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Quick Hits: Pet Food Costs Big Bones

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Brief scrutiny of today's headlines

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Feeding Cujo is becoming more expensive, as commodity prices jump for manufacturers and retailers of pet food.

Pampering pets like humans has become a $41 billion business. However, the industry's success with organic cuisine, fancy collars and superfluous toys is no match for the escalating price of commodities and transportation.

Business Week reports a 30% increase in key pet food ingredients such as corn and rice. PetSmart (PETM), the nation's largest pet food chain, recently raised the retail price of Colgate's (CL) Hill's Science Diet dog food by $2 a bag.

High commodity costs are also forcing brands like Pedigree and Purina to cut back on quantity, while still selling at the original price. A representative at PetSmart said a bag of popular Purina Dog Chow shrank from 50 pounds to 44 pounds, but the retail price remained the same. Pedigree took a similar approach with its Complete Nutrition, slimming it from 44 pounds to 40 pounds.

Even though brand-loyal customers continue to help sales, pet food companies face the prospect of lower year-end profits.

Del Monte Foods (DLM), the manufacturer of Meow Mix, Milk-Bone and Kibbles 'n'
Bits, already raised food prices twice this year. Still, company earnings in pet products
fell nearly 10% to $77 million for the quarter.

Following this downward trend, PetSmart announced fourth quarter earnings slipped
$1.59 per share from $1.95 last year. The company says it will cut new stores by 20%.

When pet food costs more than gasoline our special friends will learn the true meaning of "dog-eat-dog."

No positions in stocks mentioned.

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