OCM continues to urge state and federal authorities to block Smithfield Foods’ planned acquisition of Premium Standard Farms (PSF).  The deal was announced on September 18, 2006.  The acquisition price was $810 million including assumption of debt.

“Smithfield will solidify its position as the biggest pork packer, the biggest pork producer, and the biggest pork integrator,” said Keith Mudd.  “Smithfield has an anti-competitive history of withdrawing from open marketing bidding, buying and closing packing plants, and increasing volatility in the cash markets.”

The only major packing plants in the Southeast U.S. are owned by Smithfield and PSF.  Smithfield owns plants in Smithfield, Virginia and Tarheel, North Carolina, while PSF owns a plant in Clinton, North Carolina.  This is a classic “two-to-one” merger which would leave only Smithfield as a hog sales market outlet.

“Producer revenue in the Southeast U.S. will suffer whether the producer is a contractor or not,” said Mudd.

Smithfield has a history of buying and closing plants, to reduce hog demand even as it increases hog supply through its own actions as a producer – a certain formula for price reduction.  In 1995, Smithfield bought the John Morrell plants in Sioux City, Iowa and Sioux Falls, South Dakota, only to buy and close a competing plant, Dakota Pork, in Huron, South Dakota two years later.  The result devastated the South Dakota hog production industry.

In 2000, Smithfield bought an FDL packing plant in Dubuque, Iowa, and closed it.

Smithfield planned to spend $100 million to renovate its aging Sioux Falls, South Dakota facility, but has put renovations on hold as it acquires PSF.  OCM believes the risk of Sioux Falls plant closure will increase if the PSF deal goes through.

The biggest immediate producer impact of the deal will be for producers in Missouri, Northeast Kansas and Southeast Nebraska.  Smithfield has plants in Crete, Nebraska and Denison, Iowa, acquired from Farmland Foods in 2003.  The PSF acquisition will decrease market choices and producer prices on the Southern and Western periphery of the major pork packing plant region, which centers on Iowa and surrounding states.

“Smithfield’s acquisition of Farmland Foods left hog producers with yet another elimination of a buyer,” continued Mudd.  “Our hog producing members often cannot receive bids for hogs, but are merely granted, by packer buyers, a date to deliver.  Our producers do not know the price they will receive until after they deliver their hogs.”