By Peter Thor, President, Delco Foods
The list of problems facing restaurateurs and food distributors is long and seems to grow every day. In March, the restaurant industry and much of the nation was put “on-pause” and months later the “opening” is proving to be a monumental challenge. Consumer health and safety concerns affect demand, while government health regulators prohibit full dine-in opening and require a multitude of operational changes. The re-engagement of product supply has been similarly restrained by labor force illness, new regulatory requirements and ingredient shortages. The result has been unprecedented volatility and skyrocketing costs. Is help coming?
The product supply issues have recently become critical as most states attempted to “re-open” at the same time, causing a sudden demand wave for fresh dairy and protein products. Plants ramping up production have had workforce virus infection related closures and capacity restrictions to those operating. Many of the largest and most respected producers have been affected, including more than 50 poultry and pork plants and at least 26 beef plants. Resultant shortages and rapid increases in wholesale prices have resulted. As an example, Pork 72’s and Beef 50’s are typical prime ingredients to make pepperoni and other dry sausage products. Pork ingredient costs rose 70% in less than 8 weeks, and beef more than doubled during the same period. Poultry increases were less severe. Help is coming for all proteins as the initial surge in demand is moderating and production is building. Both pork and beef wholesale costs are off their highs, with both pork 72’s and beef 50’s lower by 1/3. Importantly, supply shortages are being filled and another month should be fulfilling demand.
As virus related closures became widespread, demand for cheese first cratered, then exploded. While cheese plants operate with far fewer employees, the short shelf life of fresh cheese created logistical nightmares. For a brief period, CME block prices fell to $1.00 per pound, then rocketed past annual average pricing to the record $2.58 per pound in early June, a record of sorts.
While prices have not yet returned anywhere close to normal, we do expect this will moderate in coming weeks as production and logistical issues are resolved, so help is coming! Forecasts suggest CME block prices could approach a more normal $1.60-1.80/lb. by end of summer.
One of the big unknowns with respect to domestic product supply and pricing is the international situation. The Covid virus is an international pandemic, creating havoc around the globe. But international trade being what it is, there are implications to such volatile supply and pricing. For example, supply restrictions for cheese and dairy products have mostly eased. Returning demand for food service products coupled with strong retail demand will bring challenges because aggressive export commitments were made during the low-price period. This suggests continued price volatility in dairy in general and cheese in particular.
International markets will also play an outsized role in pork and beef pricing. The African Swine Fever (ASF) has not been in the news lately but is still impacting pig herds in China, Viet Nam, Philippines, and parts of Europe. Estimated to have resulted in loss of 1/3 or more of the Asian swine population, the “normal” international trade buffer will not come to our rescue. Geopolitical tensions between the U.S. and China adds to the uncertainty. The bottom line for pork and beef pricing is probably more volatility but hopefully moving in a downward trajectory.
Announced last week is new legislation to help independent restaurants to reopen and recover from Covid-19 challenges. The proposed legislation will create a fund to deal with the impacts of the coronavirus and help reemploy the 11 million workers who lost their jobs. Senator Wicker, a bill sponsor states “Restaurants are facing months of massive revenue losses because of government mandated social distancing, rising costs of supplies, new expenses for personal protective equipment, and a decrease in the public’s willingness to dine out.” The National Restaurants Association also praised the legislation. A recent survey found that 75% of restaurant operators believe they will not be profitable over the next six months, given no additional relief from the federal government. Help is on the way!
Delco Foods has a restaurant opening kit on their COVID-19 update page and can assist with a variety of resources. We wish you all good fortune and healing during these difficult times!