Commodities

Interesting to note that even the humble chicken is now being swept up in the strong commodity pricing backdrop.

Mostly this reflects the need for cost recovery, given broad-based inflation across inputs (wheat and grains, the stuff you feed chickens, electricity, shipping, freight, and so forth). Ingham’s (Australia’s largest chicken producer) has suggested their prices are increasing, but not by as much as input prices, resulting in a margin squeeze.

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In our minds, ING will likely benefit more when wheat prices moderate, as opposed to when chicken prices rally.

At the other end, given the impact of higher mortgage rates on housing demand, lumber is starting to come off the boil. This is good for companies like Brambles (whose pallets are predominantly just wood + some nails) and should lead to improved free cashflows, just as the price increases (that they’ve pushed on to end users) come online.

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