By Matt Andrejczak
Shares of Smithfield Foods Inc. (SFD) charged to their highest
level in more than a year Wednesday, stoked by upbeat analyst
comments and a rising number of bankruptcy filings among rival hog
producers that should help cut oversupply.
Smithfield's shares surged 9% to $17.05 in afternoon
trading.
Deutsche Bank analyst Christina McGlone upgraded Smithfield to
buy from hold and lifted her price target to $20, up from $12
previously. Stephens Inc. analyst Farha Aslam, who rates the hog
producer as equal-weight, raised her target to $16 from $12.
"Sources indicate that bank pressure has intensified,
potentially forcing more producers to reduce their breeding herds
or even into bankruptcy," McGlone wrote in a report.
Smithfield, the world's largest pig producer, has been cutting
production and closing plants to become profitable again.
The Virginia-based company has racked up a loss of $290 million
since November 2008. On average, analysts forecast Smithfield will
lose money for the next six months, according to FactSet
Research.
It's been a dismal two years for hog growers, many of which have
been going belly up--especially in North Carolina, the No. 2 state
for hog production.
The U.S. hog industry has lost $5.4 billion since September
2007, or $23 on each hog marketed, according to the National Pork
Producers Council.
North Carolina's Coharie Hog Farm filed for Chapter 11
bankruptcy protection on Nov. 6, joining fellow state producer
Coastal Plains Pork, which sought bankruptcy protection Sept. 28,
and Bunting Swine Farms LLC this past May.
Also recently, Minnesota's MHF of Freeborn County Inc. declared
Chapter 11 in October while Illinois-based Leading Edge Pork LLC
filed for bankruptcy protection in September.
More could unfold. According to Stephens' analysis, two of the
nation's top 25 pork producers are "on the brink of
bankruptcy."
Difficult backdrop
High feed-grain costs, oversupply, and fallout from the H1N1 flu
virus--called swine flu by some, even though pork is safe to eat --
have sparked widespread losses over the past two years.
More recently, H1N1 fears have sapped demand and led to export
bans. But that now may be changing, at least in one key market.
China said Oct. 29 it plans to lift a six-month ban on U.S.
pork. An exact date has not been set, however.
In 2008, China purchased $690 million of U.S. pork, making it
the third-largest buyer. From January to August of this year, pork
exports to China are down 50% compared to the same period in 2008,
the National Pork Producers said.
-Matt Andrejczak; 415-439-6400; AskNewswires@dowjones.com