Not so wild oats (STKL)
Canada accounts for roughly 85% of North American oat production. Last year the oat harvest in Canada was 4.6M tons, rebounding from 2.6M in the drought stricken 2021. In the U.S., the oat harvest is expected to be 0.8M tons, up 45%. A further boost to production in 2023 will be oats becoming eligible for revenue protection from the USDA.
Oats are typically milled near where it is grown to remove the hull which accounts for 40% of the weight, but has little of the value. 80% of the oat milled in Canada is exported to the U.S. After removing the hull about 45% is used for whole groats and a similar amount is steel cut oats with the remainder as oat flour, the lowest value product. The oat hulls are used in a variety of ways. 10% of it is burned as biofuel, 20% as poultry bedding, and 70% is used for fiber content in cattle feed.
Until 2022 there had only been about six major oat milling plants in Canada. Due to the demand growth of oat milk more oat milling is needed. Last year two new mills were opened in Canada, with one coming online near the end of the year. Oat prices are linked to corn and other grains as growers evaluate the most profitable crop. Oat prices as seen in the chart below have fallen with the improved yields in 2022. Oats are a pass-through cost for SunOpta, but greater production and lower prices benefit demand from the brands. Oat milk will overtake almond milk as the #1 plant-based milk, but the supply chain has to grow alongside it.
Distributor pickup (STZ)
Reyes Beer Division has acquired the rights to Constellation Brands and Sierra Nevada from Markstein Beverage, a Sacremento-based distributor. Reyes Beer Division is the largest beer wholesaler in the U.S. It has been an important partner in Constellation Brands’ growth. Constellation Brands has historically seen an acceleration in sales when a distribution territory is taken over by Reyes. Markstein is a Anheuser-Busch InBev distributor. Constellation Brands has terminated several wholesaler relationships in favor of Reyes and many of the terminations were with AB-InBev distributors. More than half of the beer sold in California is carried by Reyes. California represents 23% of Constellation Brands’ sales and it has over 30% share. At the CAGNY conference management shared that "Out of the ten states where Especial has the highest dollar sales in tracked channels, there are only two where the brand already has double-digit share, that being California and Nevada. And the average share in these two states is more than twice the average share of the other eight states that are in the top ten."
Grocery (dis)inflation (WMT, COST)
Food at home CPI increased 11.3% YOY in January, but inflation differed by retail channel according to Numerator. For the past year the dollar store channel has led retail channels in inflation. In the four-week period ended February 5 the dollar store channel had inflation of 17.5% YOY. In comparison, the club store channel had the lowest rate of inflation at 7.8%. The food channel was up 10.5% and the mass channel was up 12.7%. All of the channels have seen disinflation since Thanksgiving. Online has seen acceleration recently, but that is due to lapping record highs in 2021. Walmart has been the most vocal recently about pushing back on price increases, but the club channel has been the most successful.
