Wheat crisis gives Irish firm a chance to increase its margins
THE jump in wheat prices should not affect the margins of the Irish-led food group Aryzta, according to analysts.
Russia's decision to ban wheat exports for the rest of the year, while the country deals with a drought that has wiped out much of the annual crop, has sent grain prices skywards in recent days.
Wheat futures are now trading at about 80pc above what they cost in mid-June. The intra-day cost of wheat is now about €236 per tonne, compared to €135 at the start of the year.
Despite the price hike, Paul Meade of NCB stockbrokers said Aryzta may even expand its margins during the crisis.
"Unlike the previous food crisis of 2008, global grain inventory stocks are more than double the 2007/08 pre-harvest level and wheat substitution options, such as rice, are in plentiful supply," he said.
"Aryzta's business is more balanced now than in 2008 . . . and we also expect that six months' cover for volatile inputs, such as wheat, is quite normal," he added.
Analysts warned that prices of everyday goods such as bread, flour and beer could rise.
"This will rattle the markets for the next several months," said Bob Young, chief economist at the American Farm Bureau Federation.
"There is going to be greater urgency among buyers to increase forward purchases," said Richard Feltes, director of commodity research for MF Global in Chicago.
Russian prime minister Vladimir Putin said yesterday the ban was "appropriate" to contain domestic prices that gained 19pc last week, after drought and record heat forced the government to declare a state of emergency in 28 crop-producing regions.