Looking around the globe, we see strong opportunities for U.S. exports of pork and wheat. Specifically, (1) widening hog spreads between the U.S. and China, (2) the foot-and-mouth outbreak in S. Korea, (3) the German dioxin issue, and (4) potential resolution of the trucking issue with Mexico should lead to continued strong U.S. pork exports. In our view, these developments are most positive for Smithfield. In pork, to the extent the entire benefit does not accrue to the hog farmer and pork processing margins are maintained, Hormel and Tyson will also benefit. However, value-added refrigerated/prepared foods margins will be more challenged. On the wheat side, continued reductions in the Australian wheat crop and a shift in quality toward feed wheat are reducing an already-tight supply of milling-quality wheat globally. The U.S. is quickly becoming the best source on milling quality wheat as Europe's supplies are depleted. In our view, this is a positive for Archer Daniels Midland, with milling wheat likely in storage. Bunge may also be aided by the emergence of new trade patterns.

Restaurants: commodity prices still riding high - where are the key risks?
Many key commodity costs continue to remain at elevated levels as we have moved into the new year. (Although soft chicken markets are helping mitigate inflationary pressures.) Most restaurant companies have now given their initial commodity outlook for 2011 with the consensus being commodity inflation in the range of 2-3%. This level of inflation should be manageable, assuming companies can take some pricing and assuming companies are not being overly optimistic about unhedged items (see SBUX). In this report, we've provided detailed commodity pricing trends, as well as company-specific exposures and outlooks for all major restaurant chains. However, parsing through this data to determine which companies have the most worrisome commodity exposure is not easy. To summarize, among our coverage, the companies with the most significant commodity risk include DRI, CMG and WEN.

Eoin Treacy's view Food prices continue to make headlines so it is natural to think about the impact higher input prices may be having on restaurants and food processers. How much hedging they have engaged in and their ability to pass on costs to their customers will remain key to their earnings outlook and the market's perceptions.

McDonalds is a dividend aristocrat and remains in a relatively consistent uptrend. It has now unwound its overbought condition relative to the 200-day MA in what has been an equal sized reaction. However, an upward dynamic in the current region will be required to indicate a return to demand dominance. Yum Brands, Hormel Foods, Texas Roadhouse, Panera Bread and Chipote Mexican Grill all share a relatively similar pattern.

Food Processors offer more direct leverage to higher food prices. Archer-Daniels-Midland hit a new two-year high last week and a sustained move below $30 would be required to question medium-term upside potential. Bunge Ltd has a relatively similar pattern.

Corn Products International (ingredients) has rallied to test the 2008 peak and the psychological $50. It is somewhat overextended relative to the 200-day MA but a sustained move below $40 would be required to question the consistency of the medium-term uptrend.

Smithfield Foods has been consolidating in the region of the April high for the last few months but firmed again last week and a sustained move below $19 would be required to question potential for a successful upward break.