Packer profits

By Kevin Feagan & Kevin Simpson

Smithfield Foods is the number one fresh-pork processor in the U.S., slaughtering over 20 million hogs a year and distributing their products in over 25 countries. Their corporate goal, "to realize Every Penny of Value from Every Pound of Fresh Pork and Processed Meats We produce," is achieved through:

* creation of a large supply of high-quality raw materials-- leaner hogs produced from superior breeds in one of the nation's best vertically integrated systems.

* aggressive acquisition of good businesses in the pork processing industry, which has resulted in a strong roster of competitive regional brands, nationwide distribution and access to international markets. * creation of Smithfield Lean Generation Pork-- a large program to market high-quality, branded fresh pork.

* value-added use of the company's abundant raw materials through expanded international sales, increased emphasis on processed meats and strong programs to capture more foodservice sales.

Through the '90's, Smithfield transformed itself from a regional concern with $1 billion in annual sales in 1992 to an international concern in 1999 with almost $4 billion in sales. Led by CEO and president Joseph Luter, this company bought several key regional pork processors across the U.S. Local acquisitions include Schneider Corporation and most recently, Mitchell's Gourmet Foods, Canada's No. 3 pork processor. These key purchases allowed Smithfield's to gain immediate access to Canadian markets. Their purchase of a Mexican fresh and processed meats and hog production makes Smithfield's a truly NAFTA-type enterprise.

Their expansion into Europe began with their 1998 purchase of France's largest private- label maker of hams and continued with a controlling interest in Poland's largest meat and poultry processor.

Their vertical integration continued earlier this year with their purchase of Carroll's for $340 million, making them the world's largest hog producer. They now own virtually the entire giant Circle Four hog farm in Utah, which they originally co-founded in 1994 with three other partners. Smithfield Foods continues to expand its hog production operations. Their position as the industry leader is further strengthened with the purchase of The Pork Group (110,000 sows), a subsidiary of Tyson Foods. This acquisition will increase Smithfield's hog production to approximately 13% of the entire U.S. hog slaughter.

Their branding of a premium-priced line of fresh pork is based on the genetics of NPD (National Pig Development, a British family-owned firm). Smithfield's market it as a hormone- and antibiotic-residue-free product that is substantially leaner than traditional cuts of pork. They are proud of having their brand become the first fresh pork to receive the American Heart Association's "heart-check" certification.

Sales and profits have grown 17% and 26% respectively, compounded annually over the last decade. Their share price has increased also, at a 22% rate in the same time frame. Long-term investors would have seen their investment grow sixfold from about $3 per share in 1989 to about $23 today.
Kevin Feagan CFA and Kevin Simpson CFA work with Scotia McLeod, Stratford. They can be reached at 1-877-816-7745.

© copyright 1999 AgMedia Co-operative Inc..

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Maple Leaf may import

Ontario's largest pork processor eyes new regulations to boost profits

by Robert Irwin

Maple Leaf Pork, Burlington, has applied for a permit to import hogs under new regulations that became law this fall month but the company hasn't brought in any American pigs yet. Vice president Bill Oakley says, "My strong preference is to serve producers in our own backyard. However, if we can't acquire enough hogs in our own backyard, then the option of bringing in U.S. hogs is there, and it could be appealing."

Many in the industry share Ontario Pork chairman Will Nap's view that the lower Canadian dollar will mean buying of U.S. hogs "will be limited".

But Oakley stresses that having an open border will finally settle the issue of whether Ontario producers are truly getting the same price as their American counterparts for equivalent hogs. "If producers are receiving a North American equivalent price here, then bringing up pigs from the U.S. would not be cost-effective to us."

Maple Leaf has built its Ontario business around its Signature Pork program, where specified genetics are used to create hogs produced under approved conditions. So how would American hogs fit in? Oakley speculates American hogs could be contracted in the same way as Ontario pigs, because the paperwork involved in buying on a spot basis would be burdensome. "They might be called Signature or they might be called something else. You need to have contracts where you know where the hogs are coming from, where the veterinarians work with you on a regular basis, and where you know the farm is pseudorabies-free."

In future, Maple Leaf could run a Saturday kill exclusively for U.S. hogs destined for a niche market, Oakley speculates.

Last month Maple Leaf reported increased earnings for their third quarter ending September 30, 1999. Sales were up 3.3 per cent and operating earnings increased 42 per cent over the third quarter of last year.

Earnings from operations for the third quarter were $35.7 million, while year-to-date earnings from operations of $102.1 million were up 82 per cent.

© copyright 1999 AgMedia Co-operative Inc..

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Intense hurricanes actually less frequent

But inland flooding heightens the toll

By Henry Hengeveld

On September 2nd a rather small weather system began to develop over the tropical Atlantic, off the coast of Africa. Following the trade winds, it moved slowly westward, progressively building in intensity until it developed first into a "tropical depression", then a tropical storm. Now, having acquired the name Floyd, the storm rapidly sucked up excessive amounts of moisture and heat from the warm Atlantic surface below. Within a week Floyd became a full-fledged hurricane headed for the Caribbean and the east American shoreline. It was about to make history.

Hurricanes in the Atlantic are hardly a rare occurrence. On average, the region experiences about nine named tropical storms each year, six of these developing wind speeds in excess of 74 mph (or 118 kph), and earning the distinction of being called a hurricane. Some veer northward and die quickly die over cooler waters. Others take a half-hearted swipe at some of the tropical islands or the U.S. coastline, then peter out. A few give up less easily. They build into vast, raging whirlwinds that release their awesome power and torrents of water on coastal areas. Fortunately, such events are quite rare. During the last century the eastern United States has been hit only 15 times by hurricanes of Category IV or greater (winds in excess of 225 kph).

As it approached the Caribbean, Floyd developed into a Category IV hurricane, then moved northwest and north, slowly weakening, finally to hit the North Carolina shoreline on September 16th as a Category II storm (winds at 154 kph). However, a notable feature of Floyd was its resemblance to another Category IV hurricane 45 years earlier. On October 9th, 1954, Hurricane Hazel tore into Virginia and North Carolina, producing extensive floods, causing more than $1.5 billion property damage, and killing some 100 people. Not realizing that hurricanes weren't supposed to do so, Hazel stubbornly continued to move inland in a north-northwest track, racing across Pennsylvania and New York to arrive at Ontario's doorstep in the late hours of October 18th. Downgraded by now to a tropical storm, it met up with a weather front moving in from the west and unexpectedly re-intensified; and the rest is history. During the next 24 hours, more than 200 mm of rain fell across much of central Ontario, rivers rose to unheard-of levels, and 81 people drowned.

In recent years, the insurance industry has become increasingly concerned about the rapidly escalating losses due to extreme weather events. Investigations into the possible causes of increased hurricane damage have led to several important conclusions. First, despite public perceptions, intense Atlantic hurricanes have not become more frequent. In fact, the number has on average decreased during the past 50 years. Secondly, the losses arise primarily because society has become more vulnerable: more people with more possessions living in high-risk regions. Thirdly, hurricane experts are beginning to realize that the wind-and-storm surge criteria currently used to classify the severity of a hurricane fail to allow for the dangers of inland flooding. Much of the loss of life and damages due to hurricanes (for example, Floyd this year, Mitch in Latin America in 1998, and Hazel in 1954) has actually occurred due to heavy rainfall during the dying phases of the storms. In fact, the experts are debating a new classification system that will consider both wind and rainfall. Finally, many regional governments and construction industries have failed to weigh the risks of hurricane damage or to enforce building codes already in place. Fortunately, one important exception may well be the municipal governments of Ontario. In the aftermath of Hurricane Hazel they pooled their efforts to develop a comprehensive flood-control system that would go a long way to avoiding a repeat disaster - should some wayward hurricane decide to push its way into our region again. Despite the fading memories, let us hope they will show equal foresight in future water- -management strategies.
Henry Hengeveld is a science advisor on climate change for Environment Canada.

© copyright 1999 AgMedia Co-operative Inc..

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