Chart of the day: Get ready to shell out more for your favourite movie snack

The US is facing its worst drought in over 50 years. The estimates for corn yields have now been revised to their lowest in 17 years. Even worse, the total crop production may be revised 33% lower than what was projected at the beginning of the season.

Corn prices have surged to a record high and the dwindling crop output will be a worrisome factor for agro processing, livestock and ethanol producers, where corn is the key raw material.

How Indian Companies will be impacted?

Sukhjit Starch is one of the leading producers of starch and its derivatives in India. In its latest quarterly results, the raw material cost constituted nearly 75% of its total expense. This highlights the dependence of the company on corn prices. The stock is trading perilously close to its 52-week low on higher corn price concerns.

Act II Popcorns is the most popular brand when it comes to ready-to-make popcorns. Agro Tech Foods makes Act II Popcorns and contributes significantly to the company’s revenues.  In this case, chances are you might end up paying more for your popcorns next time you watch a movie in the theatre.

Corn is also one of the vital ingredients for manufacturing of vitamin C tablets. A company called Jayant Vitamin (delisted) was major producer of it.

Who will benefit from higher corn prices?

Around 40% of the total corn production in the US is used for ethanol blending in order to reduce its dependence on gasoline. Shrinking corn production may force the US government to relook at this strategy, as higher corn prices are also hurting the livestock feed industry.

Sugar is the only substitute for ethanol production and with gasoline prices also soaring there is a higher probability that ethanol blending will still continue. This will support prices and in turn benefit sugar stocks substantially.