PowerTrend Brief: Did You Heed My Warning on Higher Beef Prices?

Posted: Mar 22, 2014 12:01 AM
PowerTrend Brief: Did You Heed My Warning on Higher Beef Prices?

In early January, I shared with you my concern about rising beef prices. Well, during the last several weeks, other observers have begun to express the same concern. I’ve seen countless articles echoing what I shared with you. It’s no wonder, since the U.S. Department of Agriculture reported the average retail price per pound for fresh beef in January was $5.04, the highest price ever on records that date back to 1987.

Time magazine ran the story “Beef: It’s What’s No Longer Affordable for Dinner” earlier this month, in which it pointed out that at the start of 2014, U.S. ranchers had 87.99 million head of cattle, the lowest total since 1951. The cause? Long periods of drought in California and Texas. The same piece went on to point out, just as I indicated to you in January, that rising beef prices will be hitting both you and restaurants during the next few years.

That situation tells me that before too long, we’ll either be seeing a round of price increases at companies like McDonald’s (MCD), Ruth’s Hospitality (RUTH), Red Robin Gourmet Burgers (RRGB), Del Frisco’s (DFRG) and others, or their profits and earnings will be hit. Of course, higher prices are likely to hit the revenue line. Either way, it’s not a good time for beef-heavy restaurant companies.

Add in another wrinkle -- rising overseas demand for U.S. beef as emerging-market diets shift from rice and grain to protein-based food. "The growth of the middle class in developing countries probably has more to do with the increase in demand and related prices than anything else," said Jeff Sindelar, an associate professor who studies the meat industry at the University of Wisconsin-Madison. That shift is adding more pressure on top of shrinking herds.

Unfortunately, this reality is one of those instances where the cure -- in the form of a larger supply of cows -- is certain to create even more pain for consumers, at least in the short term. That’s because herd growth only happens when producers set aside more calves for breeding instead of selling them for slaughter. Essentially, the beef supply has to get smaller before it can get bigger.

Analysts expect that it will be several years before America’s cattle herds increase substantially in size. Until then, we should get used to the idea that beef prices will keep soaring, perhaps at a rate of 7-8% per year.

According to Ron Plain, an agricultural economist with the University of Missouri-Columbia, 2017 is a reasonable target in which we could see an expansion in the U.S. beef supply… if things go as planned. According to Plain, “If this summer turns hot and dry, it could push everything back another year. If it doesn’t rain, there’s not much you can do about it.”

My question to you is: did you heed my warning, and are you profiting from this growing pain point?

I can tell you that subscribers to my investment newsletterPowerTrend Profitsare benefitting. I recommended that they add Pilgrim’s Pride Corp. (PPC) to their holdings back in early January, and the shares are up double-digit percentages. That compares to the return of the S&P 500 and Dow Jones Industrial Average, which are up 1.28 percent and down 1.48 percent, respectively, so far in 2014.

I’m already eyeing new opportunities to share with subscribers toPowerTrend Profits--come join them and see what I recommend next.

Exploding Demand for Big Data & Analytics at Financial Services & Healthcare Companies
If you are like me, from time to time you hear a bunch of terms thrown about. So far in 2014, I’m hearing the words “big data,” “analytics” and “the Internet of Things” mentioned, and I bet you are, too. Big data and analytics are helping a number of companies make faster, smarter decisions about how to run their businesses.

Joining me to talk about this trend is Sheila Dalton, founder of Big Data companyGray Matter Analytics, a consulting firm that specializes in Big Data and analytics for the financial services and healthcare industries. I had a great conversation with Sheila because she tells it like it is; she even shares which companies she thinks are doing it right and which ones are going about it all wrong. Wait until you hear it; I bet you’ll be more than surprised.

Listen to my One-on-One PowerTalk Conversation withSheila Dalton of Gray Matter Analytics.

In case you missed it, I encourage you to read myPowerTrend Brieffrom last week onEagle Daily Investorabouthow you can profit from the evolution of competing companies. I also invite you to comment in the space provided below my column atEagle Daily Investor.