Gis Memo

Topics: Financial ratios, Financial ratio / Pages: 10 (2312 words) / Published: Apr 28th, 2013
To: William Nubern, Chief Executive Officer for the Garden Equity Group
From: Jacob Sumble
Date: [ 4/28/2013 ]
Re: General Mills Evaluation

Message GIS faces a large amount of exposure from changes within the corn and oil commodities market. GIS uses a large amount of corn to process and create their products, but the market for corn is evolving. Corn is now used to: feed livestock, produce ethanol, feed the world’s growing population, and create corn based synthetics. As the world’s population continues to grow the need for corn will increase but the largest contributing factor is the demand for ethanol. As the demand for clean energy increases, ethanol production will increase and become the world’s largest use of corn. The United States still has the highest demand for oil; ethanol will be a green substitute that will require a large amount of the world’s corn supply.

A long term increase in the price of corn could cause General Mill’s business plan to lose sustainability. Short term increases in the price of corn can be hedged through trading options on the futures market. Corn byproducts are the first ingredient in many GIS products. Increasing corn prices would cause the prices of GIS products to raise, forcing consumers to choose substitute products.

Oil prices can influence economic growth but high oil prices could jeopardize the sustainability of GIS. High oil prices would increase the cost of transportation which would raise the prices of all GIS products. Oil carries an element of unpredictability due to the Middle East and constant political pressure. In the long run, GIS will rely less on oil as hybrids and electric trucks begin to take market share from diesel based transportation. But if there is a sudden spike in the price of oil, it would raise the prices of all food products dropping the demand for GIS products.

Prior to the recent recession, GIS was working to improve the efficiency of their SG

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