News 911 views last update:Feb 25, 2016

Low pork prices shake Cherkizovo’s earnings

Russian meat producer, Cherkizovo, has reported a significant drop in its first half year results faced with low pork prices and the high cost of feed due to tight supply.

The company reported a Net Profit decrease of 91% to $9 million in the first half of 2013 compared to $95.5 million in the first half of 2012.

“We faced а very challenging environment in the first half of 2013,” stated Cherkizovo CEO, Sergei Mikhailov. “Grain prices reached all-time highs in February and pork prices were very low in the first quarter, these factors having an impact on Cherkizovo’s profitability in Q1 and Q2. However, thanks to its diversified, vertically integrated structure, the company was able to profit off the meat processing division, where margins reached historic highs.”

“The market environment began to improve significantly in the second quarter. While poultry prices remained relatively depressed, pork prices started to rebound at the beginning of the BBQ season in early May. Due to the market deficit caused by import restrictions and the spread of African Swine Fever in many Russian regions, pork prices continued to increase throughout the summer, reaching more than 70 RUR/kg. At the same time, grain prices started to decline due to the new harvest, dropping by more than half. However, it is clear that the much more favorable combination of low grain and relatively healthy pork prices will take some time to show up in our financial statements.”

“Despite the very volatile market environment, Cherkizovo Group continues to grow and deliver strong operational results. We were able to increase our production capacity by 50% in the pork division, we are well on our way with our new turkey division thanks to the start of construction on a facility in Tambov Region, and the grain segment is demonstrating very strong yields this year. By increasing its operational land bank and building new silos, the Group is improving its vertical integration for greater efficiency.”

“Government policy remains favorable for agricultural manufacturers in Russia, with the first tranches of direct subsidies aimed at mitigating the impact of extremely high grain prices distributed this summer. The Group accrued almost 800 million RUR of direct compensational subsidies this year, which will help to cover some of our losses. We expect that towards the end of the year the Company will be able to return to its normal profitability figures, which are among the highest in the global meat industry,” Mikhailov concluded.

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