Milling & Baking News - January 4, 2005 - 21

N E W S F E AT U R E

Widely varying fortunes called
likely for industry again in 2005
Continued from Page 1
European food makers who have chosen
sharp price discounts as their weapon of
choice. Retail consolidation in the United
States also remains another hurdle for all
but the largest U.S. food marketers, and food
makers small and large battled a spike in
input costs throughout 2004.
"I'm hard pressed to see any of those
abating significantly (in 2005)," he said.
Corn and soybean prices, on the heels of
bountiful fall crops, should moderate in 2005
from historically high levels in mid-2004,
when soybean prices essentially doubled from
the previous year and reached a range of $8 to
$10 per bu for a stretch of several weeks.
However, rising crude and natural gas
prices, plus surging packaging costs, have
replaced corn and soybeans on the commodity-price concern lists of grain-based foods
marketers. Crude prices reached the mid-$50
range in the last quarter of 2004, and though
they have moderated some, they were over
$40 a barrel just before Christmas.
However, Leonard Teitelbaum, an industry analyst with Merrill Lynch, said the likelihood of reduced prices for some ingredients
should help grain-based foods marketers
overcome other commodity price worries in
2005, at least compared with last year.
Perhaps most important, Mr. Teitelbaum
said, the grain-based foods industry appears to have weathered the worst of the
low-carbohydrate diet craze. In its place
may surface growing appeal for whole
grain items, fiber-rich products and other
health-oriented food - especially if the
federal government's 2005 Dietary Guidelines for Americans, as expected, promotes
consumption of whole grain foods, albeit at
the expense of enriched grain products.
"Baked goods of all shapes and sizes
should have easier (sales) comparisons and
a better operating environment in 2005 than
2004," Mr. Teitelbaum said.
From a broader economic view, most
economists and analysts expect the U.S.

gross domestic product to increase 2% to 3%
in 2005, slightly more sluggish than 2004's
growth but still a healthy growth rate.
Add that expectation to the mix, and Mr.
Teitelbaum foresees a 3% to 5% industry-wide
increase in sales volume for grain-based foods
makers in 2005, following a 3% to 5% industry-wide increase in prices last year.
"There's no question pricing certainly has
gone up," Mr. Teitelbaum said, noting higher
prices instituted by Kellogg on its cereals, some
bread makers and various other grain-based
foods producers. "Right now, our expectation
is that those (prices) would hold in 2005."
Mr. Lazar was among those believing that
whole grain products will constitute one the
industry's key stories in 2005, though he's
not sure how it will play out.
"It will be interesting to see what the
reaction is," he said, contemplating how
consumers may react to new products such
as General Mills Inc.'s new whole grain cereals. "I don't pretend to know."
In the meantime, he said the struggles
that many grain-based foods makers have
experienced in the past couple of years actually has made much of the industry more
cognizant of what it takes to succeed.
Specifically, he said many companies
have improved their cash management,
refocused attention on their brands and
adjusted their growth expectations to more
reasonable levels.
"For the first time in awhile," he said,
referring to the industry's overall business
approach, "a lot of these companies are trying to do the right thing."

'General' thoughts
Ask most food industry analysts what
their general 2005 industry forecast means
for specific grain-based foods companies,
and it doesn't take long for the subject of
one General Mills to come up.
Mr. Teitelbaum rates the company's stock
as his top food industry pick for 2005. Mr.
Lazar rates General Mills as his top large-cap

Campbell Soup Co.

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Milling & Baking News - January 4, 2005

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