SAFM - Sanderson farms Inc

[klmehta03]

Can you please re-post this link or report? The link above is not working..

[Guest Schwab711]

Can you please re-post this link or report? The link above is not working..

 

http://www.burkenroad.org/reports_industry.php

[bookie71]

Great site, thanks for sharing

[klmehta03]

 

Thank you for sharing.

 

 

Can you please re-post this link or report? The link above is not working..

 

http://www.burkenroad.org/reports_industry.php

[ritrading]

Thoughts at this price? Company still looks solid. Anyone know if chicken is affected by tariffs?

[Saluki]

I used to own this and Pilgrim's Pride.  I bought SAFM during the bird flu scare at 60-70 and read a LOT about chickens.  I sold SAFM a year later in the 90s and was happy with myself, then was kicking myself as it went to 180, but now it's starting to look good again because it's missed earnings a couple of quarters.

 

Tariff's shouldn't hurt chicken directly because China banned chicken imports during the bird flu scare in 2015 and I don't think they ever lifted it. Tariffs on beef and pork, however, could hurt chicken prices because when beef and pork are high, people eat more chicken and when the prices contract people prefer beef. Tariff's on US crops should help a little since feed like corn is the main thing they feed the chicken so lower crop prices help the bottom line.

 

PPC is majority owned by a brazilian conglomerate, and is more diversified, but I think SAFM is the better of the two companies.  It has no debt and Joe Sanderson still runs the ship and is a big shareholder so your interests are aligned with his.

 

A few things that could hurt SAFM besides tariffs and bird flu are the price fixing lawsuit mentioned earlier,  Costco announced they will start their own chicken operation in house to reduce costs, and Joe Sanderson is pretty adamant in refusing to go anitbiotic free in his chickens, which could put them on the wrong side of a growing trend.

[cameronfen]

I'm short ppc (a tiny bit) via puts.  My basic rationale is regardless of culpability or not, the Georgia Dock chicken price has been abnormally elevated over the past 3 to 4 years (basically since ppc was bought).  The USDA price and other indexes didnt show the same price level.  This was allowing commodity companies like ppc and sfam to earn abnormally high profits and roe.  Does this look like a company that could generate 20% + returns on equity?  Even if there is no price fixing, sooner or later the end buyer like stores are going to realize that buying via the Georgia Dock is a bad deal and they should by chicken via the USDA price.  Furthermore there is no reason the GD is so much higher than USDA, and even if nothing illegal, whatever is artificially boosting GD prices cannot be maintained with the spotlight on it currently.  If this ppc earns returns on equity equal to cost of capital plus a bit, it's worth 8 dollars generously. 

[RichardGibbons]

Cameronfen--FYI, Planet Money did a podcast about Georgia Dock chicken prices. It's probably doesn't contain anything you don't know, but I figured I'd point it out in case you missed it.

[ritrading]

I haven't kept up with the news after buying after the avian flu a few years ago. Looks like I missed this whole price fixing thing. How does the USDA calculate their index? Are they using invoices? (Actual transaction prices)

 

It seems entirely plausible for the industry to phase out unprofitable operations. As I understood from the contract / tournament farming of chickens, there's very little incentive for farmers to continue if they are unprofitable. A fan breaks down and well, it's better to exit the game than to maintain the equipment.

 

Does anyone have link to how the USDA index is compiled? Is it possible that the USDA pricing model is flawed? If current prices are truly "above market", wouldn't there be an influx of new chicken farmers attempting to provide chicken?