Food Costs Will Spark Innovation, Says UBS’s Palmer
Feb. 9 (Bloomberg) -- David Palmer, an analyst at UBS Securities LLC, discusses the outlook for food price inflation and his view on ConAgra Foods Inc. and General Mills Inc. Palmer speaks with Tom Keene on Bloomberg Television's "Midday Surveillance." (Source: Bloomberg)
Food companies such as General Mills Inc. and ConAgra Foods Inc. will introduce more products amid higher food costs this year, said UBS AG analyst David Palmer.
“They are innovating again, and targeting upper-income consumers with better ingredients,” New York-based Palmer said today during an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. Palmer said he expects consumers to spend more on less expensive store-brand foods.
Prices for raw materials such as wheat, corn and coffee have surged during the past year, forcing food and restaurant companies to raise prices.
Battle Creek, Michigan-based Kellogg Co. and General Mills, based in Minneapolis, have boosted prices on many of their cereals to help make up for surging ingredient costs. Kevin Hunt, co-chief executive officer of Ralcorp Holdings Inc., the maker of Post cereals, said today on a conference call that the company is facing “dramatic inflation” for items like sugar, nuts and wheat.
Wheat climbed to the highest level since August 2008 today as drought threatened to damage crops in China, curbing global supplies. Middle Eastern and African nations boosted purchases after rising food prices contributed to riots and protests. Demand is also rising for corn and soybeans, eroding stockpiles in the U.S., the world’s largest exporter of the crops.
‘Supply Problems’
“There is not one crop you can point to that is without supply problems,” said Steve Nicholson, a commodity procurement specialist for International Food Products Corp. in St. Louis. Corn prices have risen 66 percent over the past twelve months, and soybeans have surged 56 percent.
“Innovation drives all areas of our business,” said Kirstie Foster, a spokeswoman for General Mills. Teresa Paulsen, a spokeswoman for ConAgra, said innovation is “critical to improving nutrition and to provide terrific value in products.”
General Mills rose 7 cents to $35.82 as of 4:15 p.m. in New York Stock Exchange composite trading. ConAgra, based in Omaha, Nebraska, advanced 20 cents to $22.90.
Alexia Howard, an analyst at Sanford C. Bernstein, said in a report last month that commodity costs may rise by an average of 6.7 percent for food companies in 2011, up from her October projection of 5 percent.
“History shows us that food stocks tend to underperform the market as commodity costs rise, since gross margins are crushed,” Howard said. The Standard & Poor’s 500 Packaged Food Index is little changed this year before today, compared with a 5.3 percent gain for the S&P 500.
To contact the reporters on this story: Matthew Boyle in New York at mboyle20@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net
To contact the editor responsible for this story: James Callan at jcallan2@bloomberg.net
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