Archer Daniels Midland (NYSE:ADM), ConAgra Foods (NYSE:CAG), Pilgrim’s Pride (NYSE:PPC), Smithfield Foods (NYSE:SFD) and Tyson Foods (NYSE:TSN) are all dirt-cheap thanks in part to worries about rising corn prices. Unfortunately, there is little hope for a rebound in these stocks.
ADM, the world’s largest grains processor, is down nearly 7% this year. Operating profit at its Corn Processing business, which includes ethanol, fell 15.7% in the latest quarter to $118 million. Though ConAgra’s fiscal fourth-quarter earnings more than doubled, they were a penny short of Wall Street’s expectations because of food inflation. The Omaha-based company has countered these increased costs by raising prices.
Enthusiasm over its planned $5.2 billion takeover of Ralcorp Holdings (NYSE:RAH), parent of Post Cereals, has pushed ConAgra’s shares up nearly 5% this year. Nonetheless, ConAgra’s multiple is 12.64, a five-year low. ADM is trading at a price-to-earnings ratio of 8.66, among the lowest levels it has seen in the past five years, according to Reuters.
Pilgrim’s Pride has been stomped this year, plunging nearly 50% because of a listeria outbreak and disappointing earnings. The second-largest chicken producer has begun using wheat to feed to chickens because corn is so expensive. The company also is in a cost-cutting mode. In July, the company announced plans to shutter a chicken processing plant in Dallas. Analysts expect the company to lose money for the rest of the year.
Shares of Smithfield Foods are down about 5% after posting disappointing first-quarter results because of higher feed prices. Its P/E ratio is 6.16, its lowest level in five years, according to Reuters. Profit growth is expected to be “modest this year, according to the company.
Tyson CEO Donnie Smith recently bragged that the meat processor “is still on track to deliver the second-best annual earnings per share in company history despite depressed chicken pricing, input costs at or near record levels and a sluggish economy.” Wall Street hasn’t been impressed by Smith’s forecast. Shares of the Springdale, Ark.-based company have barely budged this year. Its multiple is 7.52, near its five-year low, according to Reuters.
Recently, the U.S. Department of Agriculture slashed its estimate for the corn harvest to 12.497 billion bushels. That’s down 3% from an August forecast and trailed expectations — analysts surveyed by Bloomberg predicted 12.554 billion bushels. As NPR recently noted, China made its biggest U.S. corn purchase in 15 years. Stockpiles of the commodity also are low thanks to the rising demand caused by the ethanol industry.
Tight corn supplies will squeeze the margins of these companies for some time. There is little hope of a rebound.
Jonathan Berr does not own shares of any companies listed here. Follow him on Twitter at @Jdberr.
