Corn prices have been soaring over the past year, rising more than 50% in 2021 alone and coming close to $7.50 a bushel, levels not seen in nearly a decade.
That could take protein prices with it. As corn prices go, so go prices for chicken and beef, in particular. At the very least, it adds a potential challenge for operators in the coming months to go along with challenges finding workers—and potentially leading to higher menu prices that could offset their recovery.
“It’s not exactly the best outcome when foodservice is having to fight back from having been down,” Isaac Olvera, lead food and agricultural economist with Arrowstream, said in an interview. “Higher menu prices are not what you want to see when you come online and have to convince consumers to come back.”
The issue, he said, is “a perfect storm” of international demand, domestic demand, and supply challenges. China is purchasing a lot of corn, for instance, and the U.S. is exporting corn at a record pace. Drought in Brazil has hampered the corn crop there, which had already been delayed. Some of the blame also lays with federal regulators that did a poor job estimating the market.
“There are just a lot of recursive issues on the supply side as well as demand,” Olvera said.
The issue isn’t necessarily expected to lead to long-term supply challenges as it did a decade ago when an industry coming out of recession was hit with food cost inflation that lasted for years and likely delayed a recovery. A good U.S. corn crop this summer could change the outlook in a hurry.
Operator concern about the issue is mixed. The Mexican chain Chuy’s this week raised its expectation for commodity price inflation to 2% to 4% “due to increasing cost pressures,” according to a transcript from the financial services site Sentieo. The pizza chain Papa John’s said commodities could keep second-quarter margins from equaling the first quarter’s record levels. Texas Roadhouse last week raised its expectations for commodity inflation to 4%.
But Noodles, Chili’s owner Brinker International and companies like Applebee’s owner Dine Brands Global all suggested commodity prices aren’t a concern at the moment.
Nevertheless, potentially higher prices for chicken and beef, or delays in supply, are creating challenges for chain operators rebuilding supplies coming out of the pandemic.
Many operators bought inventory based only on current needs for the past year, given sales issues. As sales have returned, Olvera said, chains are backfilling their supply chains even as they work to meet current needs. “It may be four to six months before everybody has the supply chain in a better place and people are comfortable with what they have,” Olvera said.
The prices could exacerbate existing issues with chicken and beef, in particular. Chicken prices are already high, as breast and wing costs hit records due to intense demand and supply chain issues—such as labor challenges with producers and distributors.
High prices usually lead to increased supplies as producers decide to take advantage of the market. But feed prices could keep costs high for months, while producers grow reluctant to increase supply further, fearing that prices will ultimately come down.
“I don’t think any integrators are out there thinking that $3 wings are the new norm or that $2 breast meat will be here forever,” Olvera said. “We continue to see chicken output at record levels. But they could be doing more. They’re considerably more cautious based on feed prices.”
On beef, Olvera said, higher feed prices could make it tougher for cattle producers to break even, though heavy demand for things like steak and burgers could enable them to raise prices more aggressively. “It all translates into higher commodity costs and higher menu prices,” Olvera said.
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