SAN FRANCISCO – Morgan Stanley downgraded Smithfield Foods to underweight based on margin pressure concerns. As a result, the company’s shares declined 3 percent to $17.82 Aug. 7, according to news reports.
Traders are concerned that as feed prices continue to increase, hog producers will cut production to cover the costs. There are signs this is already happening. Supplies of hogs typically increase in August, but producers, pressured by surging feed costs, are selling animals they would normally keep for breeding. As hog producers cut production, traders fear that retail prices will rise to cover higher live hog costs, pressuring margins for fresh pork and packaged meat.
Shares of meat and poultry companies have taken a beating on surging corn futures prices that have been trading near $8 a bushel. Smithfield shares have declined 27 percent since Jan. 1 compared to Tyson Foods, which is down 29 percent and Sanderson Farms which is down 26 percent.