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SAFM commented that the company is looking at corn delivered into its feed mills at over $6 a bushel and soybean meal delivered into the mills at $380+ a ton. Currently, SAFM is looking at selling breast meat at $1.30, which means that the company is expecting to lose money for the foreseeable future. Just for SAFM to reach average margins, breast meat would need to average $1.85 to $1.90 for 12-months. That represents at 40%+ increase in breast meat. There is no restaurant company that I know of that could handle that kind of chicken inflation.

  • The chicken processing industry is not alone. If the chicken processors can’t make money buying corn and soy at those levels, it’s hard to imagine that pork and beef processors can make money either (Just look at how higher grain prices impacted Smithfield Foods’ results reported earlier this week). Importantly, it does not look like it’s going to get any better any time soon. Looking ahead, corn contracts for delivery in the spring are priced between $6.50 and $7.00, potentially making the situation worse in 2009.

  • Given the current economic climate, the relevant issue that remains unclear is the impact on demand for protein. Given the current rate of losses in the chicken industry, the over abundance of processing facilities will correct itself. A critical element that needs to remain in place is the export market, especially shipments to Russia. If political tensions heat up over the Georgian invasion; and the export market were to slow (implying supply would remain an issue), bankruptcy is all but certain for some processors.

  • As you can see from the charts to the right its bull market for farmers of crops, but not livestock! A quick comparison of the USDA index levels for prices received by farmers shows that, while livestock prices are up significantly –they have failed to match the pace of crops. Livestock farmers have felt the pressure as the trajectory of grains, soy and corn prices has continued to squeeze their margins. For the chicken processors, production rationalization has not taken place to any meaningful degree.


Structural issues appear to be impacting LVS on the Cotai Strip. Apparently, one of the near complete hotels on lot 5 or 6 is not settling properly. I think it will cost $50-100 million to fix and likely delay the opening by about 6 months. It is unclear which hotel it is although I’m assuming it’s one of the hotels to be managed by Starwood (St. Regis or Sheraton) or Shangri-La (Shangri-La or Traders). This delay will push the opening into 2010. More to come.

Eye on Putin Power: "Putin accuses U.S. of orchestrating Georgian war"

SOCHI, Russia (CNN) -- "Russian Prime Minister Vladimir Putin has accused the United States of orchestrating the conflict in Georgia to benefit one of its presidential election candidates."

CNN's Matthew Chance has himself quite the story here intraday. Although CNBC and Bloomberg seem more interested in how many buildings Lehman can sell or how many buildings hurricane Gustav can knock down.

This is the global geopolitical canary in the coal mine. Pay attention to it.


Philippino Free Money Days Ending

Below, we have attached a 10 year cycle chart that overlays the Philippine stock market with their equivalent of a Fed funds rate. Sometimes one picture like this makes everything crystal clear. This is the Asian easy money policy picture that created today’s runaway Asian inflation.

Look at how Philippine stocks act when access to capital is cheap and flowing versus when it's tightening. That last melt up in stocks coincides directly with the last round of easy money overnight rate cuts.

This morning the central bank raised rates another 25 basis points in order to "tame inflation". Remember, inflation can be imported to a country whose currency is crashing. Inflation in the Philippines was recently reported at +13% y/y.

The titanic is turning here. If you have to be invested, wade into those waters of "emerging Asia" equities with extreme caution.

Bristol Myers Squibb (BMY): We Bought It In the Hedgeye Portfolio Yesterday

On its lows yesterday morning, my Partner, Tom Tobin, thought BMY was oversold relative to the impact of the news (see his portal posting on it this morning).

This is one of these "Large Marge" big cap pharma names that fits within the construct of our Healthcare Sector and Global Macro views, and buying things when they are on sale is what we do.

Intraday here, "DealReporter" was cited by FT mergerarket today citing "industry sources following the situation" that BMY could offer as much as $70/share for IMCL. This is not edge; this has been a price that has been thrown around for some time now.

What has not been thrown around is that I think Carl Icahn is as incentivized as he will ever be to get his IMCL trade booked. For the levered activists facing potential liquidity problems, this is a time to sell what you can, not what you should.

We like the Bristol/Imclone combo. The sooner this deal gets done, even if it's for $70/share, the better for BMY.

Listen to Alibaba

In case you missed it, Alibaba.com, one of the world’s largest B2B marketplaces, issued a profit warning last night despite 158% profit growth in the quarter. The reason?

Per the CEO,

1) "The economic winter is making it difficult for some of our customers to conduct business and, as a result, we have seen a slowdown in the addition of Gold Supplier members (61% of revs), which may continue until next year.

2) “We see difficulties in four out of the 40 sectors we have: textile, metal, garment and construction services," said Mr Wei.

3) "It will be even worse in the second half."

I couldn’t have said it better myself. Margin expectations in apparel remain too high for the next 12 months.

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