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CORRECTED: INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT

In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices are going to burst, and could be in a bear market for years.

 

HEDGEYE LONG IDEAS - MCD, DFRG, YUM

 

ADDITIONS TO THE HEDGEYE LONG BENCH - RUTH, TXRH

 

OTHER BENEFICIARIES - SHAK, QSR, SONC, JACK, BLMN, HABT, WEN, RRGB 

 

CORRECTED: INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT - CHART 100

 

On Thursday, October 15th at 1:00 pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 

 

The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further

 

Purchasing over $1 billion of red meat, McDonald’s is one of the biggest beneficiaries of the lower beef prices.  We are bullish on the MCD turnaround and now the company will likely be seeing a significant commodity tailwind in 2016-2017.

 

JIM ROBB BIO

Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.

 

Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.

 

The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.

 

Call details and materials to be provided next week.

 

Contact  for more information. 

 


INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT

In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices are going to burst, and could be in a bear market for years.

 

HEDGEYE LONG IDEAS - MCD, DFRG, YUM

 

ADDITIONS TO THE HEDGEYE LONG BENCH - RUTH, TXRH

 

OTHER BENEFICIARIES - SHAK, QSR, SONC, JACK, BLMN, HABT, WEN, RRGB 

 

INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT - CHART 100

 

On Thursday, October 15th at 1:00 pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 

 

The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further

 

Purchasing over $1 billion of red meat, McDonald’s is one of the biggest beneficiaries of the lower beef prices.  We are bullish on the MCD turnaround and now the company will likely be seeing a significant commodity tailwind in 2016-2017.

 

JIM ROBB BIO

Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.

 

Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.

 

The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.

 

Call details and materials to be provided next week.

 

Contact for more information. 

 


Cartoon of the Day: Grave Danger?

Cartoon of the Day: Grave Danger? - The market is going to rip cartoon 10.06.2015

Excerpt from today's Early Look written by Hedgeye CEO Keith McCullough:

 

...The 1933-1937 period was one of sustained #Deflation. While we’ve seen deflationary shocks in markets in both 2008 and 2015, we have not had to deal with it being pervasive. That’s why consensus continues to chase “reflation” rallies like yesterday’s.

 

The most basic thesis on the illusion of growth (artificially inflated asset prices) is that central planners around the world can offset the gravity of oversupply and secular slowing with currency devaluation.


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When You Can't Get Out! Jamming Mashed Potatoes Through a Garden Hose

On today's edition of The Macro Show, Hedgeye CEO Keith McCullough explains the liquidity issue facing many hedge funds that are trapped in small-cap positions.


Volatility: Big Asymmetric Upside Risk | $VIX

A great contrarian indicator with the Financial Times running a “risk on” story because the VIX is “below 20.”

 

That, of course, means nothing to me as the risk range for VIX = 18.55-29.47 coming off the all-time low in cross-asset class volatility last year (see chart below).

 

Big asymmetry to the upside.

 

Volatility: Big Asymmetric Upside Risk | $VIX - z km vix

 

Editor's Note: This is a brief excerpt from Hedgeye's morning research. Click here if you're interested in learning more abour our various investing product options.


CoreLogic HPI ↑ Acceleration, Month 6

Takeaway: CoreLogic continues to reflect positive momentum in home prices with the Y/Y rate of change accelerating to +6.9% in August.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

CoreLogic HPI ↑ Acceleration, Month 6 - Compendium 100615

 

Today's Focus: August CoreLogic Home Price Report

 

CoreLogic HPI:  Home prices rose +1.2% month-over-month in August with year-over-year growth accelerating +120 bps sequentially to +6.9% - marking a 6th month of acceleration off the Feb ’15 RoC trough.   The direction and magnitude of change was similar across the non-distressed series. 

 

The implication of accelerating 2nd derivative price trends remains unchanged:  Prices lag demand trends by ~12 months and trailing demand trends argue for further acceleration in HPI over the nearer-term.  Rising price growth supports higher ASP’s, builder margin expansion, and (with housing related equities and home price growth showing a strong contemporaneous relationship) positive equity performance across the housing complex.    

 

CoreLogic HPI ↑ Acceleration, Month 6 - HPI TTM YoY 

 

CoreLogic HPI ↑ Acceleration, Month 6 - HPI TTM Current vs Revision 

 

CoreLogic HPI ↑ Acceleration, Month 6 - HPI TTM YoY Ex Distressed 

 

CoreLogic HPI ↑ Acceleration, Month 6 - HPI 3 Indices

 

 

About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."

 

Joshua Steiner, CFA

 

Christian B. Drake


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