• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

Dollar strength is helping to deflate the inflation; with the exception of hogs, dairy, and (of course) chicken wing prices, all of the commodity prices that we track declined week-over-week.  Corn and wheat continue to track lower on optimism that this year’s spring crop will boost supplies.  Analysts are attributing the decline in grain prices to many factors including heavier-than-normal rain in some growing areas of the United States and mounting fears of economic growth slowing. 

For SAFM, falling corn prices are bullish for the company’s margins.  Heading into a stronger period of demand for chicken, a tight supply of chicken nationally and more favorable feed costs could boost the stock’s prospects.  It is worth being wary of seasonality in how this stock trades during the summer months, but on a longer-term duration we feel that this stock is a compelling long. 

Looking at the table below, we see +144% chicken wing inflation as a problem for BWLD.  We know that every 10% of chicken wing price inflation adds $3.8mm in COGS to the company’s P&L. 

Beef prices coming down is a positive for several names in the industry like TXRH, CMG, WEN, and one of our favorite longs, JACK.  Jack in the Box has been trading well over the past couple of weeks and we still like the stock. 

WEEKLY COMMODITY CHARTBOOK - commod

GAS PRICES WATCH

WEEKLY COMMODITY CHARTBOOK - gas prices

SUPPLY & DEMAND:

 

Chicken

Supply: Egg sets placements continue to contract at -4%, according to the Broiler Hatchery report released by the USDA today. This implies that supply will remain tight as the industry looks for more favorable business conditions before expanding production.

WEEKLY COMMODITY CHARTBOOK - wings v egg sets

CORRELATION

WEEKLY COMMODITY CHARTBOOK - correl

CHARTS

WEEKLY COMMODITY CHARTBOOK - coffee

 

WEEKLY COMMODITY CHARTBOOK - corn

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

WEEKLY COMMODITY CHARTBOOK - soybeans

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast

 

WEEKLY COMMODITY CHARTBOOK - chicken wing prices

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

WEEKLY COMMODITY CHARTBOOK - milk

 

Howard Penney

Managing Director

Rory Green

Analyst