CORN PRICES COULD HURT DISTILLERS

As WSJ reported, corn prices shrunk last week after a government report predicted farmers will plant more corn in 2007 than they have since 1944. One of the main reasons for the planting surge is the ever increasing demand for ethanol, which has led corn farmers throughout the U.S. to plant 90.5 million acres of corn this year, up 15% from the 78.3 million acres planted in 2006 according to the U.S. Department of Agriculture’s Planting Intentions report. The last time farmers planted anything remotely close to that was in 1944, when 95.5 million acres were planted.

WSJ believes the drop in price won’t last long, however. The large demand for corn-based ethanol isn’t going anywhere and bad weather may dramatically reduce corn yields. A cold and wet spring and a hot, dry summer are anticipated for the mid-west this year, which could ultimately mean less corn and higher prices for distilleries.

As Brown-Forman cfo Phoebe Woods stated during the company’s third quarter results in March:

“Corn is nearly doubled what it was last year, but for whiskey the single largest ingredient is the barrel, the wood. About half of it comes from corn but it’s a modest cost relative to the cost of that barrel.”

However, next year could pose more of a problem. “This year the increase in corn has been around 3 or 4 cents, but next year it could double because we won’t have the same hedges in place,” stated Phoebe.