Food Firms Hedge Costs
Report details how major food makers are benefiting from solid marketing strategies.
Compiled by staff
Published: Mar 24, 2008
The Wall Street Journal reports this week on how major food companies are able to control their costs using the market to hedge key commodities. In one example, General Mills made $151 million in gains from hedges in the ag and energy markets during the quarter ended Feb. 24. That gain added 27 cents a share to the company's earnings.
Part of the General Mills gain included $64 million from valuation changes on its grain inventories, according to filings with the Securities and Exchange Commission, the report notes. The report notes that General Mills hedged 66% of its costs for key commodities, including wheat and fuel.
Such hedging is gaining value to these companies in part due to the rising costs of the core commodities required to do business. Kellogg expects to pay more for grains and other commodities this year and according to the report has hedged 70% of its commodity costs for the year.
Not everyone is seeing gains, according to the report. Tyson Foods expects to spend $500 million more to feed its chickens this year, while rival Pilgrim's Pride Corp., plans to spend $700 million more for corn and soybean meal. Pilgrim's Pride saw a loss in its most recent quarter.
Permalink: Click here
Tagged: wheat, soybean
|