Fry supply not responding (LW) – Buy Lamb Weston
French fry inventories are not building, unlike other potato products, due to the available low-price supply glut. Potato stocks on April 1 were 17.1% higher than a year ago after a bumper harvest. Potato processors used 1.7 million cwt more potatoes during February and March than a year earlier. The industry increase of 4.4% was greater than last year's period, while processing growth in the Columbia Basin only grew by 1%.
Potato chip shipments increased by 12.1% YOY during February and March. Potato dehydrators used 17.9% more potatoes during February and March than in the same period in the prior year. It is the most the dehydrators have used since 2015. In comparison, processors used 32.1 million cwt of potatoes for purposes other than dehydration (primarily for French fry production), 1.6% more than in February and March. For the season through March 31, “other” processing use increased by 2.3%. Seed potato shipments in February and March are estimated to be down 7.2%, reflecting fewer contracted acres after the ample harvest. Frozen potato product exports increased by 6.1% in February. Other potato product supplies are increasing with the lower input costs, but frozen products are not. The French fry producers are either unwilling or capable of increasing production with the surplus of raw potatoes. Whatever the reason, the industry is not setting up the conditions for a price war that the current valuation indicates.
Dividend be gone (STKL) – Buy SunOpta
SunOpta and Oaktree agreed to eliminate the 8% dividend on the preferred shares that Oaktree owns. The last dividend was at the end of 2023. SunOpta could convert the preferreds, which would have put Oaktree above 20% in stock ownership, forcing the company to sell the shares. Rather than selling the shares at the current price, Oaktree agreed to eliminate the dividend. Eliminating the dividend should result in the cash being redirected toward debt reduction, followed by share repurchases.
La Niña back so soon? (PPC)
The effects of one of the strongest El Niño phases on record in the past 70 years are still seen with the downpours in the southern and eastern states even as it fades. Australia’s Bureau of Meteorology has declared that ocean conditions no longer meet the El Niño threshold. A neutral phase generally follows between the El Niño and La Niña phases. Meteorologists are now expecting the La Niña weather pattern to develop soon.
According to the National Oceanic Atmospheric Association, there is now a 60% chance La Niña will develop between June and August and an 85% chance it will be in effect by November to January. La Niña tends to bring drought conditions to the U.S., but after a strong El Niño, it has a lower probability. Higher temperatures often associated with La Niña have been less impacted by a previous El Niño condition. The previous La Niña caused significant drought conditions in the West. Higher temperatures and more hurricane activity have the highest probability of occurring with plenty of implications beyond crop yields.
