----------------------------------------------------- Food costs worries? These stocks may hit the spot
ANGELA BARNES
INVESTMENT REPORTER
October 2, 2007
As any Canadian consumer knows only too well, food prices have been climbing.
Corn and wheat prices have attracted much of the attention but food price inflation hasn't been limited to those two commodities.
But what does all that mean to investors?
UBS Securities LLC has come up with a list of industries and stocks around the world that stand to benefit from, or be pressured by, rising food prices. Among projected Canadian beneficiaries are fertilizer producers, Potash Corp. of Saskatchewan Inc. and Agrium Inc. Both are buy-rated by UBS. Tim Hortons Inc. could also benefit because of its franchise rents and royalty business model.
UBS found that food inflation is a net neutral to positive for global franchised restaurant chains such as McDonald's Corp. of Oak Brook, Ill., and Yum Brands Inc. of Louisville, Ky., as higher food costs at supermarkets often lead to rising sales growth at restaurants. But "food price inflation is likely a net negative for relatively domestic and predominantly company-owned casual dining companies like Brinker International and Darden Restaurants," said the report prepared by UBS's global equity strategy team.
Calgary-based Agrium and Saskatoon-based Potash made the winners list because they supply fertilizers, demand for which is expected to rise, given the need to boost crop yields, the team said. Other beneficiaries of greater investment in agriculture are seed producers such as St. Louis-based Monsanto Co. and farm machinery suppliers, such as Moline, Ill-based Deere & Co. Italy's Fiat SpA also has significant exposure to farm equipment, the team noted.
Rising food prices aren't good news for some companies, particularly those with limited product lines, and where grains make up a big part of input costs, the report said, citing Sara Lee Corp. of Chicago. "General Mills Inc. and Kellogg Co. do have some grain exposure, which could be difficult to offset if other larger costs [especially energy] are also rising." The report also said meat companies such as Tyson Foods Inc. would be affected by grain feed costs, and soft-drink bottlers would be affected by costs of corn used to make fructose sweeteners.
