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Commodity moves were mixed over the past week as the dollar index declined.  Coffee gained 0.6% week-over-week but are down more than 19% year-to-date.

WEEKLY COMMODITY CHARTBOOK - commod

CONSUMER CALLOUT

Gasoline prices are assuming more importance in the political debate and management commentary, while thus far playing down the impact of gas prices, is likely to change if this current trend continues. Domino’s Pizza yesterday mentioned three ways in which elevated gas prices impacts its business perhaps more directly than many of its peers in the restaurant industry: first, reimbursing drivers for gasoline usage; second, the change in consumer behavior than can result from pressure at the pump; third, the flow through to commodity prices due to higher cost of production for food processing companies.

WEEKLY COMMODITY CHARTBOOK - gasoline

SUPPLY & DEMAND DATAPOINTS

Wheat

Wheat futures have declined to the lowest level in over a week on signs that precipitation in the Great Plains are improving prospects for winter crops that recently emerged from dormancy. 

Corn

Talk of early planting and big acreage is said to be pressuring the market.

Indications of rising ethanol supplies could be pushing corn process lower.  Ethanol inventories gained 3% to a record 22.7 million barrels in the week ended March 16th, up 13% from a year earlier, according to the Energy Department.

Beef

Last week’s cattle slaughter totaled 619k, down 1.9% from the week prior and flat year-over-year.  Year-to-date, according to cattlenetwork, cattle slaughter is down 6% versus the same period last year.

U.S. beef producers have started the early stages of herd expansion, according to Purdue Extension agricultural economist Chris Hurt.  Beef cow numbers have dropped by 9% since 2007.  Lower slaughter numbers are expected through 2014.

Chicken

Egg sets placements continue to contract at around the same rate, roughly -5.3% year-over-year for the six-week moving average, according to the Broiler Hatchery report released by the USDA today. This implies that supply will remain tight as the industry looks for more favorable business conditions before expanding production.

WEEKLY COMMODITY CHARTBOOK - egg sets

RECENT COMPANY COMMENTARY

Beef: Most companies are expecting beef cost inflation to be up mid-to-high single digits versus last year

TXRH: We expect approximately 8% food inflation in 2012, primarily due to higher beef costs…on the beef side we do have fixed price – pricing arrangements in effect for over 90% of our beef costs in 2012.

CBRL: To the continued pressure on ground beef prices and other commodities partly offset by lower average dairy and produce prices, along with benefits from our supply chain initiatives, we expect cost of sales to increase 60 basis points to 80 basis points over 2011 to near 26% in 2012.

RUTH: We project 2012 beef inflation to be between 5% and 8%. We currently have purchase agreements for beef representing approximately 30% of our needs through August of 2012, which represents an approximate 7% premium compared to the prior years.

CMG:  While we're cautiously optimistic we'll see more reasonable prices in 2012 for avocados, dairy and produce, we expect these benefits will be more than offset by higher costs for our beef, chicken, rice and beans. Beef costs will be especially challenging due to protracted supply shortages, despite recent reductions in grain prices.

MCD: As we look at our guidance for 2012, we've built another mid-teens increase for beef, expecting that the dynamics in the marketplaces that we see, and are expecting, will continue.

DRI:  U.S. beef production will continue decline though over the next 24 months, placing continued upward pressure on beef prices because of the slow economic recovery hamburger and value oriented beef, cattle beef are in high demand and can be priced accordingly by the packers. At Darden we purchased mainly tenderloins and other premium steakcuts, while we expect pricing for our beef products to increase by 12% our pricing has been tempered by consumers' resistance to record higher retail prices for premium stakes and the resulting shift to value oriented cuts and as you can see beef is approximately 14% of our cost basket … We have 75% of our beef requirements contracted for fiscal 2012 and 40% of the June to December usage under contract for fiscal 2013.

SONC: One item to note is that we recently locked in our beef contract for calendar year 2012… given the potential for beef costs going even higher, which there are a lot of reports out there that speculate that could happen, that we chose to go with making this more of a known quantity here, and the idea of having a set price for the next 12 months, we feel like would be good for our business, adds some predictability to the business.

Coffee: Prices are now down more than 33% versus last year

PEET: We expect 2012 coffee costs to rise 12% instead of last year's 42%.

SBUX: We've taken advantage of the recent declines in the C-price to lock in more of our coffee needs for fiscal 2013. We now have six months of our fiscal 2013 requirements secured at costs moderately favorable to 2012.

Dairy: CAKE, DPZ, PZZA, TXRH and others could benefit from favorable cheese costs this year

TXRH: The volatility around that 8% estimate for food cost inflation would really be driven by produce and dairy.  Those are of the biggest components that we float around the market, and that's about 15% to 20% of our total cost of sales.

CMG: While we're cautiously optimistic we'll see more reasonable prices in 2012 for avocados, dairy and produce, we expect these benefits will be more than offset by higher costs for our beef, chicken, rice and beans.

CORRELATION TABLE

WEEKLY COMMODITY CHARTBOOK - correlation

CHARTS

WEEKLY COMMODITY CHARTBOOK - coffee

 

 

WEEKLY COMMODITY CHARTBOOK - corn

 

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast

 

 

WEEKLY COMMODITY CHARTBOOK - chicken wing

 

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

 

WEEKLY COMMODITY CHARTBOOK - milk

 

 

Howard Penney

Managing Director

Rory Green

Analyst