Has it not seemed almost surreal that rising oil and gasoline prices have not caused a flood of profit shortfalls? Well, out on the farm, the warning sounds are starting to be heard.
Among other things, Corn Products
Today the company is reporting that it is having a difficult first quarter. It's so difficult that it expects a 35% to 40% decline in first-quarter profits. The news has sent the stock down as much as 22.2% today, and the stock is the biggest percentage loser on the NYSE.
The company cites three factors for the profit squeeze. First, corn costs were significantly higher, driven by lower co-product (byproduct) values and the timing of corn purchases for contracted business. Look at this CBOT chart for corn, and you can see the sharp drop in corn prices caused by last summer's bumper crop. So companies that contracted early to ensure their corn supply, as Corn Products did, bought at higher prices than today.
Problem No. 2 is higher energy and freight costs. You have to look no further than BurlingtonNorthern Santa Fe's
Finally, the company cited "manufacturing expense problems." While that could cover an oceanfront of issues, it is most likely the packaging cost increases that are plaguing everyone from Motley Fool Income Investor recommendation Sara Lee
So add it up. It is a one-two-three punch that might put a damper on profits -- and investors are waiting to hear the guidance the company will give when it releases first-quarter results on April 19. The news has put a chill on Archer Daniels Midland's
Corn Products' news has highlighted the risks that food-based commodity companies face. Prices are rising, and they may not be passed off quickly to consumers, given the degree of competition and relative lack of product differentiation within the industry. Investors should be wary of lackluster results and equally lackluster earnings.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned. Click here to see The Motley Fool's disclosure policy.