BB&T: Wheat Raising Input Costs for Packaged Food Names (FLO, LNCE, RAGG, THS)

BB&T Capital Markets is out with a research report this afternoon, which takes a look at the impact Wheat futures are having on the packaged food space. The BB&T analysts noted that input costs are broadly on the rise, which has resulted in widespread concern from investors. Wheat futures are leading the inflation scare given the recent record-breaking drought and heat in Russia, which has burned through most of the company’s crop. In 2009/10, Russia and Ukraine were estimated to represent 13.5% and 7%, respectively, of world wheat exports. As for company specific exposure, the BB&T analysts believe Flowers Foods, Inc. FLO, Lance, Inc. LNCE, and Ralcorp Holdings, Inc. RAH have the vast majority of their wheat needs covered for CH2’10, with some coverage built in for early 2011. The BB&T analysts also believe that the spike in wheat is short-term related and will moderate over the next few months. They also noted that production estimates for Argentina and Australia were recently revised much higher, the latter of which was estimated to represent 10.8% of wheat exports in 2009/10. This should help to lower wheat prices. Argentine production is estimated to increase more than 40% yr/yr.