Food companies' hedges remain hard to pin down

By Brad Dorfman - Analysis

CHICAGO (Reuters) - Soaring commodity costs have taken a major bite out of food companies' profits for more than a year, but it's almost impossible to find out whether, like airlines and fuel, they have been able to hedge those costs.

In fact, shareholders looking for information about how successful some of their favorite food-companies have been in managing these rising costs with hedging strategies will find little to satisfy them.

Hedging involves making an investment to reduce or cancel the risk of price increases. Airlines that hedged their fuel costs, say, three years ago, are sitting pretty right now. Food companies that hedged on a commodity that has run up might also find themselves in good shape.

But, unlike airlines, which give fairly precise details about how well they have covered their future costs for jet fuel, food companies generally do not make specific comments about hedging they have done to cover costs of corn, wheat, oil or other commodities that have had steadily climbing costs.

"We don't really disclose much due to competitive reasons," said Mike Cummins, a spokesman for Sara Lee Corp (SLE.N: Quote, Profile, Research, Stock Buzz).

That summarizes the response of many food companies asked by Reuters about their hedging practices.

Hormel Foods Corp's (HRL.N: Quote, Profile, Research, Stock Buzz) director of investor relations said the company discloses that it takes hedging positions with respect to grains and energy -- but does not detail the extent to which it hedges, or their prices.

Kraft Foods Inc (KFT.N: Quote, Profile, Research, Stock Buzz) also does not disclose its hedging positions, though it does give a broad summary of the impact it expects from commodities. For example, in April it said it expected that commodity costs would rise 12 percent in 2008, or by $1.7 billion over the prior year.