The Avian Flu Will Make Poultry Profits Fly
Why, ask comedians and philosophers alike, did the chicken cross the road? Come 2015, it seems we have an answer: to get to the other side, a side free from the infestation of avian flu. This particularly nasty strain of virus poses no threat to humans (at least, not yet) but goes right for the jugular in chickens, ducks, geese, and all other birds that wind up on the dinner table with a side of potatoes and broccoli. The USDA first diagnosed highly-pathogenic avian influenza (HPAI H5, for the scientists keeping score) in American stocks of birds in December of 2014 and the virus has spread like wildfire in the months since. Despite the fast spread of the virus, the whole bird spot price for poultry has stayed surprisingly level in the same time frame; poultry today costs only two cents per pound more than it did at Christmas. As HPAI H5 turns into a national concern, it has the potential to do what the porcine virus did for pork commodities two years ago, ratcheting up the price to the glee of investors who bought in at a low value.
A Plague Upon Thee
Influenza affects poultry much in the same way that it affects humans. Some get only a few ruffled feathers (literally) while others never live to see another day. The H5 subtype originated in southeast Asia around 2004. While poultry produced in the region today have developed immunity to the virus (at the cost of countless millions of birds) the virus has spread to North American populations with vicious killing power. The only consolation for a chicken afflicted with avian flu is that they would meet an untimely end at the hands of a deep-fryer anyway if it weren't for the disease. That's not much consolation for the farmers trying to make their living, however. Nearly fifty million chickens and turkeys have been killed or culled in the United States alone thanks to the avian flu virus, a larger overall figure than the porcine virus and a figure that's likely to continue growing further. You may have noticed the increase in the cost of eggs, thanks entirely to H5, which cost an average of $1.60 per dozen today and are estimated to cost as much as $2 per dozen by the last quarter of 2014. No less than four states (Nebraska, Wisconsin, Minnesota, and Iowa) have declared states of emergency thanks to H5 and the impact on rural America's farm economy.
As Rare As Hen's Teeth? Not Just Yet
H5 has a way to go to wipe out poultry stocks. The world's agriculture relies on chicken more than any single other animal. There's nineteen billion chickens on our planet Earth awaiting transformation into everything from tikka masala to McNuggets, by far the largest population of any bird in the world and more than ten times the number of cattle. Even as Americans transition towards a more vegetarian diet, with over seven million abstaining from any type of meat, we consume nearly one hundred pounds of chicken per capital per year on average. That figure represents twice the amount of legs, wings, breasts, and thighs consumed in 1978, two years following peak beef consumption in the United States (as an interesting corollary, pork consumption has stayed almost exactly the same in the past 50 years). The price of chicken on the commodities market reflects this surging demand, having doubled in value since 2000 after mostly stagnating during the 1990s. 2014 proved a good year for poultry investors, gaining about ten percent in the same period that the Standard and Poor's Goldman Sachs Commodity Index dropped by over one thousand points. Yet 2015 hasn't seen much traction in value gain as H5 depletes farms of birds. Why? For both taking down presidents and raising hens, the answer is to follow the money.
The Cost Of Chickens
About sixty-five percent of the cost of the chicken you purchase at the store comes from the feed for the birds. In comparison to other animals, that makes chicken profoundly cheap: a 2007 feed shortage for cattle only raised the price of beef by about two percent since the costs of acreage, water, medicine, transport, and a host of other factors didn't tip the scales. The past six months haven't seen major increases in the cost of chicken feed. Quite the opposite, in fact, as staple corn has lost about ten percent value since summer of 2014. That's kept poultry in a profit limbo, where lower supply and steady demand should make these birds fetch a pretty penny but the ease by which you can turn a dozen chickens into a dozen glazed honey-barbecue wings negates the gain. That's good news for both farmers and consumers, but what's good for farmers and consumers usually turns out to be bad for investors. That's not to say the H5 virus doesn't have potential to turn out better, simply that it's necessary to wait out the investment because the first shocks haven't been strong enough to overcome the inertia of cost thresholds.
Which Came First, The Dividend Or The Egg?
Poultry commodities represent a fantastic opportunity for investors due to the threat of H5 in tandem with the current stagnation of chicken prices. With the whole bird spot price having gained practically no net value throughout 2015, the continued development of H5 throughout North American stock will send chicken commodities upwards. Without a cure for H5 and with the need to quarantine sick animals, the pandemic signals profits for those who get in during the immediate future. Poultry in 2015 may be as valuable as pork in 2013 or beef in 2014 thanks to the right conditions creating a tight market without any indicating that demand for chicken will slack. Investing in poultry-heavy companies, such as Tyson Foods (TSN on the NYSE, trading at $41.58 a share) may help you get more value out of a chicken shortage