Rising Commodities Prices Affect General Mills Profitability

When raw materials go up in any industry, eventually it's going to have an effect on any company's profitability.

In this case, the cost of wholesale food ingredients has gone up, and it's affecting General Mills profitability.

There are always a number of factors that cause price fluctuations, but in food ingredients it tends to be just a few things:

• weather
• demand
• fuel

Obviously, fuel costs get blamed in transportation costs to manufacturers and the consumer, but they also, of course, affect the cost to the farmer of planting, harvesting, and getting their product to market. Ultimately these things show up as higher prices to both food manufacturers and consumers.

Quoting a Reuter's article on General Mills lower profitability:

In the U.S. retail segment, the company's largest business, earnings fell 4 percent due to higher raw material costs, lower sales volume and higher advertising expenses.

Lower sales volume and higher ad expenses not withstanding, raw materials, i.e. the food ingredients they use, was still a big factor.

The article goes on to say,

General Mills has said commodity costs have increased in the 10 percent to 11 percent range in fiscal 2012 due to higher prices for ingredients like grain.

Teams of people and computers are dedicated to figuring out what's happening next with food ingredients prices, and given current trends, these costs could well continue to rise. Whether or not they will is really anyone's guess.

Labels: commodities prices, general mills, wholesale food ingredients, wholesale sugar