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National Restaurant Association - Rising food prices still challenge industry, analyst says

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Rising food prices still challenge industry, analyst says

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When it comes to food cost, restaurateurs will continue to be challenged during 2012, commodities analyst John Barone says.

According to Barone, president of Fairfield, N.J.-based Market Vision Inc., protein prices are spiraling upward because of decreased supply, increased global demand and higher feed costs.

So what does this mean for the restaurant industry? Barone says it's going to depend on the segment you're in.

"Chicken was kind of our go-to protein for the last two years but those prices are going higher," he notes. "Beef is going to be very difficult for people this year.  And if restaurateurs have already got their menu prices set, they'll be ok on pork items. It's going to be another challenging year for food cost in a consumer environment that's been very slow to rebound."

In his March report, the commodities analyst states that beef supplies, because of smaller cattle numbers, weak imports and strong exports, will tighten even more than it did in 2011. Production, the USDA reports, is expected to decline 4.4 percent in 2012, to 25.1 billion pounds. As a result, beef prices will push higher this year than last year. An example: the price on choice beef cuts, priced at about $1.98 per pound, are headed for an April high of about $2.05 per pound. Additionally, he notes, the price of value cuts, such as ground beef, have never been higher than they are today. With unemployment running at 8.3 percent and the economy recovering slowly, consumer demand for that product is at its height.

It will be an extremely challenging year for poultry producers, too, as financial losses have led to lower broiler supplies, Barone continued. Year-to-date broiler output is forecast to be down 2.4 percent for the year, to 36.3 billion pounds, and as excess supplies continue to decline, prices will rise. On March 6, the USDA reported the price on broilers/fryers was up 14.5 percent from a year ago. Because of higher retail beef prices, white meat chicken parts are expected to increase as well. But chicken wings have shown the highest price increases to date. Barone says whole wing prices, which currently average $1.76 per pound, but are expected to decrease into the $1.20s by summer.

Egg production is down, too, and is projected to decline 10.7 percent this year.

Pork production is expected to increase 2 percent this year, but the main issue on pricing will be balancing the rise in output against strong export demand. Ham prices currently are running a few cents below last year's prices, at approximately 70 cents per pound and pork bellies are priced at $1.05 per pound, down from $1.30 in February. Loin pork ribs, however, have steadily gained since the start of the year and are priced at about $$2.95 per pound. That figure, Barone says, is expected to rise another 20 cents to 25 cents before peaking in May.

Pictured top, right: A tightened beef supply is causing prices to skyrocket.

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