Discuss Goodman Fielder at Share Investor Forum
The commodities bubble has burst in my opinion, something that I commented on a couple of months ago.
While it might be bad for those investors who recently bought into that booming sector-I know a couple of people currently being advised by brokers to buy BHP Billiton [BHP. AX] and Rio Tinto [RIO.AX]-there are benefits for investors in other sectors.
Staple consumer stocks like Kraft[KFT.NYSE] , Mars-Wrigley, Coca Cola [KO.NYSE] and Australasia's listed Goodman Fielder [GFF.NZX] food group will reap massive rewards in bottom line profit.
Dropping corn prices will benefit Coca Cola, Mars-Wrigley and many other consumer stocks who use the corn syrup made from corn as a base for many of their sweet to taste products.
Input costs of raw materials ranging from raw food costs, to packaging and transport have all dropped by an average of 15% on US commodities exchanges and this is clearly good for business.
Goodman Fielder for example has been suffering badly from high commodity prices over the last year, wheat especially having a big impact on bread prices. It even had to go to the extent of writing down the value of its New Zealand Dairy assets because of the deteriorating economy.
The price of wheat has declined 40 percent from a record $13.495 a bushel in February to $9.0925 a bushel as of yesterday.
The lower costs of commodities like wheat to food manufacturers mean more black ink to the bottom line, as companies are reluctant to pass on production savings to consumers.
In the 2 months to August 6 the US wheat production was up almost 20% from this time last year.
Corn crops previously thought to be savaged by floods in the US Midwest are now on track to deliver near record cropping.
You may have noticed Goodman Fielder branded breads in supermarkets haven't had their prices cut since the raw wheat price drops and none of their other wheat based or corn based products have taken a price hit.
All this means Goodman are very well placed to increase profit substantially in the 2009 year as their large range of branded and packaged consumer food products will have their input costs into production substantially cut.
As food manufacturers passed on costs when commodities were rising it is unlikely that they will cut as commodity prices slump.
Bad for consumers, but very good for investors in consumer stocks.
Disclosure - I own GFF Shares
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c Share Investor 2008