Smithfield Foods ends contracts with 26 US pig farms, citing oversupply

By Tom Polansek

CHICAGO (Reuters) -Smithfield Foods said it will end contracts with 26 hog farms in the U.S. state of Utah, in the latest contraction by the world's largest pork processor in the face of an industry oversupply.

Pork producers have been losing money as pig prices and consumer demand have struggled at a time of high costs for labor and other expenses.

Smithfield, owned by Hong Kong's WH Group, said it will terminate employees who support its dealings with farms that raise hogs under production contracts. Layoffs may total about 70 employees, or up to one third of the 210 workers in Smithfield's Utah hog production operations.

The contracts are with finishing farms that raise hogs to slaughter weight, Smithfield said in an email to Reuters on Wednesday, adding that it will continue to operate company-owned sow farms in Utah.

Analysts said pork producers need to cut the number of sows, or female pigs used to reproduce, to return to profitability more quickly.

"Our industry and company are experiencing historically challenging hog production market conditions," Smithfield CEO Shane Smith said in a Tuesday statement.

Smithfield in October said it would shut a pork plant in Charlotte, North Carolina, after previously confirming it would permanently close 35 Missouri hog farm sites. Last year, the company said it would close a California plant and reduce its herd in the Western U.S.

Smithfield needs such cutbacks to remain competitive, Smith said. The company cited an "industry oversupply of pork, weaker consumer demand and high feed prices" as challenges, though futures prices for corn used for livestock feed last month fell to their lowest level in nearly three years.

U.S. meat companies also grappled with excess chicken supplies this year, and face dwindling cattle inventories and a law requiring more space for livestock in California.

Tyson Foods, the biggest U.S. meat company by sales, has shut chicken plants.

(Reporting by Tom Polansek; Editing by Leslie Adler)