Don't Worry America, Processed Foods Will Still Be Cheap In Spite Of The Drought

In case you didn’t know, corn is in everything. As a result, you might expect that the recent surge in corn prices due to this year’s devastating drought to significantly increase most food prices.

Not so, say Morgan Stanley food industry analysts Matthew Grainger, David Adelman and Vinay Ayala. They expect only about 1 per cent unhedged input cost inflation for US food manufacturers in 2012, and low to mid single digit inflation through FY 2013.

This is due primarily to the standard industry practice of maintaining around 6 months of forward grain costs hedged.  Furthermore, grain makes up less than 10 per cent of the final costs of goods sold for the industry.

Companies that may see slightly higher inflation are Kellogg (15 per cent of costs) and General Mills (8 per cent of costs). Should costs spill over to dairy and meat production, Kraft could see an increased impact as well.

Here’s Morgan Stanley’s chart on what cost inflation has looked like for the industry, and what it can expect over the next year: 

Food price

Photo: Morgan Stanley

Don’t miss: Dramatic Photos Of The Midwest Drought >

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