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Smithfield reduces pig herd to cover losses

Smithfield Foods, has reported a net loss for the fourth quarter of fiscal 2009 of $78.8 million. For the full fiscal year, the net loss was $190.3 million.

Hog production suffered historic losses under the weight of sharply higher feed costs across the fiscal year. Domestic raising costs increased to $62 per hundredweight versus $50 per hundredweight in the prior year as the cost of feed and feed ingredients increased $527 million. Corn, which is the major component in the company's livestock feed, increased 26% year over year.

Pig production outlook
"As we move into fiscal 2010, our highest priority is on continuing the restructuring of the Pork Group, continuing to reduce debt, improving liquidity and strengthening the balance sheet," C. Larry Pope, President of Smithfield Foods stated.

"I strongly believe that the hog production industry has reached an inflection point where, due to deep and extended losses, liquidation is now a recognised reality by all in the industry. To date, Smithfield has already reduced the size of its US herd by two million market hogs annually, and we are initiating a further reduction of 3% of our US sow herd, effective immediately. This reduction, combined with the additional cuts by our fellow producers should shrink supply to a point where the industry can return to profitability. This liquidation is long overdue," he said.

"We believe that the A(H1N1) virus had only a short-term effect on US fresh pork demand, which hurt our business last month. As the consumer received more accurate information about the virus, we saw domestic market conditions begin to move back to more normal levels. Unfortunately, we continue to experience restrictions in some international markets, specifically China, which is negatively impacting exports in the first quarter of fiscal 2010. While we are seeing improvements in our near-term raising costs, live hog markets remain well below historic levels and hog production remains unprofitable.

“Taking all of this into account, I remain very optimistic about the long-term future of this company, as we continue to further improve our fresh pork and packaged meats businesses through our current restructuring plan which is well underway. We are reshaping our business as the low-cost producer of high quality products to value conscious consumers, in all trade channels. I am very bullish about this end of the business. Our future is very bright," Pope concluded.

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