Ethanol Surplus, General Mills Starves - Analyst Blog
19 Juillet 2011 - 9:23PM
Zacks
General Mills Inc.
(GIS) has held the government’s three decade old subsidy program
for ethanol production responsible for creating shortage in its raw
materials supply and, in turn, inflation in corn prices. The retail
giant had recently announced that it will raise prices to combat
the cost push inflation of corn.
General Mills also predicted that
the price hike will hurt earnings in the current quarter and the
fiscal year as well. The owner of Cheerios cereal, Progresso soup
and Häagen-Dazs ice-cream has also revealed that it had to pay
twice as much as last year for wheat and that cost of corn and oats
have escalated by 30 to 40 percent. Though General Mills has
absorbed much of these increases, it could not help passing some of
it to consumers.
The US government had provided
subsidies to US ethanol producers since the Carter administration
back in the early 1980’s. This gave way to ethanol producer’s
dominance over the corn market, diverting almost 40% of American
corn supply towards ethanol production as reported by the NY Times.
This shrunk corn’s supply for other uses.
According to the Center for
Agricultural and Rural Development at Iowa State University, half
of the rise in corn prices from 2004 to 2009 was driven by an
increase in ethanol production. Increased corn prices and its
extension to livestock dependent on corn contributed to the rise in
agricultural commodity prices globally.
The ‘ethanol mandate’ under the
renewable fuels standard in 2005 was designed to force blenders to
mix up to 10% ethanol with petrol to make automotive fuel. The
relevance of the subsidy is being questioned as ethanol production
is hitting record levels in the US this year with a surplus lying
for export.
General Mills also said that
volatility in food markets and shift in consumer dietary habits are
pushing up prices in food markets. The company faces stiff
competition from Kellogg Company (K) and
Seneca Foods Corp. (SENEA). It currently holds a
Zacks #3 Rank. On a long-term basis, we retain a Neutral rating on
the stock, with a short-term Hold rating.
GENL MILLS (GIS): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
SENECA FOODS-A (SENEA): Free Stock Analysis Report
Zacks Investment Research
Seneca Foods (NASDAQ:SENEA)
Graphique Historique de l'Action
De Juin 2024 à Juil 2024
Seneca Foods (NASDAQ:SENEA)
Graphique Historique de l'Action
De Juil 2023 à Juil 2024