Smithfield CEO: Higher Food Prices Are Here to Stay
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
"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.
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:
prices are up a lot and going higher in the future.
high food prices, farmers are quitting farming (lower supplies are coming).
companies will be going bankrupt (even lower supplies are coming).
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
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