A 17.3% gain the Grain-Based Foods Share Index would be an impressive result in any year, but such strength in the industry’s shares in 2012 was particularly remarkable, nearly to the point of being mystifying. Generally, in a stock market rally consumer staples may be expected to underperform the overall market as investors venture from the safer haven of industries like food.
The grain-based sector did not follow this pattern, besting the S.&P. 500, which was up 13% in 2012. What also may make this result somewhat surprising is that by many key measures, baking and other grain-based foods companies hardly had a banner year in 2012. Profit margins were under pressure as were sales volumes. Ingredient and other cost pressures were intense.
Major structural changes in wholesale baking create continued uncertainty about how the industry will take shape in the months and years ahead. So why the remarkable share strength? Because the stock market is a leading rather than a lagging economic indicator, the standout share price performance last year of baking and other grain-based companies should be viewed as a predictor of better times ahead. Last year’s stock market offers a very hopeful sign for the industry’s prospects going into 2013.