Editor’s Note: Money Morning’s Jennifer Yousfi has been talking a lot about the impact of rising corn prices on US food producers. With input costs of animal feed spiraling out of control, many producers are struggling to keep their heads above water. For investors, says Jennifer, this means no “slam-dunk” profit play. But Jennifer says she’s found three companies that she thinks offer good bargains…

Cashing in on Commodities: Three Ways to Profit From Record Meat and Dairy Prices

By Jennifer Yousfi

Last week, Tyson Foods Inc. (TSN) announced it would sell its Canadian plant to XL Foods Inc. for $105 million, pending regulatory approval. Canadian livestock farmers were sad to see the American firm go.

“It’s very disappointing to see Tyson leaving Canada,” Rick Paskal, a feedlot owner in southern Alberta, told Reuters.

“We had three bidders for our cattle. Today we’re down to two. That’s a pretty black day, as far as I’m concerned,” Paskal said, referring to the only two major beef packers left after Tyson’s planned exit.

While the move may be bad news for Canada’s beef farmers, it’s quite the opposite for investors: This shift is part of a “back-to-basics” refocusing strategy for Tyson, which made its name in the poultry market.

“Without hesitation, we believe the sale … is a positive, as the Canadian beef business not only has been a material drag … but likely would have continued to generate losses for the foreseeable future,” wrote BMO’s Kenneth Zaslow in a note to clients after the sale was announced.

And while it continues to struggle to make money with its domestic chicken business, Tyson is looking to capitalize on powerful global trends — one being the so-called ‘BRIC’ economies of Brazil, Russia, China and India.

Its BRIC market of choice: India.

Just this week, Tyson announced it had acquired a 51% stake in India’s Godrej Foods Ltd., which sells retail fresh chicken, chicken nuggets and patties, MarketWatch.com reported. It is a subsidiary of Godrej Agrovet Ltd., an agri-biotech company that has yearly sales of about $250 million.

Tyson, one of the largest U.S.-based producers of poultry products, says the joint venture will be situated in facilities in such key India cities as Mumbai and Bangalore, and will generate $50 million in annual sales. The U.S. company will use its production methods to help Godrej improve and expand production, build newer facilities to expand the duo’s reach, and to develop new kinds of products.

“We believe the timing is right for us to bring our expertise and resources to this emerging market,” Rick Greubel, international president at Tyson, said in a statement.

Once largely a backyard enterprise, poultry is now one of India’s fastest-growing agriculture-related markets. India is the world’s sixth-largest poultry producer and is watching as chicken consumption advanced at an average annual pace of 11.3% between 1990 and 2000. Now India’s consumers are shifting their tastes – from only eating fresh chicken, to embracing frozen poultry products.

Tyson’s shares have plenty of room to rebound: At yesterday’s closing price of $14.31 each, they’re down 40% from their 12-month high.

General Mills Inc. (GIS) is another of the food-manufacturing firms to be hard hit by the soaring cost of raw ingredients. For its fiscal fourth quarter ended May 25, a 12.9% increase in sales wasn’t enough to offset the bottom-line damage brought on by rising commodity costs.

Net income declined 17.4% to $185.2 million, or 53 cents per share, down from $224.1 million, or 62 cents per share, for the same period a year prior, Forbes reported.

But investors who strike here may be buying into a high-quality company whose fortunes are about to turn: General Mills is one of those rare companies that appears to be passing its increased costs along to its customers by raising prices – but without taking a big sales hit.

Remarkably, the company may actually be boosting its overall sales via this initiative.

“General Mills is justifying the premium it has to charge to make it through rising input product cost… and seeing higher sales volumes even as it is raising prices,” analyst Matt Arnold of Edward Jones analyst Matt Arnold told Forbes.

It’s the kind of company we like here at Money Morning: It has a terrific brand name, offering such products as Pillsbury breakfast pastries and baked goods, Green Giant canned vegetables, General Mills cereals, and Yoplait yogurt.

Chief Executive Officer Ken Powell spent 20% more on U.S. marketing, spurring higher sales during the most recent quarter – one of the five keys to picking a bear market stock. And it just announced a 10% increase in its dividend payout – a second of those five bear-market investing secrets [Check out our related story on bear-market investing by Investment Director Keith Fitz-Gerald in this issue of Money Morning].

Dean Foods Co. (DF) is another firm that has felt the harsh sting of high commodity prices, but the Dallas-based firm has also slashed costs at the same time it increased prices — and boosted its profit outlook.

We also like Dean because it’s carving out a solid niche in the organic food portion of the food market – a niche that’s gaining popularity as a graying U.S. population becomes more concerned about what it eats. Organic products command a market premium, making it easier to raise prices in an inflationary environment.

Source: Cashing in on Commodities: Three Ways to Profit From Record Meat and Dairy Prices