The prices of some raw materials threaten to put companies like Lala, Bimbo, Gruma and Bachoco in check. While companies have been able to weather the rise in corn and wheat since last year and in the first quarter of 2020, in the future, the equation could be less favorable.
The companies use these raw materials, also called commodities , in different links of their production chains, from animal feed to the production of flour for bread or tortillas. But the rise in corn and wheat can unleash a chain of price increases in other inputs that, in the end, will impact the prices to the final consumer of some of the products.
The price of corn and wheat reached its highest level in international markets in May, at least in the last seven years, driven by weather conditions, especially the frosts in the United States at the beginning of the year, as well as the increase in demand that occurred since the beginning of the pandemic in countries such as China.
Marisol Huerta, analyst at Grupo Financiero Ve por Más, explains that the effect on the price of raw materials impacted in various ways in the first quarter, even some companies, such as Gruma and Bachoco, raised the price of their products to final consumers However, if the upward trend continues, the impact would be more notable towards the following year.
“This is an effect that is experienced at the international level and right now the prices (of commodities ) are tending to fall from the maximum levels they registered. The greatest pressure was felt at the beginning of May, right now the new harvests are taking place, which would be in autumn, they look more stable, although it does not mean that the environment has become less complicated, there are declines but prices are still high “, he declares .
Industry analysts comment that before increasing prices, companies also streamline their operations to reduce expenses and not transfer the impact to end consumers, which is why, in some cases, the prices of products in stores or supermarkets are they reflect between once or twice a year.
Verónica Uribe, an independent consumer sector analyst, explains that increasing prices to end consumers due to the rise in commodities depends on the differentiated impact of each of the companies. Bimbo and Gruma, for example, are those that have the most pressure for grains, which are the basis of their merchandise.
“Companies usually buy in advance, they have some contracts sometimes for three or six months in which prices are set, so these prices are not reflected as immediately as in the market in general. It could have an impact in the event that all raw materials rise, because in the end the companies compensate prices for the increases in some and the decreases in others ”, he details.
Cuauhtémoc Rivera, president of the National Alliance of Small Merchants (ANPEC), declares that the rise in prices is already being felt in the country’s stores in products such as grains, eggs, sugar, bread and tortillas, which have hardened by the inflation index, which was 6.08% in April. “There is a sharp escalation in price increases … and people have stopped buying,” he says.
Impacts in the first quarter
Food and beverage companies suffered the increase in soybeans, corn and wheat, among other inputs used for packaging, during the first three months of the year, which was reflected in their financial statements.
Lala had positive results in the first quarter of the year, with an increase in consolidated sales of 3.3% to 20,043 million pesos. In Brazil, it faced recurring pressure from the cost of raw materials, mainly raw milk (33.8% year-on-year) and soybean oil (73.4% year-on-year), as well as resins and palm oil.
Another case is that of Gruma. The company chaired by Juan Antonio González Moreno announced that it would evaluate an upward adjustment in the price of corn flour in the middle of this year, as a result of increases in the price of grain. If so, this would be the third increase so far in 2021.
The company, which markets the Maseca brand, raised the price for the first time this year on February 15, when it raised to 650 pesos each ton of flour. Two months later there was an increase of 300 pesos per ton, explained Raúl Cavazos, the company’s finance director, in a conference with analysts to comment on the results of the first quarter of this year. Huerta states that if there is a stabilization in prices, this could be the last increase this year.
Gimsa, the Gruma subsidiary that produces corn flour for the tortilla production chain, suffered from the increases in the price of the grain and, from January to March, its sales volume decreased 1%, but the increase in its prices raised its prices. income 2%.
During the reference period, Gruma’s consolidated sales grew 3% to 22,179 million pesos. However, as a result of the higher price of corn, its operating cash flow contracted 1% to 3,472 million pesos, according to its financial report.
Bimbo had the best first quarter in history in 2020. Its sales rose to 79,136 million pesos, a growth of 6.6%, and although it has faced the increase in wheat and corn, in the future it will be one of the factors that will influence the performance of the company, since, if it continues High could lead the company to raise the price of its products to final consumers.
“We are seeing pressure, especially due to the price of corn. And in the harvests that come forward, an excess demand is estimated. Prices are rising and although the company has some coverage, if they are not stabilized, it can have an effect that hits it in annual terms ”, declares Huerta.
Bachoco is also on the table. The company’s sales of poultry products grew 23% in the first quarter, reaching 19,357.6 million pesos. Although the company’s costs and expenses increased in the quarter, their rise was less than that registered by sales. Costs rose 11% mainly due to an increase in the price of raw materials, while general expenses rose 4%. Total expenses as a percentage of sales was 8.5%, a figure lower than that of 2020, which was 10%.
Analysts agree that companies analyze the prices of grains and other raw materials, such as sugar, three or six months before closing their purchases, in order to make price and cost forecasts for their operations.
“For this second quarter some of the companies will have been able to amortize sales with the coverage, the scenario for 2020 was rather concerned because food companies make purchases twice a year, so for the next purchase that would be in October we would see how the prices, if they take it to a high level, the pressures would come for profitability in 2022 ”, declares Huerta.
