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Smithfield CEO: Higher Food Prices Are Here to Stay

Phoenix Capital Research's picture




 

Here’s a
zinger of a news story that most commentators haven’t bothered to take note of…

 

The CEO of
Smithfield Farms, the largest pork producer in the US. Among other things he
said:

 

"Maybe to someone in the upper
incomes it doesn't matter what the price of a pound of bacon is, or what the
price of a ham, or the price of a pound of pork chops is," he says.
"But for many of the customers we sell to, it really does matter." Workers can share cars when the price of
oil rises, he quips, but "you can't share your food."

 

Mr. Pope also worries about the impact
on farmers, who are leveraging up operations to afford the ever-rising price of
land and fertilizer that has resulted from the increased corn demand. "There are record prices for livestock
but farmers are exiting the business!" he exclaims. "Why? Farmers
know they won't make money."

 

Weather is a factor, too. "We've
had the luxury for the last three years of extremely good corn crops, with high
yields and good growing conditions. We
are just one bad weather event away from potentially $10 corn, which once again
is another 50% increase in the input cost to our live production."

 

…Not all companies will survive this
economic whirlwind. Mr. Pope recalls
what happened the last time there was a surge in corn prices, in 2008:
"The largest chicken processor in the United States, Pilgrim's Pride,
filed for bankruptcy."
They "couldn't raise prices, so their cost
of production went up dramatically." Could it happen again? "It darn
well could!" Mr. Pope exclaims.

 

…Mr.
Pope says the "losers" here "are the consumer, who's going to
have to pay more for the product, and the livestock farmer who's going to have
to buy high-priced grain that he can't afford because he's stretching his own
lines of credit.
The hog farmer . . . is in jeopardy of simply going out of
business 'cause he doesn't have the cash liquidity to even pay for the corn to
pay for the input to raise the hog. It's
a dynamic that we can't sustain."

 

So here’s a
CEO, someone with actual business experience (not some moron academic who’s
never run a business a day in his life) telling us the following:

  • Food
    prices are up a lot and going higher in the future.
  • Despite
    high food prices, farmers are quitting farming (lower supplies are coming).
  • Food
    companies will be going bankrupt (even lower supplies are coming).

In other
words, we are rapidly heading into a food crisis. Food prices are NOT going to
be coming down. And we’re going to be seeing food shortages in the US in the
coming months.

 

So if you
are not already preparing for mega-inflation, you need to get moving now.
Because time is running out.

 

So if you’ve
yet to take steps to prepare your portfolio for the coming inflationary
disaster, our FREE Special Report, The
Inflationary Disaster
explains not only why inflation is here now, why the
Fed is powerless to stop it, and three investments that absolutely EXPLODE as a
result of this.

 

All in all
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steps to prepare AND profit from what’s to come. And it’s all 100% FREE.

 

To pick up
your copy today, go to http://www.gainspainscapital.com
and click on FREE REPORTS.

 

Good
Investing!

 

Graham
Summers

 

 

 

 

 

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Wed, 05/04/2011 - 13:45 | 1239254 Kickaha
Kickaha's picture

This article was a great example of how we got into this fucking mess in the first place.  I think there is a consensus here at ZH that the American standard of living is in for a big shock downward.  Like all less affluent peoples, the diet of the average American is going to have to shift from meat to grain. 

Many producers of meat here absolutely need to go out of business.  That would be a far better result on a macro basis than letting them live on as zombies, losing money and dissipating capital.  The market is supposed to work that way, and the capital can be reallocated to the production of grain.

But, instead, the meat industry will lobby Washington and their state capitols for legislative relief, and they will get it.

The grain producers will also seek help from the government to remove some of the risk inherent in the expansion of their businesses.  They, too, will get it.

The US government is now structured to have as its primary directive the preservation of the status quo at any cost.

Wed, 05/04/2011 - 13:40 | 1239198 KinorSensase
KinorSensase's picture

haha.  the world of finance never fails to amuse.  food prices are going to skyrocket, and all these assholes can think about is diversifying one's portfolio.  how about using the money you have now to grow lots of food so you're poor neighbors don't kill the shit out of you when they're desparate and starving?

It's interesting to see how long people try hold on to dying paradigms.  Very little about the future will look like the past 100 years. the least of your concerns will be your fucking portfolio.  I can't wait until Smithfield drowns under the weight of its own bloated, over-centralized pig shit.  Even more, I can't wait for Monsanto to meet the same fate.

Wed, 05/04/2011 - 12:33 | 1238798 Michael66
Michael66's picture

Using corn to make ethanol is a hugh WIN / WIN for everyone.  

The ethanol reduces our imports of petroleum and it INCREASES  the food supply at the same time.

Wed, 05/04/2011 - 12:49 | 1238890 SoNH80
SoNH80's picture

Are you being sarcastic?-- I hope???!!  For every barrel of ethanol produced, THREE barrels of oil are consumed-- for pesticide, for tractors, for trucking, for cooking the corn mash, etc.  Ethanol fuels are destroying our energy economy.  Ethanol also ruins gasoline engine fuel economy, and collects water in fuel systems.  Learn the facts.

Wed, 05/04/2011 - 12:46 | 1238882 theopco
theopco's picture

It also introduces a huge element of systemic risk to the entire country

Wed, 05/04/2011 - 12:33 | 1238786 Michael66
Michael66's picture


It is incorrect to think that ethanol production from corn is a causative factor for the recent increase of food costs.  

 

When ethanol is produced from corn 17% of the corn is consumed and  83% of the corn used for ethanol production is converted to brewers mash.  Brewers mash is a high protein product which is used to feed animals.

 

I refer you to a National Public Radio segment (http://www.npr.org/templates/ story/story.php?storyId=89598524).  In the NPR story cattle ranchers are quoted as saying that the increased ethanol production has resulted in a large increase in the availability of brewers mash at reduced prices.  The reduction in the price of the brewers mash used for animal feed has resulted in a $40 to $50 per animal reduction in the costs of raising livestock.  A cattle rancher quoted in the NPR segment commented that ethanol production has resulted in him saving $200,000 per year to raise his herd due to the wide availability of brewers mash at very reasonable prices.

 

When a whiskey distillery buys 100 pounds of grain to make alcohol it produces 83 pounds of mash.  It is normally able to sell the mash for more than it paid for the grain on a per pound basis because the mash has much more food value.

Wed, 05/04/2011 - 12:49 | 1238889 falak pema
falak pema's picture

The conversion from corn to ethanol is the worst thermodynamic cycle there is. It is 8 times worse than for sugar cane to ethanol for : land usage yield/acre, EROI (primary energy net balance) etc. This is proven fact. Also studies show that rather than use ethanol as car fuel it is better to use it as fuel to make electricity and convert that to car electric cell energy. The overall efficiency is better. Proven fact. The only problem here is the storage problem of electric energy. We'll get there via hydride technology. 

Wed, 05/04/2011 - 12:53 | 1238857 Rogerwilco
Rogerwilco's picture

Your $40-$50 savings are fictional. Animals on feedlots require antibiotics and other topical treatments to keep them healthy in their crowded, filthy environment. These meds cost quite a bit of money and require labor to manage and apply them. Then there's that wonderful discovery by the owners of these feedlots: the piles of bulldozed dung contain lots of undigested "nutritional value"... Of course a reputable company like Smithfield or McDonald's would never mix 10% of cow shit into their animal feed, would they?

Wed, 05/04/2011 - 13:19 | 1239069 -Michelle-
-Michelle-'s picture

Not to mention that a diet of brewer's mash was what made milk supply so disgusting that pasteurization was needed to make it fit for consumption.

Cows should eat grass.  It's why God gave them compartmented stomachs.

Wed, 05/04/2011 - 13:13 | 1239034 kumquatsunite
kumquatsunite's picture

Just bought bacon that seemed to be nothing but fat. Clearly they are also packagin up very cheap cuts and trying to pass them off besides downsizing the maount in the same size packages. Of course, this would have nothing to do with importing one-hundred million immigrants in the last forty years would it? Ruining our water supplies to keep up with the pooh and trash of these people added, unnaturally, to our population.  They "pundits" try to say that the population is not growing and that this was the justification, but the actual process of any people is ebbs and flows; a period of an age group that reaches reproduction capability and does so, followed by that same group raising the children, repeat. There is no natural straight trajectory on population. And since China and Africa and India have fouled their countries with overpopulation, the stupidest, absolute stupidest action is to take their overpopulation as ours. That is a loser's game in so many ways. It is tantamount to eating your seed corn up to the last kernel and saying, "Oh really, I'm supposed to husbandry natural resources for future generations instead of giving them away to third world people's who care nothing for my children's future." Sometimes Americans really are too stupid to deserve this country.

Wed, 05/04/2011 - 14:25 | 1239472 nufio
nufio's picture

you mean the native americans were too stupid to deserve this country.

 

Wed, 05/04/2011 - 12:25 | 1238748 I am Jobe
I am Jobe's picture

Inflation is transitionary and not a concern for the FED Reserve. Hang em all .

Wed, 05/04/2011 - 12:24 | 1238742 I am Jobe
I am Jobe's picture

Eat your IPADS and IPHONES bitchezzzzzzzzzzzzzzz.

See the Whore Street Article. Soon America will have ration cards

 

About 1 in 7 in U.S. Receive Food Stamps

 

http://blogs.wsj.com/economics/2011/05/03/about-1-in-7-americans-receive...

Wed, 05/04/2011 - 12:18 | 1238701 Rogerwilco
Rogerwilco's picture

Smithfield, along with Tyson and Hillshire, they account for 3/4 of all cases of food-borne illness in the USA. I stopped eating their shit a couple of years ago and feel much better now.

Wed, 05/04/2011 - 12:04 | 1238631 Michael66
Michael66's picture

The average age of an American farmer is over 55 years old.

Wed, 05/04/2011 - 11:58 | 1238621 Old Poor Richard
Old Poor Richard's picture

Claiming that farmers are going to quit farming is the same thing as saying capitalism is dead.  Is that the case?  Has Zimbabwe Ben killed capitalism?  Obama and Frank seemingly have killed capitalism in mortgage markets, by making it impossible to gauge risk.  Of course, the banksters brought it on themselves by electing not to gauge risk entirely on their own well before President Obama was elected or before mortgage modifications were invented.

The way I see it, the US has lost some of its enlightenment and devolved back into the sort of nonsensical, patronage-laden corrupt business environment which has existed for most of history.  It comes in waves, there will be reforms in the right direction eventually.  And in the mean time, life ain't fair.

 

Wed, 05/04/2011 - 12:36 | 1238815 falak pema
falak pema's picture

.

Wed, 05/04/2011 - 12:37 | 1238809 falak pema
falak pema's picture

The system is now in danger of implosion, not just deflation. The corruption and concentration of power is so deep that it is incompatible with democratic institutions. If the people do not act fast it could mean that the USA will not only be in economic decline but also in political decline. And that is a killer. Taking back power from an oligarchy is not easy. Ask the Greeks...

Wed, 05/04/2011 - 11:57 | 1238597 Whatta
Whatta's picture

Gubermint took over GM, banking, insurance, etc...they already own war, poverty, our kids....why the hell not

The Oh-Bomb-Uh Farm Coop...a nationalized Farm system. It is bound to work well, just like all other gubermint controlled endeavors. (snark off)

Wed, 05/04/2011 - 14:43 | 1239563 granolageek
granolageek's picture

You've got that backward. The banks are running the government. This is another corporate fascist whining for his bailout. Big Ag hasn't been a real business since at least the 70s (one could argue for 1948). They've been TBTF and sucking the Ag Dept's tit ever since.  

Wed, 05/04/2011 - 12:07 | 1238647 theopco
theopco's picture

you mean banking, insurance, etc took over government, right? laws are written by big biz lobbyists. Is that the government you're talking about? Cuz if it is, then yeah, you're right on the money.

Wed, 05/04/2011 - 11:46 | 1238517 Rastadamus
Rastadamus's picture

Cocaine kills the appetite.

Wed, 05/04/2011 - 11:59 | 1238605 sun tzu
sun tzu's picture

So does death

Wed, 05/04/2011 - 11:38 | 1238479 theopco
theopco's picture

This article is sort of like the river of shit that flows out of smithfield farms. Figuratively and literally.

Farmers are exiting because they know that smithfield "farms" is going to squeeze the living crap out of them.

Wed, 05/04/2011 - 11:34 | 1238459 SoNH80
SoNH80's picture

Be prepared to plow your lawn someday.  If you don't have a lawn, aka arable land, you may want to consider living in a domicile with something other than concrete around it.

Wed, 05/04/2011 - 11:33 | 1238424 Wakanda
Wakanda's picture

"moron academic"

-2 for redundancy

Wed, 05/04/2011 - 11:17 | 1238297 oklaboy
oklaboy's picture

herrrreeeee weeeee goooo agaiinnnnn

Wed, 05/04/2011 - 11:13 | 1238287 wang
wang's picture

or stop eating pork

unless frying up a few strips of pig stomach  (bacon) as a side for some factory farmed ecoli eggs is your idea of 'food'

Wed, 05/04/2011 - 11:26 | 1238332 ThisIsBob
ThisIsBob's picture

Friggin pigs are running wild across the land and are being shot from choppers and left for fertilizer.  So, there's still some fat back for your beans.

Wed, 05/04/2011 - 11:14 | 1238271 ThisIsBob
ThisIsBob's picture

OK, name the guy who takes smug pride in the RUT, but denies all responsibility for the CRB?

Wed, 05/04/2011 - 11:11 | 1238268 kaiserhoff
kaiserhoff's picture

Pope's primary complaints were that 40% of the corn crop is being diverted to ethanol, and that imports of ethanol are effectively banned.  This has little to do with markets and everything to do with incompetent government.

There are also plenty of ways of raising hogs that don't involve factory farming, and are much less sensitive to grain prices.  Try makin' your own bacon.  It's not rocket science.

Wed, 05/04/2011 - 12:07 | 1238651 -Michelle-
-Michelle-'s picture

Even the small farms are raising prices.  The place we get our beef from just sent outa notice that their egg, poultry, and pork prices are all increasing. 

Wed, 05/04/2011 - 12:04 | 1238630 duo
duo's picture

The news from the corn  belt is disturbing.  It's been a cold rainy spring.  Only a fraction of normal corn has been planted, and every week is a drop of many bushels/acre in yield.  Corn doesn't grow well in 40 degree weather.

Wed, 05/04/2011 - 14:01 | 1239348 sun tzu
sun tzu's picture

The government just blew up a levee and flooded 12,000 acres of corn along the Mississippi

Wed, 05/04/2011 - 11:47 | 1238520 sun tzu
sun tzu's picture

Yeah we're all going to have hogs, cows, and chickens in our backyards. People living in apartments can keep the farm animals on the roof.

Wed, 05/04/2011 - 11:40 | 1238494 Vashta Nerada
Vashta Nerada's picture

Amen, brother

Wed, 05/04/2011 - 11:09 | 1238229 strannick
strannick's picture

So here’s a CEO, someone with actual business experience (not some moron academic who’s never run a business a day in his life) telling us the following: food prices are up a lot.

Exactamundo. Obama and Bernanke should prove they can manage a hotdog stand for a summer before they get to run the world economy.

Wed, 05/04/2011 - 12:34 | 1238799 LiquidBrick
LiquidBrick's picture

should prove they can manage a hotdog stand

Trump offered backstage after the shelacking he took but he was declined. Obama said he already had a job. True story.

 

 

Wed, 05/04/2011 - 10:45 | 1238061 Bullionaire
Bullionaire's picture

Golly, inflation is coming?  Whocouldanode?  Better get me this  100% FREE SPECIAL REPORT sos I can find out more about this inflation thing...

 

 

 

Wed, 05/04/2011 - 13:20 | 1239073 Kitler
Kitler's picture

Let's see.

You get 60 or 70 loaves of bread from a bushel of wheat. That's around 10 cents per loaf primary component cost.

And a loaf sells for how much? Right.

Now that is inflation isn't it Mr. Pope.

 

http://www.cwb.ca/public/en/hot/quality/didyouknow.jsp

Wed, 05/04/2011 - 14:11 | 1239389 SCW
SCW's picture

So you are saying that the changes in food prices will have no impact on those few of us left who still eat?  Maybe Wal-Mart (who says their customers are running out of money) and Pilgram's Pride should just suck it up and ignore the bottom line.

 

I know my family would be just fine with more expensive food, I've been saying for years that it'd be fun to live on cat food and tap water.

Wed, 05/04/2011 - 12:48 | 1238878 cbxer55
cbxer55's picture

Before I even got finished page 1, I'd be running out the front door to watch the grass grow on my front lawn. Or to the garage to watch the paint dry on some Lakewood traction bars I got for my Lightning.

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