TMFDeej (99.47)

I told you higher meat prices were coming / BUD will never, ever get bought out by inBev / Buy a car, get a gun

May 27, 2008 – Comments (5) | RELATED TICKERS: BUD

For over a month now, I have been writing about how inflation in meat prices traditionally lags inflation in grains and that we are going to see a tremendous spike in the prices of beef, chicken, etc... in the near future (see article: Sell Your Restaurant Stocks NOW!!!!).  Well, the mainstream media is finally starting to pick up on this.  Here's a great piece on it that Bloomberg just published: Corn Costs Signal Biggest Beef Surge Since 2003 as Herds Shrink. 

The cost of corn, the main feed for many animals, has more than doubled over the past two years, yet cattle futures risen a paltry 31% during the same time period and cash prices have risen just 16%!  Obviously this trend is not sustainable.  Cattle prices are already on the rise, jumping 6.5% in April, the highest monthly gain since Aug. '06.  One analyst expects wholesale choice-grade beef to rise 16% to a record average price of $1.86 per pound next year.

I suspect that as people realize that food inflation is going to get much worse before it gets better, if it ever does, and that discretionary consumer spending is going to fall off of a cliff that restaurant stocks are going to get pounded, even before these factors start to show up in their actual earnings.  I need to find more restaurant stocks to short.

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It sure looks like it might happen...but you can take this to the bank: inBev will not buy Budweiser (BUD).  Shareholders would probably be silly not to take $65 per share for BUD, but I suspect that there will be a tremendous amount of outrage if a foreign company was to purchase an American icon like this.  There are few companies out there that are more "American" than Budweiser.  In order to pull something like this off, inBev would probably have to spin it as a merger of equals along the lines of the "merger of equals" that happened when Mercedes-Benz took over Chrysler years ago.  Even so, I suspect that the core Budweiser purchaser has a very "Buy American" mindset.  A sale of the company could alienate BUD's core customer and cause irreparable damage to the company's brand equity.  

I've learned that nothing is impossible in this world, but what fun is it if you don't have an opinion?  So write this down, BUD will never, ever be taken over by inBev.  I like Budweiser.  I often drink Bud Light, Michelob Ultra, or Bud Select, but I plan on clearing space in my CAPS portfolio today to short BUD.  It is currently trading at almost 20 times earnings, when its traditional multiple is more like 15.  When this deal falls apart, the buyout premium will evaporate and BUD will drift back towards its normal historical multiple.

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The market for cars and trucks in the U.S. have gotten so bad that one dealer has resorted to offering a free gun with every purchase of a new vehicle (see site: Max Motors God, Guns, & Gas Sale). Sales at Max Motors have exploded since it introduced the promotion and most people are opting to take the gun.  According to the owner, Mark Muller every buyer "except one guy from Canada and one old guy" has chosen to go with a new gun over the alternative, a $250 gas card (see article: Buy a car, get a free gun). 

I guess that these guns will come in handy in preventing carjackings as the soaring prices of food and gas cause our society to break down (kidding).  Seriously though, the sort of people who will buy a new car or truck just to get a free gun are the exact sort of people who drink Budweiser and who will freak out if it is sold to a foreign company.

Deej 

No position in BUD