ADM, Cargill et al stand to benefit from Russian grain ban
The firms should benefit more than other grain companies because of their ability to source additional stockpiles of wheat in North America and because of their transportation networks, which will be needed to ship wheat around the world, claimed Moody’s.
“Viterra and Cargill also benefit from significant assets and market share in Australia, which will be another source of wheat exports to Northern Africa, the Middle East, and Asia, the world’s largest importers of wheat."
Other companies, such as Noble, Glencore, Bunge and Gavilon would also benefit, albeit to a lesser extent, it predicted.
“The agricultural merchandising business is a relatively small part of Noble’s and Glencore’s operations compared with ADM’s. Plus, Glencore was a large exporter of Russian wheat. For Bunge, its market share in wheat is lower than its share of the market for other agricultural products. And Gavilon has a limited presence in international markets.”
Own-label manufacturers the hardest hit?
Meanwhile, major food manufacturers such as Kellogg’s and General Mills typically hedged against commodity-price risk at least six to nine months into the future, which would limit their exposure to the recent price hikes in wheat, claimed Moody's.
“That means the surge in wheat prices won’t materially affect their costs or profit margins in the near term. Plus, wheat costs usually represent only a small portion of total costs, which are more heavily weighted toward innovation, packaging, and marketing.
“Moreover, the clout that brand-name packaged food carries will give the major food companies pricing power to push through price increases to customers if high prices persist into next year."
By contrast, own-label food manufacturers could not afford to buy costly hedges. And as they didn’t spend as much on advertising or product development, raw materials costs represented a greater portion of operating costs than they did for their big branded counterparts, noted Moody's.