The autumn consolidation in Cranswick's outperforming shares turned into a retreat after the pork processor forecast that the high prices which are pressing on margins will last until "at least" the end of the year.
Cranswick shares, which have been a strong performer for most of 2013, rising more than 40% as of a mid-September high, fell more than 5% in early deals to their lowest since May.
The decline followed the group's forecast that UK pig prices, which ended last month at a record 170.71p per kilogramme, "are likely to remain at historical highs at least through the end of the calendar year".
Cranswick said its results for its financial year, to the end of March 2014, will be "to a large extent dependent on the group's ability to mitigate these costs through further operating efficiencies," besides the "outcome of ongoing discussions with customers", such as supermarkets, to pass on the higher pig prices.
Operating profits for the full year were expected to come in "at a similar level" to those for the year to March 2013.
Analysts have forecast a rise of 7.1% in operating profits to £53.6m.
The rise in UK pig prices, up some 10%, has been attributed to strong demand both in the domestic market, as high beef prices drive demand to pork, and in Europe, where animal welfare restrictions imposed at the start of the year have prompted many producers to close rather than invest in pig accommodation upgrades.
"Demand for pig meat generally eases during this time of the year but with retailers still preferring British pigs and export demand robust, prices have remained firm," up some 10% year on year, according to the Bpex bureau.
Indeed, Cranswick's forecast that pig prices will remain high was deemed "sensible" by broker Shore Capital, which highlighted that "historically October-to-December experiences further upward pressure on pig prices as demand rises into the important Christmas period".
Into pig production
Cranswick is attempting to offset the high prices by moving, after eight years, back into pig production itself, buying Wayland Farms in April and revealing on Monday that it had bought two further breeding operations to take its total sow her to 15,000 head.
"The enlarged herd will produce around 7,000 outdoor-reared pigs each week for use in Cranswick's premium range products and gives Cranswick greater control over a robust and integrated supply chain," the group said.
This was sufficient to create "a natural hedge for 15-20%" of Cranswick's weekly production, broker Shore Capital said, saying it believed further acquisitions in pig production might be in the offing.
"We would not be surprised if such cover was increased through further bolt on activity, or expansion of the group's existing herd."
'Real possibility of a structural shift'
Cranswick said that, while its costs had proven elevated, its sales volumes were strong, soaring 13% on a like-for-like basis, boosted by "particularly strong" sales in fresh pork and bacon.
However, Panmure Gordon cut its price target on Cranswick shares to 1140p from 1200p, keeping a "hold" rating, while N+1 Singer said that it was reviewing its "buy" rating on the stock, with a 1200p price target.
Cranswick's statement was "effectively a profit warning", N+1 Singer analyst Sahill Shan said, adding terming as a "big surprise" the extent of the pressure on margins.
"There is a real possibility of a structural shift in Cranswick's margin dynamic going forward," Mr Shan said, adding that the statement could lead to a downward rerating of the group's shares.
'A well-managed concern'
However, at Numis, Charles Pick urged against despair, flagging Cranswick's ability to cope in previous periods of high pig prices.
"We have been here before in terms of Cranswick suffering from rising pig meat costs and the lag effects from passing these on," Mr Pick said, restating a "hold" rating on the group's shares with a 1080p price target
"Fortunately, the top line situation here is superb and this remains a well-managed concern."
The shares recovered some ground from an early low of 1085p to stand at 1098p in late morning deals in London, down 4.2% on the day.