On Thursday the National Chicken Council, in collaboration with Farm Econ, announced in a teleconference that food inflation could be 7 to 8% in 2009. From Reuters:
"We've been losing money for more than a year," said Bill Roenigk, economist for the Chicken Council, who said producers intend to cut production by as much as 12 percent. "We need to recover these feed costs."
Thomas Elam, head of Farm Econ, said poultry, hog and cattle producers would cut production in coming months because of feed costs, meaning less meat on the retail market but at higher prices.
Menu prices are restaurants up 4.3 percent so far this year, the largest increase since 1990, said Hudson Riehle of the National Restaurant Association. He said one-third of each sales dollar goes to food purchases.
Who are these high food prices benefiting, if anyone? All Monday long Wall Street waited on edge, as preliminary news from Tyson spoke to a fourth quarter loss. When final profits were posted, however, a much different picture emerged as the industry giant reported a 50% rise in profits. Most of the gains were in the beef and pork sectors, as the poultry division suffered on the rise of grain costs. Representatives from Tyson said that grain costs climbed $230 million in the quarter accounted for a loss of $91 million in its chicken unit.
The other big winner was McDonald's, who saw same-store sales rise 8.2%. The key to their success seemed to be value, as consumers passed up sit-down dinners in exchange for Dollar Menu items and new features such as the Southwestern Chicken Biscuits. Forbes has more on the story:"Producing the three major proteins has proven to be a strategic advantage," said President and Chief Executive Richard L. Bond. "The strong performance by our beef and pork segments supported the chicken segment as it struggled throughout the year due to low prices and high input costs."
The meat industry has been hit by high input costs for key ingredients like corn and oil, as well as an oversupply of meat on the market that's keeping prices down and slumping restaurant demand as consumers eat at home more often. Bond noted that fast-food restaurant sales are holding up, even as people are cutting what they spend when they eat out.
"People are still eating beef but they are eating less expensive cuts," Bond said. "We expect this trend to continue in 2009."
Monday's report provided a new indication that McDonald's low-price formula--such as the recession-friendly Dollar Menu-- is a winning strategy during a difficult economic period. The stock market tells the story: While the Dow Jones industrial average has slid 31.9% over the past year, reflecting the turmoil in the world economy and financial markets that began with the U.S. subprime crisis, McDonald's has shed only 3.4%. That's better than its fast-food rivals like Burger King, down 24.6%, and Yum! Brands, 28.6%, and significantly ahead of casual-dining companies like Ruby Tuesday, which has fallen 88.3%.What about the rest of the industry? Is any help on the way?
While there is no food industry bailout currently in the works, some companies are getting creative to ease production costs. MarketWatch has a press release from a corporation in Illinois announcing a newer, cheaper packaging for meat and produce:
What do you think about the Tyson profits? Do you think their first quarter posting will be as high? Let us know in the comment section below!SCHAUMBURG, Ill., Nov 10, 2008 (BUSINESS WIRE) -- PLIANT Corporation introduces new Revolution(R) meat and produce wrapping films for improved yield and higher performance at lower costs. With recent economic conditions affecting supply prices, packagers can now counter these increases and replace their current packaging with a remarkable new substitute.
Revolution evolved from the combination of PLIANT's unique global PVC production capabilities and 50 years of expertise in the packaging film industry. Drawing on its double-extrusion process and proprietary resin formulating capabilities, PLIANT developed this thinner gauge, high performance film. Utilizing the Revolution product can lower packaging expenses, while maintaining outstanding performance characteristics for both in-store manual wrap stations and high-speed automation.
