Back in early April, a month into the Covid-19 pandemic and lockdowns, we had already experienced bare shelves at the grocery store. First, there was nowhere to buy toilet paper or disinfectant wipes.
Then stores ran out of canned foods and rice. But these were temporary issues, caused by problems with transporting the stuff rather than making it. And more than a little hording mentality weighed in as well.
It was in mid-April that we started to get headlines scaring us about longer-lasting “food shortages.”
Meat processing plants across the country were closing down as the cramped workspaces sparked Covid-19 outbreaks.
Combine that with occasional empty grocery store shelves, and people were starting to get scared. Of course, that was the point. Scary headlines make you click and read through, which is exactly what Big Media and their advertising sponsors over at Madison Avenue want.
But that was just the start of the scare campaign. Later that month, Bloomberg News ran a story headlined “World’s Biggest Wheat Supply Dries Up When Some Want It Most.”
The director of public affairs for the Florida Fruit and Vegetable Association, Lisa Lochridge, said the food supply chain was in “a disastrous situation.” And in a full-page ad in the Washington Post, The New York Times, and the Arkansas Democrat-Gazette, John Tyson, the board chairman of meat processor Tyson Foods Inc. (TSN), warned that “the food supply chain is breaking.”
None of it happened, of course. We didn’t run out of meat. In some cases, like bacon, the problem was falling demand, not falling supply.
As I told you back then, it was all a self-serving ploy to get government handouts. I also showed you how to profit from this non-existent food shortage.
I hope you followed along, because those investments have been very profitable since.
And it’s not too late to get in on them now…
We’re Not Running Out of Meat
Apart from those scarce disinfecting wipes, which can still be tricky to find sometimes, grocery stores are pretty well-stocked across the country today.
It’s true that we’ve had to settle for some differences in packaging and lesser variety. You’ll probably see less processed meat in the meat aisle, for example. Chickens and turkeys that are whole or are not deboned are more common, while red meat is more commonly ground than sorted by cut. I’ve heard about these issues in some areas, but here in the Mid-Atlantic/ Northeast I’m only seeing modest differences; boneless/skinless chicken breasts are still readily available, and stores are back to stocking most cuts of beef.
But by and large, meat processing plant closures ended after April 28, when President Trump declared all of them essential to national security. That made them exempt from state and local closure orders.
Unfortunately, the industry has not been as quick as we could have hoped for when it comes to securing the plants against Covid-19 spread. Masks and plastic barriers have been installed, but improved ventilation and spaced out workers or work shifts are still lacking.
Sadly, the result has been a Covid-19 infection rate among meat processing workers twice as high as the national average.
I suggested at the time that the White House was likely to act to keep these plants open. After all, meat and the farmers and ranchers that make it are key to President Trump’s reelection campaign. The other key reason for the temporary shortage in foods wasn’t a drop in supply or demand.
As I explained then, the problem was that demand had shifted from one part of the economy to the other…
We Have Plenty of Food, We Just Had It in the Wrong Places
See, there are really two supply chains for all of our food here in America. One is the familiar one, where food items from farms and ranches are processed, packaged, and shipped to grocery stores for you and me to buy as we please.
Products sold there have strict requirements to protect consumers. For example, labels must be clear on the nutritional information, as well as on all the ingredients and allergens in the food, to make sure no one gets hurt eating it.
But there’s also another huge food supply chain that gets food stuff to restaurants, convention centers, schools, hotels, and other places where food is catered on a larger scale.
This catering side of the food business almost completely shut down March, as some states went into lockdown while people in others stopped eating out to avoid infection. People didn’t stop eating, of course. But they started buying more at the grocery store.
So while the catering supply chain lost almost all its demand, the grocery store supply chain saw a huge spike in demand. In some parts of the industry, this did affect demand. Demand for bacon, for example, dropped by 30%, as Americans seem to prefer bacon when someone else makes it.
And while we tend to look at cow milk as a staple of the American diet, that’s not really the case anymore. School cafeterias are the largest consumer of liquid cow milk nowadays, and almost all of them closed. Meanwhile, demand for processed milk products, such as cheese or yogurt, mostly comes from the catering industry, too.
Unfortunately, these two supply chains are almost completely separate, and it’s taken time to get food meant for the catering industry to find its way to grocery stores.
And as restaurants have begun reopening in some states, travel is slowly growing again, and some schools are even reopening, some demand is starting to shift back from grocery stores to the catering industry.
The Department of Agriculture has also been plugging the holes left by our two supply chains by buying food from farmers who couldn’t find buyers, and moving it to where it’s needed.
Meanwhile, labeling rules for food sold in grocery stores have been temporarily loosened to make it easier for food producers to make the switch from supplying restaurants to supplying grocery stores.
The end result has been that we’ve had no food shortages, and we’re unlikely to see them. The U.S. farmers, processors, distributors, and retailers are just too darn good at providing us with food.
Interestingly, the U.S.’s food producing prowess was increased significantly during the Cold War era as a concerted effort between the capitalistic free market and a Food and Drug Administration tasked with beating back communism through superior food supply. And those food production gains are still reaping benefits for America during this pandemic.
But that doesn’t mean every company in the food business has been a winner.
You may recall that I mentioned how to play this whole “food shortage” scare.
I really hope you followed that advice…
Two Lucrative Plays on Covid-19 Eating Habits
It’s been a pretty turbulent time for food companies. But turbulence and volatility also make for higher potential profits.
On April 16, I mentioned that my favorite pick on the essential food processing industry was Hormel Foods Corp. (HRL), which had been strong throughout the coronavirus market crash and was almost back to its February highs.
Take a look at this chart comparing Hormel’s performance this year, in green, to its main competitor in meat processing, Tyson Foods, in orange:
As you can see, Hormel has done much, much better. That’s probably because of its large packaged foods business, including the Skippy peanut butter brand and lots of pre-cut deli meats.
Since April 16, Hormel and Tyson have performed similarly, although Hormel still comes out ahead and is still up double digits since then. And with Tyson cutting its dividend and having weaker finances, Hormel is definitely the better play going forward.
Two weeks later, on April 30, I also mentioned that even though there is no food shortage, the narrative that we’re about to run out of food will move consumers and investors.
That’s why I mentioned that plant-based meat-replacement company Beyond Meat Inc. (BYND) is a good stock to buy on any pullbacks.
This chart compares Beyond Meat’s performance in green with the S&P 500 in red, since April 30:
As you can see, Beyond Meat has been doing fabulously. It’s not back to its giddy all-time highs of July 2019, but it’s done very well during the Covid-19 crisis. The stock has been up as much as 70% since I recommended it at the end of April. Not only that, it has pulled back to a great to place to buy in or add more to your BYND holdings:
BYND is at a key support and resistance level on the whole chart – a level that has been the action zone for all of 2020. And a great entry point.
With both companies executing well and outperforming their competitors, I like Beyond Meat and Hormel both as plays going forward.
Great trading, stay safe out there, and God bless you,
D. R.
Source: Straight-Up Profits