Commodity prices and food companies
Comment of the Day

June 01 2012

Commentary by Eoin Treacy

Commodity prices and food companies

Eoin Treacy's view The majority of food companies have responded to the pressures of persistently high commodity prices by reducing the size of packaging rather than passing on the full impact of higher costs to consumers. As a result, many have been able to improve their margins.

The recent downward pressure on grains, beans, coffee, sugar and orange juice prices will be welcomed by food companies. While commodity prices are becoming increasing oversold and the potential for a relief rally is increasing, food companies would be most challenged by surging commodity prices which appears to be an unlikely prospect in the short term.

The other side of the equation is that global food companies are uniquely leveraged to the growth of the global consumer. As the number of people with disposable incomes increases globally, they tend to spend more on treats, snack foods, readymade meals and drinks. Global food companies prosper as a result.

A high degree of commonality is evident among the largest global food companies. Nestle, Unilever, Associated British Foods, Sara Lee, General Mills, ConAgra Foods, Heinz and Kraft have all returned to the region of their respective 200-day MAs. They will need to demonstrate support in the current area if the benefit of the doubt is to continue to be given to the medium-term upside.

Back to top