Intensifying El Niño (HSY)
El Niño is now intensifying. The climate pattern last occurred four years ago. Its effects could have profound implications for global agriculture. In most cases, El Niño has a negative impact on agricultural production, leading to upward commodity prices. According to the NOAA, El Niño is likely to be the dominant weather phenomenon for the first half of 2024, with a 75-85% chance of strong conditions.
In the northern U.S., the next few months are expected to be relatively dry with warmer temperatures. In the southern U.S., El Niño tends to boost the jet stream, which could produce more storms and increase the amount of precipitation between 40-60%. Throughout Central America and the northwestern rim of South America, El Niño typically brings dry conditions. In the southern regions of South America, El Niño typically brings wet conditions, which would be welcome to the region that has had three years of drought. European growers would encounter wetter conditions. Australia typically sees dry conditions and hotter temperatures during El Niño. Higher crop prices for cocoa, wheat, sugar cane, coffee, palm oil, and rice are all said to be in part due to El Niño. Cocoa prices have been reaching new highs due to lower production impacted by unfavorable weather in two of the largest producing countries.
Rite Aid Suppliers (PRGO, KVUE)
Rite Aid was granted interim permission by a judge to pay its critical suppliers and other vendors. The bankrupt pharmacy chain had $138M in trade claims before filing Chapter 11. It is critical for Rite Aid to continue to receive inventory, or the chain will quickly be liquidated. Rite Aid plans to pay $68M owed to its critical vendors and another $25M pending a final order. For the vendors with claims on items shipped within 20 days of its Chapter 11 filing, Rite Aid plans to pay $65M with the interim order and another $40M with a final order from the court. McKesson is Rite Aid’s most important supplier, accounting for 90% of its retail pharmacy sales. McKesson threatened to stop shipping unless Rite Aid paid the full amount of what it owed. The two parties have reached an agreement covering the bankruptcy period.
Rite Aid said it will close 150 of its 2,100 U.S. locations as part of the bankruptcy process. Walgreens said it will close 150 stores by next summer. In 2021, CVS announced plans to close 900 stores by the end of 2024, leading to 300 shuttered annually. COVID-19 vaccines and tests were a boost for pharmacies, but opioid lawsuits, e-commerce, reimbursement trends, and organized theft are a greater headwind than the GLP-1 prescription tailwind, which has not moved the needle for every pharmacy.
Anti-trust thread (NAPA)
The FTC filed a petition in the U.S. District Court for the Eastern District of Virginia to compel Total Wine to appear before the court to demonstrate why it should not be required to comply with the FTC’s civil investigative demand. The FTC is seeking documents related to the ongoing antitrust investigation into Southern Glazer’s Wine & Spirits. The FTC said Total Wine has failed to comply for more than four months. Total Wine has said the requests are too expansive. Southern Glazer is one of the largest wine & spirits distributors and Total Wine is the largest wine retailer, with 257 stores in 28 states.
Is the FTC pulling at a thread between the distributors and retailers that will find large companies enjoy better prices? The Robinson-Patman Act prohibits charging different prices if the effect is to substantially lessen competition. The 1936 law has been unenforced for decades, in part because it was feared it would drive consumer prices higher. Southern Glazer’s offices were raided by the IRS and TTB nearly a year ago.
