NEWS: Higher priced grains = increased animal slaughter - Slate08/11/06

[Guest guest]

This article from Slate confirms what we've always known. Increased

grain prices = increased animal slaughter.

 

Often, increased grain prices are the direct result of rising petroleum

prices. This story adds a twist: Increased petroleum prices make

corn-based ethanol fuels a more attractive substitute. So now, the

ethonol market is competing with the livestock market, working together

to push up the price of grain.

 

Put another way, increased ethanol use = increased cow slaughter. All

this of course points to Srila Prabhupada's instructions: Ultimately,

to guarantee cow protection, we need self-sufficient villages that are

not dependent on petroleum or other industrial fuels.

 

your servant,

 

Hare Krsna dasi

 

***********************************

***

 

Slate

 

moneybox*

The Protein Glut and the Carb Boom

Cars, not people, are the corn hogs.

By Daniel Gross

Posted Friday, Aug. 11, 2006, at 7:21 AM ET

 

Each year, Americans spend more on healthy food, diet books, and

exercise equipment. And each year, Americans get heavier, which makes

obesity treatment a growth industry. The logical investment thesis:

Invest in an organic-foods company /and /in a chain of surgical centers

specializing in liposuction.

 

When the Atkins diet was all the rage in the early part of this decade

and millions of Americans shifted away from carbohydrates and toward

proteins, there was another obvious paired trade: Buy the stock of

protein-pushers like steakhouses and meat processors and sell the stock

of carbohydrates machines like bakeries and pasta makers. After all, in

2004, carb-dependent companies rushed to use the Atkins excuse

<http://www.slate.com/id/2100324/> to explain poor results. By early

2005, the shift to protein was creating a chicken boom

<http://www.slate.com/id/2112698/>.

 

But in the last year, the balance of power between carbs and proteins

has shifted, in part because of diets and in part because of global

economic trends. As a result, there seems to be a glut of protein and a

huge demand for corn and grain.

 

The July 31 earnings

<http://ir.tyson.com/phoenix.zhtml?c=65476&p=irol-newsArticle&ID=889533&highlig

ht=>

release from Tyson <http://www.tyson.com/Corporate/>, the nation's

biggest meat processor, tersely noted that "[o]versupply of proteins

negatively impacted sales prices and operating results." Across the

board, prices for its products were down sharply: 13.9 percent for

chicken, 8 percent for beef, and 5.2 percent for pork. And thanks to

higher energy and operating costs, the company lost money on its

operations. The next day, No. 2 chicken processor Pilgrim's Pride

likewise reported

<http://phx.corporate-ir.net/phoenix.zhtml?c=68228&p=irol-newsArticle&ID=890190

&highlight=>

a loss. The culprit: too many chicken parts chasing too few mouths. O.B.

Goolsby Jr., the company's chief executive officer, cited the

"challenging protein environment seen in the first half of the fiscal

year." In a set of illuminating charts

<http://media.corporate-ir.net/media_files/irol/68/68228/slideshowqtr3.pdf>,'>http://media.corporate-ir.net/media_files/irol/68/68228/slideshowqtr3.pdf>,

Pilgrim's Pride noted that consumption of all red meat and poultry fell

0.2 percent in 2005 and is projected to rise just 0.7 percent this year.

Earlier this week, Gold Kist <http://www.goldkist.com/>, a big chicken

producer, similarly blamed its quarterly loss

<http://ir.goldkist.com/phoenix.zhtml?c=180450&p=irol-newsArticle&ID=893266&hig

hlight=>

on "an oversupply of broilers and competing meats and low export sales

prices." Here's the sad-looking one-year chart

<http://finance./q/bc?s=TSN&t=1y&l=on&z=m&q=l&c=gkis,ppc,%5eGSPC>

of Gold Kist, Tyson, and Pilgrim's Pride against the S&P 500. Meanwhile,

the stock of steakhouse chain Morton's

<http://www.mortons.com/website/index.html>, a barometer for Americans'

relative preference for beef, has performed poorly

<http://finance./q/bc?s=MRT&t=6m> since its initial public

offering earlier this year.

 

Overcapacity and fears of avian flu and mad-cow disease aren't the only

factors hurting the profits of protein-based companies. They're being

forced to swallow higher costs for energy and for their main input: the

carbohydrates they use to fatten up chickens, pigs, and cattle. For in

the last year, as the price of protein has plummeted, carbs have been

enjoying a bull run. Check out these charts that track futures prices on

corn

<http://cbotdataexchange.if5.com/DataEOD_F_Chart.aspx?symbol=C/F.CBOT>,

wheat

<http://cbotdataexchange.if5.com/DataEOD_F_Chart.aspx?symbol=W/F.CBOT>,

and soybeans

<http://cbotdataexchange.if5.com/DataEOD_F_Chart.aspx?symbol=S/F.CBOT>

at the Chicago Board of Trade during the last year. The trends for corn

and wheat have been up significantly, while soybeans have fallen

somewhat. That translates into thinner margins for protein companies.

Gold Kist noted that for the nine months ended July 1, 2006, the average

price of corn was 4.5 percent higher than in the previous year.

Pilgrim's Pride noted that through the third quarter of the current

fiscal year, the price it paid for corn was up 5.2 percent. And,

according to this presentation

<http://media.corporate-ir.net/media_files/irol/68/68228/slideshowqtr3.pdf>

(see Page 9 of the PDF), the U.S. Department of Agriculture and traders

at the Chicago Board of Trade expect the price of corn to rise sharply

in the coming year.

 

High crop prices are good news for the farmers who grow carbohydrates

and for the companies that process them. ADM <http://www.admworld.com/>,

one of the world's biggest processors

<http://www.admworld.com/naen/about/overview.asp> of grains and

oilseeds, just reported record annual results

<http://www.admworld.com/naen/ir/news.asp>,* *with sales, margins, and

profits all on the rise. Here's a one-year chart

<http://finance./q/bc?t=1y&s=ADM&l=on&z=m&q=l&c=&c=%5eGSPC> of

ADM against the S&P 500.

 

But here's where the diet thesis breaks down: The prices of corn and

grains aren't rising because people are consuming more to fuel their

bodies. They're rising because people are consuming more carbohydrates

to fuel their cars. Amid the investment boom

<http://www.slate.com/id/2146239/> surrounding alternative energy, a

great deal of capital is flowing into ethanol, and corn is the main

ingredient in ethanol. In its annual outlook

<http://www.ethanolrfa.org/objects/pdf/outlook/outlook_2006.pdf>, the

Renewable Fuels Association <http://www.ethanolrfa.org/> noted that in

2005, ethanol production rose 17 percent to 4 billion gallons, more than

double the 2001 total. In 2005, according to the National Corn Growers

Association <http://www.ncga.com/>, 14.6 percent of corn production

<http://www.ncga.com/WorldOfCorn/main/production1.asp>, or 1.575 billion

bushels, went to produce ethanol. At the end of 2005, there were 29

refineries under construction with a combined annual capacity of 1.5

billion gallons. The ethanol boom has increased both demand--and

hypothetical future demand--for corn and other biomass. Today, ethanol

plants increasingly compete with protein-raisers to buy corn. To be

sure, environmental factors such as weather and pestilence affect the

price of corn, but the capital and excitement surrounding the ethanol

market is also helping to push up the price of corn.

 

On Wall Street, protein is down and carbs are up. But it has less to do

with what we're stuffing into our mouths than what we're funneling into

our SUVs.

 

/Daniel Gross (/www.danielgross.net/ <http://www.danielgross.net/>//)

writes *Slate*'s "Moneybox" column. You can e-mail him at

//moneybox (AT) slate (DOT) com/ <moneybox (AT) slate (DOT) com>/./

 

Article URL: http://www.slate.com/id/2147490/