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Declining Future Prices of Major Grains Benefit Food Producers

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Overview on price decline

This year’s lower prices for major grains has benefited meat producers who depend on grain-based animal food. This has improved the operating margins for some producers while keeping them stable for others. Recent crop prices have shown a drastic downturn from previous years.

 

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Positive expectations with a twist

Tyson’s operating margins have increased since 2014 while its peers Pilgrim’s Pride (PPC) and Sanderson Farms (SAFM) showed a stable operating margin. These three companies expect favorable poultry industry conditions due to lower input costs such as lower-priced grain-based animal food.

These conditions may cause increased consumer and retail store demand for chicken and related products. One of the major competitors to these companies is ConAgra Food (CAG), which forms 0.96% of the Consumer Staples Select Sector SPDR ETF (XLP).

However, risks such as the avian flu can adversely affect the poultry supply for these meat producers. This could impair their revenues in the second quarter, increasing costs and hurting margins.

Company overview

Tyson Foods (TSN) and its subsidiaries produce, distribute, and market meat products worldwide. The First Trust Consumer Staples AlphaDEX Fund (FXG) holds 3.93% of Tyson Foods stock.

Pilgrim’s Pride (PPC) produces, processes, markets, and distributes meat products on a wholesale and retail level throughout the US and Mexico. The First Trust Consumer Staples AlphaDEX Fund (FXG) holds 5.14% of PPC.

An integrated poultry processing company, Sanderson Farms (SAFM) is a producer, processor, marketer, and distributor of chicken products in the US. The Power Shares S&P SmallCap Consumer Staples ETF (PSCC) holds 8% of SAFM stock.

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