Goldman Sachs Calls For Much Lower Food Prices

07-Jul-2011

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A banker turned social finance entrepreneur. Liu-Yue built and managed two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a social financial education website that helps facilitate the exchange of ideas on emerging alternative investment opportunities along the new Silk Road (emerging markets). Liu-Yue also co-founded Cute Brands, Inc. – Cute and Happy with a Cause! Cute Brands is a cause-oriented, character-based brand licensing and social impact fund that creates social awareness on global issues and societal challenges through character creations, and also supports select charities (WWF, WCS, and ASPCA) through consumerism. A NYC native, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group. Prior to M&T, he held a number of positions in emerging markets bonds and Latin American equities at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities and special situation investing at Steinberg Priest Capital Management (family office). Liu-Yue has a Bachelor of Science in Finance and Marketing from the Stern School of Business at NYU, and an MBA specializing in investment management and strategy from Georgetown University. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Paul Ausick, 247Wallst site,

 

Analysts at Goldman Sachs Group Inc. (NYSE: GS) have reversed a forecast from just two weeks ago suggesting that corn, wheat, and soybean prices would be higher due to reduced harvests this fall.  Following yesterday’s US Department of Agriculture announcement on acreage planted, the investment bank is now cutting forecasts for futures on corn, wheat, and soybeans.

Goldman predicts that prices will remain high this fall, but that by December 2011 the price of a basket of farm products will be lower than it was 12 months earlier by an estimated 7%. By the looks of today’s prices for corn and wheat, Goldman may have gotten this one right.

Corn is down nearly -6%, at $6.11/bushel and has fallen below the price of wheat, which is currently trading at about $6.15/bushel. Corn has been trading higher than wheat for about two weeks or so, a condition so unusual that it’s happened only twice before in nearly 30 years.

Falling prices for grains could be good news for food processors like Archer Daniels Midland Co. (NYSE: ADM), Bunge Ltd. (NYSE: BG), and privately held Cargill. Producer/distributors like Tyson Foods, Inc. (NYSE: TSN) and Smithfield Foods Inc. (NYSE: SFD) could also profit, along with consumer products makers like Kraft Foods Inc. (NYSE: KFT), ConAgra Foods Inc. (NYSE: CAG), General Mills Inc. (NYSE: GIS), and Kellog Co. (NYSE: K).

All these companies are showing share price gains for the first six months of 2011, with ADM up just marginally and ConAgra up near 15%. For the past year, Smithfield is up about 50%, Bunge is up about 39%, and the laggard, General Mills, is up about 5%. And that’s with higher prices all along the value chain.

If Goldman is right about a price drop, however, the fourth quarter of 2011 and the first half of 2012 could be even better for Smithfield, Tyson, ConAgra, and the other consumer products makers because the costs will fall faster than their prices. Retail prices are sticky compared with commodities prices, and that could even give ADM and Bunge a little boost as they try to hold onto higher prices as their costs drop.

Now the real weather watching begins because the crops are in the ground and the right mix of rain and sunshine can mean the difference between a big crop and a mediocre one. If the crop year produces the harvests that Goldman expects, these food companies could see some good harvests of their own.

Paul Ausick


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