Sanderson Farms: Set up to Move

March 11, 2008

There is a good deal of quacking about looking and walking like ducks these days. So why not cluck instead, if only for some relief.

During the past several week, I have been looking closely at opportunities within this decrepit excuse for a stock market. That has lead towards a simple thesis: There is clearly a shift in mentality towards commodities and pressure is building towards another bubbling. That lead to the next obvious question: How to profit?

One particular food commodity has seen a significant move recently: CORN. The same corn that is used for production of ethanol and the same corn that is used to feed chickens. There is a clear inverse relationship that has emerged between corn pricing and the share prices of some of the poultry producers. Sanderson Farms (SAFM) is the one from this sector that seems to have an opportunity to move higher, once the realization that corn prices have a built-in ceiling. That ceiling is created by the need for corn prices to stay within reasonable limits in order to appease the ethanol producers and to maintain reasonable poultry prices.

SAFM Price to Corn Prices

Sure, I know what you are thinking….Our government and the oil giants (one and the same actually) could give a damn and don’t care if ethanol is priced out of the market. But, in truth, they want to keep the appearance of an alternative fuel for the future, just as much as many of us wish to have an alternative. Beyond the basic premise that corn prices affect the Read more