COMMODITY CHARTBOOK: Drought, Beef, Company Guidance

Takeaway: Beef prices are likely to trend higher for the long term $BLMN $TXRH $WEN $JACK

Beef was the outlier, versus other food commodities, over the last week as it gained 5.8%.  Grains also dropped over the past week on Hurricane Isaac bringing rain to some, but far from all, states affected by drought in the U.S.  However, it seems that downside may be limited as futures trading suggests that the market is betting on demand accelerating for grains on the back of the past two weeks’ price declines.  Coffee prices continue to decline as supplies, on a global basis, seem abundant.  Output in major coffee producing countries, such as Brazil, as well as inventory levels, are indicative of abundant supply which should help maintain a favorable cost environment for the coffee chains over the next year or so.


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - commod


The Drought


Drought in the U.S. captured the attention of investors this summer as it drove grain prices dramatically higher.  It seems that the knock-on effects of the drought are likely to be long lasting.  The U.S. Drought Monitor’s latest weekly report was released this morning and indicated that Hurricane Isaac had brought some relief to some afflicted areas but others actually deteriorated over the last week.  Oklahoma’s drought condition actually worsened.  States towards the eastern part of the corn belt showed drastic improvement; nearly half of Arkansas was in the most extreme drought condition last week but, by this morning’s reading, that percentage is down to 12%.   Illinois, Indiana, Kentucky, Missouri, and Ohio all saw improvements in drought conditions due to Isaac.



Where’s the Beef?


Last year’s drought had an impact on the supply of beef within the U.S. and, far from allow farmers to embark on the path to replenishing their herds, 2012 has proven to be even more challenging.  Now, it seems more certain that livestock supply may be impaired for years as higher grain prices continue to take a toll on chicken, beef, and pork processors.  Beef costs have not risen in step with grain prices as more cattle have been pushed to the feedlots, but increased herd culling is likely to maintain the negative trajectory in beef supply.  Longer-term, this will likely pressure the operating margins of companies with exposure to beef costs.



Select Company Guidance



  • Total commodity basket +4-5% in 2013, beef a “big part” of that increase
  • Mgmt’s conversations with experts takeaway: long-term supply-demand imbalance
  • Beef is 20% of WEN spend


  • Basket expected to gain 3-4% for FY12, including 10% gain in beef prices
  • Beef prices expected to gain 10% in FY13 again
  • Beef is 30% of BLMN spend
  • Company believes it has room to take more price at Outback, currently at 1-2% range


  • Beef costs expected to be sequentially higher from where they were most recently (+5% yy)
  • Lapping elevated beef costs in 1QFY13 (Dec) and 2QFY13
  • Beef is 20% of JACK spend


Macro Callout


As we did last week, we are calling out gasoline prices again as the year-over-year increase seems likely to grow at least over the near-term.   For Cracker Barrel and, to a lesser extent, other casual dining chains, this is a very important driver (or destroyer) of demand among consumers, on a year-over-year basis.


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - gasoline




COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - correl




COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - crb foodstuff


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - corn


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - wheat


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - soybeans


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - live cattle


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - chicken whole breast


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - chicken broilers


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - chicken wing




COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - milk


COMMODITY CHARTBOOK: Drought, Beef, Company Guidance - cheese





Howard Penney

Managing Director


Rory Green



Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more