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Analyst: Food makers to benefit from cheaper crops

NEW YORK (AP) -- Packaged food makers of all stripes stand to benefit from a record crop of grains and oilseed in the U.S. this year, an analyst said Monday.

A bumper U.S. crop has replenished grain inventory and has led to lower agricultural futures prices. This could mean 20 percent lower grain and oilseed prices in 2014, said Citi Investment Research analyst David Driscoll in a note to investors.

"We recommend that investors increase their exposure to U.S. food manufacturers on the thesis that agricultural deflation in 2014 will drive higher margins, volumes, and earnings per share, beginning in January 2014," he wrote in the investor note.

Still, he said until the lower commodity prices are realized by the companies, the effect of inflation and the 2012 drought to linger a little longer in 2013. Because of this, he lowered his current year estimates on Kellogg Co. Kellogg shares slipped 12 cents to $58.90 in afternoon trading, in the middle of the stock's 52-week trading range of $51.27 to $67.98.

However, because of improving trends, he raised current-year earnings estimates on Campbell Soup Co. and General Mills Inc. to ensure that estimates for all food companies Citi covers are above the analysts' consensus.

Campbell shares dipped 31 cents to $40.65, midway in the 52-week trading range of $34.30 to $48.83. General Mills shares fell 30 cents to $47.78. The stock has traded between $39.07 and $53.07 over the past 52 weeks.

He also raised the rating on J.M. Smucker Co. to a "Buy" from "Neutral" and raised its price target by $4 to $119. Shares rose 6 cents to $104.85 in afternoon trading. The stock has traded between $81.60 and $114.72 over the past year.