For Consumers, Packaging Costs Matter More Than Corn Price: Gartman
From breakfast cereal to chips to Coca-Cola, the price of corn has an impact on a wide range of food products at the grocery store, but commodities investor Dennis Gartman says it’s the cost of packaging that tends to impact consumer’s wallet more.
“The price of the cardboard and the advertising in a box of cereal is far more important than the cost of corn that goes into a bowl of cornflake,” the author of The Gartman Letter told CNBC on Friday.
Nonetheless, Gartman says higher prices are going to allow “the Kellogg's of the world”, which enjoy more inelastic demand, to raise prices very quickly.
“Their propensity to move prices up is relatively large. A bowl of cereal now is $3.50; they'll move it up to $3.65-$3.70 although they don't need to do it,” he said.
U.S. corn prices soared to record highs overnight as the U.S. grapples with its worst drought in a half century. Chicago Board of Trade (CBOT) corn, which has already risen nearly 50 percent in just six weeks, hit $8.08-1/2 per bushel on Thursday, surpassing the previous record of $7.99-3/4 set 13 months ago.
Luke Chandler, Global Head of Agri Commodity Markets Research at Rabobank says he sees “no end in sight” for the bull market in corn as crop conditions plunge.
Gartman cut his corn harvest projection for 2012/13 to 12.2 billion bushels from 14.7 billion bushels.
“Through the predominant growing regions, from Nebraska into Iowa, eastern to Illinois, it’s a very real drought.”
- By CNBC's Ansuya Harjani