Sunday, January 23, 2011

Cal Maine Foods: Update on US Egg Production Numbers


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

 
(m)
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Prod
7828
7688
6909
7813
7548
7685
7455
7691
7739
7488
7676
7550
7899

 Source: USDA

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

 
 %
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2010/2009
103
109
108
111
106
102
105
98
99
110
113
96

 Source: USDA

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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Source:

'Cal Maine Foods Playing Its Very Own Cyclical Game'

USDA, National Agriculture Statistics Service 'Chickens and Eggs'