WEEKLY COMMODITY MONITOR

Coffee is down significantly week-over-week while beef and wheat were most noticeable on the upside.

While some of the usual suspects, such as corn and coffee, declined week-over-week, there were some significant up moves as well.  Besides the down moves in corn, rise, natural gas, and coffee, there were strong gains in the prices of live cattle, wheat, lean hogs, and chicken broilers.  Also noteworthy was the increase in gas prices.  As DRI’s CEO noted on their earnings call last Friday, gasoline prices are serving as a tax on consumption and, to the extent that this continues, it will likely tax the willingness of the consumer to absorb the price increases that are due over the next number of months.

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Beef prices are crucial to the profitability of many restaurant companies, particularly in the QSR and steakhouse categories.  Beef prices have risen by over 5% in the last week.  Below, I include commentary on beef prices from several management teams’ most recent earnings calls.

Arby's will also be facing very high beef prices, we think, through this year, 15% or more increase year-over-year.”

-Wendy’s

 

“No, sense yet on when we could try to take some contracts. We are regularly checking the market. Right now the risk premium is too high. We don't believe it's worthwhile. We're glad that we have a high quality brand where our guests are comfortable with it. But, so I would say the overall commodities probably in the high single digits and beef 10 plus percent.”

-Morton’s Steakhouse

 

“Beef accounts for more than 20% of our spend. For the full year, we are now anticipating beef costs to be up nearly 9% versus our previous expectations of 6% to 7% inflation. We expect beef costs to be up approximately 10% in the second quarter compared to a decrease of 9% in the second quarter 2010.”

“There are some Act of God provisions that will get us north of our contract bands, but at a reduced rate from what the current market pricing is ... And then also grain, corn, wheat and soybean impact, and there are input costs for a number of the proteins. And that's really what's driving up beef at this point.”

-Jack in the Box

 

“But let me go ahead and comment that in terms of the steak category or beef in general into 2012, I would tell you that where the futures markets are today, it would suggest that it could be fairly scary into 2012.”

-Texas Roadhouse

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Wheat prices continue to bounce back strongly from their low and it looks as though significant year-over-year inflation will remain through the second quarter at least.

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Coffee prices have been on a tear since the summer of 2010 but the past week saw a decline in prices of 4.4%.  While this is a sizeable move, the chart below puts it in perspective.  Coffee concepts are under pressure from the 80%+ year-over-year inflation in their main input cost and I think it is likely that this pressure will continue and may lead to further price increases.

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Howard Penney

Managing Director