Increased corn prices: Good news for commodities, bad for restaurants

12-02-2007 | | |

According to the US Department of Agriculture, the price of corn is now at US$3.20 a bushel, versus an average price of US$2.00 last year. Prices for poultry on the commodities market, meanwhile, have finally begun to recover in the past two months after the bird flu scare sent prices lower in 2006.

According to the US Department of Agriculture, prices for broilers averaged US$0.73 per pound this week. In 2006, the average price was US$0.63 per pound. That recovery, analysts and economists say, could be enough to bring producers back to profitability much sooner than previously expected. Although the poultry business lost money in January, profitability could return to the industry by as early as February.
However, Richard Lobb, spokesman for the National Chicken Council, which represents chicken producers, said since the higher costs are here to stay, producers will be forced to pass the costs along to consumers. Richard Bond, chief executive of world’s largest chicken producer Tyson Foods Inc., agrees.
“Neither the retailer or restaurant operator nor the protein producer can absorb these higher grain costs,” he told analysts in a late January conference call. “They will be passed along to the consumer who will pay higher prices for protein and other grain-dependent products.”
For chicken-oriented restaurant chains like Kentucky Fried Chicken and Buffalo Wild Wings, those costs could take a big chunk out of earnings.