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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Casaubon who wrote (42418)	3/6/2000 9:53:00 PM
From: Terry Whitman	Read Replies (1) \| Respond to of 99985

I'm no MBA- but the reason a companies profits should go up as the price of their commodity goes up is profit margin. The company will make say a 5% margin irregardless of the price of the raw material. 5% of 150 is 50% more than 5% of 100. Lots of other factors are involved of course- like labor expenses, taxes, etc. IMO, the reason the basic materials stocks are not following their underlying commodities is two fold. Unpopularity, and expectations for a slowing economy (i.e. recession). BWDIK, TW

To: Casaubon who wrote (42418)	3/6/2000 9:58:00 PM
From: Joan Osland Graffius	Read Replies (1) \| Respond to of 99985

Casaubon, >>why would one expect a stock to go up if the raw materials for their product was increasing? If you think the next shipment of oil to MacDonalds is going to be cheaper..guess again. These companies will raise the cost of their product to include both the increase in the commodity price and the increase in "energy" cost to produce the product. They will also increase the price to include higher cost of capital. They will do the same thing the oil companies are doing at the pump..go for the gusto. Also note both ADM and Cargill are cutting back on bean crushing, to decrease supply. This will give them an opportunity to increase prices even further. There are no inventories of these commodities, which will produce a price shock if there is a supply problem. Another interesting factor is the ground moisture in the grain, corn and bean belt is not friendly for planting. Unless things change in the Pacific we will have a dry growing season. This of course needs to be watched closely. Joan