Actual finance blog

Large U.S. food companies have been pushing the Obama administration to ease sugar import curbs, citing forecasts for unprecedented sugar shortages that could result in higher retail prices and possible job losses.

In a letter to U.S. Agriculture Secretary Tom Vilsack dated August 5, companies and groups that include Kraft Foods Inc, General Mills Inc and Hershey Co warn that “our nation will virtually run out of sugar,” if a USDA forecast is accurate.

The letter was written a week before the Agriculture Department on Wednesday said the closely watched stocks-to-use ratio in the U.S. sugar market for 2009/10 stood at 6.7 percent, up from 3.4 percent in last month’s report.

The situation is seen easing because of increased beet sugar and cane sugar production, according to the USDA.

U.S. sugar industry officials say importing sugar into the United States would not be cost effective because there is now little difference between the world price and the price in the U.S. domestic market.

In any event, analysts say, rising sugar costs are unlikely to boost prices of food products because prices for other ingredients such as grains have declined since last year.

Still, the USDA prefers the stocks ratio at 15 percent and the government has used a figure below that level as a reason to order imports, as it did in August 2008.

The Sweetener Users Association, representing companies that use sugar, called on Thursday for an increase in the U fast cash.S. sugar import quota of 450,000 short tons for this marketing year, which ends on September 30.

The association said the sugar supply will be unduly tight despite USDA’s forecast of slightly larger domestic output.

Food industry analysts say inflation should be contained for an industry that sharply increased prices in the past year as costs for commodities such as vegetable oil, wheat and corn surged.

Many commodity prices have retreated, and manufacturers are trying to defend the price increases as consumers and retailers try to rein in costs in a weak economy.

“For every ingredient that has gone up in price, there’s probably two or three that have gone down in price,” D.A. Davidson analyst Timothy Ramey, said.

Lee Linthicum, global food research manager at Euromonitor International, likened the food industry’s concern over sugar prices to warnings manufacturers raised when oil futures rose to about $140 a barrel last year. NYMEX light crude futures traded at $71.51 on Thursday.

“Nobody thought that oil would ever go below $100 a barrel ever again and now, look where we are,” he said.

Sugar prices have been at record highs as a weak monsoon season raises concern about production in India and Brazil. 

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The blanket rally in equities and credit that has dominated trading since March is coming to an end, paving the way for a pickier, micro-based approach that should allow better-run companies to once again outperform.

A search for quality is getting under way in both equity and credit markets that is markedly different from the broad-based risk chasing that has lifted nearly all stocks and squeezed spreads from investment grade to junk.

The rally that began in March and that has driven MSCI’s all-country world stock index up about 58 percent has been based primarily on investors’ reacting to early signs that the global economy may be on the mend and on buying a broad swathe of heavily oversold stocks.

Indeed, at the initial stage of the rally, those stocks most battered by the market crash fared better.

U.S. investor GMO calculates that the 40 stocks in the S&P 500 with prices above $50 rallied 21 percent on average between March and April. The 50 stocks with prices below $5 rallied 115 percent.

Credit markets have seen a similar trend with Bank of America-Merrill Lynch’s once battered global high-yield bond index gaining some 45 percent since March.

Now, however, investors are looking for the cream to rise to the top.

“Long quality (or long quality and short junk) is substantially the most outlying bet available today in all global equities,” GMO Chairman Jeremy Grantham wrote to the firm’s clients cash advance.

Part of the reason, at least on equity markets, is that investors are showing signs of looking beyond outside factors such as global economic growth, and instead focusing on internal features such as earnings potential.

“Stock price movements have begun to return to more normal levels, and have recently been less driven by macro factors and more by security-specific factors,” Bob Doll, BlackRock’s global chief investment officer for equities, said in a recent note.

He sees compelling value in higher quality companies that have relatively strong balance sheets, healthy levels of cash flow and adequate financing.

While quality seems to be the buzzword, this does not necessarily mean just big names, according to James Thomson, fund manager at Rathbones.

He focuses on mid to small, largely undiscovered, quality companies which have high growth potential, avoiding mainstream firms and retaining flexibility by not tracking benchmarks.

“The most important decision is to buy right companies. They will be more volatile, high beta. It’s the price to pay for getting higher returns,” Thomson said.

JUNKED JUNK? 

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Brenda Rundle bought a Dell laptop at a Future Shop store in Toronto.

Her computer froze up last April, requiring a major repair by Future Shop.

The same thing happened in June.

"It consistently keeps losing memory," says Rundle.

"Eventually, it won’t even turn on."

She found that the manufacturer and retailer were doing little more than pointing fingers at each other when asked for help.

"I’ve been caught in the middle with a $1,400 paperweight, while spending money on Internet service," she complained.

Dancing a tango with two partners is no fun.

Recognizing the frustration factor, Future Shop’s head office took action quickly.

"Here’s what we’ll do," said spokeswoman Shannon Kidd.

"We’ll pick up and courier the laptop to our service depot in Toronto; we’ll diagnose, detail and repair the problem; we’ll courier it back to her home; and we’ll expedite the repair so the delay is minimized."

Future Shop also offered her an extended one-year warranty on her Dell laptop and a replacement if she had another issue with it during that time.

Dell Inc. started selling through retail stores in 2007, after selling online and over the phone before.

"Dell works with trusted retail partners such as Future Shop that strive to offer the best available customer service," says Gretel Perera, a spokeswoman for the Austin, Tex.-based manufacturer.

"In this case, we agree with the options and extended service that Future Shop has offered to the customer.

"The inconvenience caused to the customer is regrettable, but we trust Future Shop is doing everything in its power to accommodate the customer’s needs."

Some people who buy directly from Dell also write to me, asking for help.

Mike Delmar bought a Dell laptop in September 2006, along with a three-year extended warranty that covered on-site repairs lowest fee payday loans.

After shelling out money for several repairs not covered under the warranty, he refused to pay any more to fix a faulty laptop battery.

After I contacted Dell spokeswoman Janet Fabri, Delmar received a new battery, but had to keep the details confidential.

Ed Berlot told me about his $600 Dell monitor, bought last July, that had been replaced four times with refurbished models.

He said each monitor was replaced with a minimum of hassle under a three-year warranty that covered shipping costs. But he wanted help in getting a new monitor, not refurbished.

Dell gave him what he wanted three months ago – and the new one "works like a charm," he told me.

I’m in favour of a lemon law for computers: Once a repair has to be done three times in a row, a replacement is mandatory.

Future Shop already has a "three strikes and you’re out" provision in the extended warranties it sells.

Meanwhile, Lior Hershkovitz found a way to get faster service from Dell.

He has a brand-new laptop whose monitor was defective on receipt.

He didn’t want to ship it back and wait a month for a new one, custom-built to his specifications.

"I had only 30 days to get an exchange or a refund," he said.

"After that I’m at the mercy of their warranty.

"So I had to act quickly."

So, he went online and found an email address for founder Michael Dell, michael@dell.ca, at the Consumerist website.

That little exercise apparently did the trick.

An hour after he wrote a message, he got a call from Dell’s head office, promising to exchange his computer more quickly (within nine days).

Write to onyourside@thestar.ca or check the On Your Side blog at www.ellenroseman.com

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As the recession bites them in the wallets, beer drinkers have been trying to stretch their bucks by purchasing cheaper beers.

Anheuser-Busch, among other beermakers, is adjusting its marketing to roll with the changing times.

For the first time in 25 years, Anheuser-Busch’s Natural Light brand is getting its own national TV advertising campaign. Several new ads have already hit cable outlets such as Comedy Central, Spike and Versus.

This troubled economy has reordered the beer industry’s winners and losers. Some of the biggest winners are cheap "sub-premium" beers — including Anheuser-Busch’s Natural Light, Busch and Busch Light. Anheuser-Busch is the dominant player in the sub-premium segment.

In recent months, "we’ve put a little more emphasis" on sub-premium beers, said Keith Levy, vice president of marketing at Anheuser-Busch. "We want to be visible and well-positioned."

Sub-premium beers have posted striking numbers recently. From the start of the year through July 12, sales of Natural Light were up 4 percent; Busch Light, 3.6 percent; Busch beer, 5 percent; Miller High Life, 1.6 percent; and Keystone Light, 17 percent, according to Information Resources Inc.

Each of the top brands in the segment were up, even as many big imported, craft and domestic brands struggled. The health of leading sub-premium brands is "striking," said Benj Steinman, editor of Beer Marketer’s Insights.

Anheuser-Busch is increasingly relying on sub-premiums to help maintain its market share. Thus, Anheuser-Busch tested new Natural Light commercials last year and rolled them out nationally earlier this year.

"As the market started to move (to sub-premium beers), we wanted to be more competitive," said Levy. "We’re sort of blessed with this broad range of beers. In the event that consumers are challenged economically and they’re trading down, we have the ability to compete there."

Anheuser-Busch, a division of Belgium-based Anheuser-Busch InBev, has solid competition in the form of Chicago-based MillerCoors, which this year has been rolling out new commercials to support its own sub-premium beers. Miller High Life has ads with actor Windell Middlebrooks confiscating the "common sense" beer from overly pretentious venues such as a baseball stadium skybox and the VIP section at a horse race. Keystone Light also has a new ad this year wherein a grandpa overestimates his reflexes and demands that his grandson throw him a can of beer instant credit report.

Natural Light’s advertising is based on humor, geared toward drinkers ages 21-35. Commercials extol "Naturday" as "the most awesomest day of one’s week" and warn that spilling Natural Light would be a "natastrophe."

The advertising push is a notable change. Last year, Anheuser-Busch’s sub-premium brands got only a tiny slice of the company’s marketing dollars. Of A-B’s $455 million in measured advertising, the Busch family of beers got $2.5 million and Natural Light got only $680,000, said Steinman, quoting data from TNS Media Intelligence. Those are "teensy" numbers, he said.

Natural Light, the leading sub-premium beer, contributes 9 percent of Anheuser-Busch’s sales volume, but is given less than 1 percent of its advertising money, according to Beer Marketer’s Insights.

But the pace of advertising spending to support Natural Light seems to be picking up. Anheuser-Busch spent $544,000 to advertise the brand in the first quarter of this year, compared to just $16,000 in the same period last year, according to TNS.

In past years, Anheuser-Busch didn’t want to emphasize sub-premium beers. Even now, the company says its strategy is to grab a bigger share of the sub-premium category without actually increasing the size of the segment. Industry sources say that’s because A-B makes less money per barrel of sub-premium beer than on more expensive brews.

With sub-premium beers taking sales from higher-priced beers, brewers might think, "Hey, this is better than losing more business and being down more," said Steinman. But it’s "a mixed blessing. You don’t want to be trading your own customers down" to less profitable beers, he said.

The risk is that drinkers will like sub-premium beers and won’t return to more lucrative beers when the recession ends.

As sub-premium beer sales grow, profit margins "are going to shrink," said Harry Schuhmacher, editor of Beer Business Daily. That prospect is "alarming," he said. But there’s a bright side: "People are still drinking beer."

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Citing weak demand for coal used to fuel power plants, Patriot Coal Corp. will shut a mine in southern West Virginia and eliminate 314 jobs.

Employees were notified that they’ll lose their jobs as of Oct. 5, Creve Coeur-based Patriot said in a statement.

The mine being closed produces about 2.5 million tons of coal a year. It is part of a complex that also includes an underground mine.

The recession and cooler weather across parts of the country have led to a decline in electricity demand. In response, coal producers have shut or idled mines and slashed budgets free business cards.

“Our strategy is to concentrate production at lower-cost mining complexes,” Patriot CEO Richard M. Whiting said in a statement. “By ceasing operations at this higher-cost surface mine, Patriot will keep valuable permitted reserves in the ground until the market yields more favorable pricing and margins.”

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In April 2008, as the "credit crunch" was becoming a "financial meltdown" and Bear Stearns had just collapsed on Wall Street, a new bank quietly opened in the St. Louis suburbs.

The timing appeared to be all wrong. Signs of distress were everywhere. And there was no celebration that first day at Parkside Financial Bank & Trust, situated on the first floor of a Clayton office tower. Too much to do — from opening new accounts to reassuring worried shareholders.

"It was a little nerve-wracking," bank CEO Jim Wagner said.

But now, more than a year later, no regrets.

"It turned out to be a good time to open a bank," Wagner said.

"Fabulous time," corrected his brother, bank president Matthew Wagner.

The struggles of the nation’s banking sector have received plenty of attention — and bailouts — in this Great Recession. Already, 64 banks in the United States have failed this year, the most since 1992. But some new players are seeing opportunity in the chaos.

Last year, in the grips of the banking crisis, 89 new banks opened nationwide, according to the Federal Deposit Insurance Corp. That is a drop of nearly half from the go-go, good times of 2007. And 2009 is going even more slowly: 20 banks so far, on pace for just 35 all year.

"It’s tailed off dramatically," said Bob Turicchi, a new bank consultant with the American Bankers Association. "Who is going to purchase stock in a brand-new bank in this environment?"

But if they can find funding, some of those new banks — called de novo institutions, new banking charters that are not subsidiaries or branches of current banks — are reporting good times.

Parkside, which raised $21 million before opening, now has 165 clients, $130 million in assets and $100 million in loans, Jim Wagner said. No loans are past due, according to the FDIC.

"To be able to say that in this market is just unusual," said Jim Wagner, 44.

LEARN FROM MISTAKES

New banks might lack name recognition and multiple branches, but they also do not have ledgers full of soured real estate and auto loans. They have learned from the lending mistakes of the recent past. Turicchi said he suspected few new banks would make commercial loans backed only by real estate — a common and costly problem in the boom years. And with the Federal Reserve Bank offering funds at rates approaching zero, new loans promise a good return.

"It is quite an opportunity to not have the pressures of your existing portfolio going bad," Matthew Wagner, 37, said.

Parkside is not your typical bank. No giant bank vault, just a hidden safe. No ATM or drive-through lanes. Bank tellers sit at desks, not counters. The bank does not dream of being the next Bank of America, although people can walk in and open an account cash advance online. Parkside is aimed at a niche: commercial banking for privately held companies, and wealth management for what is termed "the mid-tier millionaire," people with a net worth of $5 million to $50 million.

(When the Wagners and a partner left jobs at other banks to start a new bank, they decided on the name Providian Bank. Just a few months before opening day, they got a letter telling them the name Providian, a now-defunct bank, was still registered. In a rush, they held an internal name-that-bank contest. And Parkside was born.)

COMPLICATED PROCESS

Opening a new bank is not a simple process, even in the best of times. It can take months. Success is not guaranteed. State and federal regulators pick apart applications for bank charters and set strict requirements for FDIC backing on consumer deposits. Turicchi said he had recently heard of banks’ withdrawing applications because shareholders had backed out. That could help explain why so few banks are seeking new charters this year.

In Missouri, not a single new charter application is in the pipeline, state regulators said. In Illinois, three banks have pending charter applications — all in the Chicago area — and one new bank opened in April: Burr Ridge Bank and Trust, which lists former sports star Bo Jackson on its board, is situated in the Chicago suburbs.

Parkside was one of just two new banks in Missouri last year.

The other was Springfield First Community Bank — which managed to open at an even worse time than Parkside.

In just the one month between getting its charter and the bank’s first day of business late last October, the stock market crashed. The government had seized Fannie Mae and Freddie Mac. Lehman Brothers and Washington Mutual had vanished. AIG was teetering. The government had just set up TARP to infuse banks with cash.

And then Springfield First opened in two plain modular units where a motel once stood in Springfield.

"Our timing, as it turned out," said bank CEO Brian Straughan, "couldn’t have been much better for us."

All 22 employees at the start-up bank used to work at Signature Bank, a Springfield-based company that was bought by an out-of-state bank in 2006. Straughan said the desire to again work at a locally managed institution led to the establishment of the new bank.

Springfield First is full-service bank, offering the familiar mix of free checking, senior checking and commercial loans and lines of credit. It is expected to move into new offices in October. The bank now has $135 million in assets — and, with just nine months in business, no bad loans.

"We’re cooking right along," Straughan said.

It’s an assessment many established banks would love to share.

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Japanese core consumer prices fell a record 1.7 percent in the year to June with weakening household demand for goods playing an increasing part in pushing the nation deeper into deflation, raising some doubts about the Bank of Japan’s recovery forecast.

It was the fourth straight month of decline, matching a median market forecast and accelerating from a 1.1 percent drop in May in another sign the world’s No. 2 economy is stuck in the doldrums with rising job losses hurting spending.

Price falls are expected to moderate when the effect of sharp rises in energy costs last summer fade. But deflation may persist longer than the BOJ expects and threaten its forecast for a gradual economic recovery toward early next year, putting any exit from its ultra-easy monetary policy on hold, analysts say.

“It’s turning into a home-made deflation. Instead of falling energy costs, weakness in the economy is becoming the main culprit of price falls,” said Kyohei Morita, chief Japan economist at Barclays Capital.

“That kind of deflation tends to last for a very long time. Prices won’t start rising again until late 2011, which means an exit from the BOJ’s easy policy won’t come for another two years.”

Roughly 70 percent of the drop in the core consumer price index (CPI), which excludes food prices but includes energy costs, was due to falling energy prices, data showed on Friday.

But the so-called core-core CPI, which cuts out the sliding energy bill, fell 0.7 percent from a year earlier and the decline has gathered steam for four straight months, suggesting deflation may persist unless household demand picks up fast cash advance.

It was the biggest fall since December 2004 in this index, which is similar to underlying inflation indicators used in Europe and North America.

BOJ VIEW IN DOUBT

The BOJ is already forecasting two years of deflation, so price falls alone are unlikely to push it back into full-blown quantitative easing, which in Japan involved flooding the banking system with cash to meet a specific monetary target.

Many BOJ officials believe no further policy action is needed unless Japan risks slipping into a deflationary spiral, in which falling prices and a weak economy feed into each other.

The central bank believes the risk of this happening is small because the economy will likely pick up later this year with support from reviving global demand.

But uncertainty looms over that forecast. The unemployment rate hit a six-year high and job availability sank to a record low, suggesting consumers are unlikely to loosen their purse strings any time soon.

“Japan’s economy, despite some upbeat assessments from the government and the BOJ, is in a deflation cycle,” said Simon Wong, an economist at Standard Chartered Bank in Hong Kong.

“The current economy is operating way below capacity and that’s putting downward pressure on prices. The main challenge for the BOJ remains deflation.” 

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