MGPI narrows loss, aims to ease corn cost impact

09-Aug-2012 - Last updated on 10-Aug-2012 at 14:14 GMT

Corn prices remain 'stubbornly high'

Corn costs continued to hit MGP Ingredients’ results in the second quarter, although it narrowed its loss from $10.3m a year ago to $850,000.

Meanwhile, sales were up 24% to $85.5m in the quarter ended June 30, 2012, compared to $68.8m in the same period a year earlier, primarily due to higher sales and pricing in its food grade alcohol business.

The company cited high costs of raw materials and a planned one-week shut-down of its Atchison, Kansas plant as drivers of the loss during the quarter, as well as higher personnel costs due to its acquisition of a Lawrenceburg, Indiana distillery in late 2011. Corn prices, which were already high due to adverse weather conditions last year, look set for further volatility. The White House has said about half of the US corn crop is in poor condition due to the ongoing drought.

President and CEO of MGPI Tim Newkirk said: “We’re making continued progress on growing the top-line. Our profitability, on the other hand, continues to lag behind our targets. High corn prices are certainly having an impact in terms of margin compression.”

He added that this is mainly due to the company’s existing supply contracts, which are expected to end in the second half of the year. MGPI’s new supply partner has “an extensive global corn origination network”, Newkirk said, meaning that the company would not need to rely on local corn supply to meet its demands.

“By the fourth quarter, we expect to be back to flat pricing for most of our grain needs, thereby reducing our corn basis risk and its negative impact on distillery margins,” he said.

Newkirk added: “While our quarterly results have yet to show consistency, we’re more confident in our ability to compete in an environment of stubbornly high commodity prices.”