How food costs will fare in 2018

First, the good news: Forecasters expect 2018 to be a generally better year for food costs than restaurants experienced last year. “What’s good here is that the cost of food is going to see a pretty modest increase,” says Joe Pawlak, managing principal for Technomic, referencing data from the Bureau of Labor Statistics’ Producer Price Index. “So, restaurants won’t have to price up to a high extent to maintain their margins.” 

Corn and soybeans—among the most important indicators, because they are the feed items for proteins and dairy—have seen record or near-record crops. “We have the best available feed supply in the last decade,” says David Maloni, president of the American Restaurant Association, which tracks and analyzes food commodity markets. “That should encourage protein and milk production, and that’s really good news for 2018.”

However, at least one pain point of the past year—chicken wing prices—will likely persist in 2018, forcing operators to get creative about how they price the menu staple. Further, developments outside the industry could throw a curveball into the forecast. Here's how.

The ARA’s models suggest slight relief in chicken wing prices. But, Maloni cautions, “In my mind, we haven’t seen prices go to a level yet where we’re rationing demand in any great level, and that’s concerning.”

Near press time, wing prices had dipped to a 14-month low, but the growth in chicken production is expected to be tempered during the winter, with the USDA predicting a 1.6% increase year over year. A number south of 2% suggests a trend toward higher prices, says Maloni, a challenging situation for restaurants heading into the Super Bowl and March Madness.

This trend in prices may solidify a strategy that Popeyes, Buffalo Wild Wings and a number of other chains are trying: steering diners toward lower-cost boneless wings and building in flexibility for bone-in wings on the menu. 

While the Trump administration’s ongoing efforts to renegotiate NAFTA aren’t expected to fall apart in the end, the fact that the process has been fraught with tension makes it worth watching, says Maloni. If NAFTA unravels, it would be devastating for the price of avocados, for example, which already has risen due to crop shortages. 

But even just the climate created by that renegotiation could impact commodities longer term. Currently, 40% of U.S. butter exports and roughly a third of its pork, cheese, chicken and beef exports are to Mexico. Any notable change could put downward pressure on prices, Maloni explains.

Last year was volatile for beef prices. In 2018, while they’ll likely spike at least once, Maloni says, there are opportunities for prices to go lower. And while that’s good news, it may be short-lived.

The reason: a drought in the southern Plains. If it continues, producers could send more cattle to slaughter. In the short term, it could drive beef prices lower, but it will affect cattle production in 2019, which would be bad for restaurants’ bottom line.