| SCDigest Says:
|Food giant General Mills, for example, recently said it has locked in prices through hedging and derivative contracts for about 65% of its total commodity and energy spend for 2011.
Before the great recession of 2008-09, commodity pricing and availability were among the top supply chain and corporate concerns, pressuring bottom lines and causing companies to make changes in supply chain strategies, from hedging commodity prices to extremely long term contracts with commodity suppliers to even a return to verticalization.
Those concerns were largely eliminated as the recession began, with commodity prices across the board getting hammered to multi-year lows. But commodity prices in most categories are on the march again, along with concerns about future availability, even as most Western economies are struggling with weak recovery and some concerns about deflation.
Take agriculture: wheat futures are up some 70% since June, and corn is at a 2-year high. But that's nothing compared to coffee, which is at levels last seen more than a decade ago. The Standard & Poor's Precious Metals index is up 22.86% so far in 2010, regular metals up 6.09%. Metals companies of all sorts are seeing rapidly rising stock prices based on this bullish outlook for metals pricing.
Just this week, the International Monetary Fund (IMF) issued a report that said the boom in metal prices may only be halfway through its growth spurt, saying there are ''few convincing signs'' that key metal supplies are catching up with demand.
As a result, companies across the globe are again taking action to protect their profit margins and ensure supply continuity. The issue is doubly critical because most firms are unable to raise sell prices in the face the bargain-hunting consumer in the US.
Pain in being felt in many sectors and companies. For example, Starbucks CEO Howard Schultz recently said that rising commodity prices "have completely altered the economic and financial picture of many players in the coffee industry."
China continues to lead the way from both a corporate and government perspective, aggressively making investments in commodity suppliers, especially in Africa and South America. Case in point: BYD, a Chinese producer of cars and batteries, recently acquired an 18% stake in a lithium mine. ArcelorMittal, the world's largest steel producer, has been aggressively buying iron and coal mines in recent years, and this month announced it was investing an additional $4 billion to expand its iron ore production capacity to 100 million tons by 2010 - a very bullish bet on where pricing and demand are heading.
Nestle, the world's largest food company, is also getting hands on. In August, the company announced a major program to invest some $500 million in a variety of coffee-related projects, mostly with its growers in Latin America and Asia. That includes consulting with farmers on how to increase output and providing them 220 million high-yield, disease resistant starter plants. That follows a similar effort relative to cocoa launched in 2009.
and Procurement Article - Continued Below)