The Midwest drought has made plenty of money for speculators in the agricultural commodities futures.
On the other hand, it has created an excellent buying opportunity in one of the best of breed companies in the meat business, Tyson Foods (TSN).
Tyson Foods is America's largest (world's second largest) producer and exporter of beef, chicken, and pork products. It supplies meat to grocery stores and global fast food franchises such as Yum Brands (YUM), McDonald's (MCD) and Burger King.
The reason Tyson's stock has been beaten down by 20% over the past month is due to speculation on the adverse effects of higher corn prices.
With the sharp rally in corn, it seems like these risks are already priced into corn futures. Compounding this with Tyson's sell-off, I believe that the expectation of higher feed cost is priced into Tyson's stock.
What makes Tyson an attractive buy is its cheap valuation, oversold technicals, and the long-term bullish affect this drought will have on the price on the meats.
Initially, high grain prices have killed the meats futures as farmers are slaughtering livestock early to minimize future higher feed costs. In the long run, however, this will create a shortages in pork, beef, and chicken in the intermediate future, which will boost meat prices...
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Source: Argentine Beef Packers S.A.
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