Cogito

Coffee, Oil Prices and Cows

Posted in finance by qmarks on February 15, 2011

From 2004 to 2008 Starbucks gross profit margin shrank year over year. At first sight the main reason for that seems the coffee price, but also the dairy products they used in their frappuccinos. The increasing Oil Prices has decreased the supply of Corn to farmers and milk producers. So what happened to those corns, they shipped them for Methanol production. The low supply of corn has shoot the milk prices which in return hit the profit margins of Starbucks. Since the inventory turnover was high, and they did not hedge the dairy products. Voila, sell SBUX, even now.

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