Playing the Bacon Shortage Scare

Playing the Bacon Shortage Scare

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As a hype mechanism, social media may be viewed as either a blessing or a curse. Last week, twitter and news headlines were making noise about a shortage in global bacon. On Google+, #Bacon was also a popular topic last week, as users fretted over rising prices for bacon. Economists dispelled the fear that bacon was scarce. A trade group in Europe said last week that a bacon shortage was unavoidable (see story here). Drought and a decline in pig herd were cited as reasons for a shortage.

What is certain is that the summer drought this past summer will impact the price and supply of feed grains. Instead of looking at investing in pork in anticipation of the shortage, investors should look at grain producers and fertilizer producers. One crop certainly impacted by the drought was corn. Prices for corn rose to record highs during the summer. These sectors are influenced by the health of the global economy, notably that of China.

According to the USDA, pork inventory was up slightly as of September 1 to 67.5 million head. The USDA does anticipate inventory to drop next year when feed prices reduce breeding.

Business Section: Investing Ideas

Looking to play the bacon shortage scare? Here are some companies to put on your watch list:

List Average 1-Year Return: 33%.

 

Companies in the Pork Business

 

1. Zhongpin, Inc. (HOGS, Earnings, Analysts, Financials): Engages in the processing and distribution of meat and food products primarily in the People's Republic of China. Market cap at $409.09M, most recent closing price at $11.0. IS a pork producer that serves primarily in the People’s Republic of China. Investors watching this stock should be careful with China-based companies: many China-listed companies were involved in accounting fraud in the last few years.

 

2. Smithfield Foods Inc. (SFD, Earnings, Analysts, Financials): Engages in the production and marketing of fresh meat and packaged meat products in the United States and internationally. Market cap at $3.03B, most recent closing price at $20.27.

 

3. Tyson Foods Inc. (TSN, Earnings, Analysts, Financials): Engages in the production, distribution, and marketing of chicken, beef, pork, and prepared food products, as well as related allied products worldwide. Market cap at $5.99B, most recent closing price at $16.54.

 

 

Agriculture Companies

 

4.  Monsanto Co. (MON, Earnings, Analysts, Financials): Provides agricultural products for farmers in the United States and internationally. Market cap at $48.47B, most recent closing price at $90.94. As a minor note, users expressed dislike for genetically-altered products on Google+.

 

5. Potash Corp. of Saskatchewan, Inc. (POT, Earnings, Analysts, Financials): Produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. Market cap at $36.64B, most recent closing price at $42.63. Fertilizer demand rises quickly when economies are healthy. Potash pays a yield of 1.90%.

 

6. The Mosaic Company (MOS, Earnings, Analysts, Financials): Engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide. Market cap at $24.4B, most recent closing price at $55.76.

 

7. CF Industries Holdings, Inc. (CF, Earnings, Analysts, Financials): Through its subsidiary, CF Industries, Inc., manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. Market cap at $13.92B, most recent closing price at $222.02.

 

8. Agrium Inc. (AGU, Earnings, Analysts, Financials): Produces and markets agricultural nutrients, industrial products, and specialty products worldwide, as well as involves in the retail supply of agricultural products and services in North and South Americas and Australia. Market cap at $16.65B, most recent closing price at $105.36. Agrium closed at a 52-week high. Jana Partners, a Hedge Fund, recently presented a case arguing shares are worth $50 if the company were split in two. Jana Partners thinks the company can be split into a retail farm store chain and a fertilizer producer.

 

 


Written by Chris Lau.

To interact and discuss these picks with users, attach your watch list or portfolio to your friends on Kapitall. Message the author. He is ranked sixth (by points) on the all-time leaderboard. The leaderboard is located on your score icon -> Leaderboard.  Members on Kapitall earn free points, and even more points with every Kapitall Generation trade. These points may be redeemed at the Kapitall store.

 

 Dig Deeper:  Zhongpin, Inc. (HOGSChartDownload SEC Filings)

 

 

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