Use access key #2 to skip to page content.

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

Recs

18

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.

 

----------------------------------------------------------------------------------------------------------------------------------

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.

 

--------------------------------------------------------------------------------------------------------------------------------

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 

5 Comments – Post Your Own

#1) On May 27, 2008 at 7:42 AM, ATWDLimited (< 20) wrote:

LOL,

Well that is thanks to Al Gore and the retarded environmentalists and the spend, spend, spend mentality over in congress. Lets burn our food in our cars. Great idea. Now lets subsidize it in our farm bill, even though we know that it hurts us even more, it pollutes more, costs more and causes food prices, more important than energy to rise. Way to go guys.

Report this comment
#2) On May 27, 2008 at 8:51 AM, Andyman (94.56) wrote:

@ATWSLimited - Al Gore did not destabilize the oil supply in the middle east by invading Iraq on the mere pretense of WMD. That requires only the kind of talent that George Bush and Dick Cheney bring to the table.

 

Report this comment
#3) On May 27, 2008 at 10:00 AM, mandrake66 (94.34) wrote:

Ethanol is only the latest scam involving corn. Ever wonder why the dominant sweetener in the US is corn syrup, and not sugar? It has something to do with the large tariffs placed on imported sugar. Partly it was to punish Castro, partly to reward a few billionaire sugar growers in Florida for destroying the Everglades, but mostly it was to provide more unnecessary demand corn. Ethanol is just the latest twist in an old game. Sugar is quite cheap and plentiful on the world market, which is why there are hardly any big confectioners that haven't left the US for Canada or Mexico.

Senators from farm states get what they want, and always have. 

Report this comment
#4) On May 27, 2008 at 1:10 PM, Tastylunch (29.25) wrote:

Steak n' Shake perhaps (SNS) is worth a look? I forgot about them until JD Sancho blogged about them, but they look awful from what I can see at first glance.

plus their food is v expensive for QSR, not a good thing in this environment

Report this comment
#5) On May 27, 2008 at 2:14 PM, TMFDeej (99.40) wrote:

Thanks Tasty.  SNS is a good one, but I'm trying to stay away from stocks that have a potential catalyst.  SNS has one in Sardar Biglari, the hedge fund manager who is trying to turn things around there.

The same goes for IHP.  I really wanted to short it in real life, but I was afraid that the company's efforts to sell company stores to franchisees and its sale / leaseback land transactions might be too much of a positive.

Deej

Report this comment

Featured Broker Partners


Advertisement