Flu fears rip grain, meat markets and company shares

CHICAGO (Reuters) - Fears of a deadly swine flu pandemic wrecking an already wobbly global economy put a dent on the resurgent grains market on Monday, while toppling hog futures and slicing share prices of U.S. meat companies.

The sell-off recalled nervousness in markets when Asia battled the SARS and H5N1 bird flu in 2003. Those outbreaks also raised concerns over demand for food commodities.

The name "swine flu" is a misnomer. The new strain is not infecting pigs, nor has it been detected in them. But markets fear that even the perception of a link could cut demand for pork and livestock feed like soybeans and corn.

The disease has killed up to 149 people in Mexico and spread to the United States, Europe and possibly New Zealand. It has led Russia and China to stop the import of meat not thermally treated from Mexico, California, Texas and Kansas.

"Emotion is driving these markets," said grains analyst Joe Victor of brokerage and research company Allendale Inc.

"There are fears that global economies will suffer even more...the world economy is not healthy as it is," he added.

The World Bank estimated last year that a flu pandemic could cost $3 trillion and result in a nearly 5 percent drop in world gross domestic product.

The World Trade Organization in March forecast that trade volumes will fall 9 percent this year, the sharpest contraction since World War Two, as demand collapses in the biggest economic downturn in decades.

The United States is the world's top exporter of grains and a major supplier of pork, beef and chicken to countries across the globe, including neighboring Mexico.

Hog futures at the Chicago Mercantile Exchange fell by the daily trading range of 3 cents per lb, adding to losses on Friday when nervous traders sold near the session's close.

Pig futures in Germany fell about 3.5 percent amid concerns that pork consumption will decline.

The death toll from the swine fever rose in Mexico over the weekend, and more cases were detected in the United States. Canada now has six confirmed cases and Spain has one.

MEAT COMPANY SHARES TUMBLE

Shares of Smithfield Foods Inc, the largest U.S. hog and pork producer, were down 12 percent at $9.06 at 3 p.m. CDT (2000 GMT). Tyson Foods Inc fell 9 percent to $9.96. Hormel Foods Corp fell 2 percent to $29.95.

J.P. Morgan Securities cut its estimates of earnings for Smithfield and Tyson. "Though there is no evidence that swine flu can be obtained by eating pork, the fear generated by a disease named after hogs cannot be good for pork consumption," analyst Kenneth Goldman wrote in a note to clients.

He now expects Smithfield to post a loss of $1.68 per share in 2009, up from his prior estimate of a loss of $1.51. Goldman now sees Tyson posting a loss of 23 cents a share, against a profit estimate of 22 cents.

Soybean futures at the Chicago Board of Trade fell 3.4 percent amid fears of demand destruction by the flu. The slump began with trading in Asia, a major importer of soybeans led by China -- the world's No 1 market for the oilseed.

The soy market recently hit six-month highs amid concern over rain delays to seeding in the United States and as the crop in major exporter Argentina continued to dwindle in the aftermath of a severe drought early in the year.

Mexico is a major market for U.S. soybeans, with purchases totaling 2.4 million metric tons, or nearly 8 percent of total sales so far in the current marketing year ending August 31. The country accounted for 17 percent of total corn sales.

"The market doesn't like unknowns or a sense of fear, and on a more worrisome note the World Health Organization (WHO) put out a note warning of a pandemic risk," said Jim Bower, analyst at Bower Trading.

"As an analyst, I'd saw that on a scale of 1 to 10, we're probably at about a 2 or at the outbreak stage...not yet epidemic or pandemic," Bower added.

U.S. May soybeans settled 35-1/2 cents lower at $10.04-3/4 per bushel. May corn was down 4-3/4 cents at $3.72-1/4. May wheat was down 24-1/4 at $5.08.

(Additional reporting by Bob Burgdorfer, Sam Nelson, Karl Plume, Rod Nickel, Michael Hirtzer; Editing by David Gregorio)