Aug 13 Russia's drought and temporary ban on grain exports is set to hit Europe's smaller food and drink groups more severely than larger groups which are either not so dependent on grain or have bought forward at fixed prices.
Following is a compilation of company reaction, analyst comments and share details from European companies which might be affected by the resultant rise in grain prices.
* WESTERN EUROPEAN BEER GROUPS:
European brewing shares recovered this week after the world's biggest brewer, Anheuser-Busch InBev (ABI.BR), said current rising grain prices would not hit the group until 2012 at the earliest due to forward buying or hedging of key ingredients such as malting barley and other grains.
"Though coverage may differ by zone, overall we have sufficient protection. We are covered not only for the remainder of 2010, but also throughout 2011," AB InBev Chief Financial Officer Felipe Dutra said on Thursday after reporting higher than expected second-quarter profits. [ID:nLDE67BO4P]
Analyst Andrew Holland at brokers Evolution Securities added there were "no worries on input costs. InBev said that it does not expect to see any impact from the recent barley price increase, believing it to be a short-lived spike."
This helped shares in most of the world's four biggest brewers, all of which are headquartered in Europe. Belgium's AB InBev was up 1.1 percent, London-based SABMiller (SAB.L) rose 0.3 percent, Heineken (HEIN.AS) was 0.5 percent ahead while Carlsberg (CARLb.CO) was off 0.3 percent.
Copenhagen-based Carlsberg reports half-year profits on Aug. 17 followed by Dutch firm Heineken on Aug. 25, while SABMiller next reports on its second-quarter (July-Sept) in October. [ID:nLDE67A1I2]
* WESTERN EUROPEAN FOOD GROUPS:
Europe's three biggest food groups, Nestle (NESN.VX), Unilever (ULVR.L)(UNc.AS) and Danone (DANO.PA), are relatively cushioned from the rise in grain price as all use little grain, and what they do use has largely been hedged forward. [ID:nLDE67A118].
Smaller and private-label food groups which are big wheat users, however, are likely to suffer, and much depends on how much of the grain price rises they can pass through to retailers and than on to consumers.
Swiss-based Nestle, the world's biggest food group and regarded as solid performer in tough conditions, was calm in the face of a spike in commodity price inflation, and increased its growth forecast for 2010. [ID:nLDE67811N].
"Nestle seemed somewhat less concerned than its peers, promising second-half growth broadly in line with the first half and saying it was prepared for the more challenging environment of the second half," said Andrew Wood at Sanford Bernstein.
"If price tensions were to continue, we think that this should have a limited impact on European majors' results (Nestle, Unilever and Danone) in the short term," said analyst Orianne Segaud at brokers Natixis.
Dutch bakery group CSM CSMNc.AS, which supplies muffins and pastries to European and U.S. retailers, said it would raise prices to offset higher wheat prices, but analysts warned there is a limit to this process for non-branded goods in times of slow economic recovery [ID:nLDE67913Q].
In Britain, the worst-affected listed company is likely to be bread and cake maker Premier Foods (PFD.L), which is heavily exposed to wheat prices. Its shares have seen little impact after falling dramatically to around 18 pence from 288p in early 2007 at the time of its disastrous RHM takeover.
* EUROPEAN RETAILERS:
West European food retailers have seen little impact as food manufacturers have yet to try and pass on grain price rises, but those retailers in the drought-affected areas have been under pressure to push up prices.
Russian supermarket chain Seventh Continent SCOH.MM said it had stopped buying milk and dairy products from Danone and Unimilk after they raised prices sharply citing the severe drought in the nation [ID:nLDE67B10T].
Paris-based Danone, which announced plans to merge its Russian dairy business with Unimilk in June, said deliveries to Seventh Continent were suspended starting in August after the retailer rejected a 4 percent price increase.
* WORLD WHEAT REPORT:
The U.S. government slashed its estimate for world wheat output as Russia faced drought losses on a quarter of its grain area, and Russian Agriculture Ministry data show grain exports would be down sharply. [ID:nLDE67b1CG] [ID:nN129838]
Concern is now focused on possible delays in the planting of winter wheat in Russia and Ukraine, which traditionally starts in August, amid fears there have been insufficient rains to allow planting of the new crop. [ID:nLDE67COAZ].
Ukraine, the world's sixth-largest exporter of wheat, said it was considering cutting grain exports after a scorching summer heatwave, as it feared a possible food grain shortage at home [ID:nLDE67AOCO]. (Reporting by David Jones; Edited by Simon Jessop)