Even as the stock market continues its heady rally and some economic indicators suggest that the economy is improving (albeit slowly), the surge in commodity prices, many of them unavoidable staples, has wreaked havoc on small business profit margins.
But, the pain is certainly not being felt equally by all. Some industries have been hit harder then others over the past 12 months. Below is a breakdown of the most problematic price increases effecting countless small businesses across multiple sectors:
Oil– Currently trading at almost $114 dollars a barrel, the spike in the cost of crude oil has definitely been one of the most well-publicized commodity price increases- especially as Americans come to grips with their gas pump sticker shock. The rise in oil prices have effected the majority of American small businesses in some way, whether via increased shipping and delivery costs or the increased cost of business travel. Those that operate gas-powered machinery and equipment have also been hit particularly hard. Moreover, the increase in crude oil has led to increase in the cost of oil used for heating.
Corn– With demand outpacing supply, these tiny kernels have certainly played their part in the overall increase in food prices over the past year. Corn and corn derivatives, such as corn meal and corn syrup, can be found in many processed foods, corn is often used as animal feed thus resulting in higher meat and dairy prices, and corn is also used to make ethanol, a bio fuel that has seen a spike in demand as America seeks to lesson its dependency on oil.
Soybeans– South American droughts that have resulted in lower than average soybean yields are behind the increase in the cost of soybeans, and subsequently the cooking oil and other soya-based products that rely on this crop. Most food-related small businesses have been feeling the pinch.
Wheat– Droughts across Europe and Russia are largely to blame for the recent increase in the cost of wheat and wheat products. The price increase has effected the food industry in particular and is partly to blame for the rising cost of staples such as bread and cereal.
Sugar– Though sugar prices have been coming down a bit in recent weeks, it is still priced almost 50% higher than it did at the start of the year contributing to a subsequent increase in the cost of sugar based products from confections to cereals.
Cotton– Like sugar, cotton has also come down in recent weeks from its lofty highs earlier this year. Much of the drop in price is due to an overstock of the commodity that was built up by cotton spinners when the cost of cotton was on an upswing. Industry experts don’t expect the price to fall so far, however, which means the ultimate cost of cotton yarns and fabric will likely remain high. The increased cost of cotton has affected a range of retail apparel businesses as well as clothing manufacturers and craft shops.
Beef– With the cost of fuel and feed on the rise, coupled with a weakened supply of cattle (due to droughts and herd sell-offs), the price of beef has skyrocketed over the past year and is now holding at all time highs. This has significantly cut into food industry profit margins causing price increases across the board.
Bottom line: The increasing cost of commodities has affected a wide range of small businesses- just another headache in a long list of ailments. The consumer is not the only one who is resorting to belt tightening and bootstrapping these days.