The Russian Drought Spreads to US Grain and Livestock

The Russian ban on grain export in August was sure to send more than just a ripple through grain related industries. At the time we took an early glance at investor positions in global stocks which may be affected by the resulting grain inflation. This week opened with corn futures reaching two-year highs and the livestock industry feeling the pinch of rising costs. We return to the same grain related stocks: Corn Product International (CPO) and General Mills (GIS), as well as companies with an interest in livestock: Tyson foods (TSN) and Pilgrim’s Pride Corp (PPC) and Asian stocks: Tingyi Holdings Corp (322) and Nisshin Seifun Group Inc (2002).

Earlier forecasts of record harvests of US corn have now been written off, but overall sentiment in US stocks remains bullish. The share price in Corn Product International (CPO) which supplies corn based food ingredients has rallied since August and is at just $1 off its annual high. Institutional ownership is holding steady at 23 million shares of which, 30.5% of the shares are held by funds who lend, which is high for a small company.

General Mills (GIS), one of world’s largest food producers, includes baking and cereals with its portfolio. The company has seen an overall uptick in its share price since August, with institutional ownership holding steady at 140 million shares. However, there has been an increase in short interest from 0.6% to 1% since August.

Livestock prices have failed to rally in proportion with corn and wheat prices. The increasing costs are being absorbed by the livestock producers preventing them from being able to expand their herds. Funds who lend are optimistic about Tyson Foods (TSN), as institutional ownership has increased from 105 million to 125 million shares since May. Whilst short interest doubled to 4% of total shares outstanding on loan, only 8% of the proportion of lendable supply is out on loan.

Pilgrim’s Pride Corp (PPC) tells a similar story. Although institutional ownership is low, it has increased from 2 million to 7 million shares. Again, only 10% of the lendable supply is out on loan.

Australian grain handler Viterra Inc (VT), which is listed in Canada has seen short interest jump from 10% to 16% since August, but recent short covering over the past three weeks has brought this figure down to 14%. Funds who lend have increased their positions slightly from 134 million to 138 million.

Finally, two Asian grain related companies show contrasting investor sentiment. Hong Kong listed, Tingyi Holdings Corp (322) which is engaged in the manufacture and sale of noodles and bakery products has seen short interest increase from 0.4% to 1.5% between July and August. Short covering over September has lowered this figure to 1.2%. Lendable supply has also increased since July from 170 million to 240 million shares and over 20% of the total lendable supply is currently out on loan.

Japanese listed, Nisshin Seifun Group Inc (2002), which includes flour milling and bakery amongst its activities, has seen short covering from 1.5% to 0.8% since May. In this time institutional ownership has also increased from 180 million to 220 million shares.