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Thread: Corn Prices

  1. #1
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    Corn Prices

    I have read a few articles lately regarding how the drought has caused the price of corn to raise to record highs. I know what bourbons I like to drink but I don't know much about the business side of making whiskey. How will the higher cost of the corn affect the bourbon distillers? Do the distillers have contracts with grain suppliers with fixed prices so they won't feel the impact of the price increases during the contract period? If not will the cost of the bourbon be higher when the whiskey produced this year is bottled or will the cost be passed on to the current bottlings. I am assuming the cost of corn is going up because the harvested amount will be lower than normal. Will this mean that bourbon production will decrease this year due to lack of corn availability? I am still seeing good deals on bourbon in the stores in my locale so as of yet the corn prices don't seem to be affecting the cost of bourbon.
    Jim

  2. #2

    Re: Corn Prices

    I don't know about the big boys. My guess, like you mentioned, is that they have a contract for a limited amount of time. But the higher prices are certainly affecting us. We take all of the grain our farmer grows. We buy it at market price. As much as he loves us, it wouldn't make sense, or be fair, for him to sell it to us for a whole lot less (we get a small price break) than he could get on the market.

  3. #3
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    Re: Corn Prices

    My dad and I were discussing this as well. What impact it has on the prices of the end product (since the cost paid today for the corn is for the whiskey sold years from now) may be tricky. They might start raising prices now or soon on their finished products, which might make more sense in terms of consumers understanding the price increase, versus trying to increase the prices years from now and hoping consumers recall why. I'm not as familiar as I'd like to be on the business model, so not sure what all options they have. The demand side could also drive prices (if people THINK their favorites are about to shoot up in price and demand surges, that would start to drive up prices right now as well). I've thought about whether I need to try to grab some of my favorites at today's prices, although lack of room is a factor there as well!
    Gary
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  4. #4
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    Re: Corn Prices

    They may price like the auto gasoline industry....price is based on replacement cost.

  5. #5
    Trippah and Admin
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    Re: Corn Prices

    The time from grain to bottle for the majors is so long that any immediate cost increases would be seen as gouging.

    With millions of barrels aging, one bad corn year shouldn't harm the pipeline.
    My name is Joel Goodson. I deal in human fulfillment.
    I grossed over eight thousand dollars in one night. Time of your life, huh kid?

  6. #6

    Re: Corn Prices

    Bottling, distribution/marketing, aging (barrels+warehouses), personnel and equipment, markup, and tax costs help keep the actual cost of the corn in a bottle a fairly low proportion of what you pay.

  7. #7
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    Re: Corn Prices

    Remember (this was a hot button topic some time ago), many distillers price based on a LIFO (Last In First Out) accounting model. So, what they base their "cost" on, for what they are selling now is based on what it is costing them to "replace" the stock. So, yes, it could affect pricing NOW and not 4 years (or more) from now.

  8. #8
    Guru
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    Re: Corn Prices

    Corn futures are 52% up from mid June.
    The last time I saw corn look so bad out in the feilds was the drought of 1988.
    MI, OH, IN & KY are the hardest hit with this drought, followed by IL and other mid-western states.
    Everything has corn syrup in it much to the dismay of people that want to eat healthy.
    Maybe this would be a good time to kick the corn syrup habit and cut down on diabetes.
    It's at record levels now.
    ovh

  9. #9
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    Re: Corn Prices

    Corn prices are pretty much irrelevant to the cost of goods equation for distillers. Especially when we're talking about the older, pricier bottles that you folks prefer. The glass bottle is more of a cost than the corn for many whiskey distillers.

  10. #10
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    Re: Corn Prices

    Quote Originally Posted by Leopold View Post
    Corn prices are pretty much irrelevant to the cost of goods equation for distillers. Especially when we're talking about the older, pricier bottles that you folks prefer. The glass bottle is more of a cost than the corn for many whiskey distillers.
    That's what I would have guessed. Basic raw materials often account for a tiny fraction of what 1st world consumers pay for a product, especially when that product has some kind of luxury value / function. Increased food commodity prices kill people in 3rd world countries who are pretty much only paying for the commodity, but when Americans buy food, we are mostly paying for packaging and marketing and convenience and other indirect services. So the price is (or at least should be) only marginally affected at most. This is why, for example, the cost of a box of Kellogs Frosted Flakes doesn't really go up when, as Oscar noted, corn futures go up 52%.

    Not that there aren't huge differences between making-selling Frosted Flakes and making-selling bourbon. But the same principle applies; when the basic raw material cost represents an almost negligible fraction of the final sticker price of the product, it takes truly huge increases in the cost of that material to affect the sticker price.
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