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Stephen Rosenman enjoys analyzing the financial health of companies, pointing out areas the market is either not recognizing or ignoring.
  • The Great Chicken Wing Crisis Gives SAFM A Leg Up  0 comments
    Nov 13, 2009 10:13 AM | about stocks: SAFM, TSN, PGPDQ, CGL.A
     
        Recently, I wrote about how Joe Sanderson's prayers had been answered by the recovery in his chicken business. seekingalpha.com/article/171402-sanderso...;Much of that recovery came from the booming chicken wing business.  Last quarter, wing prices climbed 62.6% over a year earlier.
         Per conference call of August:  "    Jumbo wings averaged $0.132 per pound, up 62.6% from the average of $0.812 per pound during last year’s third quarter. Wing prices have remained relatively high all summer and usually strengthen as we move into the football season."
            Who can get  that kind of price increase in this economy?  Just the chicken guys such as SAFM and TSN.  Last quarter, SAFM creamed analyst estimates by 28 cents.  Does SAFM do it again?  Yes.
           Cagle, a much smaller chicken producer, in its November 6 SEC report noted "boneless breast increased 6%, breast tenders increased 22%,     wings increased 49%, drums decreased 14%, leg quarters were 24% lower and whole birds...were 6% less."
           It appears wing prices are still flying out of the consumer's reach.
           Why the run up in price?   According to Jennie Geisler:  "Wing prices took off over the summer and shot to the sky with the beginning of football season." This occurred after chicken production had been crushed:  Pilgrim's Pride chopped its output in bankruptcy, other producers curtailed their business with last year's nasty economy and high corn prices.  Geisler goes on to say:  "All this happened just as more national fast-food chains started adding wings to their menus, including Pizza Hut, 7 Eleven and KFC".  http://www.goerie.com/apps/pbcs.dll/article?AID=/20091106/NEWS02/311069955
            In fact, wings are in such demand now that prices are even higher than breast meat.  Some restaurants are resorting to substituting chicken breast meat instead of wings (When you order wings, beware fakes).  Buffalo Wild Wings is promoting boneless wings made of breast meat to avoid high wing costs.  http://www.nrn.com/financial.aspx?id=375498
             The rise in wing prices actually has boosted the breast meat market as buyers look for substitutes.www.foodmarket.com/newsemail.asp?key=714...; 
             This quarter SAFM will again clobber estimates on a "wing and a prayer". 

    Disclosure:  Long SAFM













       
    Stocks: SAFM, TSN, PGPDQ, CGL.A
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