Smithfield Foods (NYSE:SFD), the number one pork producer and major meat producer, reported fourth-quarter and full-year losses in its earnings report last week. Major food producers have found the going tough in the last year, with a series of negative factors that have offset the traditional continuing recessionary demand for food and food products by consumers.

Smithfield's Woes
For the full year, Smithfield's losses amounted to $190.3 million, or a negative $1.35 per share, versus positive earnings of $128.9 million or 96 cents a share a year earlier. Fourth-quarter numbers were in a similar direction: a loss of $78 million, or negative 55 cents per share, compared to a profit of $2.4 million or 2 cents per share from the previous year, same quarter. The full year numbers are despite sales increasing $1.1 billion or 10%, as surging prices in grain feed were cited by the company as the major problem. ( Learn how hedging with futures can protect those who buy and sell commodities from adverse price movements, see Grow Your Finances In The Grain Markets.)

Industry-Wide Woes
Other major food producers felt the impact of the skyrocketing feed grain prices, too. Tyson Foods (NYSE:TSN), the world's largest chicken producer, is having a difficult time with earnings. The company is addressing its debt issues by raising capital. In Smithfield's case, the country's shift in ethanol policy, which is diverting grain-based feed corn away from hog producers towards bio-fuel production, concerns the company long-term, and was a factor in its sobering outlook for the remainder of 2009 and 2010.

Other food producers have been able to fight through the recession, and commodity cost issues more positively. Hormel Foods (NYSE:HRL), makers of such products as Dinty-Moore beef stew and Spam, were still able to post profits. Hormel is aggressively promoting Spam as a recession food, but has also sought to strengthen its global presence recently with a deal in Mexico.

(NYSE:KFT), also profitable, is pushing harder into China, and has its extremely diverse range of food products, so it is not dependent on hog raising, as much of Smithfield's business is. Likewise, Hormel has many beef products, and is not as pork-centric as Smithfield. Add Dean Foods (NYSE:DF) to this list, which has purchased Belgian soy producer Alpro to help address its feed costs and also remains profitable. None of the food producers, however, are showing great earnings increases and will likely be happy to get through the recession showing positive numbers.

Smithfield's Predicament
The sobering outlook for the company's business is appropriate, in light of its dependence on hog raising due to its strong concentration on pork production. With no immediate relief in sight for the feed grain supply costs, this will continue to impact the company's bottom line. Smithfield will have to continue to struggle against this, while hoping that demand for pork products continues to grow, as reflected in its sales growth, while the company will also have to try to trim costs in other areas until it figures out a way to solve the feed grain cost crisis, or until corn commodity prices moderate on their own. Until then, it would be difficult to recommend purchasing the stock. (Each month can bring new growth opportunities, if you know where the right investment seeds are Investing Seasonally In The Corn Market.)

Related Articles
  1. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  2. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  3. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  4. Investing News

    Glencore Shares Surge in Hong Kong

    Shares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
  5. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  6. Investing Basics

    3 Key Signs Of A Market Top

    When stocks rise or fall, the financial fate of investors change, as well. There are certain signs that can reveal a stock’s course, and investors don’t need to be experts to spot them.
  7. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  8. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  9. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  10. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  3. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  5. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!