No commodity cost relief in sight for restaurants

Restaurant operators should expect high commodity prices in 2013, particularly for beef and pork, as a result of the U.S. drought that devastated corn crops, according to speakers at a webinar from Nation’s Restaurant News and sister publications Supermarket News and Corn & Soybean Digest.

Although chicken prices might recover in 2013, since it takes only 6-7 weeks to raise the birds from chick to market-weight broilers, production of hogs, which take six months to reach market weight, won’t likely be back to pre-drought levels until late 2014. Prices of cattle, which can take up to two years to raise, will likely stay high into 2016, according to Corinne Alexander, an agricultural economist at Purdue University.

NRN columnist John Barone, president of Market Vision Inc., said chicken breast was a bright spot on the gloomy commodity outlook.

“The takeaway is to see how you can use more [chicken] breast meat on your menus,” he told attendees of the webinar, titled “What’s Ahead: Gauging the Drought’s Impact into 2013.”

The panel was moderated by Supermarket News editor-in-chief David Orgel. Register for the free on-demand replay.

Barone and Alexander said that the corn shortage had resulted in higher feed prices, which in turn had led to farmers reducing their poultry flocks, as well as their hog and cattle herds, rather than pay to feed them.

As a result, 10,000 fewer meat chickens per week are entering the market. That reduction in 20,000 wings has resulted in what Barone projects will be a 75.8-percent increase in wing prices for 2012.

“Breast meat may as well be a different animal,” he said, noting that, the size of the average chicken breast is up, and unlike dark meat chicken, there’s little demand for breast meat overseas. So he expects breast prices to be up just 7.8 percent for the year.

He said that an early slaughter of hogs in the aftermath of the drought had resulted in a short-term pork glut, but it also meant supply would be lower next year and prices would likely rise.

Beef challenges operators

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But “beef represents the biggest challenge for foodservice operators for at least the next two years,” he said, particularly since restaurants tend to follow trends and all seek the same popular cuts. He said that would likely result in particular price pressure on USDA Choice cuts as well as ground beef, because of the “Better Burger” trend, and skirt steak as a result of the growing popularity of Mexican food. 

“You can look for people to get a little more creative,” he predicted, as restaurateurs sought lower-cost items.

Andy Harig, director of government relations for the Food Marketing Institute, which represents food retailers and wholesalers, said that even before the drought rising global popularity of the Western style diet, diversion of corn stocks to ethanol production and fluctuating fuel prices all had upward pressure on commodity prices.

However, he said, many factors go into pricing of food in supermarkets, including transportation, processing and packaging costs, so, for example, only about 10 percent of bread cost is affected by commodity prices. On the other hand, nearly 50 percent of fresh beef prices are related to commodity prices.

He said that, although he didn’t want to make light of the impact of the drought on farmers, in retail the impact wouldn’t be that great, particularly since many FMI members were already locking in pricing for their commodity purchases.

Providing perspective on the drought, Alexander said corn prices had been hitting record highs for the past three years.

She projected that the U.S. Farm Price of corn would hit $7.60 per bushel for the marketing year that started in September, up from $6.22 in the previous year, which was more than $1 higher than the record-setting prior year, at $5.18.

Assuming a normal corn harvest for next year — which some webinar attendees noted was a big assumption — she said Purdue expected the 2013-14 farm price to fall back to $5.50.

“We have to have a good crop next summer, and a large crop,” Alexander said.

This article has been revised to reflect the following correction:

Correction: December 3, 2012 An earlier version of this article misspelled the last name of Andy Harig.

Contact Bret Thorn: [email protected]
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