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How The 'Death Of Meat' Could Impact Your Portfolio


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From Lehman Brothers to Worldcom to the Soviet Union, many seemingly robust institutions can disappear in a flash.

Other institutions can gradually fade away, which appears to be happening with meat, which has also been an institution itself.

Though people have relied on meat for centuries, as it played a central role in many cultures, meat's predominance has begun to fade. Here at home, Americans are eating less meat, particularly red varieties like beef and pork.

The reasons for declining meat consumption aren't a mystery. Doctors have been warning about greater cancer and other health risks from eating too much red meat for quite some time, and people finally got the message and have started cutting back.

What's shocking, though, is the extent of the change.

Annual per capita red meat consumption in the U.S. fell 15% to 101 pounds in the past 10 years, according to the U.S. Department of Agriculture. It's down by a third since the early 1970s, when per capita consumption was pushing 150 pounds per year. And the downward consumption trend could soon accelerate, with major negative implications for the meat industry.

The potential catalyst: the release of preliminary recommendations from the committee of medical and nutrition experts involved in developing USDA dietary guidelines. The preliminary recommendations will be out later this month, and they'll be used to finalize the next set of USDA guidelines due out by the end of the year.

These events may seem relatively benign. After all, the USDA has been periodically publishing dietary guidelines for years, and they've never been terribly newsworthy before.

This time could be different, though, because the expert committee has indicated it would like the 2015 version to be written with the environment in mind. Specifically, it believes dietary recommendations should be influenced by the fact that animal agriculture is a leading source of the carbon-dioxide emissions responsible for global warming.

Indeed, the United Nations puts the industry's emissions at 7.1 gigatons per year, or nearly 15% of all greenhouse gases resulting from human activity. Beef production is the biggest culprit, contributing 41% of livestock industry-related emissions. Pork, poultry, egg and milk production all have substantial carbon footprints, as well.

Then there's the issue of enormous resource use, like the nearly 600 gallons of water needed to produce one pound of pork and the 1,800 gallons per pound of beef. Animals raised for meat also need tremendous amounts of feed grain which, because it contains antibiotics, helps fuel the surge in bacterial infections in humans that are more difficult or sometimes even impossible to treat.

Because of these issues, the USDA expert committee may advise eating less meat, especially red and processed meat. And that's just what the committee proposed last month in a draft of its preliminary recommendations, according to The Washington Post. The draft also advises eating more of a plant-based diet because of the smaller environmental impact.

If the USDA adopts these positions, then it'll be the first time ever that the agency actively discourages meat consumption (current guidelines encourage consumption by suggesting lean meats).

Investors shouldn't underestimate the potential effect of this on the meat industry, even though the general public is notoriously resistant to any sort of health or diet-related advice from the government.

In this case, the guidelines might be taken more seriously because of concerns about global warming. They'd also have a large and immediate role in shaping children's attitude toward meat, since USDA dietary guidelines typically affect nutrition education and food choices available through school lunch and other public meal programs. In such a scenario, an even quicker drop in demand for meats of all types could occur, especially if the new guidelines heavily stress a more plant-based diet.

Risks To Consider: As an upside risk, the meat industry lobby may be able to convince the USDA to omit the expert committee's new recommendations, or at least water them down enough to render them ineffective .

Action To Take --> An unfavorable new set of USDA dietary guidelines could obviously be a huge headwind for successful meat producers like Tyson Foods, Inc. (NYSE: TSN ) , Hormel Foods Corp. (NYSE: HRL ) and others. Risk tolerant investors may want to consider shorting the stocks of such companies or relevant exchange-traded securities like the PowerShares DB Agriculture ETF (NYSE: DBA ) and the iPath Dow Jones-UBS Livestock Subindex Total Return ETN (NYSE: COW ) . This strategy may be appropriate now, before the expert committee's preliminary recommendations come out, or sometime before the updated dietary guidelines are published.

Think twice about holding long positions in meat industry stocks or exchange-traded securities if the new guidelines do advise eating less meat. If the new guidelines come to pass, the risk of long-term profit shrinkage would be much too great. A reduction in our meat consumption would likely more than offset still-rising meat consumption in other parts of the world.

Meat consumption has been steadily declining, which could play out into a huge profit potential. My colleague Andy Obermueller devotes his time to researching the next Game-Changing Stocks . As I did above, he analyzes current trends to identify companies with the potential for triple-digit returns. This has led to gains of 89%, 92% and even 310% in a year. StreetAuthority compiled a list of the hottest upcoming trends called " The Hottest Investment Opportunities For 2015 . " For more information on the game-changing opportunities that could crush the market, click here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Investing Ideas , Stocks



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