Higher protein feed costs (PPC, TSN, LANC, UTZ)
Hay stocks decreased 9% YOY on December 1 to one of the lowest levels since 1954. Hay prices have fallen from their peak, but regionally prices reflect the local supplies. In drought-affected regions of the Central Plains and Texas prices have increased. Along with higher soybean meal prices, farmers have experienced inflationary pressures on their protein feed costs.
Soybean prices have traded in a tight range since June, but within the soy complex, there has been divergence. Soybean meal prices have increased 15% over that time while soybean oil prices have fallen 25%. Soybean oil prices came under pressure in November with a drop in oil prices and a low Renewable Fuel Standard proposal. Soybean meal prices have been lifted by the restocking of China’s hog herd and La Nina’s impact in Argentina. Higher feed costs are bearish for protein production in 2023. Soybean oil is a key ingredient that has been a significant gross margin headwind for a variety of food manufacturers. The inflationary pressure on soybean oil has had an outsized impact on Lancaster Colony and Utz Brands in particular.
Food Retail comps (VLGEA, SFM)
Village Super Market, a chain of 34 supermarkets in New Jersey, New York, Maryland, and Pennsylvania under the ShopRite and Fairway banners and four Gourmet Garage specialty markets in New York City, reported a 3.2% SSS increase in the quarter that ended January 28. Gross margins contracted 37bps driven by an 18bps decline from decreased departmental gross margins, 11bps from increased warehouse assessments, 11bps from higher promotional spending, and 8bps from increased LIFO charges partially offset by an 8bps improvement from product mix and 4bps from increased patronage dividends and rebates. The promotional environment remains muted in food retail. We are still searching for a grocer with weaker comp trends than Sprouts Farmers Market in Q4.
Beer Shipments fall in January (STZ)
Brewers in the U.S. shipped 4.4% fewer barrels in January according to the Beer Institute. The decline in January lapped the 11.8% decrease in January 2022. Domestic shipments decreased by 4.6% in 2022. The rolling 12-month trend improved sequentially in January to -2.9% from -3.3% in December as seen in the chart below. Brewer shipments in California increased 5.8%, contributing the most to barrel growth. Brewer shipments in Texas decreased by 6.0% and were one of the largest detractors to barrel growth. California and Texas are the two largest states for Constellation Brands.
