Protein Inflation

[JEast]

Not a new story but I have not read much on possible implications of protein inflation except that more folks will want extra protein in their diet across the globe.  There have been a few very short episodes of protein inflation in the chicken markets and maybe milk, but they did not cause too much damage from memory.  What if either chicken or meats go into a longer term cycle, who gets hurt – the processers?  Some common names come to mind like Hormel, Tyson, or even McDonalds, but they also seem too big and diversified to make a call one way or the other.  Anyone have a view in this space?

[jay21]

Not a new story but I have not read much on possible implications of protein inflation except that more folks will want extra protein in their diet across the globe.  There have been a few very short episodes of protein inflation in the chicken markets and maybe milk, but they did not cause too much damage from memory.  What if either chicken or meats go into a longer term cycle, who gets hurt – the processers?  Some common names come to mind like Hormel, Tyson, or even McDonalds, but they also seem too big and diversified to make a call one way or the other.  Anyone have a view in this space?

 

LUK agrees and they bought a protein processor, National Beef.  You may want to start there.

[JEast]

Sorry jay21 for my somewhat inarticulate question.  Yes, LUK is in the meat processing business but seems to be more of a demographic play, though profitable one. 

 

My question is more of a second level question.  If all the processors recognize they need more protein, what happens if we get a big 2-3 year cycle of price inflation (not 6 months) that the processors can not pass along after contract renewals (think back to the '70s).  Who gets hurt?  The processors, the middle man, the big boxes.  Maybe all, but someone always gets squeezed harder than the other.

 

Just attempting to contradicted myself as I am still in the disinflation camp.

[Kraven]

Sorry jay21 for my somewhat inarticulate question.  Yes, LUK is in the meat processing business but seems to be more of a demographic play, though profitable one. 

 

My question is more of a second level question.  If all the processors recognize they need more protein, what happens if we get a big 2-3 year cycle of price inflation (not 6 months) that the processors can not pass along after contract renewals (think back to the '70s).  Who gets hurt?  The processors, the middle man, the big boxes.  Maybe all, but someone always gets squeezed harder than the other.

 

Just attempting to contradicted myself as I am still in the disinflation camp.

 

Maybe some of the chain restaurants get squeezed?  I'm thinking along the lines of Ruby Tuesday, Darden, etc.

[robface]

When looking at protein inflation, you have to consider:

 

- Which protein are you talking about?  The price elasticities of chicken, pork, and beef among others is different.  Referring to an old Tyson investor presentation.  For beef, for example, this is the more elastic of the three.  All else equal, it seems that price inflation would hurt the demand side of protein more.  Not all proteins are created equal.

 

- In the supply chain, there are only a few processors though feedlots are becoming more consolidated as well.  It seems as though the processors will act rationally and squeeze out the feedlots as has been done in the past.  Referring to cattle / beef mostly.

 

- As far as I understand, restaurants have long-term contracts for meat.  Let's say PF Chang's has a year contract.  They will most likely try to pass this to the consumer. 

 

I think processors would feel pressure especially from retailers like Wal-Mart to keep prices low as they feel pressure from the end user.  Unless there is a way to hedge, these processors might not be able to pass along price increases to all their customers.  End consumers would surely feel the heat as well.  However, processors have a bit of leverage over feedlots so I'm not as concerned on that front.

[randomep]

 

Sorry I don't get the drift of what you all are saying. Inflation for protein would be due to demand, increased demand is good for producers. I mean increased corn prices is good for framers right?

[yadayada]

what are some farming stocks taht are actually cash flow positive?

[robface]

what are some farming stocks taht are actually cash flow positive?

 

how about john deere?

[robface]

 

Sorry I don't get the drift of what you all are saying. Inflation for protein would be due to demand, increased demand is good for producers. I mean increased corn prices is good for framers right?

[/quote

 

Inflation / price increase can also be supply driven.  Higher corn prices, all else equal, are good for farmers...but bad for feedlots which will have to spend more to beef up cattle, chickens, etc...this translates into higher costs for processors and higher costs for consumers....which likely means quantity demanded goes down along the demand curve.