DENVER--(BUSINESS WIRE)--Recent severe storms should prompt chain restaurant operators to keep a close eye to the sky this year for unexpected changes in the weather that could impact grain crops and force dramatic increases in commodity costs, according to DeWayne Dove, vice president of strategic planning for SpenDifference.
The company, a rapidly growing chain restaurant purchasing cooperative, is tracking long-range forecasts, watching for changes that could affect production of wheat, corn and other grains.
“Right now, the weather looks like it will cooperate this growing season,” Dove said. “However, if another drought were to occur, or if we receive too much moisture, wheat, corn and other grain prices would increase significantly and reduce profit margins for restaurant operators who do not have proper risk management strategies in place.”
With corn the key cost driver on many key restaurant items, any unexpected weather-related conditions that affect the harvest could raise the price to $6 a bushel or higher, compared to the current $4 range. That would result in higher feed costs for farmers and subsequent price hikes for restaurant operators, Dove said.
Volatility in weather conditions is just one factor that leads to volatility in commodity prices, and it illustrates a new urgency for operators to monitor all factors – geo-political events, crop yields, acreage planted, livestock diseases and many others – more often than ever before, Dove said.
“It’s no longer enough to set an annual budget for commodity costs and think you’re safe,” he said. “Risk management has to be addressed every day. It’s almost impossible to predict on a yearly basis how the factors affecting costs will change on any given day.”
For example, although corn prices are heavily dependent on weather, there’s the human factor to consider, Dove said.
“There are indications that farmers may decide to grow more soybeans and less corn, which reduces the corn crop and leads to higher prices,” he said. “Restaurant operators are then hit with stiffer costs than they built into their budgets. Poultry, pork and beef producers pay higher costs for feed, and they pass them along.”
Dove recommends operators understand commodity futures and the forecast around those commodities. This will allow them to apply risk management strategies at the optimal time in order to avoid any volatility in the marketplace. “In all my years of monitoring commodity markets, I have seen unequivocally that there’s always something that pops up and changes markets that no one saw coming,” he said. “Something always will arise and drive prices.”
Based in Denver, SpenDifference, LLC provides full-service supply chain support to restaurant chains, purchasing more than $1.2 billion annually in goods and services.
Editors’ Note: Dove is available for interviews.