With Droughts and Disease Hitting Livestock Around the Globe, Animal Health Care Companies More Important Than Ever

Thu, Apr 24, 2014 - 3:49pm

Record droughts in the Midwest have led to soaring meat prices as farmers have been forced to cut back their cattle herds to levels not seen since the 1950s. Hog prices, as well, have climbed to all-time highs with flu viruses taking their toll on pigs in the U.S. and around the globe. Agricultural commodity expert Ned Schmidt shares his thoughts on this and the value of animal health care companies in his recent interview with Financial Sense Newshour.

Meat prices have really been hitting consumers hard this year. What's the major problem as you see it?

"The problem continues to be that we have run out of feeder cattle at the ranch level to go into the beef processing system. And, at the same time, a lot of the farmers that would do cattle on the side are totally focused on their grain operations. So they are going to have half the feeder cattle auctions in the next two months that they normally have because nobody is going to come.

The consumer is getting gouged two places: one on the price of hogs and cattle, and then the grocer is raising his margins. The price of beef is probably going to stay relatively flat all year. It's probably reached its high, or most of it."

Hog prices recently surged to an all-time high. What’s causing this?

“We’ve got a disease problem with hogs, and this problem is global. We've got two viruses in the United States: PED and the second one is the coronavirus, which is all of a sudden creeping up. But these viruses, if they strike a litter of pigs, it's 100% fatal. And it keeps spreading. At the same time, in Europe, we've got African swine fever. So the pork problem is serious and, as of right now, there's is no solution to the virus problem in hogs. So that's serious."

When you consider the issues facing livestock and the growing demand for meat around the globe, what sort of things should investors consider going forward?

"The whole ag industry didn't come alive until 10 years ago. And animals now are more valuable than they've ever been before and so you can afford to take care of them. For example, we’ve had this massive movement in China: China is trying to eliminate the cottage industry of raising hogs and chickens. That's where the disease problems come from. They're trying to do away with live markets in places like Hong Kong and China. And so what china is trying to do is move to big producers... well, when you move from the cottage industry where the guy has 6 hogs and 20 chickens to a guy that's got 20,000 chickens and 2,000 sows, that big producer is going to be able to buy and afford the skill set to use the appropriate drugs. And so (animal care) companies now have governments working in their favor, and up until recently we didn't have a lot of public companies. It was buried in somebody else. Zoetis came out of Pfizer. FMC Health is coming out of FMC. So we’re seeing this industry develop all on its own and the value of the industry is becoming more important."

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