GLG News by CPG Consultants

Brian StevensonPrincipalB. Stevenson Associates

Volatile Commodity Prices and Reduced Pricing Power takes its toll

October 27, 2006

Analysis of:Lance shares fall on lower Q3 earnings, cut in outlook | today.reuters.com

• Ag Commodity Prices are volatile to the up side
• The Demand curve for Ag Commodities is shifting on account of the production of Biofuels
• Pricing at the retail level is difficult to get
• Pricing many times comes with lower unit volume
• Margins get squeezed at the Manufacturing Level
• Even fine Brand Name stocks get hurt

Brian StevensonPrincipalB. Stevenson Associates

Added Comments for Above Article

October 23, 2006

Analysis of:Deutche Bank Cuts Tyson to "Hold" | today.reuters.com

Corn is a major input for making Meat.

Corn Prices last year at this time were between $2.10 and $2.25 per bushel.

Current prices are well over $3.00 per bushel.

Folks in the U.S. Domestic Grain Business estimate that Tyson Uses about 250 million bushels of Corn per year.

Brian StevensonPrincipalB. Stevenson Associates

Commodity Prices and Reduced Pricing Power takes its toll

October 20, 2006

Analysis of:Deutche Bank Cuts Tyson to "Hold" | today.reuters.com

• Commodity price increases increase Cost of Goods Sold
• Even good brand names find it difficult to get pricing at Big Box Retailers
• These two facts will lead to Margin Squeeze for Producing firms
• Animals are very inefficient converters of Grain Carbohydrates into Protein
• Carbohydrate use (corn) for Ethanol has shifted the demand curve for Carbohydrate usage. This will keep prices firm

Brian StevensonPrincipalB. Stevenson Associates

Commodity Prices, Risk Management Critical to CPG Companies

October 20, 2006

Analysis of:Austrailian Wheat Crop Could Hit all time Low | www.ap-foodtechnology.com

• Australian wheat crop devastated by drought
• U.S. Bread wheat Crop also hurt by drought
• The world will use more wheat than it grows this year reducing stocks
• Prices made 10 year highs and are expected to remain volatile
• This will likely have a strong affect on earnings of companies that use wheat

Brian StevensonPrincipalB. Stevenson Associates

Food Fight, Corn For fuel or for Meat

October 17, 2006

Analysis of:McDonald's 3rd-quarter outlook beats estimates | today.reuters.com

• Beef takes about 8 pounds of feed to make one pound of beef
• Corn is the largest component of Cattle feed
• Ethanol is the best economic use of Corn today
• Packing Company margins have been squeezed to the point of shutting down capacity
• Can McDonald’s and the like keep their cheap pricing in face of likely increases in beef and other meat products?

Brian StevensonPrincipalB. Stevenson Associates

Food verses Fuel, Who will win?? Rice is a Carbohydrate

October 17, 2006

Analysis of:Rice May Climb 100 Percent by 2008 | www.restaurantnewsresource.com

1. World Carbohydrate (Ag Commodities) prices will likely remain firm in the next few years as the demand curve for carbohydrates shifts account of Ethanol production.

2. Rice acres in East Asia are at risk to urban and transportation growth

3. Companies that use basic Ag Commodities are at risk of making their numbers in the next few years as their input costs increase and stay high compared to the last few years.

Brian StevensonPrincipalB. Stevenson Associates

Ag Commodities, Food Verses Fuel- Margin Implications for CPG Compnaies

October 16, 2006

Analysis of:CBOT- Ag Complex Sees Record Volume, Corn leads | today.reuters.com

• Some Ag Commodities are now part of the Energy Complex shifting the Demand Curve for Ag Commodities.
• Volatility has dramatically increased for Ag Commodities
• Can CPG companies compete against Energy users for Commodity Inputs?
• Limited pricing flexibility makes CPG companies vulnerable

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