Commodity Prices Have Peaked, Analyst Says

GREAT FALLS, Mont. -- Quick-service restaurants and convenience store chains looking for good news need to look no further than Bart Glenn, analyst for D.A. Davidson & Co. According to Glenn, "it appears commodity prices have peaked, at least for the near term. Although food inflation will remain an issue through 2012, it is encouraging that prices appear to be normalizing."

Glenn cited the Food Producer Price Index (PPI) to back up his claim. The PPI dropped 1.4 percent sequentially in May, according to a D.A. Davidson report cited by Nation's Restaurant News. Further evidence that commodity prices have peaked comes from the fact that prices of coffee, corn, lean hogs, live cattle, milk, soybeans, and wheat have all recently declined, Glenn said.

In addition, he noted that lower gas prices are certainly good for consumers and subsequently retailers, but they may not be as much as a boon as people think. "Although painful prices at the pump are clearly not beneficial to sales trends, we think the actual impact has been overblown," Glenn wrote in the report. "[However], a reduction in gas prices not only aids consumer spending power, but also means lower production and logistic costs of commodities of supplies."

Although he believes commodity prices have peaked and lower oil prices can't hurt food retailers, one "fly in the ointment" remains -- unemployment in the U.S. remains stubbornly high. The national unemployment was at 9.1 percent in May with employers adding just 54,000 jobs. In the prior three months, employers added an average of 220,000 jobs each of the prior months. Glenn said these unemployment and job hiring figures represent a weakened economy.

D.A. Davidson & Co. offers brokerage, capital markets, money management, trust and wealth management services.