Perhaps the best news for restaurant owners and operators going into 2017 is this simple fact: protein prices will likely remain low for some time.
“If you enjoyed this year, the foundation is in place for very favorable purchase prices for the next several years,” says Don Close, vice president of food and agribusiness research for animal protein at Rabobank, the agricultural-focused banking giant.
How low?
Wholesale beef prices are down 30 percent since May 2015, reports the USDA. What’s more, November was the largest beef production month this decade, which also will result in lower prices in 2017. Beef production is projected to rise 5 percent in 2017, according to CattleFax, a source for the beef and agricultural Industries.
“We’re currently producing more beef and it is the highest quality beef ever,” says Tracy Brunner, president of the National Cattlemen’s Beef Association.
Meanwhile, pork prices are falling, too. Live pork pricing has hit a 10-year low this year and supply will be up for the year by 2.6 percent, and is expected to grow another 1.7 percent in 2017, projects the National Pork Board. “There is a real bottom line opportunity for operators,” says Stephen Gerike, director of foodservice marketing and innovation for the board.
For restaurant owners and operators, there are two key questions that must be answered:
No. 1: What are the key drivers behind continued lower protein prices in 2017?
No. 2: What should they be doing to take advantage of these lower prices?
“This is a once-in-quarter-century opportunity,” Close says. “I’ve seen ups and downs in the protein market over the years, but this is the biggest one I’ve ever seen.”
Let’s look first at two of the drivers besides supply:
Good corn crops. Corn production reached record volumes in 2016 and that will continue to reach new records in 2017, projects Close. Corn production exceeded 15 billion bushels this year, he says. “That is hands down a new record for volume, which leads to record supply of feed grains that makes feed costs affordable,” he says. Lower feed costs, of course, encourage producers to produce more livestock.
Fewer crisis enablers. Several years ago, protein producers were confronted with all kinds of mini-crisis events. In 2011—12, a severe drought across the southern U.S. forced liquidation of many cows, says Close. About the same time, the PED virus impacted pork supply and there was a shortage of broilers due to bird flu. “The reduction of all three species at about the same time really forced prices to all-time highs in 2014, and the first half of 2015,” he says. Now, however, prices on all fronts have begun to decline.
“All of these proteins are substitutes for each other, so their prices often move together,” says Jayson Lusk, professor of agricultural economics at Oklahoma State University.
So, what should savvy restaurant operators be doing about all this?
Add more protein to the menu. “It’s the ideal time, in particular, for restaurants to add more beef items to the men,” Close says. Many fast-food chains already are taking advantage of this, he notes, including McDonald’s, which has its eyes on offering various versions of the Big Mac.
Add high-priced beef items. While the lower-priced protein offerings may be alluring, restaurant owners are increasingly trying to entice consumers with expanded offerings, says Lusk.
Promote animal welfare. Consumers are increasingly willing to pay more for proteins that are grass-fed or produced without antibiotics or without hormones or which are organic, notes Lusk. “The challenge is for restaurants to find a steady and secure supply of products at this level,” he says.
Consider more “5th meal” proteins. Millennials, in particular, are fond of late-night eating, which opens the possibility of new protein snack options during off hours, says Close.
Just how long will all of this good news last on the protein front?
Well, prices on the feed side will likely remain low for at least the next few years. “So, for the next year or two forward, we’ll see affordable protein prices,” Lusk says.
