090226 Hogs & Cattle Fall as Smithfield Announces Plant Closures

February 19, 2009

(Bloomberg) -- Hog futures tumbled the most in about a year after Smithfield Foods Inc., the world's largest pork processor, said it will close six plants in the U.S. Cattle prices also dropped.

The Smithfield, Virginia-based company said in a statement today that the processing plants will be shut by December, cutting 1,800 jobs to restructure its pork business. The closures may limit slaughter capacity and demand for hogs, said Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa.

"We're going to kill the same number of hogs, but it's just a matter of more hogs going through a narrower window," Roose said. "It backs up hog numbers, and the packer could pay less than he would normally since there will be more hogs trying to find a spot. It's kind of like musical chairs."

Hog futures for April settlement fell 2.7 cents, or 4.2 percent, to 61.05 cents a pound on the Chicago Mercantile Exchange, the biggest drop for a most-active contract since Feb. 25, 2008. The price earlier slid the CME's 3-cent trading limit to 60.75 cents a pound.

Wholesale pork rose 0.59 cent, or 1 percent, to 58.58 cents a pound today, U.S. Department of Agriculture data show. The price is up 5.9 percent this year.

Futures also fell as a drop in U.S. equities sent most commodities lower, raising concern that meat demand will shrink as the economy slumps. The Reuters/Jeffries CRB Index of 19 raw materials plunged to the lowest since June 2002. The Standard & Poor's 500 Index of U.S. stocks fell today to the lowest since November, sinking as much as 4.6 percent.

Cattle Markets

In another livestock market, cattle futures for April delivery sank 2.775 cents, or 3.2 percent, to 84.225 cents a pound on the CME. Earlier the price touched 84.025 cents, the lowest since Jan. 30. The price has fallen for four straight sessions and is down 2.1 percent this year.

Feeder-cattle futures for March delivery slid for a fourth session, dropping 2.85 cents, or 3 percent, to 91.625 cents a pound. Earlier the price tumbled the CME's 3-cent limit to 91.475 cents, the lowest since Jan. 30.

Cattle futures fell "in reaction to the lower stock market," said Dennis Smith, a senior account executive at Archer Financial Services Inc. in Chicago. "It's the major market debate right now: tight supplies versus weak recessionary demand for beef."

The price of wholesale choice beef increased 0.23 cent, or 0.2 percent, to $1.3571 a pound, USDA data show. Beef prices still have plunged 5.2 percent this year, according to the USDA.

The shrinking U.S. cattle supply may have boosted wholesale prices today, Smith said. The U.S. may produce 26.1 billion pounds of beef this year, 1.7 percent less than in 2008, the USDA said in a report today.