Pig virus squeezes Hillshire profits; sausage prices to increase


By Michael Hirtzer

CHICAGO, Nov 2 (Reuters) - Hillshire Brands Co saidthis week that cases of a virus deadly to baby piglets weregrowing and the company was increasing meat prices to combatrising commodity costs tied to the disease.

The Chicago-based maker of Jimmy Dean sausages and Ball Parkhot dogs was one of the first companies to state publicly thatthe porcine epidemic diarrhea virus, or PEDv, was hurting itsbottom line - and it will not be the last, analysts said.

Hillshire's net sales increased 1 percent to $984 million,but operating income declined by 35 percent, pressuring margins.

"As we've moved into the second quarter, we've begun to takeadditional pricing actions," Hillshire President Sean Connollysaid, adding that sales volumes could decline as consumers adaptto higher prices at the grocery store.

Analysts will be closely watching for signs of PEDv whenother major meat companies such as Tyson Foods Inc andHormel Foods Corp report earnings later this month.

Archer Daniels Midland Co said this week the diseasehad not had a significant impact on demand for soybean meal, awidely used feed in hog diets.

Hillshire's fiscal quarter that ended Sept. 28 would be thefirst to take into account the PEDv disease, discovered in theU.S. hog herd in May and thought to affect hundreds of thousandsof the 68 million hog herd. It typically takes hogs about sixmonths to reach slaughter-ready weights.

The incurable disease causes diarrhea, vomiting anddehydration in hogs, killing as many as 80 percent of pigletsthat contract it. The disease not does affect humans and is nota food safety concern.

Fewer instances of the disease were seen during the hotsummer months, but cases are rising again with the onset ofcooler weather, experts said. In North Carolina, which trailsonly Iowa in the number of hogs it produces, 250 swine farmshave tested positive, the state's director of livestock healthtold Reuters.

Hillshire's chief financial officer, Maria Henry, said in aconference call with analysts that the number of instances ofPEDv was increasing, driving up prices for hogs.

"We are heavily affected with what's going on there," shesaid. "We had a spike early, and then the number of reportedcases was coming down. Now the number of reported cases is goingback up. That's wreaked a bit of havoc on that piece of themarket, particularly around pork and sows."

Benchmark lean hog futures shot to nearly two-yearhighs at the Chicago Mercantile Exchange after the outbreak.

Prices for live sows are up 27 percent from a year ago,while wholesale prices for hams on Friday hit $89.30 per cwt -just below the record high levels seen in 2008, according toU.S. Agriculture Department data.

Pork prices typically decline early in the autumn as thearrival of mild temperatures and freshly harvested corn andsoybeans speed weight gain in the animals, creating more supply.

The worst may be yet to come. Animals contracting thedisease in the autumn may not be available in the spring whendemand hits its yearly peak before summer grilling season.

"We will see the most significant impact in the spring,"said Dan Norcini, an independent livestock trader. "You aregoing to see a reduction in the number of slaughter-ready hogsin the time frame pork demand begins to increase."

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