Pain in the Bud?
Question, what U.S. company is the largest consumer of rice?
Answer: Anheuser-Busch (BUD)
Anheuser-Busch (BUD) is the largest domestic buyer and user of rice which it uses to produce regular Budweiser. Rice prices which in the past several years have averaged less than $8 per CWT are now trading at record highs of more than $23 per CWT. Commodities traders who I have spoken with report hearing that Anheuser Busch buyers have been talking to rice growers about locking in 5 year contracts to sell rice to Anheuser at more than $20 per CWT. Think about that for a second, the largest consumer of rice in the United States is trying to lock in a price for a major ingredient of its most popular product that is more than double what it has been at for the past several years. Even with the price increases that BUD has been pushing through the dramatic rise in the cost of rice and all of the other grains that it uses to produce beer are going to really hurt the company's margins.
Traditionally companies that sell alcohol do well during economic downturns and beer consumption tends to be fairly inelastic (especially in my home), but rising commodity prices are really hurting Anheuser-Busch (see article: Anheuser-Busch earns fall as cost of beer ingredients rises). The company hasn't even felt the full brunt of rising rice costs which have taken off dramatically over the past several weeks. As much as it pains me to say it, Anheuser-Busch's second quarter results are probably not going to be very pretty either.
Three month chart of the price of rice.
This Bud's for you,