Milling & Baking News - July 1, 2008 - 7

Editorial

Current market levels not necessarily negative

hile it's the rare chief executive of a pub- actually be more difficult unless accompanied by prodlicly-listed company in grain-based foods, uct modifications that win the favor of grocers as well
indeed, in almost any part of the food in- as consumers. A few bakers as well as other food mandustry who has neglected blaming an earnings disap- ufacturers have succeeded by taking steps built around
pointment on high grain and energy prices, the most expanding consumer acceptance of and demand for
telling aspect of the current environment is the way whole grain foods. If escalating ingredients costs are
that its impacts vary dramatically from company to bad luck for some operators, the presence of the parcompany. This is by way of saying that there are food allel whole grain push is something of a blessing for
processing companies that have benefited from this those companies embracing its advantages.
period of unprecedented market volatility as well as
The urgency of doing well to cope with high ingrethose that have suffered. Because of successful inven- dient prices is rivaled by the necessity of managing
tory and purchasing programs or due to other strate- credit and cash resources. High prices might once have
gies that have transformed what for many have been been solely equated with higher costs. But in presenthuge problems into powerful advantages, these spe- day banking and credit markets, higher prices mean
cial companies have managed to produce consistently massive expansion in borrowings to finance inventohigher earnings, often in excess of
ries and margins required against
These highly difficult
analysts' expectations.
futures market positions. Suddenmonths have produced
The lessons that explain these
ly, this situation has prompted a
great opportunities.
dramatic performance variations
need for preserving and building
are not easy to identify. Sure,
equity to meet the demands of
some companies have done a superior job of forward bankers no longer willing to extend easy credit. Like
coverage of major ingredients, to the point that they lending institutions themselves that have had to raise
have enjoyed lower competitive costs during a time of equity in the wake of the subprime debacle, food comsoaring prices. But favorable hedges always have an panies have had to face up to this need. Fortunate is
end, and some of these enterprising firms have found the company able to raise capital through instruments
ways of extending their coverage at favorable levels that do not dilute present holders.
in comparison to what is faced by their competitors.
In this presidential election year, it is to be expected
One need look no further than the airline industry and that some companies would look to government for
Southwest Airlines as an example of a company that help. Ideas range from sensible easing of the conservahas produced superior returns because of a carefully tion reserve to the disastrous suggestion that America
conceived hedging program for fuel, while its major should impose export limits. The futures markets, which
competitors have sustained huge losses operating in provide the only effective way of exposing markets to
the same markets.
desirable global supply-demand forces, have been parStill other companies have been nimble in boosting ticularly questioned in the desperate search for soluprices to cover fully the sharply higher costs, while at tions that too often take the political route. Without saythe same time keeping expenses under sufficient con- ing that hardly anything needs doing by Washington to
trol to lessen the burden of soaring commodities. Rais- ease a situation that is a national economic problem of
ing retail prices has never been an easy task in the hotly rising inflation, a close examination across the breadth
competitive food marketplace where grain-based foods of grain-based foods shows that coping is possible. In
companies operate. Doing this in the current inflation- instances these highly difficult markets have produced
sensitive environment is not any easier. Indeed, it may great opportunities for improving earnings. MBN
MORTON SOSLAND, EDITOR-IN-CHIEF
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7 bakingbusiness.com
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