Sugar Prices Skyrocket Following Brazil Cold Snap
Sugar prices shot to a four-year high after a cold front in Brazil drastically cut the size of the crop, and hedge funds pushed the commodity’s price even higher. Prices for raw sugar futures jumped 10% over the past month to about 20 cents per pound. Prices have not been this high since 2017 despite climbing 60% in the past year. The price increase results from decreased sugar production and a pessimistic outlook, as estimates show that sugar production metrics will be down for at least the next year. Companies are forced to raise their prices to curb diminishing profits as weather ravages production in Brazil, sugars primary production region.1
U.S. Crops Decimated by Heat
Extreme summer heat is baking most of the U.S. Midwest states like North Dakota and Minnesota are experiencing near-record low levels of soil moisture, according to the National Oceanic and Atmospheric Administration, which is not conducive to crop growth. The Agricultural Department also found that nearly 63% of the U.S. spring wheat crop is in “poor or very poor condition,” versus 6% at the same time last year. The heatwave has caused the USDA to scale back U.S. crop production expectations for the year, and stocks for corn, wheat, and soybeans all saw their lowest levels since 2013. As the weather cools down, farmers look to protect their crops for a more plentiful harvest next year.2
Nestlé to Invest $1.29B in Regenerative Agriculture
Nestlé announced that it would invest $1.29B over the next five years in regenerative agriculture across its global supply chain to promote biodiversity, soil conservation, and regeneration of water cycles. Regenerative agriculture is a farming technique that aims to protect and restore natural resources while decreasing carbon dioxide and greenhouse gas emissions. Nestlé aims to use this technology to reduce its carbon emissions by 50% by 2030 and reach its net zero goal by 2050, which is important as the climate continues to change.3
U.S. to Work with E.U. on Cutting Global Methane Emissions
The Biden administration is working with the E.U. to pledge a reduction in methane emissions by nearly a third by 2030. Although the event was closed to the public, there were more than a half dozen heads of state who joined the meeting virtually to discuss the threat of climate change. This pledge would be the first global commitment to cut methane emissions, and although it is less prevalent than carbon dioxide, it is far more effective in trapping heat. As our climate continues to change, the world’s developed countries must do their part to ensure the longevity of our planet.4
Sequoia National Park Wildfires Run Rampant
The KNP Complex Fire, comprised of the smaller Paradise and Colony fires, has already burned through 9,365 acres of forest without containment since lightning sparked flames as of mid September. Although nearly 500 firefighters have been working to contain the blazes, experts fear that the drought coupled with the warming climate will continue to make fire containment efforts more difficult moving forward. So far this year, there have been 77 “large wildfires” that have scorched more than 5.5 million acres of land. Amidst climate change and supply chain issues, many farmers are forced to raise prices due to their struggle to grow full crops. Californian farmers are facing the largest price increases due to the affects of the wildfires.5
Food Delivery Companies Look Towards Lawsuit to Save Profit Margins
Earlier this month, DoorDash, Uber Eats, and Grubhub sued New York City over its plan to enact permanent caps on delivery commissions charged by restaurants, claiming the NYC move is unconstitutional. Earnest Research found that the NYC area accounts for more than 13% of U.S. gross food sales. The delivery companies argue that the commission commission caps weigh on their margins, and the lost revenue could drive prices higher, leading to lower order volume in restaurants. Food delivery services are having a record year, and DoorDash increased revenue by 220% YoY, and 120% in the past six months. If this lawsuit is successful, it will set a precedent that inhibits commissions caps on delivery services. However, if unsuccessful, it may not bode well for the industry.6
As Delta Variant Rises, Restaurants Close Dining Rooms Again
As the Delta variant has risen and increased public uncertainty about COVID-19, restaurants see this trepidation first hand. According to the U.S. Labor Department, bars and restaurants lost 41,500 jobs in August alone, the largest monthly decline of any single sector. Since nearly one in five Americans say they are no longer going to restaurants due to COVID, and 9% have canceled existing plans to eat out in recent weeks, restaurants are having to close down dining rooms to please customers and comply with local mandates. Although restaurants have benefitted from the boom in food delivery services, smaller establishments frequently rely on in-person traffic to generate revenue. Since fewer people are eating out, the already battered restaurant industry is going through more tough times.7
Cotton Prices Hit Decade High
Cotton futures are trading at their highest price in a decade. The increase follows a 22% price increase to $1.09 a pound over the past 11 trading sessions leading into Q4. Prices are being driven by high demand, global supply-chain delays, and Trump-era trade policies banning U.S. imports of cotton products from China’s Xinjang region, the country’s largest cotton-producing area. This means that China has been importing cotton from the U.S., whose exports are up 83% from this time last year. However, The Biden administration plans to start a new round of trade talks with China In October to adjust the tariffs on imports, which should alleviate some pressure on the supply chain as the Xinjang region has the comparative advantage in cotton production.8
Colorado River Shortage and the Walton Family’s Solution
The Colorado River is experiencing its first official shortage, which has sparked debate over how to best provide water for the 40 million people and crops that rely on the river. The Walton family, the heirs to the Walmart (NYSE:WMT) fortune, have donated over $200M to groups involved with the conservation of the river over the past decade. Environmental experts worry that the Walton’s money has given them an outsized influence on policy discussions. Experts are strong proponents of a “market-based approach” for water users, which would generate interest from outside parties. As the river cannot supply enough water to meet demand, large corporate entities could further pressure the already struggling farmers and consumers.9
Largest Transactions Closed
- Core-Mark Holding Company, Inc.
- Performance Food Group Company
- Tyson Pet Products, Inc.
- General Mills, Inc.
- U.S. motorways business of HMSHost Corporation
- Applegreen plc; B&J Holdings Limited
- JM Swank, LLC
- Brenntag SE
- 35 grain elevators of Bunge North America, Inc.
- Zen-Noh Grain Corporation
- Agri-Kind, LLC\Agronomed Holdings Inc.
- Verano Holdings Corp.
- Carolina Aseptic / Carolina Dairy
- Saputo Inc.
- McLovin's Pet Food, Inc.
- Caduceus Software Systems Corp.
- Anna Holdings LLC
- Trulieve Cannabis Corp.
- Organic Blueberry Orchards in Oregon & California
- Gladstone Land Corporation
Other Financial Buyer Transactions Closed
- Whitson’s Food Service Corp.
- GenNx360 Capital Partners
- Chosen Foods, LLC
- Butterfly Equity LP
- Fast Growing Trees, LLC
- Berkshire Partners LLC; Cove Hill Partners, L.P.
- Odwalla, Inc.
- Full Sail IP Partners LLC
Other Strategic Buyer Transactions Closed
- MeliBio, Inc.
- Cult Food Science Corp.
- Bartolotta LLC
- GrubMarket, Inc.
- 32 Stores of Save-A-Lot Food Stores, Ltd.
- Yellow Banana, LLC
- Grant J. Hunt Company
- GrubMarket, Inc.
- Certain Cigar Assets of Unitabac, LLC
- Turning Point Brands, Inc.
- Michigan Fresh Marketing LLC
- BelleHarvest Sales Inc.
- Dole Food Company, Inc.
- Dole plc
- HOP WTR Inc.
- Constellation Brands, Inc.
- Meat Processors, Inc.
- Fortune Fish Company Inc.
- Franklin Bakery, LLC
- The Good Bread Co.
- LC Wine, Inc.
- JUSTIN Vineyards & Winery, Inc.; JUSTIN Vineyards & Winery LLC; JNSQ Wines
Source S&P Capital IQ as of 10/11/2021 and PCE Proprietary Data
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes