On Thursday, Hormel Foods, one of the nation’s largest bacon producers, noticed a seven percent drop in profits for its third quarter. The company has already responded to the decrease in profits by increasing the price of products that make use of pork bellies, pork trim and beef trim. Hormel’s CEO Jim Snee said that the company faced record-high input costs for these primary raw meat materials.
The cost of pork bellies more than doubled since April due to the soaring demand for bacon. This bacon surge started years ago and only seems to keep increasing. There was even a national U.S shortage on pork belly reserves last winter when the nation hit a 50-year low.
Food makers like Hormel haven’t been able to pass along the price increase to their retailers and consumers fast enough. This can partially explain the decrease in profits for the Muscle Milk manufacturer.
“These are unprecedented changes in the hog industry,” Snee told investment analysts. “We’re watching them closely.”
The increase in demand is due to a number of factors such as growing popularity in foreign cuisines that frequently use pork belly, a higher demand for bacon in breakfast products and more bacon in restaurant menu options.
Companies including Hormel are investing in more plants to keep up with the high demand.
“Earlier this month we committed over $130 million to expand production capacity for precooked bacon at our Dold Foods facility in Wichita, Kansas. The demand for bacon, especially Hormel Bacon 1, a new fully cooked bacon, has been incredible. This strategic investment significantly increases our capacity and gives us a runway for future growth in foodservice,” says Snee.
The Austin, Minnesota-based company also invested $104 million in acquiring Cidade Do Sol, a Brazilian meat company that sells meat products under the Ceratti brand. The business move came just a week after the Fortune 500 company bought out Fontanini Italian Meats and Sausages, a Chicago-based Italian meat manufacturer for restaurants.
Hormel’s latest results were also due to the 9 percent decline in revenue and 20 percent decline in operating profit for the company’s turkey division, Jennie-O Turkey Store. Snee said that turkey producers were discounting the prices of their products to reach consumers who have been steering away from turkey products.
The US Department of Agriculture predicts that when these expansion projects, along with others, are complete, the US market will receive an additional 900 million pounds of pork. By the end of 2018 US famers are expecting to produce as much pork as beef.