Buy Food Industry Stocks To Hedge Against Price Increases

05.19.2011 ZF English

One way to hedge against the wave of food price increases is investing in food producers. The shares of edible oil producer Argus Constanta (UARG.RO) and poultry meat processor Avicola Buzau (AVZU.RO) have risen over 30% since the beginning of the year, according to a ZF analysis.

The food price increase recorded in the past year has driven up the businesses of listed food-industry companies, which have seen their sales up by 35% to 75% in the first quarter against the similar period of last year.

Bakers Titan Bucuresti (MPN.RO) and Boromir Prod (SPCU.RO), Argus, dairy products maker Albalact (ALBZ), and Avicola Buzau saw their turnovers increase, but only some of them saw their shares take off on the Bucharest Stock Exchange.

Those who wanted to "be protected" against the rise in the price of vegetable oil or of poultry should have bought shares in Argus Constanta or Avicola Buzau at the beginning of the year.

On the other hand, shares of Albalact, Titan and Boromir were down in the same period because the companies are making investments, the shares are not visible enough or the investors have higher profit expectations.

An Argus share now costs 2.2 lei (EUR0.6), having climbed 27% in the last quarter. A liter of vegetable oil is now 45% more expensive compared to June last year.

The turnover of bakery producer Titan Bucuresti went up 74% during this period, the turnover of Argus rose 70%, while Albalact Alba Iulia saw its turnover up 35%.

"The turnover increase was driven by two factors, the rise in the volume of sales and the rise in the price of raw materials. During this period, the price of raw materials went up by 60% I would say, which prompted a similar increase in the price of the end product," explained Vasile Leu, chairman of Argus, which sells Tomis, Argus and Sora Soarelui oil brands.