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Beer Prices May Soon Be Harder to Swallow

Poor barley harvests and wheat export bans could cause the price of beer to jump 40%

By Jon Ogg

http://invstplc.com/1nJhwUY

Don’t feel too bad if the recent market turbulence, rocky economy and poor job market have you wanting to stop by your local watering hole to drown your sorrows with a pint of beer. But very soon this little escape could cost you even more.

As the debate over whether we’re headed for a period of inflation or deflation rages on outside the saloon doors, from a barstool view, it doesn’t make much of a difference. The major governments of the world have been printing unprecedented sums of money, yet economic weakness and other factors have generally kept a lid on prices at the consumer and producer levels. But not when it comes to beer.

Beer prices have gone up regardless of inflation or deflation in the broader economy — and it looks like they’re about to go up even more.If you’re looking for someone to blame, start with Europe. An article from The Telegraph reports European farmers have had poor barley harvests at the same time that Russia imposed wheat product export bans. Simultaneously, there are higher value-added taxes (VATs) and duties that have to be passed on to the beer drinker. Al in all, pub crawlers are likely to face higher beer prices this year and next, as the price of a pint may rise more than 40%.

However, almost all U.S.-produced beer is made from North American hops and barley. So the higher prices won’t hit Joe Six-Pack in the good, ol’ US of A, right?

Wrong. Higher prices will be seen in bars and beer aisles here, too.

Anheuser-Busch InBev (NYSE: BUD) and Molson Coors Brewing (NYSE: TAP) have already raised prices or have price hikes planned. Both beer giants just reported earnings gains even though it hasn’t been smooth sailing for all of their brands. This was due in part to pricing and also to a sales boost from the World Cup.

Boston Beer Co. (NYSE: SAM), maker of Sam Adams, grew revenues from $341 million in 2007 to $415 million in 2009. Thomson Reuters expects that 2010 revenues will be $455.6 million and expects 2011 revenues to be about $493.9 million. 

Craft Brewers Alliance, Inc. (NASDAQ: HOOK), which is currently in the process of acquiring Kona Brewing Co., has grown from $41.4 million in sales in 2007 to $123 million in 2009.

Another factor that could lend itself to higher prices is the continuing consolidation of the industry. The big boys are gulping up smaller players and microbreweries. And all those new craft beer makers have a different model. It used to be that the new breweries tried to make beer that sold for lower prices. But craft and microbrews sell for a substantial premium. Paying $7.99, $8.99 or more for a six-pack is no longer shocking to many beer drinkers.

What’s more, in a world of higher and higher taxation, it would be easy for states and cities to slap additional taxes on beer, wine and spirits, as they routinely do with tobacco. Those higher taxes do not get magically absorbed by retailers who want to be kind to their customers. 

Will beer prices skyrocket in the United States? It seems unlikely. The Europeans have their own issues that are not necessarily the same issues facing America beer makers. But, will prices here continue to rise? It seems inevitable.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/08/beer-prices-may-soon-be-harder-to-swallow/.

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