It's easy to think of rising prices as bad news -- after all, who wants to pay more for anything? But when it comes to companies and investments, things are not so simple. Follow a chain of production and you'll find all kinds of companies affected by various price changes.
For starters, look at grain prices. Corn has risen some 78% over the past year. That's obviously good news for farmers growing corn, but it's bad news for those of us who consume corn. And it's especially bad for those who consume a lot of corn, such as livestock and food producers. Pilgrim's Pride (NYSE: PPC) and Tyson Foods (NYSE: TSN) are major chicken raisers, for example, and have started adding some wheat to their feed. The rise in corn prices may even contribute to the demise of Kellogg's (NYSE: K) Corn Pops. With sales down about 18% over the past year, some are predicting that the cereal's days are numbered.
Not-so-sweet news
Sugar, meanwhile, has also risen in price by more than 70% over the past year. That's a big blow to companies such as Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) that use a lot of it. The companies have warned of price increases for their products and slowing profit growth.
It's not all gravy for farmers, though, as even they face rising costs -- for fertilizers and energy. The USDA is forecasting that total operating costs for farmers this year will rise 18% for corn production, 18% for wheat, 15% for rice, 13% for soybeans, and 9% for cotton. That's good news for some companies, though -- such as fertilizer giants PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS). Both companies have recently been posting record earnings.
As investors seeking outstanding stocks, we would do well to pay attention to which commodity prices are rising and which are falling, as they can really help or hurt companies. Think about which inputs a company uses and how able it is to pass along rising costs to consumers. Most companies can do that, but not always by much. If your breakfast cereal's price rose 70% in a single year, you might just switch to cottage cheese. If that $1 can of soda in your office vending machine suddenly cost $1.75, you might seek a new favorite beverage.
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