A Bone to Pick With Chicken Stocks
There’s been a lot in the press about meat shortages amid worker quarantine, and investors have piled into plant-based producers as a result. Much less has been said about chicken!
The United States is the world’s number one poultry producer, and nearly the world’s number one poultry consumer. The sector employs a quarter of a million people, but tectonic shifts in chicken supply and demand seem to be flying under the market’s radar.
It’s hard to tell chickens apart, which makes them unluckily suited to automated forms of slaughter. This is not a popular link in their supply chain, with reason, but it is cost-effective. You only need one human to reign over dozens of cold-killing robots.
This market is attracting heavy investment as labor becomes less available in lockdown, and robotic savings are being passed down. On an inflation-adjusted basis, the price per pound of chicken has fallen dramatically compared to 1935, around thirty-five percent.
The advent of even more advanced robots, encouraged by coronavirus, could take these investments and savings to another level, but investors must time it carefully. In the short run, efficiencies will allow consolidated processors to make abnormal profits. In the long run, however, that will lure new competitors, and abnormalities will evaporate.
It’s also true that if chicken goes out of stock, we usually look to substitutes like beef and pork. There’s a danger that more competitive chicken will hurt hog and cattle abbatoirs, still saying nothing of the growing health concerns attached to red meat consumption.
These could be industries that continue to shrink in the years ahead, so investors are watching all-around producers closely. Tyson Foods produces chicken, pork, and beef; its products could be cannibalizing each other. Hormel produces meat; it’s in trouble. The valuation for Beyond Meat is driven primarily by the market size of legacy meat, so watch out – chicken about!
