CALM – A Tale of Two Eggs

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CALM (NASDAQ: CALM) A Tale of Two Eggs

Shares of egg-producer CALM exploded to all time highs this week on speculation the most recent bout of bird flu – which has spread to 15 states as of this writing – will afford the company pricing power amid dwindling egg supply. Nearly all of the bird flu cases thus far this year have been located at farms in the Midwest and Pacific Northwest, and with CALM’s farms located in the Southeast, they have yet to be affected.

Low cost trades, higher leverage

The daily chart below shows that, after slowly grinding higher since January of this year, shares of CALM surged through a cup and handle formation on the news of worsening outbreaks. Share price is currently around $55. Adding fuel to the fire, Finviz (http://finviz.com/quote.ashx?t=calm) estimates nearly 27% of the float is short. This creates upward pressure on prices as short sellers must buy to cover their positions as price moves against them.

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Further supporting the move, there are already reports of consumers seeing the price of eggs rise in the Midwest where a carton has jumped 17% from mid April. In addition, retail suppliers in this region are stocking up in the fear that more farms will be affected further restricting supply.

This is the largest outbreak we’ve seen thus far in the United States, with others occurring in the 1930s and early 2000s. On the bright side though, detections do seem to be falling with the largest occurring in early May.

For Affected Farms, Not so Good

In contrast to CALM, shares of POST were down nearly 8% on Thursday, May 13 after the company said in a regulatory filing that it estimates 20% of its egg supply at farms located in Nebraska and Iowa has been affected by bird flu. This came after the company said on April 28 that only 10% of its supply were affected.

The daily chart below shows POST had a similar move higher since January of this year only to be pushed lower by news of the outbreak. It now sits well below all time highs.

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Going Forward

It is anybody’s guess how this will all pan out for the stocks mentioned above. Going forward, the key factors seem to be: 1) whether or not officials can contain the disease to the Midwest and Pacific Northwest; and, 2) the duration of downtime for the affected farms. Nonetheless, if you like eggs it may be worth keeping an eye on.

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