Seaboard (SEB) Risk Factors

(1)The Food Industry May Present Certain Risks. The food products manufacturing industry is subject to the risks posed by: - food spoilage;- food contamination, including contamination caused by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella, E coli and aflatoxin;- food allergens;- adverse weather and climate change risks;- evolving consumer preferences and nutritional and health-related concerns;- international, federal, state and local food processing regulations;- the possible unavailability and/or expense of liability insurance;- consumer product liability claims;- product recall;- product tampering; and - public perception of food production practices, including handling of production and live animals. Pathogens that may cause food contamination are found generally in livestock and in the environment and therefore may be present in Seaboard's products. These pathogens also can be introduced to Seaboard's products as a result of improper handling by customers or consumers. Seaboard does not have control over handling procedures once products have been shipped for distribution. If one or more of these risks were to materialize, Seaboard's brand reputation could be harmed, revenues could decrease, costs of doing business could increase, and Seaboard's operating results could be adversely affected. (2)Health Risks to Animals Could Adversely Affect Production and the Supply of Raw Materials. Seaboard is subject to risks relating to its ability to maintain animal health and control diseases. If the Pork segment's hogs or if Butterball's turkeys are affected by disease, Seaboard could be required to euthanize infected animals, which could adversely affect this segment's production or ability to sell or export its products. The general health of the hogs and turkeys and their respective reproductive performance could have an adverse impact on production and production costs, the supply of raw material to their processing operations and consumer confidence. Moreover, the herd or flock health of third-party suppliers could adversely affect the supply and cost of hogs or turkeys available for purchase. Adverse publicity concerning any disease or health concern could also cause customers to lose confidence in the safety and quality of these segments' food products. (3)Fluctuations in Commodity Prices May Present Certain Risks. Sales prices for many of Seaboard's products are directly affected by both domestic and worldwide supply and demand for commodities for products which it sells and competing products, all of which are determined by constantly changing market forces, as well as other factors, over which Seaboard has little to no control, including inflationary risks. - In the Pork and Turkey segments, commodity pork and turkey prices demonstrate a cyclical nature over periods of years, reflecting changes in the supply of fresh meat and competing proteins on the market. - In the CT&M segment, fluctuating worldwide prices for wheat, corn, soybean meal and, to a lesser degree, various other agricultural commodity products could also be caused by European flour exports, donated food aid, flour dumping practices and worldwide and local crop production. These fluctuating market conditions could have a significant impact on Seaboard's sales, value of commodities held in inventory and operating income. (4)Increases in Costs of Feed Components and Third-Party Purchases Could Adversely Affect Costs and Operating Margins. Feed costs are the most significant single component of the cost of raising hogs and turkeys and could be materially affected by commodity price fluctuations for corn and soybean meal. The results of the Pork and Turkey segments could be negatively affected by increased costs of its feed components. The cost and supply of feed components and the third-party purchases are determined by constantly changing market forces of supply and demand, which are driven by matters over which these segments have no control, including inflation, weather, current and projected worldwide grain stocks and prices, grain export prices, subsidies and tariffs, and governmental agricultural policies. These segments attempt to manage certain of these risks through the use of commodity derivatives; however, this may also limit the ability to participate in gains from favorable commodity fluctuations. Unless wholesale pork and turkey prices correspondingly increase, increases in the prices of feed components and costs of third-party purchases would adversely affect the segments' operating margins and the value of Seaboard's investment in Butterball. In the Pork segment, approximately 6% of this segment's slaughtered hogs were purchased from a third party in 2023. (5)Difficulties Obtaining and Retaining Appropriate Personnel. Seaboard is dependent on having a sufficient number of properly trained operations personnel. - In the Pork and Turkey segments, the nature of the work and rural locations at some processing plants and production operations, along with restrictive national policy on immigration, have affected and could continue to negatively affect the availability and cost of labor. - In the CT&M segment, the loss of a key employee such as a commodity trader could have a negative impact resulting from the loss of revenues as personal customer relationships can be vital to obtaining and retaining business with various foreign customers. Also, employing and retaining qualified expatriate personnel at the mills and other operating facilities are key elements to success given the difficult living conditions, the unique operating environments and the reliance on a relatively small number of executives to manage individual locations. The geographic areas in which Seaboard operates have also experienced labor shortages resulting in higher labor costs. The inability to acquire and retain the services of such personnel, or increased costs associated with the acquisition and retention of such personnel, could have a material adverse effect on Seaboard's operations. (6)The Loss or Closure of the Segments' Principal Properties Could Adversely Affect the Business. The closure, even temporarily, loss of or damage to any of the segments' plants for any reason, including highly pathogenic disease outbreaks, fire, weather, such as tornado, hurricane or earthquake, or the occurrence of adverse governmental action or labor unrest resulting in labor strikes could adversely affect the business of the affected segment and have a material adverse effect on Seaboard's business, financial condition and results of operations. - The Pork segment is largely dependent on the continued operation at full capacity of its Oklahoma pork processing plant and the STF plant. This segment provided approximately one-third of STF's hogs for processing during 2023 and also markets substantially all pork products produced. - In the Marine segment, port operations can be subject to disruption due to hurricanes or other adverse weather conditions, and any associated damage could take significant time to repair while cargos would move to other ports of entry. Recovering those volumes could prove difficult. - The Sugar and Alcohol segment is largely dependent on the continued operation of a single sugar mill. - Although Butterball has three processing plants and three further processing plants, Butterball is disproportionately dependent on the continued operation of the processing plant in North Carolina, that handles a significant volume of the production of further processed turkey products. (7)Disruption of Operations at Co-packers or Other Suppliers Could Adversely Affect the Business. Disruption of operations at co-packers or other suppliers including due to natural disasters or catastrophic events such as a cyber-attack, terrorism, or other similar occurrences may impact Seaboard's product or raw material supply. Additionally, actions taken to mitigate the impact of any potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may also adversely affect Seaboard's financial results. (8)Ocean Transportation May Present Certain Risks. Seaboard's owned and chartered vessels along with related cargoes are at risk of being damaged, lost or incurring excess cost because of events such as: - inclement weather;- mechanical failures;- grounding, fire, explosions and collisions;- human error;- war, piracy and terrorism; and - access to and congestion in ports and canals. Any of these hazards could result in death or injury to persons, loss of property, environmental damages, delays or rerouting and could have a material adverse effect on Seaboard's business, financial condition and results of operations. (9)Fluctuations in Fuel Costs Could Adversely Affect the Business. Fuel is a large expense for the Marine and Power segments and also impacts the CT&M segment's results. Fuel prices can vary greatly from year to year. While such fluctuations may be offset through fuel surcharges or other mechanisms, such mechanisms do not act with precision in terms of timing and amount and may not adjust revenues enough to offset the increase in costs.