This has been a bad year for corn farmers. After one of the worst U.S. droughts in the past 50 years destroyed the Midwest corn crop, prices have remained at historically high levels with corn for December delivery at $7.7325 per bushel.
Worldwide corn inventories are 14 million metric tons below estimates, as the current U.S harvest will total 10.706 billion bushels compared to 12.538 billion bushels last year. The U.S. is also experiencing its lowest harvested bushel (yield) per acre since 1995.
Although corn demand has remained mostly unchanged, corn futures have jumped 5% at the Chicago board of trade. Average corn prices are projected at $7.80 a bushel this year, up from $6.22 last year, while some analyst are warning prices can get as high as $8.25 a bushel.
Business Section: Investing Ideas
Navigating stock trades based on commodity prices can be tricky. After the recent filing for bankruptcy by poultry producer Zacky Farms LLC due to rising feed costs, it is apparent that the increases in corn prices have material effect. As the price of corn continues to rise, you should watch out for tighter margins and higher prices for companies that offer corn based products. This includes:
1. Tyson Foods Inc. (TSN, Earnings, Analysts, Financials): Engages in the production, distribution, and marketing of chicken, beef, pork, and prepared food products, as well as related allied products worldwide. Market cap at $5.8B, most recent closing price at $16.02.
Corn is a primary material for their chicken operations as feed and represents 69% of the cost of growing live chicken.
2. Smithfield Foods Inc. (SFD, Earnings, Analysts, Financials): Engages in the production and marketing of fresh meat and packaged meat products in the United States and internationally. Market cap at $3.06B, most recent closing price at $20.45.
Uses corn as hog feed.
3. Kellogg Company (K, Earnings, Analysts, Financials): Kellogg Company and its subsidiaries manufacture and market ready-to-eat cereal and convenience food products primarily in North America, Europe, Latin America, and the Asia Pacific. Market cap at $18.51B, most recent closing price at $51.73.
One of the major raw materials purchased for the cereal maker is corn.
4. Mondelez International Inc (MDLZ, Earnings, Analysts, Financials): Formerly Kraft Foods Inc. It manufactures and markets packaged food products, including biscuits, confectionery, beverages, cheese, convenient meals and various packaged grocery products.
Purchases large amounts of corn for its raw materials and corn is a significant cost in its grocery and biscuit products.
5. The Coca-Cola Company (KO, Earnings, Analysts, Financials): Distributes, and markets nonalcoholic beverages worldwide. Market cap at $172.11B, most recent closing price at $38.23. 6. Pepsico, Inc. (PEP, Earnings, Analysts, Financials): Engages in the manufacture, marketing, and sale of foods, snacks, and carbonated and non-carbonated beverages worldwide. Market cap at $109.02B, most recent closing price at $70.05.
For U.S. operations both companies must use high fructose corn syrup as their sweetener, thus exposing them to changes in corn prices.
Written by Nick Sousa
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- Tyson Foods Inc. (TSN, Chart, Download SEC Filings)
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- Mondelez International Inc (MDLZ, Chart, Download SEC Filings)
- The Coca-Cola Company (KO, Chart, Download SEC Filings)
- Pepsico, Inc. (PEP, Chart, Download SEC Filings)
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