Moody's gives negative outlook for food industry

by Staff
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NEW YORK — Moody’s Investors Service has rated the outlook for the U.S. food industry as "negative." The projection was made with the expectation commodity prices in 2009 will further surpass historical averages resulting in pressure on profit margins and putting cash flow at risk for most companies.

"Profit margins will continue to contract as most speculative-grade food companies struggle to pass on rising commodity costs to consumers," said Brain Weddington, Moody’s vice-president and senior analyst.

This also means another challenging year for meat processors and weaker packaged food companies that don’t have sufficient pricing power with customers.

But the costs of some key ingredients, including corn, wheat and soybeans, have retreated recently and may moderate further as farmers prepare to increase output to meet stronger demand.

"Some commodity price relief could also come from a softening global economy that could weaken global demand for some commodities," Mr. Weddington said.

U.S. consumers generally have become conditioned to rising food prices and retailers have become somewhat more receptive to price hikes from big suppliers.

"Most investment-grade food companies should be able to sustain fairly stable earnings next year under moderate commodity cost inflation," Mr. Weddington said. "Most other companies will have a tough time passing on rising costs and all are likely to see profit margins contract."

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