010901 Smithfield Deal For Packerland Steps Up Beef War

Kansas City - Top pork producer Smithfield Foods deal to buy Packerland Holdings Inc., the fifth-largest U.S. beef packer, adds to an already fierce industry battle being waged by Farmland Industries, Tyson Foods, ConAgra Foods and others racing to boost profits through value- added products and branding, analysts said.

“I think they (Smithfield) have the intention of becoming the largest meat purveyor in America,” said Dale Benson, livestock analyst with Crystal River Capital, a commodity brokerage firm in Carbondale, Colorado.

Smithfield's announcement on Friday that it was paying $250 million to buy Green Bay, Wisconsin-based Packerland caught many in the industry unaware. But the deal is not expected to cause any shift in strategies on the part of competitors.

Farmland National Beef, the nation's fourth-largest beef packer and the company thought by analysts to have been one of Smithfield's acquisition candidates, already was embarking on an aggressive expansion plan to boost beef sales.

The Smithfield deal will not change the company's plans, Farmland officials said on Monday.

The Smithfield move into beef only underscored the need for Farmland's expansion, which involves opening a string of new case-ready packaging plants around the country, said Bill Fielding, Farmland's president of refrigerated foods and livestock production.

“Things remain very competitive but we think we're very well positioned,” Fielding said. “With the Smithfield deal and with what already exists in the industry with IBP and Tyson coming together, it just continues to put more emphasis on the marketing side of the business, making improvements and going up the value chain.”

Farmland has opened two case-ready processing plants in Georgia and Pennsylvania and a third plant is slated to open in Kansas City in the spring. At least two more are planned over the next 18 months, according to Farmland officials.

“Case ready is a new category for beef,” said U.S. Premium Beef Chief Executive Steve Hunt. “We're not quite sure how big it will grow.”

U.S. Premium Beef is a partner with Farmland Industries in Farmland National Beef, which processes more than 2.6 million head of cattle a year and ships more than 700 loads of beef a week to customers across the United States.

Smithfield has long sought to join the ranks of national meat powers like Farmland, Cargill Inc., ConAgra and IBP Inc.

Already the nation's largest pork producer, Smithfield has been trying to diversify into beef processing since it was outbid late last year by poultry giant Tyson Foods Inc. in an attempt to purchase IBP Inc., the largest U.S. beef packer.

However, it will take more than the Packerland purchase for Smithfield to become a major player in the beef industry, industry sources said.

Although ranked fifth in U.S. beef production, Packerland is small when compared with the four top meat packers. Its estimated annual sales of $1.433 billion compare with IBP's nearly $17 billion and ConAgra's $12 billion.

Industry talk included rumors that Smithfield tried to buy the ConAgra Foods Corp. beef division before buying Packerland, and analysts on Monday said such a move may still be an option as ConAgra struggles with its money-losing Monfort beef unit.

“We don't know if the talks are over forever. Things are always subject to change,” said Chuck Levitt, senior livestock analyst with Alaron Trading Corp. “It has been pretty well known that if the price was right, they (ConAgra) might be willing to part with their Monfort operation.”

Much of ConAgra's beef division was formed in the late 1980s when it bought Monfort of Colorado beef company.

Another Smithfield competitor, Cargill Inc.'s meat subsidiary, Excel Corp., expanded this summer when it bought Emmpak Foods Inc. a Milwaukee-based maker of case-ready and value-added meat products.

Excel is the nation's third-largest meat company with estimated annual sales of $10 billion, while Emmpak's sales were estimated at $650 million, industry sources said.

Meanwhile, the move by Smithfield was cautiously welcomed by the cattle industry since it will create another large beef producer.

“I don't see any downside. It broadens the competition for fed cattle,” said Dave Weaber, director of research for Cattle-Fax, a cattle industry research firm.

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