business,” Pope said in today’s statement.
Hog prices have almost doubled since last summer after producers cut herds to stem losses, forcing meatpackers to bid more aggressively for slaughter-ready animals. Smithfield reduced its sow herd by 13 percent over the past two years, the company said previously.
As of March 1, the U.S. hog inventory totaled 64 million head, down 2.7 percent from a year earlier.
“We do not see significant herd expansion on the horizon, which should stabilize hog supplies at healthier price levels,” Pope said in today’s statement. During the call, Pope said he would have preferred to have hog inventories shrink further.
“I would have liked to see another 2 percent to 3 percent reduction in the herd, but that didn’t happen,” Pope said.
During the quarter ended May 2, hog prices averaged $52 per hundred pounds, up from $43 last year, Smithfield said.
The hedging loss accounted for “most” of Smithfield’s net loss of $4.6 million, the company said. During the same quarter a year earlier, Smithfield posted a net loss of $81.2 million. Sales rose 2.1 percent to $2.91 billion.
In late trading today, Smithfield shares fell $1.18, or 6.7 percent, to $16.34. The stock is still up 7.6 percent this year.
Smithfield raises about 20 million market hogs a year and owns eight plants with combined capacity to slaughter about 112,000 animals a day.