Jump in pork shares a good sign

06-08-2008 | |

Meat producers’ shares have vastly increased recently due to analyst predictions of an expected curtailed supply of pigs lifting pork prices.

Pork producers, such as Smithfield Foods, are cutting back on how many pigs they produce, causing a reduced supply that will lift pork prices in stores, said JPMorgan’s Ken Goldman. Consumers, who are feeling the pinch from a softening US economy, are unlikely to push back on higher prices, he continued.
Goldman did warn however, that the industry shouldn’t celebrate too early. Meat producers have faced higher costs for grain, especially corn, which is needed to make animal feed as well as ethanol, which continue to be in strong demand. If producers have to pay more for corn to feed their animals these higher costs could impact their earnings.

In afternoon trading, shares of Smithfield Foods rose over 10%. Goldman said the company is poised for an “operational turnaround,” as the industry works its way through the higher feed costs.

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