Does a Drop in Global Food Prices Mean it's Time to Buy?

According to the United Nations Food Agency, or FAO, in January, global food prices fell 1.3% from December. Why? The supply of oil, sugar, and cereals remains strong while demand is not responding as fast. Facts are facts: food prices have dropped 4.4% year-over-year after a 2013 that showed a continuous soft decline. Is this scenario beneficial for food stocks?

Let's check out The Hain Celestial Group (NASDAQ: HAIN  ) , United Natural Foods (NASDAQ: UNFI  ) , and ConAgra Foods (NYSE: CAG  )  and find out.

Growing in organic foods
Exhibiting a strong growth profile, The Hain Celestial Group is a leader in natural food and personal-care products.

Hain's net sales during the first quarter of fiscal 2014 reached $477.5 million, growing nearly 33% year-over-year. The key? Expanding global demand for organic products is helping Hain big time, as the company holds leadership in many organic products. As you know, organic products have better margins than regular foods. Plus, Hain's recent acquisitions, such as Tilda and Hartley's, are expanding its geographical presence. If demand continues to grow, this company will continue growing as well.

Focus on North America
The second company to keep an eye on is United Natural Foods, a leading distributor of organic, natural, and specialty foods as well as non-food products in North America.

The growing demand for products that promote a healthy lifestyle is also pushing sales up for United Natural Foods. The company is positioned as a leader in many categories as well, and it enjoys the benefits of this. In fact, United Natural Foods' sales grew 22.2% year-over-year in the fourth quarter of fiscal 2013. Plus, by acquiring Trudeau Foods, the company's distribution business will get a boost.

However, two things could affect United Natural Foods: its high exposure to North America, and especially its great dependence on Whole Foods Market (NASDAQ: WFM  ) , which accounts for more than 30% of its net sales.

All-American giant
Finally, there's ConAgra Foods, a company with a presence in 97% of American households.

ConAgra's second quarter of fiscal 2014 got a boost from the acquisition of Ralcorp. Revenue in the quarter climbed 9% year-over-year to $4.7 billion. Not a bad performance for this giant.

An important initiative to follow with ConAgra is its Ardent Mills venture, which consists of a merger of its flour-milling business with those of Cargill and CHS to form the largest flour miller in the U.S.  For now, the venture is delayed due to regulatory issues, but when it becomes effective it is expected to dilute ConAgra's earnings in the short term. Nonetheless, the venture should contribute to ConAgra in terms of efficiency, innovation capabilities expansion, and supply chain solutions.

Final thoughts
Overall, the food industry looks healthy and the drop in prices is not a huge issue for now. The fact is that although prices are dropping slightly they still remain at historical heights, so this scenario is still beneficial for food companies. If demand remains solid and food production does not increase significantly, it will be hard to see a strong drop in prices in the near-term. Hence, the outlook for food-related stocks is stable.

The change in consumer habits has put organic and natural foods at the center of the scene, and here Hain and United Natural Foods are main characters. However, the competition is getting tougher in this market and big players such as Nestle, Kraft Foods, and Groupe Danone want a bigger piece of the pie.

As mentioned above, Hain should maintain its momentum. United Natural Foods shares some common features with Hain, nonetheless, its strong regional exposure and top-client concentration are relevant weaknesses to be taken into consideration.

In the case of ConAgra Foods, the growing demand for organic products has not had a significant impact on its market share. The company still holds a strong presence and brand recognition that can withstand some more volatility in food prices. Watch how the business with Ardent Mills evolves.

But do any of these food companies make the Fool's list of great growth stocks?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2845516, ~/Articles/ArticleHandler.aspx, 9/3/2015 12:44:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Louie Grint

I am a curious economist who likes to investigate what is behind asset price movements across the globe. My articles range from industry analysis of various sectors to understanding global macro events that could trigger volatility in the markets.

Today's Market

updated 3 hours ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:05 PM
CAG $41.10 Up +0.23 +0.56%
ConAgra Foods, Inc… CAPS Rating: ****
DANOY $12.27 Down +0.00 +0.00%
Groupe Danone (ADR… CAPS Rating: **
HAIN $59.24 Up +0.29 +0.49%
Hain Celestial CAPS Rating: *****
KRFT $0.00 Down +0.00 +0.00%
Kraft Foods, Inc. CAPS Rating: ****
NSRGY $72.65 Up +0.15 +0.21%
Nestle CAPS Rating: ****
UNFI $48.67 Up +0.86 +1.80%
United Natural Foo… CAPS Rating: ****
WFM $32.28 Up +0.15 +0.45%
Whole Foods Market CAPS Rating: ****