In last month’s Portfolio Update, “Hitting the ‘Blend Wall,’” I wrote about the potential impact of the Environmental Protection Agency’s decision not to push up its ethanol mandate for the time being and the downward pressure that would likely exert on corn prices. Since then, a group of US Senators has proposed ending the ethanol mandate altogether, hitting corn prices even harder.

China has also begun to reject shipments of American-grown corn and distillers dried grain (the byproduct of brewing and ethanol production used as livestock feed) that it says contain a strain of genetically modified corn not approved in that country. So far, the country has rejected 180,000 tons of corn since mid-November.

There is also the expectation that after steady increases in prices over the past few years, barring a severe weather event, the US will produce a record corn crop next year based on farmer surveys.

While the news has weighed on our positions in Powershares DB Agriculture (NYSE: DBA) and Agrium (NYSE: AGU), it hasn’t changed our long-term fundamental view of them.

There are bound to be fluctuations in agricultural prices from year to year, but over the long haul the amount of available arable land will continue to fall even as the population grows. Some degree of human innovation will help control prices somewhat, such as genetically modified organisms (GMO) designed to be pest- or drought-resistant and improve yields.

However, growing demand and constrained production means prices really have nowhere to go but up. And as the most recent trade spat with China demonstrates, many consumers remain leery of GMOs. Powershares DB Agriculture and Agrium remain buys up to 30 and 100, respectively.

In the meantime, though, falling corn prices are actually helping another type of farmer: livestock husbandry.

Regardless of whether farmers are raising sheep, hogs, cattle or chicken, feed is one of the highest input costs thanks to the sheer volume consumed (typically at least 50 percent of total cost). So as feed costs have shot up over the past few years, US beef production is set to hit a 21-year low this year, as ranchers were forced to cull their herds and will likely come in at just 10.9 million metric tons of beef in 2014.

But while falling feed costs will be a huge relief for cattle ranchers, it will do little to alleviate the cost of beef in the short-term because it takes more than two years to raise enough cattle to sufficient size to impact supply.

However, thanks to growing prosperity in the emerging markets and entrenched dining habits in developed markets, few consumers are willing to reduce their protein consumption. Rather, they’re shifting their consumption behavior and the world is eating more chicken.

While pork remains the globally preferred white meat, consuming about 114 million tons per year as compared to just 106 million tons of chicken, chicken consumption is growing by about 2.5 percent each year. It’s tough to pin down precisely why consumer preferences are what they are, but it’s a safe bet that the lower cost of chicken is a major driver of that growth.

It takes far less feed to produce a pound of chicken than most other types of livestock and, thanks to the rapid maturation of the bird it can go from egg to chick to table in about 6–8 weeks. That makes chicken an extremely cost-effective bird and, as a result, global chicken production is expected to reach about 130 million tons by the end of the decade.

Sanderson Farms (NSDQ: SAFM) is the third-largest poultry producer in the US and sold more than 3 billion pounds of poultry in its fiscal 2013, which just ended.

Despite high feed costs throughout much of the year, after corn prices dropped by nearly a third in the fourth quarter and whole poultry prices increased by 11 percent, the company’s operating margin jumped from 2.4 percent to 9.9 percent in the quarter.

Revenue was up 12 percent in the quarter, hitting $727.1 million. The company reported a profit of $45.3 million with earnings per share (EPS) of $1.97 versus profit of $9.3 million and EPS of $0.41 in the year-ago period. For the full fiscal year, sales totaled $2.7 billion with a net profit of $130.6 million, or $5.68 in EPS, and the company brought its long-term debt down from $150.2 million last year to $29.4 million.

The company’s full-year performance handily beat median analyst expectations for EPS for both this year ($4.36) and next ($5.49). With a price-to-earnings-growth ratio below 1, this stock is now an excellent value.

The company also commands much smaller premiums to earnings and book value than its larger peers and is at a discount, trading to just 0.6 times trailing 12 month sales. Shares have also sold off slightly because, despite the full-year earnings beat, it did slightly miss the EPS consensus estimate of $2.10 in the fiscal fourth quarter.

Sanderson has been actively expanding over the past few years, adding a deboning facility in Texas capable of processing about 1.25 million birds per week. It has also implemented a high degree of automation in its facilities, helping to keep labor costs down and maintain the consistent quality of its product. Thanks to those efforts, Sanderson expects poultry production to increase by 2–3 percent next year.

Another appealing aspect of Sanderson Foods is its market cap of just $1.6 billion, making it a potential takeover target.

As you’ll recall, China-based Shuanghui International Holdings purchased Smithfield Foods earlier this year in a deal that valued the pork producer at $4.7 billion. The deal was largely geared towards meeting Chinese pork demand which has been growing by an average 4.6 percent per year over nearly four decades.

Chicken consumption on the other hand has been growing by more than 7 percent so, if China is willing to pay up for a pork producer, there’s little reason to doubt it would be interested in purchasing a major poultry company.

Even if Sanderson isn’t ultimately acquired, it is still benefiting from growing poultry demand around the world, exporting nearly 6 million pounds of meat primarily to Mexico, China, Russia and Central Asia.

In the US, consumers generally prefer the white breast meat of the chicken. However, when Sanderson and other poultry producers break chickens down for sale, a growing percentage of dark meat finds its way into the export market (more than 21 percent of production last year).

With input costs set to fall even as demand grows, Sanderson Farms is a new addition to our Thrive Portfolio as a buy up to 80.