IT’S NOT JUST WHEAT

Headlines on the soaring price of wheat abound this week, but prices across the board are trending higher.

Back in November 2009, I wrote a post titled “RESTAURANTS – CHART OF THE WEEK”, detailing the risk to forward earnings for the restaurant space by rising food prices.  Looking at an updated version of the same chart I posted that day, the CRB Foodstuffs Index, it is clear that the risk is still very much alive. 

The CRB Foodstuffs Index is made up of the following: butter, cocoa, corn, hogs, lard, soybean oil, steers, sugar, and wheat.  

The index reflects spot prices and not the highly volatile prices for future delivery.  As you can see below, the index is only 15% below the peak reached in July 2008.

The prospect of food inflation and how the industry/individual companies deal with it (do they raise prices or not) will separate the have and have not’s.  To be sure, inflation pressures and the potential impact on margins in 2011 will be a hot topic in the 3Q10 earnings season. 

IT’S NOT JUST WHEAT - foodstuffs

Howard Penney

Managing Director