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WEEKLY COMMODITY MONITOR: CMG, JACK, SAFM, BWLD, DPZ, PZZA

Corn is the big standout week over week, trading at $7.66 per bushel yesterday.

 

Corn has been trading softly over the past few weeks but moved up 14.1% in the last week to bring the item to +122% YoY.  Regarding proteins, this is certainly a meaningful move that will likely support meat prices going forward.  For a number of weeks now the commodities we monitor have been mixed in terms of the direction of the weekly price action.  While corn and wheat have gained strongly (14% and 7%) on the last week, dairy costs have decreased by similar respective magnitudes. 

 

In this note, I'm raising the red flag on the chicken producers, SAFM, TSN and PPC due to the surge in corn prices.  As you can see from the table below the surge in corn is happening at the same time chicken prices are getting weaker.  

 

WEEKLY COMMODITY MONITOR: CMG, JACK, SAFM, BWLD, DPZ, PZZA - commodities weekly 46

 

As the chart below shows, corn prices have bounced sharply following a brief decline in the second half of March.  An increase in global demand is expected to provide sustained support for corn prices.  For restaurant companies with a high level of exposure to protein costs, increasing corn prices are a concern.  Below is some commentary from management teams on corn prices.

 

CMG, 4Q10 Earnings Transcript, 2/10/11:

“Though we have contracted for most of our corn for our salsa for the year, reports of continuing or even worsening supply shortages of corn will only add to inflationary pressure on the meats that we serve.”

 

JACK, 1Q11 Earnings Transcript, 2/24/11:

“There are some Act of God provisions that will get us north of our contract bands, but at a reduced rate from what the current market pricing is ... And then also grain, corn, wheat and soybean impact, and there are input costs for a number of the proteins. And that's really what's driving up beef at this point.”

 

SAFM, J.P. Morgan Insurance Conference, 3/30/11:

“Corn and soybean mill prices remain significantly higher than historical average and we think there are going to be instances and times up from now through the growing season that they could spike higher.”

 

“The year 2006 was the year of avian influenza and 2008 was $8 corn and the collapse of our export market in the fall. That – 2010 – 2011 will be another year like 2008 right now.”

 

WEEKLY COMMODITY MONITOR: CMG, JACK, SAFM, BWLD, DPZ, PZZA - corn chart 4

 

Wheat prices are also rising with corn and this is, as with corn, largely attributable to global demand.  Corn and wheat prices in Asia are likely to continue to rise for the next number of weeks due to tight supplies in exporting countries.  Wheat crop conditions in the U.S. are also a concern.  Interestingly, the surge in corn prices is also pushing wheat higher as the corn surge spurs a livestock-feed swap.

 

WEEKLY COMMODITY MONITOR: CMG, JACK, SAFM, BWLD, DPZ, PZZA - wheat 46

 

Chicken wing prices continue to decline.  While this is helpful for BWLD margins, the NFL lockout hearing today is even more important.  Today, NFL players are asking a federal judge to grant an injunction preventing the NFL lockout and forcing the league to resume operations.  It seems more likely that the injunction will be granted with a stay than without but a denial of the injunction would put the NFL in the driver’s seat and the prospect of a NFL-less fall could become more real.  We know which side BWLD is cheering for!

 

WEEKLY COMMODITY MONITOR: CMG, JACK, SAFM, BWLD, DPZ, PZZA - chicken wing 46

 

Dairy costs have declined significantly over the past week and this is providing some relief for CAKE (which is not hedged on their dairy costs), DPZ and PZZA.  On a year-over-year basis, dairy prices are up but the step down over the past few weeks has been meaningful.

 

WEEKLY COMMODITY MONITOR: CMG, JACK, SAFM, BWLD, DPZ, PZZA - cheese 46

 

 

 

Howard Penney

Managing Director


THE M3: TAIWAN GAMING; MGM GRAND HO TRAM; SENTOSA

The Macau Metro Monitor, April 6, 2011


 

MOTC HAMMERS OUT DETAILS OF GAMBLING Taiwan Today, China Daily  

 Taiwan's Ministry of Transportation and Communcations (MTC) unveiled its gaming bill recently.  Here are some details:

  • 2 gaming licenses with concession period of 30 yrs
  • Gaming tax: 12-15%
  • Residents subject to NT$2,000 entrance fee.
  • Additional NT$8 BN tax revenue / year

The bill will be discussed in many public hearings in Kinmen, Matsu, and Penghu during April and May.  It will undergo revisions before being submitted to Congress.  The media believes legislative review may happen by year-end.

 

JOHN SHIGLEY NAMED PRESIDENT OF MGM GRAND HO TRAM macaubusiness.com

MGM Hospitality, a subsidiary of MGM Resorts International, and Asian Coast Development (Canada) Limited, have named John Shigley as MGM Grand Ho Tram's President and COO.  Shigley has recently been supporting MGM Resorts International’s Asian gaming interests, primarily in Macau, while also serving as executive vice president of operations for MGM Grand Las Vegas.


SENTOSA'S INTEGRATED RESORTS FAIL TO INCREASE SINGAPORE'S Travel Daily UK

According to a poll taken by the Association of Singapore Attractions (ASA), 45% of Singapore's attractions had seen a decline in visitation in 2010, despite a 20% rise in visitors to Singapore.  “Our inaugural survey revealed that while national tourist arrivals grew by one-fifth in 2010, its influence wasn’t evenly felt across Singapore attractions. We’ve also discovered that the IRs tend to benefit the attractions on Sentosa Island more so than any other location," said Kevin Cheong, Chairman of ASA.


TALES OF THE TAPE: YUM, RT, LNY, MSSR, CMG, COSI, MCD

Notable news items and price action from the last twenty-four hours.

  • YUM down 1.8% on accelerating volume; China raising rates and rumors today that KFC in Japan to reduce outlet opening hours in response to shortages in chicken supplies.
  • RT to report AMC current guidance for fiscal 2011 (May) guidance is EPS $0.76-0.86 and company-owned same-restaurant flat to +2%.
  • LNY CEO and MSSR suitor Tilman Fertitta said in an interview with CNBC that McCormick & Schmick’s “is not a good public company” and Landry’s will make its official tender offer on April 7.  On the broader restaurant space, Mr. Fertitta discussed inflation as being a present factor for operators.
  • MSSR gained 4.8% on accelerating volume yesterday.  Tilman will end up paying $10.50-$11.00 for MSSR.
  • CMG CEO Steve Ells received $14.1M in compensation for fiscal 2010 versus $6.41M the year prior.
  • COSI gained 3.2% on accelerating volume during yesterday’s trading.
  • MCD may be facing another Happy Meal ban, this time in New York as politicians move to ban toy giveaways from fast-food restaurants.  City Council Deputy Majority Leader Leroy Comrie, who plans to introduce the bill on Wednesday, said banning toy giveaways would reduce the allure of fast-food restaurants for children and encourage the industry to provide healthier options.
  • Volume in restaurant stocks broadly fell yesterday, versus the thirty-day average.

 

TALES OF THE TAPE: YUM, RT, LNY, MSSR, CMG, COSI, MCD - stocks 46

 

Howard Penney

Managing Director


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Patriot Pigs

“Lincoln’s ability to retain his emotional balance in such difficult situations was rooted in an acute self awareness.”

-Doris Kearns Goodwin, Team Of Rivals

 

I’m still grinding through this American classic, “Team of Rivals – The Political Genius of Abraham Lincoln.” The aforementioned quote from Kearns Goodwin comes from Chapter 23 which is titled, “There’s a Man In It”, which dissects the subtleties of leadership qualities that were uniquely possessed by both Lincoln and Ulysses S. Grant.

 

It’s an outstanding chapter in American history to reflect upon not only because of its constitutional gravity – “give me liberty or give me death” – but because it reminds us that this country is built on the backs of American character and resolve. What you are seeing from the said-leaders of US Government today looks nothing like it. These pretending patriots remind me more of pigs at a trough than Leaders At The Front.

 

If Timmy Geithner wants to go moral-compass on me for writing that, bring it. My definition of leadership on the ice, at my firm, and in the community is a heck of a lot different than his, and I’ll stand up and say that to his face. YouTube the man. Watch him mimic the hand gestures of Larry Summers. Geithner doesn’t have a sense of self awareness. He is a bureaucrat - not the leader America needs on the front lines of this US Debt-Ceiling Debate.

 

As we predicted, the US Government Shutdown and Debt-Ceiling Debate has replaced Japan and the Middle East as top headline news. This “news” is real-time – and the entire world is watching. If we think that we can call Europeans “pigs”, point fingers at other countries for The Bernank’s inflation, and come out of this generational debate about deficits and debts smelling like a rose, think again.

 

So let’s rethink…

 

One of Bloomberg’s top headlines this morning = “Geithner Says Failure To Raise Debt Limit Would Trigger a Financial Crisis.” And, expanding upon his leadership thoughts, this is what our squirrel hunting bureaucrat had to add to the global risk management conversation:

 

“You will shake the basic foundations of the entire global financial system… I’m totally confident that Congress will act to avoid that… It will be inconceivable that lawmakers will not act in time…”

 

Well Mr. Unaware, conceive reality – this government could (and should) shutdown. During both Bush and Obama’s administrations (you advised both), you worked tirelessly at putting America’s balance sheet in this position. Shame on you for reverting to your go-to move of fear-mongering so that we can do more of what got us into this colossal disaster of fiscal sense. Shame on you Geithner. Shame on you.

 

I’m neither a Republican nor a Democrat. So instead of looking for an angle on me Timmy, why don’t you take a good and hard long look at what Mr. Macro Market is telling you about your Patriot Pig commentary:

  1. Dollar DOWN: Trading down for the 11th out of the last 15 weeks (and down -15% since Geithner became the head of the US Government office that is supposed to be protecting it) the US Dollar Debauchery continues to stoke The Inflation to new economic-cycle and YTD highs (CRB Commodities Index, Food, and Oil both hitting fresh highs this morning).
  2. Euro UP: After registering its best quarterly performance versus the US Dollar since the Euro’s inception in 1999, it’s hitting new YTD highs at $1.43 this morning and smoking all Patriotic Pig name callers in the US out of their holes – reminding Americans that our fiscal issues are worse than Europe’s. And that’s saying something…
  3. Short Term US Treasuries DOWN: Not that the Secretary of the US Treasury should hold himself accountable to massive percentage moves in the prices of US Treasuries, but into and out of Geithner’s fear-mongering comments, 2-year UST yields are ripping higher (up +39% since March 21st, 2011) as  US government shutdown default premiums rise alongside inflation expectations.

Of course it takes two to tango in Burning The Buck  - both a fiscal and a monetary policy central planner. Tag, Bernank and Timmy, you’re it – and either your boss (who has read Lincoln quite closely from what I hear) has “an acute self awareness” of what the American people think about finding fiscal “change we can believe in”, or he doesn’t.

 

As for the rest of us, Yes We Can.

 

The most obvious way to make money on this in 2011 has been to be long of The Inflation Policy of the US Government (short the US Dollar, and short US Treasury Bonds). But, Dear Americans and Canadians alike, please don’t confuse our profits with patriotism. There are 44,000,000 Americans on food stamps (all-time high). While a small some of us are getting paid, most of us are getting plugged.

 

But be careful out there levered-long traders of the risk management gridiron - being long The Inflation Policy isn’t a new idea. Hedge Fund net long exposure to commodities recently backed off its YTD high, but that was an all-time high (which is saying something given how much our industry was chasing commodity inflation in 2007-2008 as The Bernank’s “shock and awe” interest rate cuts delivered us $150/oil). All-time, is a long time…

 

Interestingly, but not surprisingly, that inflationary period of 2007-2008 also gave birth to the first time that US Import Prices from China were UP on a year-over-year basis. That is, the first time until now – and Americans are going to take this in more places than the pump.

 

For these reasons, fully loaded with the long-term causality associated with creating them (burning our currency and credibility at the stake), Mr. Geithner it’s you who may very well “trigger a financial crisis.” And, perversely, most modern day politicians of the 112th Congress are longing for more of that.

 

My immediate-term support and resistance lines for oil are now $106.22 and $109.78, respectively. My immediate-term support and resistance lines for the SP500 are now 1322 and 1341, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Patriot Pigs - Chart of the Day

 

Patriot Pigs - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - April 6, 2011

 

The US Government Shutdown has overtaken Japan and the Middle East as #1 headline news what does it mean for market pricing?

  • Dollar DOWN = stoking inflation to new cycle and YTD highs (CRB and Oil both this morning)
  • Euro UP = new highs, smoking all patriotic pig name callers in the US out of their holes – reminding Americans our fiscal issues are worse
  • Short Term Treasuries UP = ripping higher with both government shutdown default premiums rising (debt ceiling) and inflation being perpetuated

As we look at today’s set up for the S&P 500, the range is 19 points or -0.80% downside to 1322 and 0.63% upside to 1341.

 

SECTOR AND GLOBAL PERFORMANCE

 

We are on day 3 of perfect with 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.    

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 325 (+70)  
  • VOLUME: NYSE 830.64 (+7.78%)
  • VIX:  17.25 -0.86% YTD PERFORMANCE: -2.82%
  • SPX PUT/CALL RATIO: 1.69 from 2.15 (-21.10%)

CREDIT/ECONOMIC MARKET LOOK:

 

Treasury 10-year yields approached 4-week high, extending jump of 6 bps yesterday after release of Fed’s March 15 minutes

  • TED SPREAD: 22.78
  • 3-MONTH T-BILL YIELD: 0.07% +0.01%
  • 10-Year: 3.50 from 3.45
  • YIELD CURVE: 2.66 from 2.68

MACRO DATA POINTS:

  • 7 a.m.: Fed’s Lockhart to meet with media at Stone Mountain, Ga.
  • 7 a.m.: MBA Mortgage Applications
  • 10:30 a.m.: DoE inventories

WHAT TO WATCH:

  • Alberta government proposes rules that would revoke some oil sands leases - Globe and Mail
  • Bullish sentiment increases to 57.3% from 51.6% in the latest US Investor's Intelligence poll
  • FOMC Minutes indicate that the Fed felt it was important to pay attention to the evolution of inflation expectations
  • NYSE Euronext reportedly may bid for Nasdaq to disrupt hostile counteroffer for NYX from Nasdaq, ICE
  • Taiwan Semiconductor Manufacturing cuts forecast for 2011 global chip industry sales excluding memory products to 4% growth from prev. forecast 7% growth; says Japan earthquake hurt expected demand.
  • Portugal plans to sell up to EU1b in bills due October.

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Wheat Seen Extending Rally as Corn Surge Spurs Swap in Feed for Livestock
  • Gold Climbs to Record in ‘Flight to Safety’ as Silver Reaches 31-Year Peak
  • Wheat Crop Conditions in China Seen Improving, Curbing Import Requirements
  • Fishing Halted in Japan’s Ibaraki Prefecture as Nuclear Plant Taints Sea
  • Copper Reaches One-Week High on Speculation Demand Will Maintain Its Pace
  • Crude Oil Trades Near 30-Month High Before ECB Meeting, U.S. Supply Report
  • Cocoa Advances on Ivory Coast Export Speculation; Coffee Prices Decline
  • Corn Declines as Investors Lock-in Gains After Four-Day Rally; Wheat Gains
  • Citigroup Boosts Commodity Investment Team to Tap Demand as Prices Surge
  • China, India Consumers to Lead Surge in Global Dairy Demand, Fonterra Says
  • Palm Oil Gains as Widening Soybean Oil Margin, Crude Advance Boost Demand
  • Rubber in Tokyo Little Changed as China Rate Hike Offsets Thai Flooding
  • Ivernia Says No Timetable Set to Restart Lead Mine in Western Australia

CURRENCIES

  • Canadian Dollar Strengthens to Highest Since November 2007
  • Yen weakened to 6-month low against dollar, tumbled against euro amid speculation BoJ will trail Fed, ECB in ending stimulus

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

EUROPEAN MARKETS

  • Eastern European markets trade higher lower with the periphery again in focus and particularly Ireland and Portugal; Hungry and Turkey are the two best performing markets globally. 
  • Honda to Cut UK Output by 50%, Cites Japanese Parts Shortage
  • UK Halifax Mar House Price Index +0.1% m/m vs consensus +0.2%
  • Germany Mar construction PMI 61.8 vs prior 60.7
  • UK Feb Industrial Production +2.4% y/y vs consensus +4.3%, prior revised +4.2% from +4.4%; UK Manufacturing Production +4.9% y/y vs consensus +5.8%, prior revised +6.6% from +6.8%
  • German Feb. Factory Orders Rise 5x More Than Expected  - Germany Feb industrial orders +2.4% m/m vs consensus +0.6% and prior revised +3.1% vs from +2.9%
  • EuroZone Q4 GDP final +2.0% y/y vs preliminary +2.0%

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIA PACIFIC MARKTES:

 

The Asian markets turned in a positive performance except India, Thailand and South Korea.  Thailand was closed for King Rama I Memorial and Chakri Day.  China rose 1.14% despite yesterday’s surprise interest-rate increase and speculation that March inflation will be higher than expected.

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 46

 

 

Howard Penney

Managing Director


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%
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