GLOBAL: Brewers tumble on Russia grain ban

By Chris Mercer | 6 August 2010

Brewers shares weaken on grain price fears

Brewers' shares weaken on grain price fears

Shares in the world's largest brewers, including Anheuser-Busch InBev, Heineken and SABMiller, have dropped amid fears that they face higher costs following Russia's decision to ban grain exports.

Russian media reported yesterday (5 August) that the country's Government has slapped a ban on all grain exports until the end of 2010. Its move is an attempt to conserve domestic stocks following a prolonged drought.

Investors fear that the move will significantly increase cost pressures on multinational brewers. Russia is one of the biggest grain exporters in the world, supplying almost a quarter of all traded wheat in 2009, and the Government's decision has caused a leap in commodity market futures prices.
All major brewers reported share price erosion today. Carlsberg was the biggest loser, down by 5%, while Anheuser-Busch InBev fell by 3%, Heineken fell by 4% and SABMiller fell by almost 2%.

Some analysts warned that the threat of rising costs has been exaggerated. "We see no reason to panic," said Sanford C Bernstein analyst Trevor Stirling in a note yesterday (5 August).

He said that global supply and demand was in better balance compared to the last time grain prices spiked, between 2007 and 2008. "Although it is likely that we will see higher input costs from mid-2011 onwards, the scale of these rises is likely to be much lower [than 2007/08]," he said.

"We estimate that brewers would require approx a little over a 2% price increase in mid-2011 to recover the surge in input costs," said Stirling.

Several multinational brewers have expressed difficulty in achieving price increases on their beers over the last year. Depressed consumer confidence across recession-hit western markets has reduced brewers' room to manoeuvre on margins. 

Yet, Stirling, who previously worked at Guinness, said that brewers would cope with a grain price increase. "We remain confident that the brewers have the pricing power to pass through this order of price increase, especially in what is likely to be a much improved demand environment in 2011," he said.

Sectors: Beer & cider, Emerging markets – BRIC

Companies: Anheuser-Busch InBev, Heineken, SABMiller, Carlsberg, Guinness

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