By Michael Hirtzer
CHICAGO Nov 2 Hillshire Brands Co said
this week that cases of a virus deadly to baby piglets were
growing and the company was increasing meat prices to combat
rising commodity costs tied to the disease.
The Chicago-based maker of Jimmy Dean sausages and Ball Park
hot dogs was one of the first companies to state publicly that
the porcine epidemic diarrhea virus, or PEDv, was hurting its
bottom line - and it will not be the last, analysts said.
Hillshire's net sales increased 1 percent to $984 million,
but operating income declined by 35 percent, pressuring margins.
"As we've moved into the second quarter, we've begun to take
additional pricing actions," Hillshire President Sean Connolly
said, adding that sales volumes could decline as consumers adapt
to higher prices at the grocery store.
Analysts will be closely watching for signs of PEDv when
other major meat companies such as Tyson Foods Inc and
Hormel Foods Corp report earnings later this month.
Archer Daniels Midland Co said this week the disease
had not had a significant impact on demand for soybean meal, a
widely used feed in hog diets.
Hillshire's fiscal quarter that ended Sept. 28 would be the
first to take into account the PEDv disease, discovered in the
U.S. hog herd in May and thought to affect hundreds of thousands
of the 68 million hog herd. It typically takes hogs about six
months to reach slaughter-ready weights.
The incurable disease causes diarrhea, vomiting and
dehydration in hogs, killing as many as 80 percent of piglets
that contract it. The disease not does affect humans and is not
a food safety concern.
Fewer instances of the disease were seen during the hot
summer months, but cases are rising again with the onset of
cooler weather, experts said. In North Carolina, which trails
only Iowa in the number of hogs it produces, 250 swine farms
have tested positive, the state's director of livestock health
Hillshire's chief financial officer, Maria Henry, said in a
conference call with analysts that the number of instances of
PEDv was increasing, driving up prices for hogs.
"We are heavily affected with what's going on there," she
said. "We had a spike early, and then the number of reported
cases was coming down. Now the number of reported cases is going
back up. That's wreaked a bit of havoc on that piece of the
market, particularly around pork and sows."
Benchmark lean hog futures shot to nearly two-year
highs at the Chicago Mercantile Exchange after the outbreak.
Prices for live sows are up 27 percent from a year ago,
while wholesale prices for hams on Friday hit $89.30 per cwt -
just below the record high levels seen in 2008, according to
U.S. Agriculture Department data.
Pork prices typically decline early in the autumn as the
arrival of mild temperatures and freshly harvested corn and
soybeans speed weight gain in the animals, creating more supply.
The worst may be yet to come. Animals contracting the
disease in the autumn may not be available in the spring when
demand hits its yearly peak before summer grilling season.
"We will see the most significant impact in the spring,"
said Dan Norcini, an independent livestock trader. "You are
going to see a reduction in the number of slaughter-ready hogs
in the time frame pork demand begins to increase."