Dollar strength helped pressure some commodities over the past week. Over the longer-term, we are expecting grain and commodity prices to remain elevated as 60% of the contiguous United States is in moderate or worse drought. Corn, wheat, soybean, and chicken prices remain up double digits versus a year ago. Beef prices, while not as inflated as the aforementioned commodities, are expected to move higher next year on continuing supply concerns.
Wheat prices have been moving higher over the past week, driven by speculation that the U.S. government will reduce its estimate of global stockpiles in its World Agricultural Supply and Demand Estimates report, due out tomorrow at 08:30 AM. France cutting its production outlook and Russia, the world’s third-largest wheat exporter, experiencing dry weather, has also impacted prices.
Chicken prices remain at elevated levels with whole breast prices climbing 50 bps week-over-week. Elevated corn prices continue to pressure margins of chicken processors, pressuring supply and supporting prices. This is bearish for BWLD.
Beef prices were slightly higher on the week as economic concerns offset speculation that higher feed prices are set to drive meat prices higher in 2013. Retail prices in the United States, for beef and pork, have remained stable but some industry players are commenting that rising costs will have to be passed on to consumers sooner rather than later. If casual dining companies such as BLMN, TXRH, DRI and others are forced to increase prices it would negatively impact traffic in an industry that has been heavily dependent on traffic for footfall .
Gasoline prices have fluctuated on competing concerns around the economic outlook and possible import delays due to Hurricane Sandy. Despite the less-than-feared impact of Sandy on national prices, we expect continuing tight supplies in NY and NJ to push prices higher and meaningfully impact consumer behavior, at least in the short term.