Vegetable Arbitrage

by Mr Juggles

Baby carrots are hot right now. So hot. Chicks love them. Metrosexuals love them. This why they’re hot: uniform appearance, small, cute, and crunchy.

At your local grocery store, baby carrots command a price premium — normally around 100% — to regular carrots. However, it turns out that they are made from “culls, which are carrots that are too twisted, knobby, bent or broken to sell.” Not only that, they “are made out of a variety of carrot known as the Imperator. They are bred to grow faster and ripen quickly, and because of this, they only have 70% of the beta carotene of a normal carrot.”

Recommendation: Go long carrots and short baby carrots. We expect the pricing spread to narrow as regular carrots are repackaged as babies. Eventually, all non-snowman-production-related carrot consumption will involve baby carrots and, at that point, they will be priced like regular carrots.

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  1. Series7.5
    May 31st, 2007 | 1:08 pm

    I’d back this position with a similar trade. While baby carrot pricing will suffer, increased volume will more than offset the convergence as regular carrots currently account for multiples greater than 2x baby carrot sales. I’d go long baby carrot producers poised to benefit from this trend, and short regular carrot producers that will suffer from sharply reduced volumes despite the higher prices resulting from regular carrot scarcity as demand slackens.