Inflation concerns (TSN, BUD)
Consumers have recently expressed less concern about the cost of groceries. The category that gives consumers the most concerns about inflation according to Morning Consult is the meat category. The percentage of respondents who expressed concern decreased to 42% in May, the lowest since the survey began asking consumers in October 2021 as seen in the chart below. The percentage of consumers that expressed concern in May decreased in every category except alcoholic beverages which was stable compared to April. The category that had the fewest consumers concern was alcoholic beverages. The CPI for the meat category was nearly flat in May. Alcoholic beverages have had one of the lowest levels of inflation since the pandemic outbreak.
Truck rates (WMT)
The national average van truck spot rate decreased 22% YOY in June according to DAT Freight & Analytics. Compared to May the rate has been flattish. The national average van truck contract rate decreased 20% YOY in June and was also flattish sequentially. The load-to-truck ratio in May fell from 4.4 loads to 2.5 on DAT’s Load Board. The ratio is an indicator of the number of loads posted looking for delivery which serves as a demand vs. supply proxy. Lower freight rates were cited as a contributor to lower COGS by numerous CPG companies and retailers like Walmart in Q1 which should continue to be a tailwind in 2023.
Summer drought forecast (PPC)
The National Oceanic Atmospheric Administration’s latest seasonal drought outlook shows the Eastern Corn Belt could continue to endure dry conditions through the summer. The outlook is a snapshot of likely conditions from June 15 through September 30. The long-range forecasts are favoring below-normal precipitation and above-normal temperatures. El Nino was officially declared earlier in June and is generally associated with higher levels of rainfall in the U.S. The Western corn belt is seeing an improvement in precipitation forecasts. In addition, the Southeast is seeing a much higher probability of rain in the near term. The growing drought concerns have only boosted corn prices to late April levels. It will take a more substantial drought for corn prices to not be a tailwind in 2023. Chicken is the most impacted category by corn prices.
