You might think that since consumer prices have tumbled by near record percentages that this might lead to lower food prices. But much of that consumer price decline is attributable to lower energy prices -- after all oil peaked at $147 a barrel in July only to fall 63.5% to $53.63 yesterday.
Why won't food prices follow oil down? Many food producers panicked as corn and wheat prices peaked this summer -- locking in long term supply contracts at top prices. For instance, corn, which usually trades at $2 or $3 a bushel, pealed at $8 a bushel in June.
Although prices have since dropped to $3.50 a bushel, some food manufacturers locked in prices for corn and other commodities in the spring and summer, fearing that prices could go even higher. The result is that producers will pass on those higher costs in the form of food prices going up 7% to 9% in 2009.
But not all food manufacturers got trapped in these high input prices. Consider Kellogg Co. (NYSE: K). The cereal retailer cleverly locked in corn, wheat and other commodity prices at low levels through shrewd hedging. And yet it has been able to raise prices without losing demand. It has benefited from a trend of more consumers eating at home rather than going out to breakfast in a slumping economy.
This could mean Kellogg stock is worth a bite -- but like its products, it's not cheap on a Price/Earnings to Growth (PEG) basis -- its PEG of 2.3 on a P/E of 14.6 on earnings forecast to grow 6.4% to $3.20 in 2009 -- is much higher than the 1.0 PEG that would make it fairly priced.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Kellogg securities.
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Reader Comments (Page 1 of 1)
12-10-2008 @ 5:05PM
Jocelyn Gallant said...
The Earn Income Means Testing for Public Assistance such as Food Stamp ,Assistance, SSI, SSDI, should be replace with a buy-in-program for recipients can keep all their benefits. Without being penalized.
Barriers to employment still exist today against hiring persons with disabilities is not just persons with disabilities, welfare recipient as well still face employment barriers today.Because employers thinks it
cost too much, to insured them.
There is too, disincentive to work and wants to work and have savings account's, save for their future there are at risk losing food stamp, cash assistance, SSI, SSDI, benefits. He or she should not be penalized for trying to better his or her self being successful in their own communities.
There is a need for this change to happen that will enable recipients and persons with disabilities, senior citizens who is on fixed income to live comparable to live.
They risk losing Food Stamp, Cash Assistance, SSI, SSDI, Benefit if they go to work, and wants to work, having savings accounts and wants to save for their future.
Thank you for your attention in this matter.
Sincerely,
Jocelyn Gallant
Salem, New Hampshire