Foodservice Shows
Dramatic Improvement
Beef and pork prices have been trending higher this spring, in part due to a resurgence in foodservice demand. While beef and pork supplies are down significantly compared to 2009 and 2008 levels, we always thought that the demand component also must have improved in order to justify some of the prices currently being paid for product. In some cases, beef and pork prices are hovering near all-time highs, approaching the levels last seen in the summer of 2008.
The supply side is quite transparent and easier to measure. Each day we get extensive reports on the number of animals going to market and we also have a good handle on the inventories of livestock and poultry that will be processed in the coming weeks and months. The demand side, on the other hand, is more tricky. But even on that front, there are notable signs of improvement.
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According to the National Restaurant Association, the U.S. foodservice industry is again on a growth path. Its monthly National Restaurant Performance index, a tracking index based on a monthly survey of restaurant operators, was sharply higher in March. It is currently at 100.5. Readings above 100 indicate expansion, and this is the first time that the index has crossed the 100-point threshold since August 2007. The jump follows three months of improvements in the overall index, a time that coincides with steady improvements in the overall U.S. economy and a rosier economic outlook.
Indeed, it is this optimism about the future that is currently driving the overall index. The overall index is made up of two subcomponents measuring how restaurant operators assess current conditions, as well as their expectations. The current situation index was at 99.0 in March, 2.3 points higher than in February and the highest reading since October 2007. While the current situation index remains below the 100 mark, it shows significant gains. Indeed, the same-store sales index component in March rose by 3.6 points compared to the previous month and now stands at 100.7, a dramatic recovery compared to last summer. Restaurant operators are by temperament an optimistic bunch, but their outlook about the future is one of the best in years.
The expectations component of the tracking index currently stands at 101.9, 0.5 points higher than the previous month and at the highest point since April 2007, well before the start of the current recession. The expectations component is important since it drives future orders, especially the outlook for the summer foodservice business. Combined with the improvements in sales and customer traffic, it helps explain the dramatic rise in beef and pork prices we have seen this spring.