Rising Corn Prices Impacting Industry

Will Likely Lead To Higher Costs Across Several Categories Of Promo Products

DroughtThe worst Midwest U.S. drought in 50 years has already sharply increased the price of agricultural commodities – especially corn – and will likely lead to higher costs across several categories of promotional products, suppliers say. Because corn and its byproducts are commonly used in everything from candy to cosmetics to cups, the effects will go far beyond food items.

"The increase in corn prices will affect many U.S. manufacturers," says Brett Hersh, president of Admints & Zagabor (asi/31516). "Specifically for us, it will increase the ethanol cost which is a component in our alcohol-based USA-made hand sanitizer. We are bulking up on inventory now with the hopes that by the end of the second quarter of 2013 prices will decrease and stabilize."

The price of corn has risen about 60% since June 15 and corn futures have reached a record high of $8.49 per bushel. As recently as this spring, U.S. farmers expected a large 2012 harvest after they planted the most corn in 75 years. But, last week, the U.S. Department of Agriculture predicted a harvest of less than 11 million bushels, far below its previous forecast of 15 million bushels, and 13% lower than the output of 2011.

"The bottom line is if you don't purchase large volume in corn or didn't take a big position, the price increases will be dramatic," says Craig Fraum, executive vice president at New York-based Mid-Nite Snax (asi/71685), which offers products like chocolate bars, candy and popcorn.

Fraum believes suppliers that read the market correctly will be able to withstand higher corn prices in the short-term, although he admits long-term costs may be unavoidable. "For the remainder of 2012, we have pre-ordered all of our corn at an excellent locked-in price," he says. "This will allow us to be extremely competitive in the marketplace this holiday season. As for 2013, I feel prices will increase industry-wide."