Smithfield Foods, A Personal Education

I’ve long heard in the non-conventional food media about Smithfield Foods. Surely, I’ve eaten a lot of their food products and, if you eat pork, chances are you have too. So I wanted to learn more about Smithfield and do some of my own research. Here’s what I learned.

Who is Smithfield Foods?

Smithfield Foods began as a pork processing operation called The Smithfield Packing Company, founded in 1936 by Joseph W. Luter and his son, Joseph W. Luter, Jr. After a long series of acquisitions beginning in the early 1980’s Smithfield grew to become the largest pork processor and hog producer in the world. At the end of 2010 Smithfield sold its turkey operations and a 49% interest in Butterball. Earlier in 2010 Smithfield sold its live cattle operations. Currently, nearly 100% of Smithfield’s sales are derived from the sale of pig-related products. Packaged meat is sold domestically under the Smithfield, Farmland, Healthy Ones, John Morrell, Margherita and many other brand names.

Smithfield is responsible for ~25% of total pork produciton in the U.S. Tyson is responsible for 17% of U.S. pork volume and three other companies (Swift, Cargill & Hormel) account for an additional 27%, making the top five producers responsible for 70% of U.S. pork production.

Interesting production statistics in the recent fiscal year

  • Smithfield processed 27.3 million hogs with an average yield of 230 pounds per hog 
  • This totaled 6.3 billion pounds of marketable pork product
  • Smithfield raised 12.7 million of the 27.3 million hogs processed and purchased the remainder from Maxwell Foods, Prestage Foods and other suppliers
  • 827,000 company-owned sows produced 16.4 million hogs for market (12.7 million were processed by the company)
  • Each sow produces an average of 20 market hogs per sow per year
  • 770,000 Smithfield sows were bred using Smithfield’s owned genetic lines, a.k.a. Smithfield Premium Genetics, or SPG for short
  • Of the 6.3 billion pounds of pork produced, 3.6 billion pounds were sold as fresh pork, which is unprocessed, trimmed cuts such as butts, loins and ribs to retail customers
  • 2.7 billion pounds were sold as packaged meats, such as hams, bacon, sausage, etc. 
  • Smithfield operates 40 processing and packaging plants throughout the world
  • Combined, 8 of the domestic plants can process over 110,000 hogs per day (or one hog every 20 seconds over a 10 hour day)
  • Total processsing capacity is 550,000 heads per week and 64 million pounds of packaged meats per week
  • North Carolina, Virginia, Iowa and Nebraska are the primary states of production, although there are facilities throughout the South and Midwest regions
  • 70% of Smithfield’s sows are housed in individual gestation stalls

The above statistics are for U.S. production. Smithfield also operates hog production and processed pork facilities in Poland, Romania, the UK and Mexico. Last year Smithfield processed 3.1 million hogs and sold 1.9 billion pounds of pork internationally.

Interesting financial statistics from the recent fiscal year

  • Total sales of over $12 billion
  • Domestic customers accounted for nearly $10 billion
  • International customers totaled $2 billion in sales
  • 10 customers account for approximately 30% of sales (or ~$4 billion)
  • Live hog prices are expected to exceed $60 per hundred weight (cwt) in 2012, as compared to $48, $44 and $57 per cwt the past three years
  • Average direct cost to raise a hog will reach $65 per cwt as grain prices soar, as compared to $62, $55 and $54 per cwt the prior three years
  • As you can see, raising costs typically exceed selling prices for live hog production, leading to losses for whole hog production. Smithfield makes its money by processing the hogs for fresh pork and packaged meat sales
  • Margins for packaged meat are typically 10-15 cents per pound
  • Top shareholders include: Continental Grain Company, Fidelity, Wellington, Vanguard Group, AllianceBernstein and BlackRock

My takeaways for Little Seed

The more I read about the sheer size of a company like Smithfield the more I gained confidence that a small, differentiated farm like ourselves could really thrive and have an impact on our local community. The opportunity for supplying local, pasture-based pork is huge. If we have 15 or fewer farrowing sows that will equate to 0.002% of Smithfield's herd or less. Said another way, it would take over 55,000 farms the size of Little Seed to equal one Smithfield, and Smithfield is only 25% of the market. Of course, there are many hurdles to the small, pasture-based farmer (marketing, distribution, educating the customer, higher prices, etc), but I like having huge, commodity producers as competitors, they're easy targets.