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Commodities were mixed over the last week; as the dollar moved lower, grains, dairy and proteins were varied in their respective reactions.  Corn, wheat, coffee, beef, milk and chicken wings all went higher while broilers, cheese, soybeans and pork all declined. 





Coffee prices gained over the last week but have largely been coming down quarter-to-date which has improved investor sentiment for coffee retailers like SBUX, PEET, DNKN, THI, and MCD.  While prices are down almost 20% quarter-to-date, coffee retailers are going to take some time to work through inventory purchased at higher prices so in-store prices will likely remain high for consumers.


Wheat and corn prices going higher is a negative for companies exposed to protein costs – particularly beef as other supply/demand dynamics continue to support price.  In particular, WEN, TXRH and RUTH continue to experience pressure from elevated beef prices.  The trend could last for at last another year, according to some analysts (see “summary” below).


SAFM and TSN, and the broader food processing space, would benefit greatly from a prolonged step-down in grain prices.  We know from the SAFM Investor Conference last week that the company purchased 30-50% of their corn and soybean meal needs through March 2012 during the recent dip.


Chicken Wing prices resumed their move higher and, per our note published on Monday, we expect significant inflation in wing prices starting in 1Q for BWLD.













  • Coffee has risen over the last week as speculation mounts that rains in producing regions of Central America and also Vietnam will impact exports.  Rain in Vietnam has pushed back the schedule for the crop while downpours in Central America may result in crop losses of as much as 1 million bags, according to Archer Consulting, a Brazil-based firm.
  • The gain last week in wheat prices was partially driven by the dry weather in the most drought-affected areas of Texas and Oklahoma that some believe will lessen the prospects of newly planted U.S. crops before winter.  At the same time, Russian competition and concerns over the global economy are weighing on prices today.
  • Corn traded lower over the week as positive reports from the harvest in Illinois came back positive.  Across the growing regions of the U.S., though, yields are highly variable and demand has been reacting to recent dips quite quickly.  Finally, data from the CFTC shows that speculators increased their net-long positions during the week ended 10/18.
  • Cattle herds are likely to continue to shrink for at least another year, according to Cattle-fax analyst Kevin Good, cited on cattlenetwork.com.  This year’s drought has exacerbated the declined and, should this trend continue next year it would be bullish for beef prices.
























Chicken (Broilers)





Chicken Wings















Howard Penney

Managing Director


Rory Green






In preparation for RCL's 3Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.






  • “At the same time, our operating groups have been working diligently and effectively to control our costs. In previous calls, I've noted that we are seeing inflationary pressures in selected areas such as food and transportation expenses.  Unfortunately, I have to report that those pressures have not abated, and they continue to be a costly factor for us.  But our operating teams have been extremely effective in reducing our costs in other areas, which has allowed us to reduce total costs for the year by about 100 basis points.”
  • “Eastern Mediterranean itineraries will account for 18% of our total capacity in the third quarter and are unfortunately weighing down stronger yield performance by most of our other products.  Western Mediterranean sailings, in contrast, are expected to have slightly higher yields than last year, which is still encouraging, giving the large capacity increases in the region.”
  •  “The Caribbean, which represents our largest capacity allocation, will have yield improvements approaching double-digits.  We continue to make good progress in the southern hemisphere, which includes South America and Australia.  The Baltic and Alaska are the clear stars this year and likely benefited from some of the weakness in the Eastern Mediterranean.  Asia is the only other product in our portfolio that is expected to show declines this year. The redeployment effects resulting from the events in Japan are expected to linger through October, but the environment is clearly stabilized, and we remain very bullish on this region’s long-term prospects.
  • “Looking to our 2012 deployment, with the departure of Voyager of the Seas from the Mediterranean to China and Australia, and the arrival of Serenade of the Seas in the Baltic, we will somewhat shift the balance of our European presence from south to north.  While we would have done this irrespective of this year’s events, one implication of this set of moves will be to further diversify our product range, and lessen our exposure to any ongoing geopolitical risks that may affect the Mediterranean.”
  • “Later this year, we will revitalize Splendour of the Seas, and we are planning on continuing our revitalization program throughout the next several years.  With 15 ships in our Voyager, Radiance, and Vision classes, and a slower rate of new capacity coming online, we are committed to offering an outstanding and up-to-date Royal Caribbean experience on our older ship classes.”
  • “We’ve actually seen higher year-over-year bookings in July than we did before albeit it’s the new discounted rates that we implemented in late May and early June.”
  • [Mediterranean] “What we had said is that the pricing actions that we’ve taken have stimulated demand and the guidance that we’re putting out today is our best estimate of what’s going to happen in the market as we go forward.  But we have seen a nice pick-up in demand as a result of the pricing that we have there today.  We don’t particularly really care for the pricing, but we have seen a nice pick-up in the demand."

3Q 2011

  • “For all of our other major product groups, we are seeing very strong demand.  The Caribbean, Alaska, and the Baltic are all performing significantly better than last year and are all forecasted to generate solid double-digit yield improvements in the third quarter.”

4Q 2011/FY11/1Q 2012


  • “Interest expense for the year is currently expected to be between $355 million and $365 million, which is an increase of approximately $44 million, or $0.20 per share due to the new amortization schedule.
  • “Looking ahead, we’ll have all four Solstice-class ships operating in the Caribbean in this fall and winter, and we’ll have over 60% of our capacity in this market during this time period.  Since our cruises to the Caribbean book closer in than those to Europe and Alaska, we have less visibility to performance for this time period, but we are on pace to finish ahead of where we finished in Q4 2010 and Q1 2011.”
  • “Our non-Caribbean products, which represent 40% of our capacity for the period, are also performing well.  We are particularly pleased with the performance of our South American products and our soon-to-be Solsticeized Infinity, as well as the reintroduction of our brand in the Australia and New Zealand markets.”


  • “Based on current interest rates, our current fixed floating ratio in our existing loan structures, 2012 would also be approximately 4.4%.  Earnings per share for the year are now expected to be between $2.85 and $2.95.”
  • “It is very early in the selling cycle, and slightly less than a quarter of our inventory is sold at this point.  Our APDs and load factors are running ahead in all four quarters, but it is too early to provide any definitive yield guidance other than to say we expect improvements.”
  • “Early bookings for Europe are showing better load factors and APDs, but there is very limited visibility at this point.  It is encouraging to see the early order book, though, especially when you consider our comparables are prior to the turmoil in the Eastern Med.”
  • “Indications are, as Richard mentioned, next year that the pricing looks better, but we are still very, very early days when it comes to 2012 at this point.  But, I do want to stress that the Western Med has held up nicely, and we’ve actually seen some price increases.  It’s just that area that Brian described in the Eastern.”

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AMZN: Buying On Sale

Keith doing some bargain hunting on AMZN. There’s clearly a lot of warranted concern about the cost side of the house. But when we see the market beat up a company with blue-sky growth opportunity that is investing in future, we get interested. Tack on a bullet proof brand name, huge barriers to entry, and the conceivability that incremental Retail Sales over the next 10 yrs could = AMZN’s sales growth, and we get downright excited.  The stock is a long way from its $191 TAIL line of support.

AMZN: Buying On Sale - AMZN 10 26 11

Booking It: SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY), Short Consumer Staples (XLP)


After a 30 handle drop in the SP500, I’m booking it.


That doesn’t mean I’m bullish. It doesn’t mean I’m bearish. It doesn’t mean I can’t re-short it either. It just means that we’re holding my most immediate-term TRADE line of support at 1217.


Across our 3 risk management durations, here are the lines that matter most: 

  1. TAIL = 1266
  2. TREND = 1254
  3. TRADE = 1217 

So the intermediate-to-long-term picture still supports selling all rallies that extend themselves toward 1. And, until the immediate-term TRADE is no longer bullish (1217 support), I’ll respect whatever it is that the market sees coming next. As the Keynesian central planners have proven in the last 3 weeks, anything can happen.


If 1217 snaps, there is no support to 1182. So that’s where you’ll see me get as active as I was up at 1258. I’m comfortable being neutral right here and now with 1 Sector ETF on each side.




Keith R. McCullough
Chief Executive Officer


Booking It: SP500 Levels, Refreshed - SPX

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