Meat + Poultry - April 2009 - 30

CUTTING BACK

will remain about the ability of some
companies to weather the economic
storm. Several major players have already announced plans to downsize
their operations. Of the biggest companies, Cargill Inc. (with interests in
beef, pork and turkey processing) and
Hormel Foods (in pork and turkey)
look to be ﬁnancially strong.
JBS (in the U.S. in beef and pork)
is on a sound ﬁ nancial footing right
now and has strengths in its global
production platform, its solid balance
sheet and its focus on being a leastcost processor. But its beef operations
in Brazil and Australia are unlikely to
deliver the same kind of proﬁts they
did in 2008. And U.S. beef and pork
margins, as noted, have deteriorated so
far this year. However, JBS on March
10 said it plans to double its 2008 dividend to 102.3 million reais (US$42.9
million) from a previously planned 51.1
million reais (about US$21.5 million).
The amount is six times more than
what it paid in 2007, it said.
As the world's largest meat and
poultry company, Tyson Foods has
taken various steps so far this year to
improve its performance and ﬁnancial
strength. In March it completed the
sale of its Canadian beef operations
in Brooks, Alta., to XL Foods. Tyson
received C$55.5 million at closing. Another C$50 million, plus interest will
be paid over a ﬁve-year period. On
March 9, Tyson announced it had entered into a $1 billion senior secured
credit facility with JPMorgan Chase
Bank. Tyson also closed a previously
announced offering of $810 million in
unsecured notes due 2014. It intends
to use the proceeds to repay borrowings and terminate commitments under
its accounts receivables facility, repay
and/or reﬁ nance other indebtedness
and for other general corporate purposes, it says.
"Given the current ﬁnancial market,
we believed it was prudent for us to
proceed with these measures now,"
said Dennis Leatherby, Tyson's executive vice president and chief ﬁnancial
ofﬁcer. "The offering and new credit
30

MEAT&POULTRY

April 2009

facility provide Tyson with continued
ﬁnancial ﬂexibility, giving us the option of paying off some existing debt
early, as well as funds for future ﬁnancing needs."
Meanwhile, Pilgrim's Pride Corporation may be in the process of ceding
its No. 1 position in poultry processing
back to Tyson. Operating under Chapter 11 bankruptcy protection, Pilgrim's
is closing three plants, in Douglas, Ga.;
El Dorado, Ark.; and Farmersville, La.

Smithﬁeld ended its ﬁscal 2009 third
quarter (ended February 1) with $960
million in available liquidity. It has
reduced its overall debt by $700 million since the fourth quarter of ﬁscal
2008, including more than $320 million in the third quarter. Debt to total
capitalization has been reduced to 53
percent, it says. However, some ﬁnancial analysts remain cautious about
Smithﬁeld because of the debt it has
coming due in October, its heavy hog
production losses ($254 million in
the third quarter) and the state of the
credit markets.

Corn-price threat

Corn futures in
early March were
anticipating that prices
would creep up to $4
by late summer.
It subsequently announced plans to
sell the Farmersville facility to Foster
Farms for approximately $80 million.
The ﬁrm says the closures, which involve the loss of 3,000 jobs, will create
$110 million in annual net savings. The
closures mean it will cut production
by nearly 10 percent. Pilgrim's says it
remains conﬁdent it will emerge from
Chapter 11 in calendar 2009.
Smithﬁeld Foods, the nation's and
world's largest pork company, appears
to have strengthened its balance sheet.
It took steps in February to close six
plants and eliminate 1,800 jobs. It is
also signiﬁcantly restructuring its business model of independent operating
companies by reducing these to three
from seven. The move will save Smithﬁeld about $55 million in ﬁscal 2010 and
$125 million by ﬁscal 2011, it says.

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Also hanging over the industry is the
likelihood of higher corn prices. Cash
prices in mid-March were $3.50 per
bushel, basis Omaha. These were 32
percent lower than the $5.18 being
paid a year earlier. But prices are still
well above the average $2 to $2.25
seen for years up until 2007. Corn
futures in early March were anticipating that prices would creep up to
$4 by late summer. Prices could go
higher if the Obama Administration
pushes ahead with an increase in the
percentage of ethanol-based fuels to
be blended with conventional fuel,
say analysts.
The Administration wants to raise
the percentage to as much as 13 percent from the current 10 percent. Right
now, USDA has corn farmers planting
about the same number of corn acres
as last year. .
Last year's record-high corn prices
caused most poultry processors, and
Smithﬁeld and others on the hog side,
to incur heavy ﬁ nancial losses. Increased prices again this year could put
some companies more at risk, given
weak domestic demand for meat and
poultry and a sharp decline in pork
and poultry exports.
Steve Kay is editor and publisher of Petaluma, Calif.based Cattle Buyers Weekly (www.cattlebutersweekly.com).
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Meat + Poultry - April 2009

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