Meat Producers Shares Surge on Price Optimism

by 5m Editor
6 August 2008, at 11:43pm

NEW YORK - Shares of meat producers surged on Tuesday on the back of a JPMorgan analyst predicting that an expected curtailed supply of pigs would lift pork prices.

A report from the Associated Press cited JPMorgan analyst Ken Goldman as saying, "Pork producers, such as Smithfield Foods, Inc., are cutting back on how many pigs they produce, causing a reduced supply that will lift pork prices in stores."

Mr Goldman also said not to expect consumers, who are feeling the pinch from a softening U.S. economy, to push back on higher prices.

However, Mr Goldman warned that the industry isn't out of the woods yet.

Meat producers have faced higher costs for grain, especially corn, that is needed to make animal feed and the alternative fuel ethanol, which is in strong demand. These higher costs may cut into earnings for producers, if they have to pay more for corn to feed their animals.

"The industry still needs to work through the headwind of feed costs," Goldman wrote in a client note. "Though corn and soy have come well off their peaks, both remain high year-on-year."

The report resulted in Smithfield Foods shares rosing 10.3 percent.

Elsewhere in the sector, Pilgrim's Pride Corp.'s stock jumped 17.7 percent, shares of Sanderson Farms Inc. rose 5.3 percent and shares of Tyson Foods Inc. rose 7.2 percent.

5m Editor