Smithfield Foods owner WH Group is anticipating adverse pork market conditions in the U.S. to carry through the end of the year following a period of stark profit losses, the world's largest pork processor said in its first-half results Tuesday.
WH Group’s pork division reported an operating loss of $409 million for the first six months of the year due to a mix of inflationary pressures, demand challenges and higher costs primarily in its U.S. business.
“We expect such unfavourable operating landscape will continue to affect us for certain periods of 2023,” WH Group said in its earnings report, adding that it will rigorously work to “manage prices and control costs.” Smithfield is set to close 35 hog farm operations in Missouri this fall after its parent company reported a loss in the first quarter.
A combination of high feed costs and low pork values has eroded returns for U.S. hog farmers. Retailers have also kept prices elevated, weakening demand and taking a toll on Smithfield and other meat processors.
“Hog producers were making sizable losses,” WH Group wrote in its earnings report. U.S. pork cutout prices declined 20% over the first six months of the year amid abundant supplies and soft demand.
In an effort to cut costs, WH Group made some restructuring moves this year. In May, the processor said it would close a processing plant along the West Coast, exit certain hog farm operations in Arizona and California and reduce its sow herd in Utah. It sold the processing plant in June for $205 million, according to its earnings report.
WH Group is also ceasing operations of certain sow farms in Missouri due to “persistent animal disease and underperformance issues.”
Challenges in the U.S. offset profit gains from WH Group’s pork operations in Europe and China over the first six months, according to the report. The overseas segments saw revenue and profit gains over the period due to increased processing capacity in China and higher pork prices in Europe as a result of the African Swine Fever.
WH Group's operating loss in the first half is a stark contrast from last year, when the pork division reported a $124 million profit over the same period. Revenue totaled $5.58 billion over the first six months, roughly unchanged from a year ago.
“We will strive for the best results amid the highly uncertain external environment,” WH Group wrote in its report.