Drought effect: where’s the beef?

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A summer 2012 drought devastated corn crops in the United States, but it also might have created some ways to earn beefy investment returns.

Chris Shanahan, who is an analyst in the chemicals, materials and food division at market-research company Frost & Sullivan, predicts a 10 percent to 20 percent spike this winter in the prices of meat, which directly depends on corn. Those forecasts mean that investors in companies that process or produce meats could gain ground.

Shanahan likes major meat processor Hormel Foods (NYSE: HRL; Price $29.50) and poultry giant Tyson Foods (NYSE: TSN; Price $16.57), because people buy less fresh meat and more processed meat, as well as less steak and pork and more chicken, when prices rise sharply. “It’s about trading down,” he says, “We see the same phenomenon all the time.” 

Ken Perkins, who is an associate analyst for Morningstar, also likes the outlook for Hormel, but he believes that Tyson’s products don’t stand out from competitors’.