By Ned W. Schmidt
J. Wellington Wimpy was always one of our favorites. The guy was somewhat of a gourmet as his favorite food was hamburgers. He was also a pal of Popeye, an individual addicted to spinach. However, Wimpy would not be happy with the modern world. Finding a good hamburger is tough these days. (Are they still legal in the nanny republic of NYC?) Today the world is filled with an endless variety of boneless, skinless, tasteless, tough-to-chew chicken breast sandwiches? Wimpy would think the world has gone mad if he were still around.
For burger lovers we may have some good news. In the above chart is plotted the U.S. cash price for broilers, or table chicken. As can be observed in that chart, those prices are about to achieve a new 90-week high. With the restructuring of the poultry producing industry, we expect broiler prices to continue moving higher. The cost of feed grains suggests that to restore equilibrium broiler prices need to rise by 50% or more, if not on an absolute basis on a relative basis.
How will the world respond to their cluck, cluck costing a buck? Consumers have been drawn to consuming chicken sandwiches because of low, and often declining, prices. That combined with the misguided belief that eating fast food chicken sandwiches was healthy made the chicken business a volume industry. As chicken prices rise consumers will substitute delicious and juicy hamburgers for those tasteless chicken sandwiches. Food vendors might actually be forced to toss the micro waves and learn how to really cook a decent hamburger.
Our expectation of rising broiler prices, along with those for pork and beef, is consistent with the trends in Agri-Food prices. As shown in the above chart, our Agri-Food Price Index is just shy of a new high. While recently driven upward by the impact of drought in the Midwestern U.S. on that nation’s grain supplies, rotation in the relative strength of various other Agri-Commodities seems to be developing.
With the Chinese economy on a path to be the dominant global economy that nation will increasingly need to import Agri-Foods. While they can make electronic toys in factories, they cannot manufacture food in a factory. Food is grown in dirt. The positive ripples that Chinese economic growth creates in vender nations throughout the Asia-Pacific region will also add to global Agri-Food demand as consumer there experiencing rising income. Wise investors today are researching Agri-Investments for tomorrow rather than losing money in AAPL and FB.
AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Agri-Energy. To contract Ned or to learn more, use this link: www.agrifoodvalueview.com