A Global Securities Trader’s Guide to Navigating Food Protectionism

(Bloomberg) — From U.S.-listed commodity traders to Thai poultry farmers, stock analysts are lining up their bets on who will come out the best — or the worst — in the wave of food protectionism sweeping the world.

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The export restrictions triggered by Asian countries in recent days are causing very significant repercussions, local producers such as India’s Shree Renuka Sugars Ltd. being likely to be affected. On the other hand, global players not bound by these restrictions are expected to benefit, including Cofco Sugar Holding Co. in China and JBS SA in Brazil.

Soaring grain, palm oil and chicken prices are forcing equity investors to rethink their positions as supply disruptions reshape the outlook for corporate earnings. Earnings estimates for global exporters like Singapore-listed Wilmar International Ltd. and Hong Kong-based WH Group Ltd. are up, while popular donut chain Krispy Kreme Inc. could be hurt by rising prices wheat.

“Producers in economies that resist the temptation of export restrictions are gaining pricing power in global markets,” said Frederic Neumann, co-head of global research for Asia at HSBC Holdings Plc. “Agricultural producers in advanced economies like Australia, Canada or the United States are less likely to face export restrictions, giving them a competitive edge over competitors in politically driven markets. more interventionist.

Here are some of the biggest winners and losers from food protectionist measures:

Wheat

Benchmark wheat futures have jumped about 50% this year, due to Russia’s invasion of Ukraine, bad weather and export restrictions from India and Kazakhstan. That helped generate a 17% gain in shares of Australian food ingredients trader GrainCorp Ltd., against a 15% drop in the gauge of global stocks in MSCI Inc.

Meanwhile, companies using the commodity as an ingredient, such as Japanese noodle maker Nissin Foods Holdings Co. and Indian bread and biscuit maker Britannia Industries Ltd., appear vulnerable.

In the United States, Truist Securities analyst William Chappell lists Krispy Kreme, alcoholic beverage company MGP Ingredients Inc. and packaged food company Flowers Foods Inc. among the companies under his coverage with the most price exposure. wheat.

Rising global food protectionism risks worsening inflation

Sugar

India’s decision to restrict sugar exports to protect its own food supply fueled lower shares of domestic sweetener makers, while Chinese and Thai companies got a boost. A halt in exports could lead to higher world prices as India is the world’s largest sugar exporter after Brazil.

Wilmar-backed Shree Renuka Sugars is down more than 8% since the measure was announced, while China’s Cofco Sugar Holding and Thailand’s Khon Kaen Sugar Industry Pcl. increased by at least 1% each.

Palm oil

Jakarta’s about-face on palm oil exports – it banned exports in April, lifted it three weeks later and reimposed a domestic sales quota – will help Malaysian planters less exposed to Indonesia, such as Kuala Lumpur Kepong Bhd., said Bloomberg Intelligence analyst Alvin Tai.

Meanwhile, major agricultural traders, including Wilmar as well as U.S.-listed Archer-Daniels-Midland Co. and Bunge Ltd., tend to take advantage of price shocks and market uncertainty, said Tellimer analyst Nirgunan Tiruchelvam.

A bigger food crisis can be averted if Asia remembers not to panic

Meat

Thailand – a major shipper of chickens as well as sugar – could benefit after Malaysia announced it would halt exports of 3.6 million chickens per month from June 1.

Charoen Pokphand Foods Pcl, a Thai meat producer owned by the billionaire Chearavanont family, will benefit from the post-pandemic consumption recovery, RHB Research Institute analysts, including Soong Wei Siang, wrote in a note. Shares of the company are up about 8% this month.

“The interesting question is where consumers will turn if chicken prices stay high,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. WH Group, the world’s largest pork company, could benefit from potentially higher demand as pork prices in China remain weak.

Smart farming

Nokia Oyj, Qualcomm Inc. and Garmin Ltd. and other companies with technologies related to tractors or even cows and plants, help detect specific areas of fields that need watering or cutting, allowing farmers to better navigate difficult conditions. There’s “a smart farming boom right now,” said John Plassard, director of Mirabaud & Cie.

Plant science companies like Syngenta Group, the Swiss seed and fertilizer company owned by ChemChina, could also help farmers whose fields have been affected by climate change to boost their crops, he added.

Fertilizers

Producers of fertilizers, seeds and chemicals have everything to gain in the event of food shortages, said Mathieu Rachet, head of equity strategy at Julius Baer.

Russ Mold, chief investment officer at AJ Bell, watches whether shares of Mosaic Co., CF Industries Holdings Inc. and K+S AG will retrace lower if food prices remain high.

Foodservice Distributors

Other beneficiaries of rising commodity prices are food retail stocks such as Sysco Corp., US Foods Holding Corp. and Performance Food Group Co., which provide food and cooking supplies to restaurants, hospitals, hotels and schools.

Berenberg recently kicked off coverage of the latter two stocks with buy recommendations, saying the pricing methods used by foodservice distributors effectively pass all or most food inflation onto operators. All three stocks have outperformed the S&P 500 index this year.

Overall, some investors expect the high price and supply shortage environment to persist for now.

“It looks like it could last a while,” said Buffalo International Fund portfolio manager Nicole Kornitzer. “With rising prices and food shortages leading to more protectionism, protectionism only causes further supply imbalances and shortages, leading to even more price increases.”

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