Corn Prices

[Restaurant man]

You can be confident that all of the producers have very sophisticated ways of mitigating the effects of price fluctuations.

[cowdery]

Bingo! I buy $30,000 worth of cornfed beef every week for the restaurant and my beef costs are already at all time highs. We can't raise prices anymore than we have so we will be getting creative to try and protect margins. There is more than one way to skin a mule

Mix in some horse?

[LostBottle]

What is this corn stuff you speak of? I though whiskey was made from rye!

[GaryT]

Mix in some horse?

[JayMonster]

I think the message of this thread is that it is wrong to assume that rising corn prices will mean rising bourbon prices...

You can be confident that all of the producers have very sophisticated ways of mitigating the effects of price fluctuations.

[Bourbon Boiler]

I saw an article today that many Indiana farmers are plowing over the corn crop now to use as feed, but if there are some late July or early August rains, they might plant a fall crop of winter wheat or rye. Oats was another possibility.

[JB64]

Thanks for all of the responses to my original questions. I had assumed that since corn is one of the primary components of bourbon that an increase in corn costs would cause an increase in the cost of the whiskey. Television shows I have watched on bourbon production show trucks lined up to drop their corn loads but have not shown the trucks delivering bottles or the spinning of the gas and electricity meters serving the production area. After reading all of the responses to this thread it makes sense that the corn price is a small percentage of the overall cost of the production. I don't know why I didn't come to that conclusion myself.

[tmckenzie]

For some reason, glass cost is rising faster than the price of corn.

[cowdery]

Just guessing, but I imagine glass prices are very sensitive to energy prices. I don't think the price of sand has gone up. Then again, natural gas prices are low right now, so it could just be a response to demand. That's the best time to raise prices, periods of high demand.

As for corn prices, what we've said is general and applies most to brand marketers. Corn prices affect Brown-Forman's or Beam's business much less than they do Heaven Hill's or Buffalo Trace's, because the former's business is based on efficient, high-volume production of a few strong brands, while the later is much more dependent on commodity-type products. The former's business is less price-competitive while the latter's is more. different business models are affected differently.

One thing I haven't followed but probably should is the co-products (aka by-products) business. Distillers, both for beverages and fuel, are producing more, which means more animal feed products based on spent grain. The energy cost of drying the grain tends to keep that price high, but with natural gas prices low, corn prices high, and distiller's spent grain plentiful, that business may improve.

Edited July 27, 2012 by cowdery

[GaryT]

David Driscoll just posted a piece on this topic, with a quote from BT setting the expectations to higher prices (I think based on our discussion - because people are talking about it and they CAN). Quick -destroy this thread!!! :shocked: Interested to hear what he comes back with in talking to some others.

http://spiritsjournal.klwines.com/klwinescom-spirits-blog/2012/8/1/how-will-the-midwest-drought-affect-bourbon.html

[MyOldKyDram]

Grrr...

Still though, I just can't see it being any kind of substantial increase. Waiting, seeing.

[MyOldKyDram]

And a follow up...

http://spiritsjournal.klwines.com/klwinescom-spirits-blog/2012/8/2/more-on-the-midwest-corn-shortage.html

[OscarV]

After reading that article my question is, high corn prices aside will the distilleries get all the corn they want and not cut back on production?

Let's hope so because the world wide demand for bourbon goes up every year.

[GaryT]

After reading that article my question is, high corn prices aside will the distilleries get all the corn they want and not cut back on production?

Let's hope so because the world wide demand for bourbon goes up every year.

And if not, diminished production will impact the prices way more than the price of corn. Fingers crossed!!

[cowdery]

Rutledge's point bears repeating. Higher prices aren't really the concern. Availability and quality are the concern. Bourbon makers use so much corn, their on-site storage holds, at most, a one or two day supply. If they don't get deliveries every day, they're shut down. Happily for us, producers won't hesitate to pay however much they have to pay to get what they need (#2 dent) when they need it. But what we don't know is how bad the drought is ultimately going to be and how long it's going to last.

[CoMobourbon]

Totally agree with the two previous posts. Diminished production and availability will affect supply and scarcity dynamics, which could have a serious impact on prices. Higher corn costs will be peanuts compared to the impact of having less bottles to sell. If production goes down, they will want the same total profit from the lower number of bottles, so they will want to sell the same whiskeys for more money. As long as demand remains high - and, for the foreseeable future, it will - they can and will do this to compensate for lower production.

Now, is the drought bad enough that it really will systemically impact production / availability for the bigger boys (even Four Roses, Heaven Hill, or BT, not to mention Beam?) That's hard for me to believe, but who knows / we'll see.

[sutton]

Have distillers ever sourced grain from the southern hemisphere to produce at some level during the winter months? Or are the large producers already doing this?

[OscarV]

That's a good question.

[sutton]

That's a good question.

Just wondering - I think Argentina is a net exporter of grains - and I think they grow all four (corn, wheat, barley, rye).

[JB64]

Is corn just corn or is there some specific variety the bourbon producers require?

[tmckenzie]

Just number 2 dent corn. Preferably with a high bushel weight. We use some that is close to 60 pounds to a bushel. That mean high starch content. I would imagine they could bring corn in from another country, I think four roses and wild turkey bring in rye from Germany already. Thing is, there is terroir in corn, if you will. This I think is due to how long it takes it to make a crop. In the south and misdwest you have what is reffered to 100 day corn and even some 110 days corn. Here in Ny, we get all 90 day corn. This year we could have had 110 day corn easy though. (0 day corn does not tastes the same in my book. Took a while to find the right farmer. In talking with Steve Nally in Wyoming, that was a challenge for him too. So it could be a problem for the big boys too. But, I am sure in the southern hemisphere there are place to get corn close to what they normally use. We got some polish rye seed from out in Kansas last year to plant here. The supplier called the other day to see how the crop turned out. The rye crop where they are and a lot of other places out there where a lot of rye is grow, was wiped out too. So rye could be an issue. I am hearing 12 dollar a bushel corn and malt is already going up, and I hear will go higher.

[BFerguson]

I am hearing 12 dollar a bushel corn and malt is already going up, and I hear will go higher.

[tmckenzie]

8 bucks right now. The farmer we deal with is fairly certain it will go that high. Most corn around here is looking better with recent rain, but it is way behind.

[cowdery]

American producers sometimes get rye from Canada. There would be no reason they couldn't use grain from other countries, it's just never been necessary. Remember that distillers mostly get their corn from Kentucky and adjacent states so if they have to go further, they can go to Iowa, Nebraska, Kansas, Missouri, etc., before they have to consider Argentina. Corn is a heavy, bulky commodity, so shipping costs can kill you. You don't go any further away than you absolutely have to and there can be a substantial offset between shipping costs and the grain cost itself, i.e., you'll gladly pay more for corn from Iowa than pay a much lower price for Argentine corn.

It bears repeating that whiskey makers are near the top of the food chain. That's because they can and will pay higher prices, and can't use substitutes. Feed lots, for example, have other options, including spent mash from distilleries. I predict this crisis will be like the drought that plagued Jack Daniel's and George Dickel for so long. It will get very close to affecting production without actually doing so. (That affected water availability, not corn.)

The real problems will come if something like this is repeated next year, and the year after that, and the year after that.

[tmckenzie]

You arer more than likely right. They also deal with farmers on a long time basis, so they will look out for them. I know our farmer keeps us a steady supply as he knows we will pay top dollar for good corn. On another note, I talked to an organoc farmer and corn is that high without the drought. Just cannot justify organic. Mostly hype, and lower yeild.