|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||665||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
|Subject||Nice graphs + question|
|Entry||10/08/2007 04:24 PM|
|Loved the graphs and the idea. |
Question: While I'm sure supply of hens is what it's all about in this industry, as a matter of curiosity are there indications of using substitutes for eggs as prices increase?
I did some quick math and figured that starches would be many times cheaper than eggs, but obviously there is the taste issue. Maybe doesn't matter in the private home where we're talking cents, but in a large-scale commercial operation?
Thanks for sharing!
|Entry||10/08/2007 04:32 PM|
|They say that eggs are the glue in cooking. As far as processed foods, with a single egg costing $0.10, would Entenmann's really risk toying withe pound-cake recipe???|
I don't think we'll see demand destruction from high prices, no does the thesis rely on it. Incremental export demand, however, does become a moot issue at these prices.
Hope that helps...
|Subject||Organic and Cage Free Eggs|
|Entry||10/08/2007 05:27 PM|
|Thanks for the idea.|
Do you have any sense of how much the margin increase has been due to sales of organic/cage free eggs? Are these higher margin products where their might be different economics at play?
|Entry||10/09/2007 10:53 AM|
|Cage free makes up ~8-9% of production and 15% of dollar sales. |
These eggs too are sold at an index to spot (urner barry), and thus the margin will fluctuate with that.
Are the economics different? Not really, caging is an easy way to increase productivity and reduce costs. Raising birds free range is simply more costly (higher 'shrinkage', lower lay rate, more labor intensive) but requires less ongoing capital investment.
So called specialty eggs were 11.4% of dollar rev in FY '06, and 11.2% of dollar volume in FY'07. The decline, is probably due to high prices of commodity eggs relative to a smaller % price increase in specialty (as feed is a lower component of specialty for the above reasons). But the category doesn't seem to be rapidly growing.
And if so how do we get to sustainable 20% margins? or even 10%? in any reasonable period of time to justify this valuation.
|Entry||10/09/2007 10:54 AM|
|More insider sales hitting the tape today, 30k or so from COO an a VP in finance.|
|Entry||10/09/2007 02:02 PM|
|Great idea. I have 3 questions:|
1)I am not close to the overall farm economy but read of significant land price inflation and the related impact on feed costs. How does that factor into your analysis of EV/unit of production? Is your inflation factor of 3% large enough? I know CALM is not too land-intensive, but it does own 17,000 acres plus other facilities. Shouldn't the EV/unit of production increase significantly vs. late 1990s given opportunity costs of land usage? I realize this is likely accounted for in the large margin of safety but am curious for your thoughts.
2) The CALM website notes that new industry standards regarding space per chicken put together by the United Egg Producers (+20% by 2008) combined with "more complex permitting" will slow supply increases. Thoughts?
3) How big of a headwind is the aging flock? Do you have any data on flock age over time?
|Entry||10/09/2007 04:58 PM|
|Thanks for a great (proven) idea. |
Given your expectation for a strong Q and traditionally weak pricing in calendar 1H, have you looked at May '08 Puts? The puts look pretty expensive and may not leave enough time, but getting squeezed by IBDers to $50 will not be fun either.
|Subject||Egg Price Resiliency / Yet Mor|
|Entry||10/20/2007 02:31 PM|
|Doobadoo82 -- Thanks for brining this great short idea to the forefront was again.|
In regards to the last posting's question on whether sustained high corn prices may have led to more controlled capacity growth in the industry, it may be instructive to look back at the 1972-73 "spiking" of egg prices which was driven by substantially the same (order of magnitude) inflation in prices of feed cost inputs. This period is instructive both because it was driven by a similar supply-side inflation in feed cost inputs and because, of the 9 spikes (defined as >20% annual inflation) in egg prices since the end of World War II, it is the only one in which egg price gains held for more than 18 months. In all other cases, preceding or subsequent declines over the +/- 2 years rendered average egg price inflation over the period comparable to general food inflation. A short piece from John Schnitker for the Brookings Institute gives a fairly comprehensive account of this period (Brookings Papers on Economic Activity, Vol. 1973, No. 2 (1973), pp. 498-507)(available on Jstor). While this period encountered similarly sustained inflation in corn and soybean prices, egg prices began to moderate substantially (roughly 6-months) prior to the leveling off of grain inflation -- suggesting that egg farmers eventually came to anticipate such inflation and , towards to end of the period, over-built. More importantly, the spread between egg prices and unit feed cost per dozen (the so-called "feed price margin") barely broke from its 30-40 cents/dz historical range -- peaking in early 1973 at around 45 cents. By contrast, feed price margin in CY Q306 appears to have been in the range of 65-70s -- higher than its been in any period for which I've found comparable egg and feed cost statistics. Simply put, in nominal terms, its never been better to be an egg producer and despite comparable periods of feed cost inflation, the current economic rents to egg producers appear unsustainable.
Also, regarding the general notion that industry organization or infrastructure costs (e.g., UEP and its guidelines) have spurred a new collective rationalization, the general structure of the industry still doesn't support this. With over 60 large-scale producers (>1mm layers), capacity collusion does not seem plausible even assuming that smaller producers might face scaling issues given the tightening of industry standards related to laying houses (again, assuming compliance). We've spent considerable time looking at the infrastructure to find some bottleneck that could enforce collusion but have found nothing.
For anyone not frequenting the USDA website, egg prices have already begun to moderate substantially from the peak levels observed in September ($1 versus $1.20), supporting the capacity expansion that Doobadoo82 forecasted based on hatchlings. Insiders selling continues at a rapid clip with the Company's President disposing of 17.5k shares this week alone and over 200k net sold insider share since June. Insiders shouldn't be the only sellers of this Company for long.
|Subject||current egg price|
|Entry||01/15/2008 01:03 PM|
|I've nosed around the USDA site and found data for historical pricing but haven't been able to find current pricing for eggs. Could someone please give me the link for it? Thanks.|
|Subject||re: where to get egg prices|
|Entry||01/17/2008 02:00 AM|
|Subject||just wanted an update|
|Entry||01/30/2008 03:16 AM|
|It's been 4 months since your write-up just wondering if you wouldn't mind sharing your current outlook. Has anything changed or do you still think prices will start to come down materially in the next 2 to 5 months? Thanks for the idea!|
|Entry||02/12/2008 04:38 PM|
|Thanks for posting your model. I am looking to update it and having trouble trying to locate the correct egg prices.|
For your tab, "Hist Prices Received", from where exactly are you pulling those numbers?
I clicked through the source link on the sheet: http://usda.mannlib.cornell.edu/usda/nass/AgriPric//2000s/2007/AgriPric-03-29-2007.pdf
On page 22, I get $0.681 per dozen eggs for March 2007. This compares to $0.943 in your tab (row 45). The average for the quarter per the above link is $0.699 (March = $0.788, April = $0.627, May = $0.681).
The numbers I find that match up more closely with yours and those from CALM’s filings are from the USDA Egg Market News Report, but I can’t find these numbers in a table format, only by individual 2x weekly pdf:
I appreciate any help.