Food Business News - Jul 25, 2006 - (Page 1)

FoodBusinessNews ® NEWS, MARKETS AND ANALYSIS FOR THE FOOD PROCESSING INDUSTRY July 25, 2006 Beastly heat takes toll across Plains and western Midwest PepsiCo not overreacting to cost increases 18 KANSAS CITY - While triple-digit temperatures across much of the nation sent people scurrying to swimming pools or air-conditioned stores, homes and offices, there was no relief from the torrid heat for crops in several major growing areas. Drought conditions, limited to the southern Plains states during the spring, have spread north and west, posing a threat to production agriculture from the Rockies to the Mississippi river. Jon Davis, a meteorologist with Chesapeake Energy Corp., Chicago, said several crops could be adversely affected by the expanding drought and the current heat wave, 30 days ended July 19 including spring wheat, canola, sugarbeets and 0 5 10 25 50 75 90 100 110 125 150 200 300 400 600 oats, and, to a lesser degree, corn and soybeans. "We know the spring wheat crop is in really poor shape," Mr. Davis said. "The problem weather came just as the crop was heading, and this is having a dramatic impact. Now the southern Prairies are heating up in Canada, which is affecting spring wheat and some canola. In addition to Source: National Oceanic and Atmospheric Administration, U.S. Department of Commerce Continued on Page 20 Percentage of normal precipitation Gut check 24 Bringing the heat 36 MARKET WATCH Processing vegetable acres Freezing Canning 380,360 833,650 Source: U.S. Department of Agriculture Contracted area down 1% from 2005 for five major vegetables. Smithfield's long-term perspective Vertical integration, acquisitions seen as principal avenues to growth Volatility in the protein market has had a vexing effect on Smithfield Foods, Inc., Smithfield, Va., during its past fiscal year. As the world's largest pork producer and processor, as well as the nation's fifth largest beef processor, the company's financial performance has been buffeted by market disruptions due to the spread of highly pathogenic avian influenza around the world and the closure of foreign markets to U.S. beef, because of bovine spongiform encephalopathy (B.S.E.). As the opportunities for U.S. protein exporters have been limited, the amount of protein available on the U.S. market has risen and driven prices down. The increased market pressure was reflected in Smithfield's fourth-quarter fiscal 2006 results. For the quarter, ended April 30, the company reported net income of $1.1 million, equal to 1c per share on the common stock, compared with net income of $85.4 million, or 76c per share, for the same period during the previous year. "This past quarter was difficult for many Continued on Page 28

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Food Business News - Jul 25, 2006