Food for thought at Smithfield…

July 3, 2008

As we head into the Fourth of July holiday and what will no doubt be a weekend full of BBQs, I can’t seem to get a number that I saw in the 10K that Smithfield Foods (SFD) filed last week out of my head: their slaughter capacity in the U.S. has now reached 122,000 pigs a day at the company’s nine different plants. Think about that for a minute (preferably when you’re not about to tuck into a plate of baby-back ribs). Assuming those 9 plants run around the clock, that’s 564 pigs each hour or over 44 million pigs a year. According to the USDA, a typical pig reaches slaughter weight at 240 to 270 lbs. And, as this article in Rolling Stone pointed out in December 2006, the average pig produces 3 times as much excrement as a human who weighs the same amount.

Those kind of numbers made me go back and look at Smithfield’s 10Ks to see what the trend has been over the past decade. When the Rolling Stone article came out, it estimated Smithfield’s slaughter capacity at 27 million a year, though the 10Ks would actually put the number for 2005 at 101,000 a day or 36.8 million hogs a year. Ten years ago, Smithfield’s slaughter capacity was 62,000 a day or just over 22 million a year.

But perhaps what’s really surprising is that all of this consolidation and presumably increased efficiency really hasn’t been all that beneficial for Smithfield shareholders. Between 2006 and 2007, daily slaughter capacity climbed by 21,000 or just over 20%. But a quick peek at the chart for Smithfield shows that the stock has fallen 45% in the past year and is now trading near its 52-week low.

Now presumably, Smithfield can’t continue growing its slaughter capacity at 20% a year. From the Rolling Stone article (and other sources), we already know this isn’t good for the pigs nor the local environment where those pigs are raised, nor the workers who kill 122,000 pigs a day. But the fact that this increased consolidation also doesn’t seem to be working well for investors should give new pause to think about this.

Don’t forget to celebrate your independence this Fourth of July. Footnoted will be back on Monday with whatever is buried in the filings later today. Enjoy the long holiday weekend!

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