Food companies' shares tumble as costs rise

By Bob Burgdorfer

CHICAGO (Reuters) - Shares of U.S. food companies that sell everything from beef to bananas fell hard on Monday, some to multiyear lows, as they face higher costs for key feed crops and for fuel and fertilizers.

Analysts predict the worst is still ahead for these companies because it is not yet known how much of the U.S. corn and soybean crops, both key feeds, will be lost to widespread flooding in Iowa.

Banana distributor Chiquita Brands International (CQB.N) and fresh produce company Fresh Del Monte Produce Inc (FDP.N) also saw shares tumble. Chiquita said in a statement it expects higher costs for fuel and fertilizers.

Chiquita and Fresh Del Monte were among the top three percentage losers on Monday at the New York Stock Exchange, after Chiquita predicted it will post a "significant" third-quarter loss.

Shares of Pilgrim's Pride Corp PPC.N, the largest U.S. chicken producer, tumbled nearly 13 percent to a four-year low, making it the fourth-biggest percentage loser, while shares at giant hog and pork producer Smithfield Foods Inc (SFD.N) dropped as much as 7 percent to a 3-1/2-year low of $23.31, as both face higher feed costs.

"I don't think these companies have seen the worst of it yet. I think it is going to get really ugly across the board," John Urbanchuk, an economist with expert service firm LECG, said of the costs faced by meat companies.

"We are going to see unstable (grain) prices and higher grain prices throughout the growing season," he said.

Also down were shares of Tyson Foods Inc (TSN.N), the largest U.S. meat producer, and Sanderson Farms Inc (SAFM.O), the No. 4 chicken producer.

NOT KEEPING PACE

Food companies have raised prices to cope, but because of long-term contracts with such customers as restaurants and supermarkets, the price increases have not been fast enough to keep pace with the higher costs.

"For Pilgrim's Pride, the $1.35 (per bushel) swing in corn alone over the past two weeks represents a $3.50 hit to earnings per share," said Robert Moskow, Credit Suisse food analyst, in a note to clients.

Moskow downgraded his rating for Pilgrim's Pride to "neutral" from "outperform."

Corn prices have hit record highs on a combination of strong demand by livestock feeders, exporters and makers of the biofuel ethanol, and to expected losses from the widespread flooding in Iowa.

Corn futures prices have sped higher at the Chicago Board of Trade this spring and the July 2009 contract topped $8 per bushel on Monday, the highest ever for any corn contract.

For consumers this will mean higher meat prices in 2009 because companies will have to raise prices for beef, pork and chicken, said Michael Swanson, agricultural economist at Wells Fargo.