Milk the Farmer

Back in the old days, I used to “milk the farmer” in a different way, by tapping into his profit stream, via seed and fertilizer plays. However, as of right now, I am looking to vanquish him, profit from his demise.

The price of corn has been spiraling lower and this presents a unique opportunity for companies with high corn input costs. Naturally, this isn’t a new trade and the stocks I am about to mention have already moved higher. But that doesn’t mean they are done. I am talking about beef, chicken, ethanol and possibly whiskey.

As you know, in this retarded nation, we feed our cows corn, for reasons unbeknownst to me. Perhaps we enjoy afflicting our citizenry with ecoli. Nevertheless, with corn lower, this means protein plays like HRL, TSN, PPC and SAFM pay less to feed their animals. On the restaurant side, stocks like RUTH, BLMN and DFRG might do better. Let’s not forget about the major chicken plays too, like CMG, YUM and BWLD.

On the ethanols side, PEIX, GPRE and BIOF might benefit.

Lastly, MGPI provides food grade alcohol to most of the bourbon manufacturers in this steakified nation of ours, also another play off of corns demise.

Interestingly enough, this reduction in corn hasn’t resulted in higher margins at the grocery chains, yet. Stocks like FWM, NGVC, TFM and WFM have been in the penalty box the whole time. Which leads me to my next conclusion: perhaps it’s time to look the other way. I am not buying the inflation trade and Americans are a gluttonous people. I don’t like chasing stocks like PPC, which I was buying below $5 a few years ago. However, I do like the idea that the grocery chains might soon see an uptick in margins, thanks to commodity prices coming back down.

It’s a contrarian play and you might have to wait a few quarters for them to work. Come thanksgiving, something tells me you’ll rejoice buying WFM, TFM and NGVC when no one else wanted to.