Dollar weakness helped push the prices of many of the commodities we track higher over the past week.  Protein and dairy prices declined as gasoline and diesel fuel costs continue to fall amid economic weakness.  Overall, commodity costs are trending favorably for the restaurant industry.





Gasoline Prices


Gasoline prices declined -1.2% over the last week and we view this as a marginal positive for the restaurant industry.  Below are some quotes from management teams over the past six months on the topic of gasoline prices. 


Cracker Barrel Old Country Store (6/5/12):  And the impact of gasoline prices on the Cracker Barrel customer really shows itself in a couple of ways. One, as Sandy mentioned, 40% of the Cracker Barrel customers are non-local travelers. There's a fairly strong correlation in between miles driven, changes in miles driven and changes in our same-store traffic. There's a less strong correlation in between changes in gasoline prices and changes in miles.


Then, secondly, there's the availability of discretionary income. If the consumer is spending $50 more on gasoline in a month, that's $50 less that they may have available for restaurant purchases and for retail purchases.  One of the things that we and most restaurateurs have seen is, I refer to it as the parable of the boiling frog. If there is a spike in gasoline prices, it's the frog leaping into boiling water and being shocked. If they are rising at a fairly gradual rate, the consumer has time to make adjustments and they tend to stay in the water.


Cracker Barrel Old Country Store (2/21/12): We think that given our susceptibility particularly to – in the summer travel season to potential increases in gasoline prices that it is appropriate to be suitably cautious about our third and fourth quarter traffic outlook.


HEDGEYE: Given the change in tone from Cracker Barrel’s management team between February and June, we expect the continuing decline in gas prices to prompt management to be more positive in its guidance for traffic trends over the next couple of quarters.


Darden Restaurants (3/23/12)And so we think because all of those things could change, the jobs picture could get worse, the spikes in food and gasoline could abate, that it's appropriate to have a broad range as we look out to the fourth quarter and think about what the comps ought to be.





Commodities News


Corn prices moved higher last week as reports of dry soil and stressed crops throughout the Cornbelt turned traders bullish as the realization hits that with weaker-than-expected yields, the 14.7 billion bushel projection corn crop may not be met, despite large acreage estimates.  This is a positive for beef prices going forward and a negative for Sanderson Farms.


Beef prices may find support this summer from the dry conditions on many pastures and ranches across the country.  Lower corn crop expectations and poor grazing prospects will likely dissuade farmers from attempting to rebuild cattle herds that were dramatically cut by the drought last summer.  The dry conditions are already forcing cattle producers as far north as Colorado to auction cattle earlier than planned.


Chicken supply is contracting by roughly 3% year-over-year, per USDA egg set data for the week ended June 16th.  It seems that the peak in wing price inflation may be in but, as positive as that sounds for BWLD, it may be a slow grind lower; wing prices are stubbornly hanging in north of $1.80 and management at food processing companies that we talk to are suggesting that rebalancing the relationship between chicken wing supply and demand may take some time. 


WEEKLY COMMODITY CHARTBOOK - chicken wings egg sets


Correlation Table














WEEKLY COMMODITY CHARTBOOK - chicken whole breast










Howard Penney

Managing Director


Rory Green


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