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National Restaurant Association - Dwindling corn supply, high feed prices leading to protein cutback

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Dwindling corn supply, high feed prices leading to protein cutback

Rising feedstock prices resulting from the worst drought to hit the United States in years, will cause livestock producers to cut production and shrink the U.S. protein supply, a commodities expert told the National Restaurant Association.

According to commodities consultant John Barone, CEO of Fairfield, N.J.-based MarketVision Inc., livestock producers will slow their production of beef, poultry and dairy items because the cost of animal feed is escalating as the U.S. corn supply dwindles amid drought and extreme heat conditions in the Midwest, and prices for the commodity continue to skyrocket.

"What's happening across the whole protein spectrum is that just about all of the livestock producers - poultry and dairy farmers, hog producers and cattle ranchers - are in the red now based on where the feed prices are," Barone said. "That's going to translate into lower production because they'll have to cut back to minimize their losses."

But Barone said if feed prices hold at their current higher levels and producers cut back and restrict demand so they don't lose a lot of money, protein prices will increase dramatically, causing demand destruction, or a permanent downward shift in demand for the items.

The recent thinning of U.S. cattle herds has resulted in a temporary glut in the beef supply and lower prices, but Barone said that as the supply is diminishes later this year, replenishing it will take years to achieve.

"Beef prices won't be lower for a long time," he said. "We've lost another year this year where [cattle ranchers] won't expand their herds. It's too expensive to do it now, so now we're looking at next year, which would require a good pasture season and good feed production. From there it would take another year before they decide to expand their beef production. It's a big, big multiyear process for beef. You've got close to a nine month gestation period and then another year to raise them to slaughter weight. All in all, it's almost a two-year process."

As a result, Barone said the U.S. Department of Agriculture is looking for price increases of between 4 percent and 5 percent, "but I think it could be double that."

The commodities expert indicated that poultry prices, especially wings, will be on the rise, too.
All of this will lead to higher food costs for restaurant operators, he said.

"Steak chains will be hit hard again next year, and they're already having trouble," he noted. "On the poultry side," he added, "chains are getting hit hard because wing prices are double what they were last year."

 

To learn more about commodities and supply chain management, attend the National Restaurant Association's Supply Chain Management conference Oct. 15-16 at the Hyatt Regency Grand Cypress in Orlando, Fla., and John Barone's Fall 2012 Purchasing Conference Oct. 16-18, also at the Hyatt Regency Grand Cypress.

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