[NYTr] Booming Economy: Soaring wheat prices

[All the News That Doesn't Fit]

Financial Times - Sep 5, 2007
http://www.ft.com/cms/s/0/31520cf8-5b84-11dc-bc97-0000779fd2ac.html

Soaring wheat price hits Tate & Lyle

By Neil Hume

Tate & Lyle was among the biggest fallers as the London market’s recent
strong run on Wednesday came to a shuddering halt.

Shares in the sweeteners company dropped 4.5 per cent to 536½p as hedge
funds shorted the stock because of its exposure to wheat prices.

Wheat futures hit a record high on Wednesday amid concerns that
harvests in Australia and Argentina could by affected by recent dry
weather. Tate is exposed to rising wheat prices through its cereal
sweeteners and starches businesses.

But analysts said less than 10 per cent of group profits were exposed
to rising wheat prices and in that context Wednesday’s fall seemed
overdone. However, with Tate due to issue a trading update in the next
month traders said buyers were steering clear for the time being.

In the wider market, leading shares fell sharply after weak US
employment and housing data triggered a wave of profit taking.

The FTSE 100 closed down 106.1 points, or 1.7 per cent, at 6,270.7. The
FTSE 250 dropped 210.1 points or 1.8 per cent, to 11,300.7.

But once again volumes remained below average with just 2.5bn shares
changing hands.

Northern Rock led the FTSE 100 lower. Shares in the mortgage lender
fell 5.3 per cent to 693p as funding concerns persisted. On Wednesday
the three-month sterling London inter-bank offered rate (Libor) was
fixed at a fresh 8½-year high of 6.8 per cent. Northern Rock funds most
of its operations from the money markets and is sensitive to any
movement in Libor rates.

Also weighing on Northern Rock was a downgrade by Lehman Brothers. “We
see little fundamental support for the shares without the prospect of a
reopening of asset-backed wholesale funding markets,” it said.

Lehman also cut its rating on Bradford & Bingley, the specialist
mortgage lender, for similar reasons. Its shares closed 5.6 per cent
lower at 361¼p.

Elsewhere in the sector, Alliance & Leicester dipped 4.4 per cent to
£10.11, while Royal Bank of Scotland eased 2.8 per cent to 567p.

Rolls-Royce Group, the aero engine maker, was marked 2.5 per cent lower
at 497½p after Boeing said the first test flight of its new 787
Dreamliner would be three months later than originally planned. Rolls
is the main engine supplier to the 787.

On a brighter note, mining stocks managed to avoid the worst of
Wednesday’s selling. Vedanta Resources, up 3.1 per cent to £18.47, and
Lonmin, 0.4 per cent stronger at £32.27, managed to close higher.

Both stocks were supported by a bullish note from Merrill Lynch in
which it upgraded its long-term price forecasts for aluminium, copper,
nickel, zinc, lead and coal. Merrill also added Vedanta to its “Europe
1” list of recommended stocks.

BHP Billiton underperformed its peers, falling 2.1 per cent to £14.17
amid continued talk that it was plotting a major acquisition.

The rumour on Tuesday was that BHP and Brazil’s CVRD had joined forces
to work on a break-up bid for Rio Tinto, which is in the process of
acquiring Alcan, the Canadian aluminium producer. Rio shares eased 0.1
per cent to $35.25.

However, some traders were sceptical, arguing that BHP would face
competition issues in iron ore if it tried to buy Rio.

Rio is currently the second-largest iron ore producer behind CVRD. BHP
is the third-largest.

However, not everyone agreed with that view, citing a research report
issued by Citigroup in June. This argued that BHP could sell minority
interests in its ore interests as one way to appease regulators.

Traders also noted that Marius Kloppers, who becomes BHP’s new chief
executive next month, told an Australian newspaper on Wednesday that he
might spend $80bn on expansion over the next decade.

International Personal Finance was the standout feature in the FTSE
250. Its shares rose 5.7 per cent to 224p after Merrill Lynch added the
doorstep lender focused on eastern Europe to one of its recommended
lists.

“We believe that IPF has significant growth opportunities and offers a
positive risk/reward profile,” the broker said, adding that IPF had no
subprime exposure and was able to pass increased borrowing costs onto
its customers.

Copyright The Financial Times Limited 2007