Not since Clarence Beeks was working for the Dukes in Trading Places have Wall St. traders been so obsessed with crop reports. Beans are in the teens, corn is trading over $7 (vs $3 in the last year) and sugar production in Brazil is weak. These formerly obscure observations now rattle freely off the tongues of anyone concerned with inflation.
Since everyone's gotta eat, and anyone reading this is inclined to look for a trade, Breakout asked BB&T's Consumer Foods and agri-business analyst Heather Jones to tell us if these "growing" trends will continue or if the Grim Reaper is going to be paying an unwelcome visit to companies in her universe.
Jones told us that she's been able to find investments in the agri biz by focusing on companies with pricing power as well as the beneficiaries of the Japanese tsunami tragedy. Jones estimates that 15% - 20% of Japan's food production capacity has been destroyed, though the trend in the Land of the Rising Sun's damage estimates has been rising.
Unseemly though it may seem, that increase in Japanese demand is going to work to the benefit of companies such as Tyson (TSN) and Smithfield Foods (SFD), as export demand will increase and domestic demand for beef and pork has remained strong.
What of corn's well-documented price growth? Jones says a company called Corn Products (CPO) is a counter-intuitive winner. Why? Because demand for corn is supported to the downside by the U.S. Government's obsession with ethanol and is being pushed higher by a weak sugar crop in Brazil. Corn Products wins because corn can be used in lieu of sugar for sweetener and -- of course -- corn starch.
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