I think we could see a spectacular 2013 for the chicken producers.
Current Q estimates for TSN, SAFM and PPC are 39 cents, (23) cents, and (11) cents, respectively. IMO these companies will make more than 60 cents, 50 cents and 20 cents, respectively.
2013 yearly estimates for TSN, SAFM and PPC are $1.85, $2.35 and 66 cents. And yes TSN has guided flat for 2013, but IMO these companies could make as much as $3, $4.50 and $1.20, respectively.
Why? Soaring chicken prices.
SAFM highlighted current prices in their recent 10k … “The price for Georgia Dock whole birds is currently at its historical high and averaged 7.3% higher during fiscal 2012 as compared to the average during fiscal 2011.”
Today’s Jan. 1, 2013 GA dock whole bird price is 98.5 cents for whole birds, up from when SAFM made those comments. I don’t think it’s ever been higher!! Can’t post links, but Google “mundi index chicken”
--- USDA Weekly National Whole Broiler/Fryer Report ---
and you will notice USDA prices are up over a buck!!!
SAFM, TSN and PPC all have highlighted feed costs, and yes they are up from last year, but chicken prices are up disproportionately more. And while chicken prices appear very strong, Corn and beans have been dropping over the last few weeks. Corn futures are now under $7 a bu. and Soy bean meal is nearly down to $400 a ton.
TSN had very poor margins from 2000 to 2009, now as TSN CEO Donnie Smith says, “The turnaround is over. It’s time to turn it on.”
And check out this quote from TSN’s recent YE conference call:
Our customers seem to understand that these higher grain prices are going to require higher prices. We continue to change the structure of a lot of our pricing agreements, our fixed priced exposure – annual fixed priced exposure’s going to be single digits after the 1st of the year. So, you combine those kinds of things and Ken, that’s how we can be so confident about getting better in 2013.
But can these high chicken prices hold? I think yes. Producers have cut back production because of high feed prices. In addition competing hog and beef protein producers have cut back breeding stock to the point supply could be fairly low by mid-2013. Prices may likely rise and chickens with them. In addition, chickens convert feed to meat more efficiently than beef or hogs, giving them an additional competitive
Not convinced check out chicken consumption compared to beef and hogs. Per capita chicken consumption has been on the rise over the years, while beef is declining and hogs are flat.
And what about next years feed costs. What are the chances we have another drought year like we just had. The protein producers have adjusted their use. Farmers just might find we don’t need 15 trillion bushels of corn, maybe we only need 12.
I encourage you to play with the numbers, google, compute, and guess. See what a cent per pound difference in chicken prices could mean for these producers. Even if you apply an idiot discount to TSN and PPC for poor management, they still make very good money in 2013.
Good luck and post what you find!!! This could be really special.
Hog and beef biz is a spread business for TSN … judging by beef margins over last ten years … TSN has a bunch of improvement to make…. Does TSN still use the pit for trading? If so why not electronic trades? Does the pit boss have compromising pictures or something? Can value added products take them away from the spread biz? If they reduced production and shut down unprofitable plants .. could they improve that spread? Not sure … and really don’t care … Just get us an extra 1% on beef!!!! … that’s all we ask!!