In a previous article I discussed the business model of Cal Maine foods and argued that the key metric to follow was industry production. There is no need to go over the analysis again on this post but, for the benefit of those who want to see it, it is linked here
Essentially, the argument is that high feed costs cause production reductions amongst the weaker players as margins get squeezed. This causes hikes in prices, which are sustainable because egg demand is price inelastic. Cal Maine is an interesting stock because-as a large player- it is seen as a beneficiary of this process.
A brief look at the current production data from the United States Department of Agriculture USDA would suggest that it is still too early to be piling into Cal Maine Foods. Total Egg Production is actually up 1% on last year to December
In addition, if we look at a forwards indicator such as the 2010 percentage of Egg-type chicks hatched vs. 2009 we can't see a strong downturn just yet
So for now, I think it is still prudent to stay out of Cal Maine Foods, although, I suspect its time will come!
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'Cal Maine Foods Playing Its Very Own Cyclical Game'
USDA, National Agriculture Statistics Service 'Chickens and Eggs'