It’s an unusual equation, and the variables include commodities speculators, the weather, international trade, and congress, but only one constant: corn.
Millers derive high fructose corn syrup, the number two ingredient for most soft drinks, and ethanol, the number two ingredient for gasoline, from the same yellow kernels. The cost of those kernels jumped in the last few months after congressional efforts for energy independence collided with the fallout from a volatile stock market.
Beverage manufacturers have seen those costs passed on to them. Food Business News reported in early April that HFCS cost an average of 18.65 cents per pound, up from an average of 15.7 cents at the same time last year. That’s a 19 percent increase that’s causing financial pain for beverage companies. And that pain will likely travel down the supply chain into the cooler case.
Brian Weber, Vice President of DLR Associates Inc., the makers of Potencia Energy Drink, said he found out about the price hike when his company mixed its last batch, but they got lucky.
His supplier had a stock of HFCS bought last year at the lower price, Weber said, allowing him to dodge any price hikes until at least the next production run. By then, he said, DLR may have another plan in place to deal with HFCS prices.
Bigger companies likely won’t be as nimble. Coca-Cola Bottling Co. Consolidated, one of Coke’s largest regional bottlers, reported a 14 percent drop in profits in 2007 compared to 2006, partly due to rising sweetener costs. Analysts at the investment bank Morgan Stanley recently cited rising commodity costs as one reason they believed stock in PepsiCo Inc., had become a riskier investment. They also offered insight on how Pepsi could offset the higher cost of HFCS: either increase productivity or raise prices – as much as three percent in 2008, according to analyst Bill Pecoriello.