Omnivores may want to consider the financial advantages of becoming vegetarians, especially since meat prices are skyrocketing!
First, disease pushed up the price of pork. Then drought and small herds forced beef prices higher.
Now, even chicken lovers are facing higher prices. Increasing demand (combined with decreasing supplies) will soon result in much higher prices for your favorite fowl.
But don’t despair completely! There’s one company perfectly poised to profit from the situation, allowing investors to recoup the extra money they’ll spend on chicken.
Roosters That Don’t Root?
There are two major factors contributing to the price hike.
First off, there is a supply issue. Sanderson Farms (SAFM), the third-biggest U.S. poultry producer, and Aviagen Group, the world’s largest chicken breeder, made a shocking discovery earlier this year.
Aviagen’s standard Ross rooster has trouble making little chicks due to a genetic defect that makes them very sensitive to being overfed. This has a huge impact on the industry, as this particular breed of rooster sires about 25% of the chickens raised for slaughter in the United States.
Adding to the shortage of useful breeder birds, poultry breeders purposefully reduced their flocks a few years ago when the price of feed spiked in 2011. As with most animals, it’ll take time to rebuild the nation’s supplies.
For 2014, the U.S. Department of Agriculture says the overall chicken poundage will be only 1% higher, versus the long term of 4% growth. I won’t be surprised if that 1% (or something close to it) becomes the new norm.
On top of small flocks, demand for chicken is continuing to grow.
Pilgrim’s Pride (PPC), the second-biggest poultry processor in the United States, recently told its investors that demand for chicken in the United States would rise next year by around 3% due to consumers buying less beef and pork.
Demand for U.S. chicken is also rising from overseas. We can expect exports of poultry to hit 3.4 million tons this year, up from 3.1 million tons in 2013. This figure will rise by another 2% or so next year.
The largest poultry producer in the United States, Tyson Foods (TSN), also says demand will outpace supply next year. It’s forecasting chicken demand to rise by around 4% in 2015.
However, Tyson seems to be perfectly positioned to benefit from the dynamics in the chicken market.
Premier Chicken Play
There are other specific factors at play here, too, which our Equities Analyst Richard Robinson discussed recently.
As Robinson wrote, Tyson’s stock recently popped after its latest earnings announcement, which showed chicken sales that rose 2.3% in the latest quarter.
Chicken is Tyson’s biggest source of profits and its highest margin business. The company estimates the profit margin on chicken will rise to 10% in 2015, above the historic norm of around 8%.
Tyson’s CEO Donnie Smith foresees “strong demand” and “favorable pricing” in 2015.
This should bode well for TSN shareholders. When the chickens come home to roost, Tyson is the choice.
And “the chase” continues,
P.S. Follow me on twitter @TimMaverickWSD!