Hog Outlook: Shanghui Acquisition Needs Shareholder, Regulatory Approval

by 5m Editor
3 June 2013, at 8:36am

US - Smithfield Foods, the nation's and world's largest hog producer and pork processor has agreed to be acquired by Shuanghui International Holdings Ltd, a Hong Kong company, for $34 per share, a premium of 31 per cent over the pre-announcement stock price, write Ron Plain and Scott Brown.

Shuanghui is the majority shareholder of Henan Shuanghui Development, China's largest meat processor. Smithfield's annual sales are double those of Shuanghui. Smithfield slaughtered 2.5 times as many hogs in 2012 as did Shuanghui.

There are no plans to change Smithfield management or operations. Why is Shuanghui willing to pay the price premium? Presumably, it is because they are optimistic about being able to increase Smithfield's pork exports. Last year, 2.75 per cent of US pork production was shipped to mainland China. That equaled 0.55 per cent of 2012 Chinese pork production.

Shuanghui will pay $4.7 billion for Smithfield stock and assume $2.4 billion of Smithfield debt. The acquisition needs shareholder and regulatory approval.

Iowa State University calculations indicate the typical market hog sold during April cost $72.78/cwt of carcass weight to raise, and was sold at a loss of $31.66 per head. This was the ninth month in a row with a loss. The April cost of production was the lowest since September. The April loss was the largest ever for that month. The same was true of the $41.44 per head loss during March.

As of May 26, 86 per cent of corn acres were planted, up from 71 per cent the week before.

The national average negotiated carcass price for direct delivered hogs on the morning report today was $90.84/cwt, up 65 cents from last Friday. The eastern corn belt averaged $90.72/cwt this morning. The western corn belt averaged $92.18/cwt. Iowa-Minnesota did not have a price quote this morning. Peoria had a top live price this morning of $61/cwt. Zumbrota, MN topped at $63/cwt. The top for interior Missouri live hogs Friday was $66/cwt, up 75 cents from the previous Friday.

Friday morning's pork cutout calculation based on mandatory price reporting was $93.51/cwt FOB plants, down $2.37 from the week before. Loin and ham prices were lower this week. The wholesale belly price set new record highs this week. The average hog carcass price is 97.1 per cent of the calculated pork cutout value.

Hog slaughter this week totaled 1.867 million head, down 9.1 per cent from the week before, but up 2.4 per cent compared to the same week last year. Monday's slaughter was only 2,000 head because of Memorial Day. The average barrow and gilt live weight in Iowa-Minnesota last week was 275.4 pounds, down 1.2 pound from a week earlier, but up 1.1 pound from a year ago.

The June lean hog futures contract closed at $95.62/cwt today, up 75 cents from the previous week. July hog futures ended the week 55 cents higher at $93.85/cwt. August hogs settled at $93.47/cwt.