As corn prices rise, food costs could follow
Corn prices have skyrocketed over the past year, rising more than 50% in 2021 alone and approaching $ 7.50 a bushel, levels not seen in nearly a decade.
This could cause the price of protein. Much like the prices of corn, so are chicken and beef, in particular. At the very least, it adds a potential challenge for operators in the coming months to face the challenges of finding workers – and potentially lead to higher menu prices that could offset their recovery.
“It’s not exactly the best outcome when catering has to fight back after going down,” said Isaac Olvera, senior food and agriculture economist at Arrowstream, in an interview. “The higher menu prices are not what you want to see when you log on and have to convince consumers to come back.”
The problem, he said, is “a perfect storm” of international demand, domestic demand and supply challenges. China buys a lot of corn, for example, and the United States is exporting corn at a record rate. The drought in Brazil hampered the maize harvest there, which had already been delayed. Part of the blame also falls on federal regulators who have done a poor job of estimating the market.
“There are just a lot of recursive issues on both the supply and demand side,” Olvera said.
The problem is not necessarily expected to lead to long-term supply issues, as it did a decade ago when an industry emerging from recession was hit by price inflation. food that lasted for years and probably delayed the recovery. A good corn harvest in the United States this summer could change the outlook quickly.
Operators’ concerns about the problem are mixed. Mexican chain Chuy’s this week raised its forecast for commodity price inflation to 2% to 4% “due to mounting cost pressures,” according to a transcript from financial services site Sentieo. Pizza chain Papa John’s said commodities could keep second-quarter margins from matching all-time highs in the first quarter. Texas Roadhouse raised its expectations for commodity inflation to 4% last week.
But Noodles, owner of Chile Brinker International, and companies like Applebee’s owner Dine Brands Global, all suggest commodity prices aren’t an issue right now.
Nonetheless, potentially higher prices for chicken and beef, or delays in supply, create challenges for chain operators who are replenishing supplies emerging from the pandemic.
Many traders have purchased inventory only based on current needs of the past year, given the sales issues. With sales returning, Olvera said, chains are filling their supply chains even as they strive to meet current needs. “It may be four to six months before everyone has the supply chain in a better place and people are comfortable with what they have,” Olvera said.
The prices could exacerbate existing problems with chicken and beef, in particular. Chicken prices are already high, as breast and wing costs have hit record highs due to intense demand and supply chain issues, such as labor issues with producers and the distributors.
High prices usually lead to increased supplies when producers decide to take advantage of the market. But feed prices could keep costs high for months on end, as producers are reluctant to increase supply further, fearing that prices will eventually drop.
“I don’t think integrators think $ 3 wings are the new normal or that $ 2 brisket will be around forever,” Olvera said. “We continue to see chicken production at record levels. But they could do more. They are much more careful on the basis of feed prices. “
When it comes to beef, Olvera said, higher feed prices could make it harder for beef producers to break even, although there is strong demand for things like steak and beef. burgers could allow them to raise prices more aggressively. “All of this translates into higher raw material costs and higher menu prices,” Olvera said.