Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

High Corn Prices Burning Meat Companies But Agribusiness Will Thrive

Currencies / Agricultural Commodities Oct 28, 2011 - 06:15 AM GMT

By: Money_Morning

Currencies

Best Financial Markets Analysis ArticleDavid Zeiler writes: High corn prices are creating misery for meat processing companies that are getting squeezed on profits and consumers who are getting squeezed in their wallets.

Just about the only group to benefit from high corn prices will be agribusiness companies that make the equipment and supplies farmers will need to grow more corn.


Persistently high corn prices have put the pork, beef and poultry industries under tremendous pressure. Companies like Pilgrim's Pride Corp. (NYSE: PPC), Smithfield Foods Inc. (NYSE: SFD), Hormel Foods Corp. (NYSE: HOR) and Archer Daniels Midland Co. (NYSE: ADM) unable to pass on the full price increases to customers.

And with demand for corn growing at a pace faster than farmers can match, there's no relief in sight. Corn harvests fell short of demand by 5.8% for the year ending in August, and analysts don't expect much improvement next year.

In fact, the U.S. Department of Agriculture (USDA) expects America's corn stockpiles to hit a 16-year low for the 2011-2012 marketing year.

"Last year, corn and soybean crop harvests were not adequate to fulfill the needs for ethanol, for feed and for export," Bill Roenigk, vice president of the National Chicken Council, told Gannett. "It's been difficult, if not impossible, to pass on those higher feed costs to the consumer."

And yet consumers have still struggled with food costs inflated by high corn prices. According to the USDA, beef prices were up 10.1% in September from a year earlier, pork prices up 7.5% and poultry up 3%. The price of eggs zoomed 6% in September alone.

Why Corn Prices Are High
Several factors are at work keeping corn prices high.

On the supply side of the equation, the corn crop in the United States - the world's leading corn grower - got slammed by floods and drought earlier this year. This resulted in the USDA lowering its forecast for the 2011 harvest three consecutive months to about 12.433 billion bushels, similar to last year's.

Meanwhile, demand for corn has never been greater. Production of fuel additive ethanol, for example, now consumes 40% of the U.S. corn crop.

And global demand for corn is rising rapidly in emerging nations, particularly China. Morgan Stanley (NYSE: MS) estimates that China will quadruple its imports of corn to 4 million tons this year, and further increase to 9.4 million tons by 2014.

Such forces have been driving corn prices up since 2007, when corn traded for about $3 per bushel. After spiking to nearly $8 a bushel earlier this year, corn prices fell below $6 in September, but recently climbed back up to the $6.50 range. Most analysts expect it to stay above $6 for at least the next year or so.

Poultry Industry Gets Plucked
Although the beef and pork processors have taken some profit hits, the poultry industry has been hit the hardest. Years of emphasizing high-yielding "factory farming" have resulted in an oversupply of chickens, keeping prices low even as production costs have risen.

That has punished poultry companies like Pilgrim's Pride, Sanderson Farms, Inc. (Nasdaq: SAFM) and Tyson Foods Inc. (NYSE: TSN).

"Poultry feed ... is up about 20% compared to this time a year ago," Roenigk said. "Another way to look at it is in September of 2008, it cost 25 cents to produce a live pound of chicken, and today it costs 45 cents. That's an 80% increase in the cost over three years."

The deadly combination of depressed prices and high costs has forced three poultry companies into bankruptcy over the past year, the most recent being Cagle's Inc. (AMEX: CGL.A).

"There's too much white meat production relative to demand. Poultry producers are still under financial pressure," analyst Karl Skold of Westside Economics told Dairyherd.com.

Harvesting Profit
While many companies will continue to struggle with high corn prices (and those are companies to keep out of your portfolio) a few do stand to benefit. Those high prices will encourage more farmers both in the United States and around the world to invest in ways to increase their corn crops.

Some investment ideas to consider include:

•Farmland: "Farmland is a theoretically safe, income-producing, inflation-protected hedge," said former Morgan Stanley strategist Barton Biggs, who now runs a hedge fund forTraxis Partners LP, toldCNBC. Biggs said it has historically provided a "rock-steady return" that he estimated at 6% to 7% annually. If you're unable or unwilling to buy farmland, there's an exchange-traded fund (ETF), the Market Vectors Agribusiness Fund (NYSE:MOO), comprised of many agribusiness companies with large holdings of farmland.
•Agribusiness Equipment and Supply Companies: Deere & Co. (NYSE:DE), Caterpillar Inc. (NYSE: CAT), Potash Corp. of Saskatchewan Inc.(NYSE:POT) and Monsanto Co. (NYSE:MON) will all benefit from farmers' attempts to meet rising corn demand. Deere and Caterpillar manufacture farming equipment. Potash Corp.is the world's largest fertilizer company by capacity. And Monsanto is a world leader in seed technology and agricultural research on increasing crop yields.

Source : http://moneymorning.com/2011/10/28/high-corn-prices-burning-meat-companies-but-agribusiness-will-thrive/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules