War brings gluten-free misery

Wheat shortage spreads turmoil in food company stocks

Investors with strong stomachs might take a closer peek at the JSE’s basket of food producers. The market, fretting about margin-gnawing increases in input costs, is struggling to digest the soft commodity price spike.

The war between Russia and the Ukraine, both major agricultural exporters, means that fears of a sustained rise in soft commodity prices particularly wheat are hardly unfounded. For the most part, it seems the JSE’s main food producers have factored in markedly higher input costs for the second half of the year, with Tiger Brands and RCL Foods both leading bread producers seeing their share prices drop 17% and 18% respectively over the past 12 weeks.

Investment company Brait, which is planning to list its consumer brands business, Premier Group, has lost 6% over the same period. Premier is also a major bread brand and has recently invested fairly heavily in its bakery segment. AVI, which owns best-selling biscuit and snack food brands, has lost about 8%, while Libstar, which plays across several food segments, is down about 7%.

Both RCL, via parent company Remgro, and Premier, via Brait, have indicated they have some breathing space in terms of wheat supply for the next few months. But that’s likely to change come July/August when new supplies are needed.

On paper, these all look like opportunities for long-term investors to nibble at quality businesses at reasonable prices especially if the Ukraine war does not drag on too much longer, or supply constraints are resolved.

But ClucasGray food sector analyst