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Hog profit hopes fail to prevent Hormel cutbacks

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Hormel Foods unveiled cutbacks at its hog, and turkey, operations even as market conditions signalled the worst may be over for hog farmers, with a leading farm academic heralding the "dawn of profitability".

The owner of meat brands such as Spam luncheon meat and Jennie-O Turkey Store unveiled plans for "additional cuts to both our turkey and pork harvest levels" in its newly-started fiscal year.

The cuts would "reduce our exposure to volatile commodity markets", said Jeffrey Ettinger, the Hormel Foods chairman and chief executive, after a year which saw Chicago lean hog futures, on a front contract basis, collapse from historically high levels close to 100 cents a pound in July to close to 70 cents a pound two months later.

Hog prices collapsed as high grain and soybean prices, in sending feed costs soaring, encouraged liquidation of herds and reduced demand for animals.

Indeed, Hormel acknowledged, unspecified, losses at its live hog operations in the August-to-October period, the last quarter of the group's 2012 fiscal year.

'The sun will rise again'

The comments came even as Chris Hurt, Purdue University farm economist, said that a "return to profitability" for hog farmers "may be on the not-too-distant horizon" by the spring, as the impact of a retreat in grain prices, and recovery in pig values, feeds through.

Already, over the last two months, a rebound of some 10 cents a pound in lean hog prices, and falls of some $1 a bushel in corn futures and $100 a short ton in soymeal values, had improved margins by at least $30 a head.

"There still are losses to sustain for the rest of this year and the first quarter of 2013 when losses are estimated at about $15 per head," Professor Hurt said.

"But live hog prices are expected to increase enough to reach breakeven by early May and provide for positive returns of around $10 per head in the second and third quarters."

"It now appears the sun will rise again and the dawn of profitability will once again return."

Signs of improved margins have been evident in a reduction in sow slaughter, which having run at rates some 4% above year-ago levels over the summer, in mid-October switched to showing year-on-year declines.

'Improved product mix'

Hormel Foods said that its refrigerated foods division, which includes the live hog operations, saw operating profits decline 11.9% to $61.2m in the last quarter.

Divisional sales fell 2.6% to $1.06bn, reflecting the lower pork values encouraged by US hog herd liquidation.

However, group earnings rose 4.0% to $134.3m, supported by a rise of 22% in profits at its grocery unit, boosted by "strong" sales of Spam, and by a 5.4% rise to $52.2m in profits at Jennie-O Turkey, where an "improved product mix offset higher feed costs".

Hormel forecast earnings for the year to October 2013 of $1.90-2.00 a share, in line with Wall Street expectations of a $1.95-a-share result.

For the full 2012 year, earnings per share reached $1.86.

Hormel shares closed down 4.0% at 4.0% at $30.50.

By Agrimoney.com

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