Fresh pork operating margins were at 8 percent, or $13 per head, and rebounded sharply from the prior quarter, according to Smithfield. Results were positively impacted by product mix improvements toward branded value-added products, as well as widespread domestic retail feature activity for pork and continued solid export demand. Larger industry pork supplies contributed to a 15 percent decline in the U.S. Department of Agriculture pork cutout, but were offset by a 15 percent drop in live hog prices. The company processed 3 percent more hogs.
Hog production operating margins were disappointing at 4 percent, or $8 per head, but were positively impacted by strong favorable hedge positions that diminished the impact of higher grain costs and lower live hog prices, said the company. Live hog market prices and raising costs averaged $58 per hundredweight and $69 per hundredweight, respectively. Head sold increased 2 percent, resulting from improved efficiencies from the Hog Production Cost Savings Initiative.
"We are encouraged by our solid performance in the first half of fiscal 2013 and anticipate strong results in the back half of the year," said C. Larry Pope, president and CEO. "We expect our packaged meats business to continue to lead the way, delivering consistent growth with increased share and broader distribution of our core brands in key product categories. Industry analysts forecast record pork exports again in calendar 2013, as lower global pork production and higher pork prices — especially in the EU — should bolster demand for U.S. pork. These positive fundamentals should be supportive of healthy fresh pork profitability in the normalized range for fiscal 2013."
As for the hog production segment, Smithfield said it expects hog prices to recover seasonally in the second half of the fiscal year. "Lower supplies of competing proteins should also support higher hog prices," said Pope. "Our risk management strategy should continue to lessen the effects of higher priced grain on our raising costs. We expect our hog production segment to be slightly profitable by the end of the fiscal year and approximately breakeven for the full fiscal year."