DENVER--(BUSINESS WIRE)--Reversing years of steadily increasing prices, the cost of beef is expected to decrease between 10 percent and 17 percent across all primal cuts in 2016 in what amounts to “the biggest story of the year” for chain restaurant operators, said DeWayne Dove, vice president of risk management for supply chain management firm SpenDifference.
The outlook for beef and other commodity costs is contained in the company’s annual purchasing forecast, which tracks the prices restaurant chains pay for food products.
“The drop in beef prices is clearly the best news operators have had in many years,” Dove said. “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.” Dove added that winter storms hitting key cattle and grain regions are not expected to affect production or prices.
Higher cattle weight and a 4 percent rise in production led to the forecasted price decline for beef, he said.
The cost of corn, which drives prices of the other commodities, is forecasted to be below $4 a bushel to $3.96 for 2016, according to the purchasing forecast.
Boneless chicken breast meat will decrease in cost by 3 percent to 4 percent in 2016 because of an increase in supply. Last year’s avian flu led to a drop in exports and a “tremendous amount of supply” domestically, Dove said.
Turkey flocks were especially hard hit by the flu, with 7 million birds destroyed. That resulted in a 28 percent cost increase for turkey breast in 2015. The price is forecast to remain at $4.50 a pound or slightly higher in 2016, Dove said.
The cost of liquid eggs has yet to recover from effects of the flu, trading in the mid-80 cents a pound. The pre-flu cost was 70 cents.
An outbreak of the flu occurred in early January in Indiana and caused 245,000 turkeys and 156,000 chickens to be destroyed, but the state’s veterinarian said he was optimistic that it had been wiped out. Dove said vaccines to prevent a widespread outbreak have been tested successfully and that the devastation of 2015 is not likely to recur.
Other highlights from the forecast:
- The cost of wheat, which fell to a record low in 2015, should remain the same in 2016 due to an increase in supply.
- Soy oil is expected to cost 9 percent more in 2016, but it’s coming off a 17 percent drop in price in 2015. Soy meal, however, is forecast to cost 5 percent less this year.
- Pork will cost about the same as it did last year, with the possibility of a modest decrease of 3 percent.
- Butter continues to be a challenge because of its price volatility. The average price per pound in 2015 was $2.10, but the cost could drop to$1.95 this year.
Other variables, such as heavy rains or a summer drought could damage grain crops and produce, negatively affecting supply and costs, Dove said. He added that the slumping economy in China is decreasing demand for U.S. commodities, which will help to maintain current prices. And with the U.S. dollar at an 11-year high, if China or other countries further reduce their imports from the U.S., supply here will increase and costs will drop.
“Overall, restaurant operators are in a good spot for 2016 as long as they have risk management strategies in place to blunt unexpected volatility in commodity costs,” Dove said.
About SpenDifference
Based in Denver, SpenDifference, LLC, is a supply chain management firm that partners with restaurant companies of varying sizes, providing a wide array of supply chain support services that manage costs and support growth. It currently works with approximately two dozen regional, national and international brands that represent more than $1.3 billion annually in purchasing. Visit www.spendifference.com for more information.
