Smithfield Foods (NYSE:SFD) is the world's largest hog producer and slaughterhouse, also known as a pork processor. Approximately half of Smithfield's profits come from processed meats sold under one of Smithfield Foods' private brand names, a percentage that the firm hopes to increase in the future. These products are sold at higher margins, even in times of rising commodity prices - whereas fresh meat is sold to butchers, who then mark up the product to earn a profit. Processing the meat itself allows the company to earn maximum profit from each sale and to pass a higher percentage of input costs onto consumers. The company earned $11.2 billion in revenue but incurred a net loss of $101 million in 2010.
By vertically integrating its hog production and processed pork segments, Smithfield is insulated from the hog commodity market. It is not, however, insulated from feedstuff commodity prices, like grain, since 60-65% of the cost of raising hogs is feedstock prices. Corn makes up 85% of a pig's diet, and demand for corn, spurred by ethanol production as well as an expanding global population, has led corn prices to rise nearly 60% since 2007. Increased commodities prices depress margins as Smithfield Foods is unable to completely pass on feed prices to consumers.(Read more at Wikinvest )