US corn processors regain influence in price talks

 

 

The power in the annual round of talks to set prices of corn sweeteners has returned to processors such as Archer Daniels Midland and Tate & Lyle, leaving buyers on track for price rises of up to 25%.

 

The proportion of plant capacity in use among makers of high fructose corn syrup looks set to tick up to 85%, thanks to resilient US sales of the sweetener and a doubling in exports to Mexico, Credit Suisse said.

 

This extra usage means that "the whip hand in annual negotiations swings towards the sellers", the bank said, adding that the outcome of the talks will be fine for corn processors.

 

Indeed, Archer Daniels Midland had already ditched terms, unveiled early in the month, of price rises for high fructose corn syrup of just 15-20%, equivalent to US$3.00-US$3.50 per hundredweight.

 

Buyers of the syrup, used largely as a sweetener in soft drinks, are now being asked for an extra US$4.00-US4.50 per hundredweight, equivalent to an extra 20-25%, a level of increase supported by Cargill and Tate & Lyle.

 

The return of pricing power to processors represents a marked swing away from dynamics at the start of the year, when high fructose corn syrup was under a cloud following allegations of greater links to obesity than other sweeteners, claims which prompted many soft drinks makers to can it.

 

However, US demand has proved to be robust, while exports to Mexico looks set to double to twp billion pounds, beating expectations.

 

However, with corn processors also having to pay considerably more for corn, after the US cut its forecast for this year's crop, the impact on profits of higher syrup prices will be muted.

 

"There doesn't seem to be a concerted move to increase margins," Credit Suisse said. "So on balance we feel flatish [processing] profits are a reasonable expectation for the new year," the bank said.

 

The comments came as the bank restated coverage of Tate & Lyle with a neutral rating and share price target of GBP5.50 (US$8.68).

 

While saying that the group looks a "better business today than it has been for a long while", following the sale of its historic sugar operations, that had been accounted for in the rise of more than one-quarter in the shares since the end of August.

 

The stock, in trading at 13 times earnings expected for this year, was already marginally ahead of its average rating of 12 times.

 

"There may be a little more to go for, but not enough at this stage to have an outperform rating," Credit Suisse said.

 

The shares stood 2.9% lower at GBP5.08 (US$8.02) in morning trade in London.