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What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

Perfect Storm Food Consolidation Continues

Jeffrey C. Borneman | September 9, 2014

Annie’s Homegrown is joining the General Mills empire. The price: $46 a share which is a 51 percent premium over Annie’s 30-day average closing price as of Friday. 

Back in June when Tyson bought Hillshire Brands for $8.5 billion I made this statement here: "First, investors should know that when an industry begins a consolidation phase, it's because there is no organic growth". 

Americans are experiencing record high beef and milk/cheese pricing at a time the Federal Reserve is desperately (but quietly) straining to light every Inflation fire it can, resulting in a real push-pull of DEMAND for Food and stifling of organic growth. What does this mean?

The US beef herd is now at a low not seen since the 1940's because of higher feed costs and harsh weather. The meat that makes it to market is too expensive for a large portion of the population and eventually becomes ground beef or ground chuck - at a loss to the grocers. Beef hit a high as discussed here in late July hurting MacDonald's (MCD) same store sales. MCD's reported today a decrease of 2.8% in August (usually a strong month for vacationers). 

The Department of Agriculture's August report cites falling inventories of milk and cheese (the other protein) saying cheese stockpiles in July dropped 8 percent from a year earlier, and butter supplies tumbled 42 percent. 

It's a simple connect-the-dots scenario for investors: Without a large beef herd, beef consumption falls which makes ranchers thin the herd until prices rise to a point of profit. But without a large herd, less milk, therefore less cheese, is produced which spikes the price. So manufactured scarcity is again an issue - this time pertaining to the Inflation already created by higher feed costs.

Just to survive the issues of no-organic-growth and Inflation, consolidation of Food companies must continue - and acquisition premiums will be eagerly paid - a true perfect storm. 

Investors who wish to stay in front of the Inflation curve must not overlook basic Food production or this necessary consolidation phase. 

If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

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