Packaged Foods and Cheaper Goods Flourish as Rural Communities Face Downturn

Companies in the rural stock index, the Daily Yonder 40, rose last week with the rest of the market. The best performers produced inexpensive goods.

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The 40 stocks picked to represent the rural economy turned slightly upward over the last two weeks — before plummeting Monday morning — but weakness in retail sales and energy pulled the Yonder 40 even with the other major stock indexes. The Yonder 40 had been leading both the Dow Industrials and the Standard & Poor's 500 for most of the year.

The 40 was up 2% since we last checked in on the rural stock index on November 14; the Dow was up nearly 4% since that date and the S&P rose 2.6%.

But the sectors that were doing well in the rural economy earlier in the year are struggling today. Andersons, Inc., an ethanol producer dropped nearly 30% over the last two weeks as gasoline prices dropped and biofuel firms nationwide struggled.

Coal mining firms were down for largely the same reason — falling prices for energy. Walter Industries dropped nearly 24% over the last two weeks and Peabody Energy fell 13.5% in the last two weeks. Peabody notified employees at three mines in Wyoming that the company was freezing new hires and will defer or cancel many new capital projects. The company's CEO, Greg Boyce, told employees that Peabody's "definition of near-term success may be different now than it was in recent years or will be again."

Lee Enterprises, the owner of rural newspapers, continued a price plunge, losing more than 26% as the markets in general rose.

The food business was mixed. Tyson Foods rose nearly 37%. Tyson processes chicken and the chicken business has been troubled recently, as higher feed prices and low meat prices have cut margins. Pilgrim's Pride Corp. was near bankruptcy, but came to an agreement with its lenders to extend its credit lines until this week. That announcement pushed up Pilgrim's stock prices. Tyson announced earlier this month that it was increasing its chicken volume by six percent. Meanwhile, the U.S. Department of Agriculture announced that it intended to buy chicken for its food assistance programs, such as school lunches, nutrition programs for the elderly and food distribution on Indian reservations.

(UPDATE: Pilgrim's Pride sought bankruptcy protection Monday. The company blamed rising feed costs and dropping chicken prices for its financial troubles.)

Hormel was essentially unchanged over the past two weeks. The producer of Spam and Dinty Moore stew announced its profits dropped a third in the last quarter, due primarily to investment losses. Revenues were up 12% as people were shopping for more inexpensive foods.

Ralcorp, meanwhile, announced that its fiscal fourth quarter net revenue more than tripled, a result of its acquisition of Post Foods. This was better than analysts' predictions. Revenues of all packaged food producers were up as people were eating at restaurants less and at home more.

Dairy cows that produce organic milk will be spending at least half their time on pasture, according to draft rules released by the U.S. Department of Agriculture. The rules were meant to close a loophole in regulations that allowed producers to keep cows on feedlots and sell their milk as organic even if they rarely grazed on fresh grass.

The issue has been roiling for years, after it was discovered that some large organic dairy farms, primarily in the west, were feeding their stock organic grains but keeping the animals in feed lots. Some in the organic industry and nearly all consumers wanted the rules changed to require dairy cows to spend at least half the year on pasture and to get at least 30% of their dry matter intake from grazing during the growing season.

The USDA got more than 80,500 comments on this issue. Only 28 of these comments were against changing the regulations. Dean Foods, the nation's largest milk producer and a DY 40 member, agreed with the new USDA rulings. Dean Foods owns Horizon, the organic milk brand. Dean was unchanged over the last two weeks.

Finally, higher end rural retailers continued to struggle. Stage Stores reported a loss in the third quarter and said it expected sales to be weaker than expected the rest of the year. Same store sales were down 10%. Stage said sales were hurt in part by this season's hurricanes. Cato Corp. reported that same store sales were down 2% for the quarter.

Lower price outlets — Wal Mart and Family Dollar, both members of the DY 40 — continued to flourish. Wal-Mart was up 6% and Family Dollar rose 4%.

A drop in grain prices and higher planting costs will diminish sales at Deere. Fourth quarter equipment sales were below projections and the company said it expected sales in 2009 to be no better than '08. The farm equipment maker said it will raise prices on its goods next year.

Here are the results for the entire Yonder 40 for the two week period between November 14 and 28, 2008.

Yonder 40 Ticker Price November 28 Price Change 11/14 to 11/28 Percent Change 11/14 to 11/28
Alico Inc. ALCO $34.34 $2.35 7.3%
Andersons Inc. ANDE $12.66 -$4.92 -28.0%
Burlington Northern Santa Fe Corp. BNI $76.61 -$3.02 -3.8%
Berkshire Hathaway BRKB $3,499.00 $110.00 3.2%
Bassett Furniture BSET $4.25 $0.40 10.4%
Peabody Energy Corp. BTU $23.43 -$3.64 -13.4%
Cabela's Inc. CAB $6.25 -$0.17 -2.6%
ConAgra Foods Inc. CAG $14.75 -$0.43 -2.8%
Cato Corp. Cl A CTR $13.96 $1.13 8.8%
Deere & Co. DE $34.81 $1.02 3.0%
Dean Foods Co. DF $14.56 $0.01 0.1%
DIRECTV Group DTV $22.01 $1.37 6.6%
Family Dollar Stores Inc. FDO $27.78 $1.11 4.2%
Fleetwood Enterprises Inc. FLE $0.15 $0.00 0.0%
FairPoint Communications FRP $3.50 $0.84 31.6%
Frontier Communications FTR $8.72 $0.23 2.7%
Gaylord Entertainment Co. GET $9.19 $1.05 12.9%
Hormel Foods HRL $26.56 -$0.20 -0.7%
International Speedway Corp. ISCA $25.95 -$0.29 -1.1%
Lee Enterprises LEE $1.04 -$0.37 -26.2%
Mohawk Industries Inc. MHK $30.74 -$1.53 -4.7%
Monsanto Co. MON $79.20 $5.10 6.9%
Mine Safety Appliances Co. MSA $24.45 $0.94 4.0%
Southwest Bancorp OKSB $14.29 $0.25 1.8%
Plum Creek Timber REIT PCL $35.59 $1.71 5.0%
Penn Virginia Corp. PVA $30.03 -$1.18 -3.8%
Ralcorp Holdings RAH $62.56 -$2.66 -4.1%
Regions Financial Corp. RF $10.19 $0.52 5.4%
Sturm Ruger & Co. RGR $5.91 $0.07 1.2%
Smithfield Foods SFD $6.81 -$0.12 -1.7%
Skywest Inc. SKYW $15.20 $2.33 18.1%
Southern Co. SO $36.32 $1.11 3.2%
Stage Stores Inc. SSI $5.78 $0.47 8.9%
Tractor Supply Co. TSCO $38.38 $3.90 11.3%
Tyson Foods TSN $6.71 $1.81 36.9%
UST Inc. UST $68.75 $0.01 0.0%
Waddell & Reed Financial Inc. WDR $13.44 $2.23 19.9%
Walter Industries WLT $18.24 -$5.69 -23.8%
Wal-Mart Stores WMT $55.88 $3.17 6.0%
Cimarex Energy XEC $28.37 $0.62 2.2%

 

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