ATR --
Interesting question: having done earnings reports on companies in the
meat business, you'll see them worry about consumers' substitution of
other protein when prices rise or a health incident like the BSE scare
occurs. Just last summer beef prices were at an all-time high, with
cattle costs 21% higher than in 2002 -- so analysts watched very
closely to see if consumers would switch from beef to pork or chicken.
What companies might benefit from a market "panic" in beef? There's
not much to be made in diagnostic medicines (the expertise is in
government labs in the United Kingdom) and there's no cure for cows or
humans with BSE. So we'll have to look to the chicken, turkey and
pork producers. Unfortunately, many companies are diversified. A
good example would be Swift or Tyson Foods. Though Tyson's know for
its branded chicken products, it also owns IBP Fresh Meats, the
largest U.S. beef producer. And Swift, the #3 beef producer, gets
about 80% of its revenue from beef and 20% from pork.
Hoovers Online
Swift & Company
http://www.hoovers.com/swift/--ID__106028--/free-co-factsheet.xhtml
Still we can use services like Hoovers Online or Investext (a service
available at many public libraries that provides Wall Street reports)
to see what companies might fit. Note that on the bottom of the page,
Hoovers Online lists major competitors:
* Hormel Foods, the largest turkey processor in the county (NYSE: HRL)
* Pilgrim's Pride: the second largest poultry processor (NYSE: PPC)
* Grupo Herdez SA de CV: a major Mexican fishing and canning company
-- but since it's traded in pink sheets, data may be hard to come by
(OTC: GUZBY)
* General Mills, which acquired the Green Giant line of frozen foods
in 2001 and also provides cereals, yogurt and other foods (NYSE: GIS)
Note that Daytrader's comments below are correct: purchasing put
options or shorting the beef producers is a logical strategy. But
we'll stick to HRL, PPC and GIS for this analysis.
TIMING
=======
The preliminary finding that a single cow in a Washington state was
infected with Bovine Spongiform Encephalitis was made on Dec. 23, 2003
-- a Tuesday. Inasmuch as Dec. 24 is Christmas Eve, trading on the
New York Stock Exchange ends early (usually at noon). The diagnosis
was confirmed by the Weybridge, England laboratory on Dec. 25
(Thursday), so the next trading day would be Friday, Dec. 26:
Centers for Disease Control
"Bovine Spongiform Encephalopathy in a Dairy Cow - Washington State,
2003" (Jan. 9, 2004)
http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5253a2.htm
MARKET RESULTS
================
Let's look at the markets starting a day earlier: there's always the
possibility that news this major might have leaked. We should also
include a major market index (the Standard & Poor's 500 here), so that
we know if there's any correlation to other major market news.
An excellent source of market prices for each day is BigCharts.com,
which also happens to be located in Washington state:
BigCharts Historical Quotes
http://bigcharts.marketwatch.com/historical/
DEC. 22
SP500: 1,092.94, +6.64
GIS: 45.20, +0.18
HRL: 26.14, +0.44
PPC: 15.08, +0.08
DEC. 23
SP500: 1096.02, +3.08
GIS: 44.35, -0.85
HRL: 26.31, +0.17
PPC: 15.06, -0.02
DEC. 24:
SP500: 1094.04, -1.98
GIS: 45.04, +0.69
HRL: 26.46, +0.15
PPC: 16.85, +1.79
DEC. 26
SP500: 1,095.89, +1.85
GIS: 45.14, +0.10
HRL: 26.15, -0.31
PPC: 18.13, +1.28
DEC. 29
SP500:1,109.48, +13.59
GIS: 45.42, +0.28
HRL: 25.57, -0.58
PPC: 16.68, -0.68
We don't know at what time the news hit the markets on Dec. 23 -- or
if it did at all. There appears to be no reaction among the 3
companies identified. However, on Dec. 24 Hormel, Pilgrim's Pride and
General Mills all advanced, while the markets as a whole were down by
0.1%
By Monday, Dec. 29, those gains were already starting to erode,
presumably as the scale of the distribution of the BSE-infected meat
began to be better understood.
Note that you may wish to expand the time scale of the stock prices
because consumer attitudes weren't fully understood for weeks after
the December, 2003 incident.
Google search strategy:
"mad cow" + Washington state
Yahoo Finance
Best regards,
Omnivorous-GA |
