Photo: Wikimedia Commons
Chicken giant Sanderson Farms has been losing money on every chicken it has produced this year.However, Goldman Sachs’ Americas agriculture research team thinks the current stage of the chicken cycle is a great time to jump into Sanderson Farms’ stock.
In the chicken cycle, production rises when prices are high. Prices then correct as production heats up. As chicken production becomes less profitable, the producers cut back to realign supply with demand. Then prices rise again.
Goldman thinks production cuts are about to take hold, which will make supply-demand dynamics favourable for prices. This will be good news for the players in the chicken production industry.
Sanderson Farms is Goldman’s top pick for this stage of the chicken cycle.
“SAFM has consistently outperformed the market by a wide margin at this stage in the chicken liquidation cycle. Recent data continues to point to rapid supply cuts that should drive prices.”
Photo: Goldman Sachs