Danish drought probably threatens Carlsberg holders

The Danish Agriculture and Food Council (Landbrug & Fødevarer) has warned that the worst drought in a century threatens to halve the harvest of grains in the country, with overall drought-related losses to local farmers estimated at close to DKK6.5bn (€871m), something that could flow through to investors with portfolios containing Danish companies such as Carlsberg that are heavily exposed to commodity-related risks.

Carlsberg ‘B’ shares constitute the fourth biggest constituent by weighting on the Copenhagen OMX 20 index of most traded local stocks.

In the Carlsberg Group annual report for 2017, it identified “commodity & foreign exchange impact” as among the four biggest risks facing the business in 2018, alongside industry consolidation, partnerships and political & economic instability.

“Increasing commodity prices negatively affect the prices of raw materials and other inputs, thereby affecting the competitiveness of the business and the delivery of results,” the report stated, further detailing three key raw and packaging material risks: aluminium (cans), barley (malt) and energy.

Substitution of barley from other parts of Europe will be difficult as the drought effect is also being reported across the region – for example, it has been reported that governments in Germany, Sweden, Finland, Lithuania and Denmark have been considering aid packages to help stricken farmers. DRV, the German farmers cooperative, has announced that the country’s harvest will be the lowest in a quarter of a century. Global wheat futures have continued to climb. In the UK, government figures suggest that there has been a 12% rise in the proportion of wheat and barley used to make compound animal feed compared to the previous year, as livestock farmers struggle to supplement the poor nutritional value eked out of drought-stricken grazing land, suggesting the proportion of wheat and barley left for other uses has fallen.

According to the International Grains Council’s Grains and Oilseeds Index Barley sub-index, the 52-week low of 181 has shot up to a 52-week high of 252 as of 8 August 2018 – a 37% rise. The GCI also predicts falling barley stocks in the EU by the 2018/19 period, as compared to the 2017/18 period, to reach their lowest levels in six years.

Funds potentially affected by the performance of Carlsberg include the Invesco European Growth Equity, the Continental European, Horizon European Growth, Horizon Pan European Alpha from Janus Henderson, the Metropole Frontiere Europe, Danske Denmark Focus and Skagen Vekst, with exposure ranging from a couple of percentage points to near 5%, according to FE data.

Other funds will be more broadly affected by the cereals challenge, such as the DJE Agrar & Ernahrung, which was over 40% exposed to food producers as of the end of July, FE data suggests.

Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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