Watch Out for "Extreme Commodity Environments"

Earlier this week The Wall Street Journal ran an article that brought up the "extreme commodity environment" that Dean Foods is facing. How much are rising commodity prices -- and slackening demand -- impacting Dean? According to a recent financial announcement attributing weaknesses in the business to tough commodity environments, Dean reduced earnings guidance for the year over 20% and plans to eliminate some 600 to 700 jobs as well. Dean's issue is that "it's in a vise between dairy producers demanding higher compensation and consumers who have cut consumption in response to higher retail prices." But Dean is not alone in this sandwiched environment. "Food companies have been facing sharply higher commodity prices in the past year, especially for grains and oil," the article notes. In my view, as consumers tighten their spending belts thanks to rising debt and credit woes and overall concerns about the economy, it's the food producers and retailers who might very well be left holding the shopping bag.

Jason Busch

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