Meat giant Cherkizovo warns of 'challenging' 2011

Cherkizovo, Russia’s biggest meat group, unveiled a 21% rise in 2010 earnings — but warned of a «challenging» outlook for this year, thanks to higher feed costs and a difficult pricing environment.

Cherkizovo said that an increase to $144.4m in earnings last year belied late headwinds, as rising grain prices raised feed costs, while prompting many farmers to slaughter animals and the group’s ability to lift meat prices.

Russia’s swine herd fell last year for the first time since 2004, according to official data.

«Our results were affected by a soft pricing environment in the poultry and pork divisions, as well as rising input costs, particularly towards the end of the year," the company’s chief executive, Sergey Mikhailov, said, saying the pricing environments in the October-to-December period had been «unusually weak».

These dynamics looked set to dog much of 2011 too, with higher feed prices likely to be «particularly felt in coming months».

Russia’s feed availability was 25% lower at the start of 2011 than a year before, US Department of Agriculture attaches in Moscow said in a separate report.

«Challenging outlook»

Cherkizovo said that «to some extent [meat] pricing action will offset the impact of rising costs».

«But, given the weak pricing environment in the fourth quarter of 2010, pricing is likely to be more pronounced in the second half of the year," although poultry prices were set to start rising in the April-to-June period, thanks to a cut in Russian import quotas.
Even when prices rises set it, «the consequences of these actions on overall consumer demand remain to be seen».

Mr Mikhailov said: «The outlook for 2011 is challenging.»

Huge subsidies

However, he also flagged as «encouraging» support to livestock farmers from Russia’s government, which is attempting to promote self-sufficiency in a country which has become a huge meat importer.

Russia’s farm ministry in January unveiled an allocation of 118bn roubles, nearly $4bn, into agricultural production, a sum since raised by 7bn roubles.

And last week, Vladimir Putin, the prime minister, called within 10 days for 12.5bn roubles ($420m) in fresh subsidies to «maintain the positive dynamics of livestock production and to ensure reasonable prices».

Government officials have indicated that these subsidies «will be based on meat production and poultry inventory during the fourth quarter of 2010», the USDA attaches said in a report issued late on Friday.

Cherkizovo’s depositary receipts, a proxy for shares, held firm in London at 19.5p in lunchtime trade.

Prices to rise

The USDA attachйs added that they expected Russia’s swine herd to expand by 1.8% this year to 17.5m head, thanks to government support and an expected easing in grain supplies after the harvest.

Nonetheless, growth in pork supplies will ease off, sending prices higher, thanks to a fall in the rate of slaughter prompted by farmers escaping feed bills