The freezer belongs to Wells’ Dairy. Wells’ Dairy is America’s largest private producer of ice cream. It owns the Blue Bunny brand, but it also produces ice cream for Haagen-Dazs, Weight Watchers, and Walt Disney.

No other town in the world produces as much ice cream as they produce in Le Mars. Le Mars is the ice cream capital of the world.

Last week, I went to Iowa to research agriculture. While I was there, I passed through Le Mars and saw the Wells’ dairy plant. One of the locals I talked to knows someone who works in the freezer. He says the ice cream freezer is full of frozen pork. I asked the local why. “The Wells brothers must be speculating on a rise in pork prices,” he answered.

The Wells are making a smart move. I think we’re approaching a major bull move in hogs and cattle (although there is probably a little more liquidation to come first).

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You see, livestock farmers go broke when grain prices are high and meat prices are low. That’s the way it is right now. Take a look at this chart my colleague Ian Davis put together…

Two large hog farming concerns went bankrupt last week in Le Mars. Eric, a hog farmer I met, says hog producers are losing $40 on every pig they raise. I heard stories of farmers killing their cows and pigs at birth… They use females for breeding. They use the males for meat. Right now, it’s cheaper to kill the males than it is to fatten them up and sell them as meat.

Smithfield Foods, the largest hog producer in the nation, is cutting its herd. Earlier this year, Smithfield announced it would reduce its output of hogs by 800,000 to 1 million heads.

Eric said he knew trouble was coming and sold his hogs last year. Now he uses his hog farm as a “hog hotel.” He receives rent for taking care of another person’s hogs, but takes no risk (except the credit risk of his customer). He has an option to buy a piece of these hogs later in the year if he wishes. He says he’ll wait about six months to buy hogs… when the herd reductions start to bite.

When the gold price rises, jewelry gets more expensive. It’s the same way with farm animals. When the corn price rises, livestock must get more expensive. Corn has doubled in the past 18 months, but livestock prices are still in the same range they were six years ago. They will catch up with corn.

Here’s how you play it: Buy a livestock ETF. Two trade in London under the symbols CATL.L and HOGS.L. They track the Dow Jones AIG sub-indexes for live cattle and hogs.

Good investing,

Tom

Source: Largest Freezer in the World