A run on jam and Triscuits could be in the cards for 2014.
According to a new note out from analysts at Citigroup, the packaged goods market is poised for steep growth in the next year, due to a confluence of factors including bountiful crop harvests, falling grain prices and the end of a year-long drought.
“Now, in late September, we know that the U.S. harvest will produce a record for field crop production, which has resulted in grain inventory replenishment and declining future agricultural prices,” Citi analyst David Driscoll wrote.
Packaged food sector companies appear to be reaping the benefits of farmers’ caution during the drought as well.
“In 2013, global crop prices remained high due to the record US drought during the summer of 2012, which impaired US corn and soy production, and drove continued tightness in global grain supplies,” Driscoll wrote. “However, US farmers responded to high crop prices in 2013 by continuing to plant record levels of corn and soy. Furthermore, weather conditions throughout the corn belt were improved over the summer of 2013, as the corn crop did not have to contend with the severe drought conditions encountered during the prior growing season of 2012.”
This isn’t the first time there have been rumblings of a packaged goods payday — in May, industry observers believed ketchup would capture consumers’ interest, as food sector giants Kellogg’s and Heinz appeared on the cusp of a growth period.
Now, not only is Kellogg’s a favorite among the Citi analysts, but so are Smucker’s, General Mills, Hershey’s and snack food behemoth Mondelez.
Smucker’s appears to be best positioned among the snack food companies for a strong 2014, according to Citi, which upgraded its stock from “Neutral” to “Buy” in the note. The mantra Citi subscribes to is “How coffee goes, Smucker’s goes,” and with coffee input costs falling, Smucker’s appears to be the logical beneficiary.
What’s more, peanut cost pressure has subsided in recent quarters, which should leave Smucker’s—owner of Jif—spreading on the profits.
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