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Food companies may benefit from lower grain prices

Food processors might benefit from cheaper grain prices this year as retail prices continue to rise. Flattening prices for grains such as wheat should boost margins as companies look to grow profits rather than pass on the savings to consumers. Packaged foods wholesalers such as General Mills and Kellogg will reap the benefits of cheaper grain prices. Past performance indicates that wholesale prices to retailers will probably continue to rise by 2.5% to 3%, and this should relieve the stress on processing margins.

While wholesale prices usually don't drop as processors attempt to get margins back to where they were before commodity input costs started rising, explains Brian Todd, president and chief executive of the Food Institute, Upper Saddle River, N.J. But they might climb by as much as 3% in 2012, after rising 6.3% last year, he says. Both wheat and corn futures are down from a year ago, by 28- and 20%, respectively, from a June 2011 peak. Packaged goods wholesalers will see some cost savings from lower commodity costs, reports claim.

The positive costs may expand beyond large packaged food processors. Lower grain prices benefit restaurant companies and others such as spirits and meat companies.

Source: www.marketwatch.com

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