Dive Brief:
- Global food prices saw a 0.7% uptick in April over March prices, the third consecutive month of price increases, according to the Food and Agriculture Organization's (FAO) food price index.
- However, global food prices are still down about 10% year over year. The index has been in decline for the past four years, hitting almost seven-year lows as growth slows worldwide.
- Price gains in vegetable oils, particularly palm oil at a 17-month high, and cereals/grains, which rose 1.5%, offset lower prices for dairy and sugar.
Dive Insight:
Depending on the company, the trend in lower commodity prices could be a benefit or a hindrance. Companies like Dean Foods are riding favorable dairy prices to higher profits, including a 371.4% increase in adjusted earnings in the most recently reported quarter, despite revenue dipping 15.8%.
However, for an ingredients and commodities manufacturer like Cargill, the lower global food prices have caused the company's revenue to tumble, 11% in the most recent quarter. Cargill chairman and CEO David MacLennan said he doesn't anticipate a significant turnaround for the agricultural market in the near term due to large global stockpiles and low crop prices.
As a result of volatile commodities pricing, Cargill is looking for alternative segments that can provide more stability to its portfolio. Chocolate and aquaculture have been among them, and Cargill has also invested in developing alternatives for ingredients consumers are trying to avoid, such as PHOs and antibiotics.
ADM, which reported underwhelming earnings in the recent quarter, has also pursued other segments that would leave the company less vulnerable to commodity swings, such as expanding its WILD Flavors business and making a handful of strategic acquisitions.
Ingredion seems to be less burdened by lower commodity prices than Cargill or ADM, based on its earnings report earlier this week. But the company is also focused on acquisitions that position it in fast-growing segments, such as potato starch for gluten-free foods or berries for better-for-you snacks.