Pilgrim’s Pride Corporation (NYSE:PPC) -- Should Benefit from Lower Feed Costs in 2011

It’s early in the new year and time for 2011 predictions. Today, Chris Mayer, Agora Financial’s editor of Mayer’s Special Situations, looks at the upcoming year in terms of commodities and he also provides specific insight on Pilgrim’s Pride Corporation (NYSE:PPC), a vertically integrated chicken products company in the US, Mexico, and Puerto Rico, that exports to 90 countries.

Here we turn to Chris Mayer’s latest reader update:

“I think 2011 will be more difficult for commodity investors. Mining companies are pouring record amounts of cash toward new projects. That’s like turning on the shot clock in basketball. There is a window to score here, but it is closing. Some commodities, though, ought to do better than others.

“There is an old market saying that says, ‘Good things happen to cheap stocks.’ Even though we can’t predict when things will happen, a cheap stock usually doesn’t need much to rise. In the commodity world, a similar saying might be ‘Good things happen to commodities where supply is tight and finding more is not easy.’

“‘Coking coal is a good example. Quality deposits are hard to find. Steelmakers are looking all over the world for new sources of supply. But then, in recent days, the sky opened up in Australia. The rain was so torrential, it’s halted exports of about 40% of the world’s coking coal. A whole bunch of companies have declared force majeure, saying they would not be able to meet supply contracts.

“No one could’ve predicted that, but good things tend to happen to such commodities. Coking coal prices will surely spike upward in the second quarter. Already, coking coal contracts for January-March are $225 a tonne, the second highest on record.

“For 2011, I’d say uranium has the most upside outside of the precious metals. Even though prices rose in 2010, they still don’t compensate miners for the risk of building new mines. It’s also a very concentrated industry, like coking coal. More than 60% of all uranium comes from just 10 mines.

“What about the biggest potential correction on the downside? I’d say agricultural commodities. We’re going to see record planting all over the world. My guess is that will be enough to dent to the run of commodities such as wheat and corn. Good for stocks such as Pilgrim’s Pride (NYSE:PPC), though, which should enjoy a fall in feed costs.”

Chris Mayer’s main commodities takeaway for readers of his first 2011 update is to, “stay with commodities where supply is tight and there is no immediate cure.” His latest update also offers predictions on gold, fundamentals in 2011, and US blue chips. You can read more of his opinions for the new year by subscribing to Mayer’s Special Situations, which can be found at the Agora Financial research page here.


Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

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