Wednesday, November 10, 2010

Betting on the Inflating Commodity Trade (DF; SLE; GIS; K; KFT)

Remember last Friday's "Food Inflation: "Food Sellers Grit Teeth, Raise Prices" (GIS; K; KFT) MOO; DBA; MON; POT"?
This is going to get nasty.
Two ways to play the food sellers/packaged food companies:
1) short them as part of a pair trade with an uncorrelated long (technology?) or for the gutsy
2) paired with a long of some commodity. Double barreled fun.
Of course this high-octane approach would open the possibility of being guaranteed a double bladed loss should commodities decline....
Or Thursday's "UBS: "Betting against companies hit by rising raw material prices" (ANF; AEO; GPS) K; GIS; KFT"?
Here's an example of what we were talking about, from MarketWatch:
Dean Foods, Sara Lee hurt by commodities
Dean Foods shares sank 18% Tuesday after the nation’s largest milk processor posted a disappointing third-quarter profit and issued a weak fourth-quarter forecast.

Separately, Sara Lee  (SLE 15.43, +0.02, +0.13%)   said it signed a deal to sell its North American fresh bakery business to Mexico’s Grupo Bimbo for $959 million.

Fiscal first-quarter profit for Sara Lee fell 32% as price increases it enacted during the quarter were not enough to cover steep increases for agricultural commodities.

Dean  (DF 7.68, +0.01, +0.13%)  is being hammered by escalating costs for butterfat and low prices for store-brand milks at retailers. Butterfat, a key ingredient in its creamers and ice creams, is up 70% over the same 2009 period.

Dallas-based Dean sells 50 regional milk brands including Berkeley Farms and Meadow Gold. Its also makes International Delight coffee creamers, Land O’Lakes butter, and Horizon Organic milk....MORE