Maple Leaf’s bacon prices on the rise as pig virus slams industry

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Maple Leaf Foods Inc. is raising prices for bacon, hot dogs and other prepared meats amid mounting losses from restructuring and a piglet-killing virus that has driven up costs.

The as-yet unknown price increase for its prepared meats follows a 14-per-cent rise in prices across the industry in the first part of the year. Chief executive officer Michael McCain said the moves should restore margins, but cautioned that there is a risk consumers would not pay the higher prices or that competitors would follow suit.

"Pork markets have been impacted in an unprecedented way due to a virus in the U.S. hog industry, which has renewed pressure from a sharp rise in raw material costs," Michael McCain said.

"We have accelerated price increases in the second quarter to recover margins, and expect the effects of this to be transitory as the industry is forecasting a return to more normal conditions later in 2014."

The maker of Schneiders meat, Prime chicken and other brands said on Thursday that its first-quarter loss widened to $124.6-million or 89 cents a share from $30.6-million or 22 cents a year earlier. The adjusted loss was $29.9-million or 24 cents a share. Analysts had been expected a per-share adjusted loss of 16 cents.

Sales for the first three months of the year rose by 3 per cent to $711-million from a year earlier.

Maple Leaf's agribusiness group, which is comprised largely of its Manitoba pig-raising operations, narrowed its loss to $300,000 from $12.9-million last year, as feed costs fell and hog prices rose.

The pig virus Maple Leaf blamed for higher prices affects neither humans nor pork safety. Porcine epidemic diarrhea, or PED, was first discovered in the U.S. last spring and has sent up hog prices in Chicago by 45 per cent this year. The National Pork Producers Council in the U.S. said PED, which kills most affected piglets while weakening older pigs, is expected to reduce U.S. pig production by 8 per cent by the third quarter. PED is believed to be spread by contact with manure carried by dirty trucks and boots and has been linked to feed containing blood products from infected pigs.

PED has been in Canada since the late winter, when it was discovered at an Ontario farm. It has since been confirmed on 60 Canadian farms, most in southwestern Ontario. The effect of the virus on the size of the Canadian herd will not be felt until late summer, but Ontario slaughterhouses have already seen pig prices rise to about $280 from $160 a year ago.

"The U.S. industry, by and large, has not done a great job of containing the virus. …The Canadian market, on the other hand, has done a pretty remarkable job to date of protecting itself with bio-security," said Mr. McCain, warning that PED remains a risk for Maple Leaf and the rest of the pork industry. "This is a highly virulent virus that has the ability, I've been told by some scientists, to travel up 16 kilometres by air."

Maple Leaf said it has been testing its barns and hog-handling facilities for the virus daily, and no pig has tested positive. Last week, it found the virus in an alley near its plant in Brandon, Man., but tests have been negative after the area was disinfected.

The meat products group, which has been in a massive restructuring, posted a sales rise of 4 per cent, thanks to higher volumes and price increases implemented late last year. The division lost $27.4-million compared with a loss of $10.5-million in the year-earlier quarter, after taking transition costs of $23-million.

Maple Leaf is nearing the end of a seven-year, $1-billion revamp aimed at reducing production costs and streamlining its product lineup. The company recently closed its wiener plant in Hamilton and opened a new one nearby. Plants in Saskatoon, Winnipeg and Brampton, Ont., are being expanded. Slated to close in the fourth quarter are plants in Toronto, Kitchener, Winnipeg and Moncton.

At the same time, the company has sold its bakery division, Canada Bread, for $1.8-billion, its animal parts rendering operations, Rothsay, for $645-million, its pasta company, Olivieri Foods, for $120-million, in addition to the sale of its turkey farms.