NEW YORK (AP) — A Citi Investment Research analyst said Tuesday food manufacturers will need to raise retail prices again since food costs continue to skyrocket.
Analyst David Driscoll said in a note to investors that even though retail prices in the third quarter are already 5 percent higher year over year, commodities have ''picked up speed'' over the past six months. The price of wheat, for example, has jumped 66 percent during that time period and dairy costs have risen 58 percent. Coffee costs have also gone up 13 percent, he said.
Costs are higher due to a number of reasons, including crop disease, weather conditions, animal feed costs and a rise in international demand for commodities.
Most food companies have already raised prices and a number of them, including Hershey Co., Campbell Soup Co. and ConAgra Foods Inc., have said retail prices could go even higher in fiscal 2008.
Driscoll said the rising costs indicate that those companies are on the right path and that ''further pricing increases on the part of the large branded food manufacturers is likely needed.''
The analyst downgraded shares of Kellogg Co. to ''Hold'' from ''Buy,'' saying the company's shares could be harmed if margins begin to drop — a risk since Kellogg does not have a lot of commodity hedges in place. Most companies use hedging, or the process of negotiating a set price for a commodity, to avoid volatility or price increases on the open market.
Driscoll added that he believes Kellogg's shares are now fairly valued.
Kellogg shares advanced 18 to $54.02 in midday trading.
Driscoll said gum and food maker William Wrigley Jr. Co. may be ''the biggest beneficiary from the current inflationary environment'' since the company's retail prices are up nearly 15 percent over the 12 weeks ended Oct. 6. Plus, he said, Wrigley does not have any significant exposure to major agricultural commodities like wheat, corn and dairy.
Wrigley shares slipped 86 cents to $66.74.
Elsewhere in the sector, H.J. Heinz Co. shares retreated 30 cents to $46.07, while ConAgra Foods shares dipped 33 cents to $23.49.
Kraft Foods Inc. shares rose 15 cents to $32.83 and Campbell Soup shares gave up 3 cents to $35.78.
Hershey shares, meanwhile, slipped 8 cents to $42.08.