INSUBCONTINENT EXCLUSIVE:
As rice and wheat prices climb, the Bank of America (BofA) urges caution with shares of Camil (CAML3) and M
Dias Branco (MDIA3).The bank highlights several factors beyond mere cost increases that could impact profitability: consumer shifts to
alternative products, fiercer competition, and squeezed profit margins.Since mid-2023, rice prices in Brazil have soared by around 50%,
pushing the cost to over R$115 per sack
at just 10.5 million tons, a million less than usual.The situation worsened after severe flooding in Rio Grande do Sul, responsible for
Flood-damaged soil and lost equipment might restrict planting activities, keeping prices high for the next year.Despite these challenges,
Camil successfully raised its prices in response to the rising costs, marking a 25% increase in its high-turnover products.Yet, the recent
floods raise fresh concerns about the potential ongoing impact on crop yields and soil quality, suggesting continued high prices.Despite
R$ 8.30 to R$ 10 based on anticipated improvements in EBITDA due to the higher rice costs.Impact of Global Wheat PricesWheat prices,
meanwhile, have also surged by 20% in recent months, influenced by supply fears in Russia and Ukraine and pending exports from India.These
factors are expected to push wheat costs higher, affecting M
Dias into late 2024.BofA has adjusted its outlook for M
Dias, setting a lower price target after reducing its EBITDA forecasts due to these elevated costs.In conclusion, while the immediate
Dias Branco shows robust sales, the broader concerns about agricultural volatility and global supply chains suggest a cautious
valuations.This reinforces the interconnected nature of global trade and local business strategies.
