Showing posts with label commodity bubble. Show all posts
Showing posts with label commodity bubble. Show all posts

Friday, August 15, 2008

Goodman Fielder to improve bottom line in 2009

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The commodities bubble has burst in my opinion, something that I commented on a couple of months ago.

While it might be bad for those investors who recently bought into that booming sector-I know a couple of people currently being advised by brokers to buy BHP Billiton [BHP. AX] and Rio Tinto [RIO.AX]-there are benefits for investors in other sectors.

Staple consumer stocks like Kraft[KFT.NYSE] , Mars-Wrigley, Coca Cola [KO.NYSE] and Australasia's listed Goodman Fielder [GFF.NZX] food group will reap massive rewards in bottom line profit.

Dropping corn prices will benefit Coca Cola, Mars-Wrigley and many other consumer stocks who use the corn syrup made from corn as a base for many of their sweet to taste products.

Input costs of raw materials ranging from raw food costs, to packaging and transport have all dropped by an average of 15% on US commodities exchanges and this is clearly good for business.

Goodman Fielder for example has been suffering badly from high commodity prices over the last year, wheat especially having a big impact on bread prices. It even had to go to the extent of writing down the value of its New Zealand Dairy assets because of the deteriorating economy.

The price of wheat has declined 40 percent from a record $13.495 a bushel in February to $9.0925 a bushel as of yesterday.


http://www.maidennewton.biz/assets/images/Wheat_field.jpg
The lower costs of commodities like wheat to food manufacturers mean more black ink to the bottom line, as companies are reluctant to pass on production savings to consumers.


In the 2 months to August 6 the US wheat production was up almost 20% from this time last year.

Corn crops previously thought to be savaged by floods in the US Midwest are now on track to deliver near record cropping.

You may have noticed Goodman Fielder branded breads in supermarkets haven't had their prices cut since the raw wheat price drops and none of their other wheat based or corn based products have taken a price hit.

All this means Goodman are very well placed to increase profit substantially in the 2009 year as their large range of branded and packaged consumer food products will have their input costs into production substantially cut.

As food manufacturers passed on costs when commodities were rising it is unlikely that they will cut as commodity prices slump.

Bad for consumers, but very good for investors in consumer stocks.

Disclosure - I own GFF Shares

Goodman Fielder @ Share Investor

Goodman Fielder turning on the DRIP
Commodities bubble set to burst
Why did you buy that stock? Goodman Fielder
Goodman Fielder hit by high commodity prices
Goodman Fielder a Hedge against an economic slump
Goodman Fielder pie gets bigger

Related Links

Kraft good in a recession -Everything Warren Buffett
Goodman Fielder - Corporate Website
Cbot.com - Commodity prices

Goodman Fielder Financials


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The Food & Beverage Industry: Industry Leaders from Wise Foods, The Dannon Company, Inc., Samuel Adams & More on Manufacturing, Marketing and Distributing ... Sell (Inside The Minds) (Inside the Minds)

The Food & Beverage Industry: Industry Leaders from Wise Foods, The Dannon Company, Inc., Samuel Adams & More on Manufacturing, Marketing and Distributing ... Sell (Inside The Minds) (Inside the Minds)
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Thursday, May 22, 2008

Commodities bubble set to burst


Jed Clampett struck crude in his backyard while a hunt'n and he ended up living the high life in Beverly Hills and lived a very happy life with Jethro and the whole clan. He would have been even wealthier today.

As we speak, the price of Nymex crude futures is US $134.40 a BBL, LME copper futures are US$8299 a metric tonne, wheat futures US $787 a bushel and a whole host of the worlds other commodities: gold, steel, aluminum etc are at record prices and show little sign of slowing down their upwards trajectory.

Sure, much of the reason why these commodities keep climbing are because of unprecedented demand from the likes of China and India and the use of soy, maize and other food crops to make Bio-fuel, are having an impact on food prices but one cant underestimate the effect speculators and traders are having on commodity prices.

At just shy of US$135 bucks the oil price has far outstripped the upward pressure that pure demand would put on it and just like any other bubble, the commodity bubble is inevitably going to burst.

When is not clear but just like the stock booms of the past, the tech bubble of 2000 and the current real estate collapse, what goes up inevitably comes down. It would simply defy history for this not to happen.

So what is the problem? you might ask. Well the big headache will be that this sector of the investing market is now getting manifold increases in money being invested; by individuals, hedge funds, banks, pension funds and all the other derivative, bond holding, debt laden fund raising schemes(that I don't completely understand) that were involved in the Sub-Prime mortgage sector.

This wouldn't be so bad if the direct investors were the only ones burned when things go pear shaped but as we know these things have a tendency to effect the real economy and therefore the average man on the street.

These speculators have bailed from the stockmarket and real estate and are now creating another bubble that will burst like Elle May Clampet out of her gingham top.

The consequences of a commodity bubble bursting though will be a whole lot less attractive than Elle May's décolletage.

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