On Wednesday and Thursday, the dry hot summer across the Midwest may begin to show up in the food chain. All those rainless July afternoons with the cornstalks wilting in the Illinois sun drove corn up to its highest price in more than a generation. But there’s more between the farm and your grocery bill.
Food giants General Mills and ConAgra are scheduled to report quarterly earnings in the new week. They each have their unique strategies of dealing with the cost of commodities. But from cereal to sweeteners to frozen dinners, corn is king. It’s estimated to be in three-quarters of food directly or indirectly.
ConAgra has been reshaping it’s business to concentrate on packaged consumer food. It has been successful raising prices fast enough to head off any potential pinch to profits from higher commodity prices. In the spring the company celebrated a 6 percent jump in inflation (the cost of ingredients to make products like Chef Boyardee pasta and Orville Redenbacher popcorn). After all, that was better than the double-digit increases it had experienced months earlier.
General Mills has been steadfast in its inflation outlook, expecting costs to rise only 2 to 3 percent. A year ago General Mills was wrestling with a 10 percent jump in costs to make its cereals and soups. One reason for the drop is the company hedges. And corn alone makes up only about a 10th of the commodities it uses.
It’s a long path from the field to our cupboards, and how these companies deal with costs and competition can be as important as the cost of corn.
Tom Hudson is anchor and managing editor of Nightly Business Report produced by NBR Worldwide and distributed nationally by American Public Television. In South Florida, the show is broadcast at 7 p.m. weekdays on Channel 2. Follow him on Twitter, @HudsonNBR.