Inside Supply Management Magazine
Projected Food Price DecreaseWelcomed, but 'Uncertainties' Remain
When it forecast a 10- to 17-percent decrease in beef prices across all primal cuts this year, SpenDifference didn't mince words, calling it "the biggest story of the year" for chain restaurant operators and supply chain professionals.
Richard Pineda is looking at many of the same indicators, and the vice president, supply chain at Pieology Pizzeria says the projections are encouraging. But his optimism is more cautious.
"In my world, we try to look as far out as 12 months as we possibly can," Pineda says. "Anything can happen, a PED (porcine epidemic diarrhea) virus, avian flu, there are so many variables that can impact it. I remember back in the day, you could contract products out for a year on a lot of the core proteins. Nowadays, I don’t think anyone will do that anymore. There’s too much volatility on the market today, too many uncertainties."
Pineda specializes in poultry, dairy and vegetable procurement for Pieology, which has headquarters in Rancho Santa Margarita, California, and more than 100 fast-casual pizzeria locations in the continental United States, Hawaii and Guam. SpenDifference, a Denver-based supply chain management firm, still had good news for Pineda, forecasting a 3- to 4-percent drop in chicken breast meat prices in 2016.
SpenDifference cited the avian flu outbreak of 2015 that caused chicken exports to drop, resulting in a much larger supply in the United States. Also, the cost of corn, which impacts the prices of many animal proteins, is expected to be below US$4 a bushel.
If the forecasts are correct, restaurants should find food-cost targets much easier to hit.
"With cheaper beef and lower prices of other commodities, restaurants are starting to consider lowering menu prices to increase customer counts and boost their profit margins at the same time," DeWayne Dove, vice president of risk management for SpenDifference, said in a press release.
The beef-price drop is the perhaps most refreshing forecast, as prices have been climbing since 2010, peaking at $4.71 a pound in February. As with chicken, supply of beef in up in the United States, especially bigger, fatter cows that can produce more meat.
The U.S. Department of Agriculture's Economic Research Service was not as optimistic in its Food Price Outlook, 2016 report issued in January, forecasting beef prices to remain steady. ERS anticipates a 4- to 5-percent decline in farm-level cattle prices and an increase in wholesale beef prices by as much as 1 percent.
While various forecasts might differ on the degree, however, the direction seems clear.
"We’re happy to see it," Pineda said. "It makes all of us in supply chain more able to focus on our jobs and not worry that something is going crazy."
Among other items in the SpenDifference forecast:
●Turkey was impacted by the avian flu, killing 7 million birds and resulting in a 28-percent cost increase last year. The price is expected to remain around $4.50 a pound.
●Wheat, which fell to a record-low cost in 2015, is expected to remain steady thanks to a supply increase.
●Soy oil, which decreased in price by 17 percent last year, is forecasted to cost about 9 percent more.
●Butter has been more challenging to forecast due to price volatility, but the cost per pound is expects to drop to $1.95, from $2.10 in 2015.