WEEKLY COMMODITY CHARTBOOK

Soybeans, rice, and beef prices led the way during the past week, registering modest price increases as chicken wing prices also gained.  Coffee prices declined almost 10%.

WEEKLY COMMODITY CHARTBOOK - commod

CALLOUTS

Beef – WEN, JACK, CMG, TXRH

Beef prices are a significant cost for many companies within the restaurant space but we are highlighting WEN, JACK, CMG and TXRH.  For WEN and JACK, this is particularly relevant as roughly 20% of their respective COGs baskets are comprised of beef.  The chart of live cattle prices, below, shows how strong the momentum is in beef prices currently.  Corn and wheat prices declined over the last week is a bearish sign for beef prices, on the margin, but a far more substantial decline will be required to meaningfully impact price.  Supply and demand dynamics still, in aggregate, point to a continuation of elevated prices.

SUPPLY

The supply of beef in the U.S. remains low and production is expected to remain low for years.  According to CattleNetwork, several factors play into the motivation for an expansion of beef cow numbers.  While the January 2012 inventory report did highlight a 1% increase in beef replacement heifers and roughly 37,000 more heifers expected to calve in 2012 versus 2011, these metrics showed significant declines in 2011 versus 2010.  For 2011 and 2012 combined, beef heifers expected to calve dropped dramatically and total beef cow numbers during 2011 declined by almost 970,000. Prospects for future prices, in terms of livestock prices and retail beef prices, as well as profit margins and weather factors, will all impact motivation for an expansion in beef cow numbers.  Here is the full article.  As long as feed costs remain high, and cattle feeders are enduring negative margins, a rapid increase in supply will be difficult.

DEMAND

Demand for US beef remains high.  Record exports in 2011 are being followed up by rising demand both from domestic consumers and global markets.

Coffee – SBUX, DNKN, PEET, CBOU, THI, GMCR, MCD

Coffee prices dropped -9.4% over the past week.  Coffee on the spot market is now 20% cheaper than it was this time last year.  Coffee costs have impacted PEET heavily, as is evidenced by its below-expectations earnings in 4Q that were reported last night (the stock is down today).  The current trend in coffee prices could be positive for PEET over the longer term. 

SUPPLY

Reduced robusta coffee exports from Vietnam have helped send prices higher over the past week.  India cut its coffee export forecast for the crop year to September by 0.7%. 

DEMAND

Coffee prices have declined on concern that demand for commodities will soften after weaker-than-forecasted retail sales data caused concern among investors that the recovery may be faltering.

CHICKEN WINGS – BWLD

Commodity cost inflation for BWLD will step up in 1Q with 2Q being the most unfavorable compare if prices remain elevated, as wing prices bottomed in 2Q10.

SUPPLY

The six-week moving average egg sets number declined by -5.2% for the week ended 2/11 versus a year ago.  The contraction of the chicken supply looks like it is going to continue.

DEMAND

As beef prices go higher, we expect the food service industry to shift focus to chicken to alleviate cost pressures.

 

WEEKLY COMMODITY CHARTBOOK - egg sets wing price

CORRELATION TABLE

WEEKLY COMMODITY CHARTBOOK - correl

CHARTS

 

Coffee

 

WEEKLY COMMODITY CHARTBOOK - coffee

 

 

Corn

 

WEEKLY COMMODITY CHARTBOOK - corn

 

 

Wheat

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

 

Beef

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

 

Chicken – Whole Breast

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast

 

 

Chicken Wings

 

WEEKLY COMMODITY CHARTBOOK - chicken wing

 

 

Cheese

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

 

Milk

 

WEEKLY COMMODITY CHARTBOOK - milk

Howard Penney

Managing Director

Rory Green

Analyst