As the dollar gained and gasoline prices came down over the past week, grains led to the downside which is a positive leading indicator for food processor margins. We can expect that benefit to flow through to restaurants in time but, as we have highlighted before, building up the U.S. cattle herd will take time; it is likely that prices will remain high absent exogenous factors like an escalated BSE outbreak or persisting “pink slime” concerns.
Besides dollar strength, the USDA report published today detailing World Agricultural Supply and Demand helped push corn lower. Corn stocks were pegged higher than expected.
Coffee is another commodity that we would highlight; despite dollar strength and continuing concern about economic weakness in Europe, Arabica coffee gained 1.6% over the past week. Year-to-date, coffee is down 23%.
GAS PRICES WATCH
Gas prices coming down are benefiting consumers as the dollar strengthens and this should be a positive for restaurants and grocers as consumers drive and grill more during the summer months.
SUPPLY & DEMAND
Supply: Columbia said that the harvest rose 11% in April and may continue to rise for the remainder of the year.
Demand: Speculation that demand will continue to show strength despite eurozone concerns fueled the coffee gain today.
Comments: Falling coffee prices are good for company margins as long as demand is not falling so fast as to impact sales to a significant degree. Starbucks has its coffee needs locked into fiscal 2013. Peet’s has its coffee costs locked though 2012 at increasingly favorable prices throughout. Last year was a difficult year for Peet’s from a cost perspective.
Supply: Egg sets placements continue to contract at around the same rate, -5%, 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.