Near the end of last year, yours truly took a chance by penning some bullish thoughts on an obscure group of companies: meat stocks.
The risk wasn’t in making a bad call — I’ve made them before, and will make them again. The risk was in posting an idea that was so obscure, and so weird, that nobody would care to read it no matter how right I was.
Well, all I can say is, it’s fun to be right.
That goofy group of companies that provide you with chicken, beef and pork have also provided investors with surprisingly meaty gains in 2013. The industry has gained a very respectable 30% since the end of 2012, easily topping the S&P 500’s 18% year-to-date advance.
Tyson Foods (TSN) is up 55% since that look. Pilgrims Pride (PPC) has jumped 155%, and Hillshire Brands (HSH) shares have rallied 20% in the meantime. Smithfield Foods (SFD) was eventually bought out at a price 45% above where it was trading in December. And, my favorite pick at the time — Hormel Foods (HRL) — is up nearly 40% since then.
But the $64,000 question now is whether these meat stocks can keep it up.
Just as a refresher, these stocks had been hammered over the course of 2012 thanks to a devastating drought that put a serious stranglehold on crops used to feed the chickens, pigs and cows that eventually become breakfast, lunch and dinner.
Last year’s corn harvest, for instance, ended yielding up about 25% less than the United States Department of Agriculture had originally forecast early in the year. That’s a big shortfall.
The net result of what seemed like a tightly supply, of course, was soaring corn prices. Corn costs jumped from $5.56 per bushel in June of 2012 to a record high of $8.28 just seven weeks later. And, smack dab in the middle of a drought at the time, many assumed corn prices would only continue to rise. Ditto for wheat, soybeans and other alternatives to corn as feed for livestock.
Since feed is the single-biggest expense for livestock farmers, investors understandably assumed meat prices would either get beefed up to the point where (1) consumers couldn’t afford to buy it, or (2) meat companies like Tyson and Hormel would be forced to take losses to keep their prices marketable.
But a funny thing happened on the way to the so-called “Aporkalypse” …