SOURCE: BMO Harris Bank

March 04, 2014 07:45 ET

Bringing Home the Bacon: BMO Harris Bank Forecasts Brighter Outlook for U.S. Food and Beverage Manufacturers

CHICAGO, IL--(Marketwired - Mar 4, 2014) - Lower crop prices and accelerating consumer demand are brightening the outlook for the U.S. food and beverage manufacturing industry, according to a new report issued by BMO Harris Bank.

"Food and beverage manufacturers have faced some challenging headwinds over the past several years and are now better positioned for growth," said Erica Kuhlmann, Market Executive and Managing Director, Food, Consumer and Agribusiness Group, BMO Harris Bank. "Shifting consumer preferences, regulatory uncertainty, and productivity issues remain significant concerns. But overall, the future is positive."

"High and volatile crop prices have been the industry's biggest scourge over the past decade," said Aaron Goertzen, Economist, BMO Capital Markets. "With crop prices down 20% from a year ago -- and some crops such as corn down even more -- conditions are ripe for a healthy rebound in industry profitability."

While real consumer spending on food and beverage products has fueled only a gradual, stop-and-go recovery to date, demand growth strengthened meaningfully over the second half of 2013. Goertzen expects that demand will continue to receive support from stronger household balance sheets, rising consumer confidence, and reduced economic fragility in both the United States and globally. Furthermore, the industry's relatively solid balance sheet will help cushion the impact of an eventual rise in interest rates.

Some Challenges Remain

The outlook for the industry as a whole has brightened, but some segments in the food and beverage industry will continue to grapple with important challenges, including:

  • Elevated input costs - although industry-wide cost pressure has eased, some segments continue to wrestle with elevated costs. For example, drought conditions in California and dwindling hog and cattle herds nationwide are keeping upward pressure on fruit, nut and livestock prices.
  • Shifts in consumer preferences - an increasingly health-conscious consumer is creating opportunities for product innovation and growth, but is also posing a significant challenge for some segments.
  • Productivity growth - Food & Beverage labor productivity has essentially flat-lined since 2005, a particularly discouraging performance for an industry that has experienced substantial cost pressure over the same period.
  • Regulatory uncertainty - producers are coping with uncertainty surrounding ongoing trade negotiations and potential changes in food labeling requirements.

The full report can be accessed on the BMO Harris Bank Commercial Resource Center at https://resourcecenter.bmoharris.com/sites/default/files/U.S.%20F&B%20Update%202014-02.pdf.

For further commentary from Erica Kuhlmann on the report, go to:
https://resourcecenter.bmoharris.com/Insights/food/bmo-report-fb-outlook-mostly-strong.

About BMO Harris Bank
BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. BMO Harris Bank provides a broad range of personal banking products and solutions through more than 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona and Florida. For more information about BMO Harris Bank, go to the company fact sheet. Deposit and loan products and services provided by BMO Harris Bank N.A.

BMO Harris® and BMO Harris Bank® are trade names used by BMO Harris Bank N.A. Member FDIC. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,600 branches, and approximately CDN $537 billion in assets (as of Oct. 31, 2013).

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