Swine flu outbreak could hurt pork industry

Misconceptions about the spread of swine flu are enough to make the pork industry sick.

News of a swine flu outbreak and import bans on some raw U.S. pork by countries caused some indigestion for meat producers Monday, hurting their stock prices.

Shares of pork producers Smithfield Foods sfd, Tyson Foods tsn and Bob Evans Farms bobe dropped 12.4%, 8.9% and 6.4% respectively as investors wondered if consumers might cut back on pork consumption due to confusion about how the virus spreads. The price of lean hog futures fell 4.2%, according to CME Group.

Industry leaders were aghast at the outbreak of reports they fear will cause consumers to not eat pork even though both the World Health Organization and Centers for Disease Control and Prevention say humans cannot contract the virus if they properly handle and cook pig meat.

"(The term) swine flu is a misnomer," says Smithfield CEO Larry Pope. "This is not a food-related issue. It's a person-to-person issue," he says. Pope says no traces of the virus have been found in the company's herds or employees in any facility in the world, including in Mexico.

Given the level of attention the situation is getting, the industry is girding for challenges with:

•Exports. Last year, the U.S. was a top pork exporter, shipping nearly 25% of total volume outside the U.S., says Jim Herlihy, spokesman for the U.S. Meat Export Federation. Monday, China and Russia banned some raw pork imports from some U.S. states, Bloomberg News says; other nations were investigating actions.

•Pricing. The industry had been combating sliding prices, helped by new labeling laws that let consumers easily identify and buy U.S. pork, says Michael Swanson, agricultural economist at Wells Fargo. Any weakening in demand will hit pork prices, though, he says.

•Investor and consumer perception. Seeing the number of cases ticking higher, many investors may choose to avoid pork producers' shares, says Timothy Ramey, analyst at D.A. Davidson. Consumers, too, may choose to wait out the scare, says Michael Gallo of C.L. King. "It's hard to gauge what consumer reaction will be," he says.

Investors and consumers typically have overreacted to health scares. Food stocks slid in the 2006 panics with mad cow disease and bird flu, but rallied back when fears eased.

"We hope this will be dispelled quickly and reinforce this is not a meat-case issue, but a public health issue," Pope says.