July 12, 2012
US corn crop is still affected by an on-going Midwest drought, raising possibilities of costlier food prices for the restaurant industry, according to John Barone, CEO of Fairfield, New Jersey-based Market Vision Inc.
Only 40% of the corn crop this year is positively rated, compared with 66% in the same period a year ago. This should result in higher feed costs for farmers and elevated food prices due to beef, poultry and dairy shortages, according to the National Restaurant Association.
"The quality of the crop certainly has declined because of the lack of rain," Barone said. "Currently, the corn is in the pollination stage and is going through a silking process that determines how many rows there are and how many ears we'll get per acre. If it doesn't rain soon, we're looking at the crop being two or three weeks away from disaster. Or it could rain tomorrow, which would mitigate the whole thing. It's amazing how dependent we are on the weather in the Midwest."
The USDA projected this year record planting that would yield approximately 166 bushels of corn per acre, Barone said. However, the drought has sliced that number down to about 150 bushels per acre, raising the price from US$5 a bushel to more than US$7-- which is not good news for the industry, he added.
"For the restaurant industry, the big takeaway is that US$5 corn would have meant profitability, particularly for poultry producers and dairy farms," Barone said. "At US$7 a bushel, they're going to cut back on production. Corn is the major feed input for poultry and, to a large extent, the hog industry. It also makes up a big percentage of dairy cow feed and, to some degree, cattle. Commodities [prices], which were finally starting to look good this year, are not."
In expecting the price of feed expected to rise and the poultry supply to decline, restaurant operators should not anticipate elevated wing prices to come down anytime soon, Barone warned.
"We'll just have to wait and see what happens, but anybody looking for wing prices to come down, that can't happen until more birds are produced," he added. "There are only two wings to each chicken, right?"
The drought, which hit the southern plains hard in 2011, burned out pastures and dried up creek beds, especially in Texas, causing cattle farmers to trim their herds and hold on to only what they could support, he said.
"What's going to happen now," he added, "is that the rebuilding of those herds will likely be on hold until next year. We thought we might be looking at some relief on beef prices in 2014, but now we're looking at 2015."