The head of Smithfield Foods urged the US to ditch encouraging corn-based ethanol production as the pork giant, hurt by elevated feed costs, unveiled a sixth successive quarter of losses.
Larry Pope, the Smithfield chief executive, said he hoped the Environmental Protection Agency should "abandon any notion" of allowing higher levels of ethanol levels in car fuel, as the biofuel sector is demanding.
Smithfield was "encouraged" by the EPA's decision last week to delay last week to delay a ruling on raising the ceiling for ethanol concentrations to 15% from 10%.
Even the current rules had, by diverting corn to biofuel refineries, "directly and substantially driving up feed costs for livestock and jeopardising the economic viability of hog producers", Mr Pope said.
He added: "Everyone is in favour of developing alternative energy sources. But we should not be reluctant to abandon the flawed corn-based ethanol policy when it has the direct impact of causing higher food costs to the American consumer."
'Further liquidation needed'
The comments came as Smithfield blamed continued losses in its pig production division for pushing the group $26.4m into the red in the three months to November 1.
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In a trough - Smithfield's hog unit operating profits/losses
Q2 2010: -$167.3m
Q1 2010: -$162.1m
Q4 2009: -$170.8m
Q3 2009: -$253.6m
Q2 2009: -$58.0m
Source: Smithfield Foods |
The unit's losses tripled to $167.3m in the quarter as rearing costs, cut $10 to $53 per hundredweight in part by weaker crop prices, remained above hog prices, which collapsed by nearly one-third to $36 per hundredweight.
Smithfield, which is shrinking its breeding herd sufficient to take 2.2m hogs a year out off the US pipeline by 2011, said that more work needed to be done to bring the market's supply back into line with demand.
"Given current and near-term industry dynamics, we believe that further liquidation is needed to reach a balance," Mr Pope said
Back into the black?
Nonetheless, the group loss, at $0.17 per share, was lower than the $0.39-per-share loss that Wall Street had anticipated.
Operating profits at Smithfield's packaged meats division tripled to $131.1m, helped by a jump in volumes as well as the benefit of lower pig prices.
The group, which last reported a profit in spring 2008, was set to return to the black in the second half of its financial year.
"We have never been more positive about the earnings power of this company," Mr Pope said.
Shares fall
Nonetheless, Smithfield shares closed down 3.1% at $16.33 in New York.
"The slow pace of breeding herd liquidation... is likely weighing on the stock," analysts at Deutsche Bank said.
"The company noted that hog production profits would be below the normalized range of $10-$12 per head over the next several years as corn in the $4.00-a-bushel range is well above the historical average of $2.50-$3.00 a bushel."
However, the bank retained its "buy" rating on Smithfield shares, saying the group was better placed than rivals to survive the hog sector shake-out forced by depressed profitability.
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