OCR Text |
Show MEATPACKING STOCKS MERIT CONSIDERATION ' Per-capita consumption of "red meat" beaf, veal, pork, lamb, and mutton appears to have declined for the third consecutive year, according to studies made by the Research Department of Babson's Reports. And the trend may well continue. The cut in cattle supplies and the resultant shrinkage in beef production have been instrumental in lowering beef consumption, both in total volume and on a per-capita basis. Naturally, demand for beef was also held down by high prices and the contraction in consumer buying power owing to inflation. in-flation. At the same time, however, families increased their consumption of pork, poultry, and eggs as well as cheeses and yogurt. TROUBLED PERIOD FOR MEAT PACKERS The meat packing industry has traditionally been noted for its cyclical character, and in recent years it has ecnountered a host of problems. The various segments of this industry have had to contend with such profit-limiting forces as soaring labor and general operating costs, transportations disruptions, and fuel price and scarcity problems. In addition there has been the crisis over possible carcinogenic properties of nitrites used as preservatives for processing meats, plus consumer protests against dramatic increases in meat prices. From an operating standpoint, there were spells of price volatility r'errming from unduly large supplies of beef when cattle herds were being reduceo, and then the lean supplies after the nation's cattle population was squeezed to the lowest level since early 1976. BEEF SECTOR HARD HIT While all segments of the red meat business have faced operating problems and uncertainties from time to time in most parts of the country, beef has experienced the most severe turmoil since 1975. Starting' at that time, there was a squeeze of farmers net income deriving from the post-grain-drain collapse in farm prices and other troubles, ultimately resulting in large scale liquidation of cattle herds. This process ran its course in 1979. It was the most severe liquidation of the cattle cycle partly becuase it was compressed into (our years since the first fully measured cycle of cattle inventories recorded in 17. Also, the lastest trimming of cattle herds began from a record-high volume, so that beef processors found it hard to cope with the influx, and the abundant supply depressed the prices of dressed beef severely limited the profit margins of the packers. Fortuanlely, the shorter time needed to breed, raise, and market hogs and poultry, along with the healthy supplies of fish products, alleviated the plight of consumers during the period w hen beef supplies subsequently declined. While the actual liquidation phase of the cattle cycle now seems to have abated, lightness in beef supplies will be felt for approximately another two years unless foreign supplies are stepped up substantially. In the Interim, In-terim, pork, poultry, and fish mast continue to fill to gap. These alternatives, alter-natives, in fact, are already helping to prevent beef prices from spiraling higher. INVESTMENT PERSPECTIVE By and large, operating results of participants in the meat packing fields have been considerably improved during the past year. With better supply-demand ratios likely to prevail in 19110, still further recovery should be recorded. Hence, Babson's Reports recommends retention of the common stocks of Greyhound (Armour), Iowa Been Processors, LTV (Wilson Foods), and United Brands (John Morrell). For purchase at this time, Esmnrk is recommended for xrtfolios in need of capital appreciation. Although its Swift & Company operation bus been disappointing in terms of profits, better results arc anticipated. Its operations in outside fields (particularly oil) have tx-cii resulting in satisfactory overall profits. |