Processors to benefit from cheap chicken feed
Poultry processors can expect to benefit from a significant drop in the price of corn and soybean meal, says J.P. Morgan analyst Ken Goldman.
Underscoring the sharp drop in grain prices in recent weeks, the futures market does not expect corn and soybean meal prices to recover anytime soon, said Goldman, who has raised his 6-month price target on Tyson Foods stock to $13 and Sanderson Farms to $51, reports Meatingplace.
Yet the analyst stopped short of recommending investors buy shares of either company, due to falling prices for leg quarters and breasts, very weak casual dining traffic and a cutback in orders from Russia.
"For the first time we can recall, in fact, we are hearing that weak domestic demand for leg quarters in casual dining establishments is hurting prices," he said, adding that Russia apparently reduced its orders for leg quarters once prices broke above 50 cents.
For Tyson, sluggish beef and pork margins are further cause for concern, Goldman said. "We are more bullish on (Sanderson) but are waiting to see how far chicken prices fall before jumping in with both feet," he said.
"Assuming chicken prices do not fall much further than seasonality might predict, the effect of cheaper feed costs is eclipsing the effect of cheaper chicken prices," he said.
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