NEW YORK (AP) — Shares of meat producers declined on Thursday with escalating corn prices increasingly likely to cut into profit margins.
Heat and dry weather across much of the U.S. has damaged corn production to the point where many farmers are mowing fields for animal feed, rather than harvesting. The U.S. Department of Agriculture predicted on Wednesday that farmers will get only a fraction of the corn anticipated from this year's crop. That will drive higher the price of corn, a huge input costs for producers.
Investors, as a result, have been dumping shares of companies like Hormel, Tyson Foods and Smithfield Foods. Margins are the amount of each dollar in revenue that a company actually keeps as profit.
Analyst Jonathan Feeney of Janney Capital Markets lowered Hormel Foods Corp., to "Sell" from "Hold," citing higher corn costs and lower-than-expected hog production.
Shares of the Austin, Minn., company, whose brands include Jennie-O turkey, Spam and Hormel packaged meats, dropped 52 cents to $28.56 in midday trading. The stock has traded in a 52-week range of $25.87 to $30.70.
Tyson Foods Inc. was downgraded by Morgan Stanley's Vincent Andrews to "Underweight" from "Equal-weight." The analyst said that the corn crop in the U.S. may wind up being worse than expected, as July and August are typically hot and dry and the crop is already damaged from earlier summer weather conditions.
Andrews also said that even raising chicken prices will probably not be enough to overcome the rising feed costs that Tyson Foods is dealing with for 2013.
The Springdale, Ark. company's stock slipped 71 cents, or 4.2 percent, to $16.35. Its shares have traded in a range of $15.60 to $21.06 in the last year
Shares of pork producer Smithfield Foods Inc. shares fell 80 cents, or 4.1 percent, to $18.74. The stock has traded between $17.79 and $25.12 over the past year.
Smithfield Foods, based in Smithfield, Va., has brands including Armour, Farmland and its namesake.