Combing through the 200-plus commodity markets may seem like a task worthy of stockbrokers and traders rather than restaurateurs but identifying trends and future predictions can have a strong influence on your costs and pricing strategy. Knowing how market changes can impact your product costs is one of the prime considerations when it comes to making optimal purchasing decisions. Here, then, are the most important considerations when delving into commodity reports.
Agriculture & Livestock Commodities
Agriculture and livestock commodities are staple crops and animals that are produced or raised on farms or plantations. These include grains, livestock, and dairy as well as peas, beans, corn, beets, and other fruits and vegetables. With food costs accounting for, on average, 30 percent of restaurant sales, these commodities are some of the most important to focus on.
In May, the World Agricultural Outlook Board (WAOB) released the USDA’s initial projections for crops and livestock for the coming 2019/2020 year. Their initial assessment showed abundant corn, soybean, and wheat supplies in the U.S. and around the world with corn expected to fall to $3.30 a bushel, the lowest since 2007.
Beef, pork and chicken are prime candidates for cost fluctuations. The past five years of declining feed costs have prompted record supplies of beef which has led to a drop in prices. This, however, is not the case for popular cuts such as beef brisket.
Poultry has seen a low with prices expected to bottom out. This is another protein that procurers may benefit by locking in contract pricing.
Pork, on the other hand, is unstable, at best. Many of you have heard about the African swine fever—the disease that first appeared in September of 2018 and has decimated the Chinese pig population, destroying an estimated 300 million, half of China’s pigs, by death or culling. China also happens to be the world’s biggest pork supplier. Currently, the disease has spread to more than 50 countries with experts in the U.S. preparing for a possible outbreak.
Not surprisingly, pork prices have seen some volatility this year. Surprisingly, prices have not escalated as expected due to smaller-than-expected exports. Many experts still maintain, however, that this devastating outbreak is certain to have an effect on pork prices in the coming year as supply lessens. John Barone, a commodity analyst, spoke with Restaurant Business, “This is unprecedented in my career—a shock of this magnitude.”
Experts are also expecting a trickledown effect to other proteins including grinding meats and chicken.
For those restaurants with an emphasis on this protein, such as those focused in on the bacon trend, now may be the time to lock in your pork supply and prices. Keep in mind that commodity pork and sustainably raised pork are two different supply chains that are affected very differently.
What You Can Ignore
Certain commodities such as oil and lumber—though still having an effect on the restaurant industry—do not have the same impact on pricing that agricultural and livestock commodities have. Of course, if your business is planning on building out and expanding, the price of lumber will have a significant impact, and if your establishments are out-of-the way destination venues, oil pricing will, down the road, affect consumer’s ability and desire to travel. Many Master Distribution Agreements contain language pertaining to rises in fuel prices and if prices spike, this can have a significant impact on the prices that operators pay their distributors for their ingredients and supplies. It’s important not to overlook this detail when negotiating and MDA.
Today’s Market
Acting fast when commodity prices rise by applying an established menu strategy can mitigate at least some of the negative effects. Smart menu engineering involves steering customers to menu items that are profitable and offering specials with pricing in mind. If the crystal ball shows an upward trend coming, consider raising prices incrementally instead of aggressively. Of course, if you’ve looked far enough ahead, locking in product and pricing is your best option.
According to Buyers Edge Market Alerts & Produce Updates on October 17, 2019, the following information should help those in the industry develop a game plan for the remainder of the year:
Some farmers are taking advantage of inflated lettuce prices by harvesting early, and avocado prices are expected to remain steady. Cheese markets remain high; however, an increase in milk supplies should temper this price growth and influence lower cheese prices in the weeks ahead. Beef is remaining steady with a potential for seasonal increase.
Pork continues to see record outputs with little effects noted from the crisis in China. Pork bellies, being a current trend, are expected to raise in price as well as ham as the holidays near.
Chicken breast meat is at its lowest price in over two decades for this time of year. Wings continue to remain steady. Sharper prices are expected at around the time of the Super Bowl with a downward trend into the end of the year.
As is evident by the information contained in commodity reports, staying up to date on current data is essential for operators looking to ensure food cost advantage. If knowing when to lock in pricing is out of you or your manager’s comfort zone, Consolidated Concepts can assist at any stage of our clients’ projects from discovery and negotiation to implementation and assessment.
