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Tough Times for Meat Companies

20 June 2013

ANALYSIS - Meat processors around the world are apparently finding market conditions tougher than has been either forecast or expected.

For a time it appeared that the recession, high feed prices and volatile meat prices had settled down.

But recent reports from some of the major meat processing companies indicate there could still be a bumpy ride for some.

The Food and Agriculture Organisation of the United Nations has forecast more balanced food commodity markets for 2013/14.

World food imports in 2013 are tentatively forecast by FAO at $1.09 trillion, close to last year's level, but 13 per cent below the record of 2011.

Higher bills for fish and livestock products are anticipated to offset lower expenditures on most other commodities, especially sugar.

World meat production is forecast at 308.2 million tonnes in 2013, a modest increase of 4.3 million tonnes, or 1.4 per cent on 2012. While producers in many countries continue to face high feed prices, these started falling in 2012, and could further diminish in 2013, according to the FAO.

However, this rosier picture is offset by reports from some of the leading meat processing companies.

This week, Smithfield Foods reported in its end of year accounts that while its sales had risen to more than $13.2 billion, its net income had fallen by nearly half to $183.8 million from £361.3 million in the previous year.

At the same time Hormel Foods has lowered its forecast earnings per share from $1.93 - $2.03 to $1.88 - $1.96.

"Lower than expected results in our pork operations, higher input costs and softer sales of our retail products in our Refrigerated Foods segment are the primary reason for the expected shortfall in our second half results," said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

US food industry economic analysts do not paint a much better picture for the future with Ron Plain and Scott Brown reporting live cattle markets down and beef production expected to fall next year.

On the pig markets in the US, they have reduced their forecast for pork production for this year.

However, the tough market conditions are not only affecting businesses in the US.

In Europe, the shakeup at the troubled giant VION Foods continued with wholesale changes in the management in Germany following the divestment of UK operations earlier in the year.

And in the UK there are reports of troubles at the well-established Bernard Matthews poultry company, with top managers departing including the chairman, CEO and managing director and reports of interest in a takeover by the 2 Sisters poultry group.

Chris Harris

Chris Harris

Top image via Shutterstock

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