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Despite dollar strength, some commodities surged higher over the past week.  Accelerating grain prices will likely push beef costs higher over the longer term as cattle farmers struggle to rebuild herds that were slashed by the effects of last summer's drought.  Continuing hot weather across the U.S. is likely to mean sustained higher protein prices and margin pressure for restaurant companies like BWLD, TXRH, CMG, WEN, and others that purchase some or all of their protein via the spot market.  

Chicken, rice, coffee, and dairy all moved higher week-over-week while soybeans, corn, and grains gave back some of the strong gains they have posted recently.  Food processor stocks have been heavily impacted by the move higher in grain prices and we expect a derivative impact for companies with margins sensitive to grain prices.  Chicken wing prices surging 1.6% over the past week is also a derivative of corn gaining almost 40% over the past month. 

The USDA’s WASDE report, which was published yesterday, was the looming cloud that speculators were boosting grain prices ahead of.  Corn estimates for this year were lowered to 12.97 billion bushels on 88.9 million harvested acres, implying 146 bushels per acre versus the 14.79 billion bushels and 166 bushel per acre estimate from last month’s WASDE report.  Persistent hot and dry weather across the corn belt could keep corn prices elevated and prolong the misery of cattle farmers facing increased costs.  Analysts are even highlighting a possibility of $10 corn. Meatingplace.com reported the predictions, which were expressed during Tuesday’s panel discussion at the Chicago Mercantile Exchange (CME) ahead of the USDA’s World Agricultural Supply and Demand Estimates report released on Wednesday.

Beef prices may be down year-over-year, currently, but we would expect sustained elevated prices if more favorable conditions do not return so that farmers can rebuild their already-decimated herds. This would be negative for TXRH, CMG, WEN & JACK.

WEEKLY COMMODITY CHARTBOOK - commod

GAS PRICES

WEEKLY COMMODITY CHARTBOOK - gasoline prices

CORRELATION

WEEKLY COMMODITY CHARTBOOK - correl

CHARTS

WEEKLY COMMODITY CHARTBOOK - coffee

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

WEEKLY COMMODITY CHARTBOOK - soybeans

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast

 

WEEKLY COMMODITY CHARTBOOK - chicken wings

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

WEEKLY COMMODITY CHARTBOOK - milk

 

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Howard Penney

Managing Director

Rory Green

Analyst