The U.S. Department of Agriculture predicted last week U.S. corn farmers will have just 675 million bushels of corn at the end of August, before next year's harvest begins. That's just an 18-day supply. While Big Caps like Pepsi, who makes Fritos, can spread costs out into rises in other brands, and Farming giants like Archer Daniels Midland, who has an entire corn milling and processing segment, can always shift its focus to ethanol for fuel, less diverse and highly capitalized companies around the world aren’t as well positioned.
Here are four Small Cap companies from four countries around the world who are likely to really feel the pinch of rising corn prices and smaller supplies.
In Mexico for example Gruma (NYSE:GMK) makes and sells tortillas, corn flour, wheat flour, and related products. The company also sells grains, such as rice and oats. Gruma is a big seller in Latin America of snacks and preserves and even makes and sells machinery for the production of tortillas and tortilla chips. GMK is heavily exposed to the cost and supply of corn. The stock is trading in the $8.82 range and has risen from $5 in September.
Further down south in the Hemisphere is Argentinean company Cresud (NASDAQ:CRESY). Cresud has staged a remarkable run up since last summer climbing from $11 to its current $17.78. CRESY is a wholesaler of coarse grains and oilseeds, including wheat, corn, soybeans, and sunflowers. What I like about Cresud is that it has operations dedicated to raising cattle and milk production, and while the cattle have to have feed, like corn, the return on meat and milk is a wash.
In the U.S., Seaboard (NYSE:SEB) is a commodity trading and milling company that transports, and markets wheat, corn, soybean meal, rice, and other commodities. Corn is a big part of Seaboard’s transport revenues, but with less corn to ship, there will be fewer revenues. SEB is thinly traded because its share price is over $2,300.
Across the ocean in China, there’s China New Borun (NYSE:BORN) which makes and sells corn-based edible alcohol. China New Borun sells its alcohol products primarily as an ingredient to producers of baijiu, a grain based alcoholic beverage. It also produces dried distillers grains with solubles feed and corn germ as by-products. BORN is heavily exposed to the cost of corn. The company was trading at $20 in October and has now dipped to the $12.25 range.
In making an investment choice, who is most reliant, and therefore who is most vulnerable to corn costs is a big, big factor. The World Bank said yesterday that food prices have risen 29% in the past year. It took a year to get here, it will take a year, and lots of good weather, to get prices down. GMK and BORN are corn dependent. SEB is too expensive for me, though their diversity is attractive. CRESY does have some diversity going for it as well, and if I was looking for entry points into corn, to gain on what’s to come, the Argentinean producer would be my first consideration, as soon as the price dipped.