Smithfield to cut sow herd by up to 5%
February 20, 2008
by FoodBusinessNews.net Staff
SMITHFIELD, VA. – In response to already-high grain prices that are expected to continue rising, Smithfield Foods Inc. announced it will immediately begin taking steps to reduce its U.S. sow herd by between 4% and 5%, or 40,000 to 50,000 sows. Smithfield, which currently raises approximately 18 million market hogs annually, says the reduction will result in the production of 800,000 to one million fewer market hogs annually.
"Given the economics for raising hogs today, we cannot continue on the current path; something has to change," said C. Larry Pope, president and chief executive officer. "Grain costs continue at record levels, with the potential of escalating, given the current U.S. government policy favoring corn for ethanol. Today the economics are very challenging and we believe that these increased costs will translate eventually into still higher food costs for the American consumer. In the meantime, Smithfield is taking immediate action to improve the efficiencies of our live production operations."
In late November, after reporting lower earnings for the second quarter of fiscal 2008, Mr. Pope was not optimistic about the immediate impact of grain prices on hog production on the market, but said conditions would likely improve later in the year. For the second quarter of fiscal 2008, ended Oct. 28, Smithfield net income was $17.4 million, equal to 13c per share on the common stock, down 61% from $44.7 million, or 40c per share, in the second quarter of fiscal 2007.
"Looking forward, the futures markets indicate continued near-term losses in hog production, but an improving environment as we move into our fiscal fourth quarter and beginning in fiscal 2009," Mr. Pope said at the time.