When Food Prices Are Falling You Want to Be in the Middle, Man

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NEW YORK (TheStreet) -- In any time of deflation it’s a company that can absorb cost decreases and maintain prices that comes out on top.

In other words, middlemen, distributors and processors of raw materials.

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This turns out to be as true in the food business as in any other. I noted Thursday that stock in grain processor Archer Daniels Midland , for instance, has been on a tear since the trend in grain prices turned down this spring. Don’t like ADM? Then consider Ingredion , formerly called Corn Products International. The stock is up 14% this year and still carries a 2.15% yield.

Since neither ADM nor INGR farm, they are not hurt by falling commodity prices. They also don’t sell at retail, enabling them to retain some pricing power and limit marketing costs. If ADM and INGR were in the oil patch they would be refiners. If they were in cars they’d be parts companies. If they were in technology they would be chip companies.  

In a deflationary time the middle is the sweet spot. Jim Cramer, for instance, has been pounding the table for companies in the natural foods business, where a reputation for quality can overcome pricing pressure. But that’s not working in the retail end, where Whole Foods Market is down by one-third so far this year, or in branded items, where Annie’s is down 31%. It’s only where you’re a supplier of an essential ingredient that you seem able to maintain pricing power this year.

SunOpta , for instance, might be seen as a mini-organic ADM, producing “milk” from soy, almonds and rice, as well as snacks, nuts, nutrition bars and more. Its market cap is under $900 million but the stock, at around $13.50, is up 35% so far this year.

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Here are some of the food industry’s other winners in 2014:

Sysco is a major distributor to food service, including hotels, hospitals, schools and restaurants. The stock beat estimates on its most recent earnings release, with earnings of 50 cents per share and sales of $12.287 billion. The shares, at $37.45, are only up around 4% for the year but have been on a tear this month as the fall in grains has become more obvious.