Thursday, August 5, 2010

Who wins and who loses as wheat prices spike: Archer Daniels Midland Up Almost 6% (ADM; BG)

It seems like only yesterday that we posted "Ethanol: Archer Daniels Midland Profit Soars and Comments on the Wheat Market (ADM)".
[it was Tuesday, get some sleep -ed]
From MarketWatch::

A ban on Russian wheat exports rippled through shares of U.S.-based agricultural and food companies Thursday as investors weighed the impact of Moscow's four-month moratorium.

Gainers included U.S. grain merchants Archer Daniels Midland (ADM 30.04, -0.22, -0.71%) and Bunge (BG 53.39, -1.05, -1.94%) .

Decliners included U.S. cereal makers General Mills (GIS 33.78, -0.07, -0.21%) , Kellogg (K 49.63, -0.21, -0.42%) and Ralcorp (RAH 56.11, +0.01, +0.02%) .

By afternoon, ADM had shot up 6% to $30.29, while Bunge gained 5% to trade at $54.45.
Both agribusiness companies, which process wheat and other grains for food companies, could see more export demand, one analyst said. See related First Take: Return of the Big Squeeze.
"In past years, this is where ADM and Bunge have stepped in to fill the void for livestock producers in the Eastern Hemisphere and make outsized profits," Credit Suisse analyst Robert Moskow said in a report Wednesday.

For packaged-food producers, the spike in the prices of wheat and food commodities may dent future profits if those costs continue to climb. While food makers don't talk about specific hedging strategies, they often hedge their ingredient costs at least six months out. See slide show: Wheat prices soar as Russia sizzles.
Since May, food commodities have climbed on the U.S. futures markets: Wheat prices are up 53%, oats are up 44%, coffee is up 24%, and corn is up 13%.

On Tuesday, J.M. Smucker Co. (SJM 58.81, +0.01, +0.02%) raised retail prices by 9% for its Folgers, Dunkin' Donuts and Millstone coffee brands. This followed on a 4% increase enacted in May. Smucker shares have fallen 4% so far this week. See full story on Smucker's coffee prices.
Tom Graves, a food analyst Standard & Poor's, said higher wheat prices will become a challenge for cereal and bread producers, perhaps forcing them to cut costs elsewhere.
Shares of General Mills, Kellogg and Ralcorp (RAH 56.11, +0.01, +0.02%) were each down about 3% in afternoon trading....MORE

See also this morning's "Wheat Limit Up on Russian Decision to Halt Exports; Wheat Sales From Australia to Get `Very Strong Start'... (BG)"