BMO Harris Bank Special Report: U.S. Food and Beverage Manufacturers Churning Out Record Earnings
OREANDA-NEWS. October 04, 2016. A string of nearly perfect crop seasons, lower crop prices and accelerating consumer demand have sent earnings skyward for the U.S. food and beverage manufacturing industry, according to a new report issued by BMO Harris Bank. According to the report, first-quarter industry earnings reached an all-time high of \\$54 billion. With another bulky-looking harvest around the corner, the industry looks set for an even stronger performance ahead.
"After recovering from a tough start to the decade, the industry is now gaining momentum to drive earnings forward," said Erica Kuhlmann, Market Executive and Managing Director, Food, Consumer and Agribusiness Group, BMO Harris Bank. "An expected rise in rates over the longer term, trade challenges due to the strength of the U.S. dollar, and a potential rebound in commodity prices may negatively affect operating performance. But overall, the future is positive."
"The 1.6 percent drop in food prices over the past year looks to be jumpstarting growth in real consumer food spending," said Aaron Goertzen, Senior Economist, BMO Capital Markets. "Stronger demand growth, coupled with today's generous margins, should push food and beverage industry earnings even further into uncharted territory."
The outlook over the next few years is also broadly encouraging. Although agricultural prices are expected to trend upward over time, they are unlikely to rebound in the near term as bulky crop stockpiles and large livestock herds should restrain market momentum.
On the demand front, a healthy labor market and sturdy household balance sheets are expected to propel real consumer spending by a respectable 2.7 percent in 2016 and 2.5 percent in 2017; should support real food demand as long as grocery prices remain in check. At present, interest payments consume just 1.4 percent of industry revenue; with low yields and spreads currently extending all the way across the term structure, producers have a valuable opportunity to lock in current low financing costs. The anticipated increase in interest rates will, however, maintain upward pressure on the U.S. dollar and perpetuate current trade challenges in some segments.
To learn more about our insights for the industry, visit our Food & Beverage Banking site at: https://commercial.bmoharris.com/industry-expertise/food/#resources
About BMO Harris Bank
BMO Harris Bank provides a broad range of personal banking products and solutions close to 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona and Florida. BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. For more information about BMO Harris Bank, go to the company fact sheet. Banking products and services are subject to bank and credit approval. BMO Harris Bank N.A. Member FDIC. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,500 branches, and CDN \\$692 billion in assets (as of July 31, 2016).