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More on new packing plant

Sandhusker

Well-known member
New plant may boost cattle prices, analyst says


BLOOMBERG NEWS


Smithfield Foods Inc. could drive up cattle prices with a planned $200 million slaughterhouse in Oklahoma and may force a takeover of rival Swift & Co., according to J.P. Morgan Securities Inc. analyst Pablo Zuanic.

Smithfield, the nation's fifth-largest beef packer, said last week it had agreed in principle to a joint venture with ContiGroup Inc. to build the plant in Texas County, Okla. The facility, designed to process 5,000 animals a day, would increase Smithfield's slaughter capacity by two-thirds, a move that may strain cattle supplies, Zuanic said.

Processors are losing $20 for each animal slaughtered, with plants operating 10 percent to 15 percent below normal utilization levels, Zuanic said. The three biggest packers - Tysons Food Inc., Cargill Inc. and Swift - have cut back slaughter recently as tight animal supplies and weak export demand hurt margins.

A new plant may worsen industry conditions, he said.

"If Smithfield goes ahead, this would worsen the plight of beef packers," Zuanic said. The new plant, planned to be operational in mid-2008, would cost Smithfield 20 cents to 25 cents a year in per-share profit for at least two years as the competition for slaughter-ready animals drives up cattle prices.

The new plant would increase Smithfield's production capacity to nearly 13,000 head of cattle a day, adding 3.6 percent to the industry's current daily capacity of 137,000 head, Zuanic said. The boost would put Smithfield just behind National Beef Packing Co., which can slaughter 14,800 head a day, and Swift, with a capacity of 15,850 head.

Tyson Foods' slaughter capacity is 32,600 animals a day, while Cargill Inc.'s Cargill Meat Solutions can process 29,000, according to Cattle Buyers Weekly, a Petaluma, Calif.-based trade magazine.

Smithfield already raises about 1.6 million head of cattle a year with New York-based ContiGroup, the largest U.S. supplier of livestock to beef producers.

Zuanic said Smithfield's announcement may actually be another example of the company's "continued gamesmanship" to force Swift to put itself up for sale. Smithfield may be trying to "shrink the industry's profit poll" and make it more difficult for other companies to buy Swift, he said.

"Smithfield's plan to build a beef plant may be positive for the stock if the plant is not built, but the threat helps Smithfield acquire Swift," said Zuanic.

Smithfield, Va.-based Smithfield, also the world's biggest pork processor, has long been interested in acquiring Swift, which is owned by buyout firm Hicks, Muse, Tate & Furst.

"We've made no secret that we want a seat at the table when that process gets active," Joe Luter, who was then Smithfield's chief executive officer, said in June 2005. Luter, 67, is now Smithfield's chairman, after stepping down in August after 31 years as CEO.

Swift, based in Greeley, Colo., earlier this month reported its first quarterly profit since November 2004. The company had net income of $11.97 million in the fiscal first quarter, after a $13.07 million loss a year earlier.
 
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