Commodities and cinemas: Oil, corn and sugar prices impact the concession stand
At the beginning of every year, I like to look at the consumer price index forecast to get a feel for what my annual grocery bill is going to look like. Likewise in the food business, commodity pricing around January and February is an important consideration in our margin forecast. Commodity trading, futures and crop outlooks for the year are fundamental economic indicators for the food industry, and ours has three in particular to monitor: edible oil, corn and sugar. So what is the 2012 forecast for them and what does that mean at the concession stand?
The first thing to know about edible oils is that soybean oil—the most consumed global oil—dictates the price of all other oils. This year, soybean is expected to continue its steady price climb, as global demand for it has not abated. But since most popcorn oils and butter toppings are blended oils, including soybean, canola and coconut, we also must look at tropical oils.
Tropical oils have experienced a downward pressure on price, primarily due to lower demand. Combined, these trends are pushing popcorn oil and butter topping to lower price levels compared to last year. Oil is a commodity that can be purchased at any time and contracts vary in length based on forecasts of future pricing. Currently, companies are booking as much as four to five months out in oil contracts to lock in very attractive current lower prices.
Oil contracts are opened, closed, blended complete and booked on a repetitive basis throughout the year. What the downward pressure on oils currently means is that concession bottom lines will look better in 2012, with a little more profit on the books as the oil costs are lower than last year. It’s not something that will directly affect our customers, it is a price advantage that will be absorbed by operations and closely watched throughout the year.
Popcorn is a different matter. Robert Scribner, a broker in the theatre industry who works with manufacturers of both oil and corn commodities, warns, “Unfortunately, all the money being saved on oil this year will be spent on higher corn prices.” Popcorn pricing generally follows field corn commodity pricing, although quantity commitments are generally booked a year out. Exact pricing comes in at the beginning of each year after the September harvest has been completed. This past year saw some major problems for corn fields, and the effect is being felt in popcorn pricing for 2012.
All crops are susceptible to weather, a given, but popcorn pricing in particular can be very volatile because it is such a small percentage of the overall corn that is grown around the world. Drought, floods, and hybrid fuels using corn have all affected the price of corn this year. The amount of space that farmers will allocate to popcorn versus field corn is the first consideration, and is affected by current political policies on ethanol. Once the fields are planted, the crops are at the mercy of the weather, and 2011 was tough.
How tough? A bushel of corn this time last year was priced at about $3.50 and this year it is $7.20. The result is higher corn prices in significant percentages, depending on the distribution costs that factor in after production costs. Is it enough to raise popcorn prices to the consumer? Probably not, since popcorn prices are already at a high level in difficult economic times. What it means is higher food cost. The effect of higher corn prices will be felt throughout the food world through all the distribution channels right up to the end consumer at the retail level. For the theatre industry, this is a big component of food cost. But the 2011 growing season was fraught with catastrophe in corn-growing regions across the globe, from drought and flooding in the Midwest to flooding in Argentina, as examples.
Some companies will try to buy off spot markets or only book corn contracts out for five to six months to see if the price of corn will ease up in the summer. But the popcorn crop for 2012 is already set, and spring planting will not ease the price pressure. Some lower-cost corn will find its way into the market to meet demand, but it will also be lower quality, what is called “crumb-line” corn, which only moves into the market when demand is outpacing supply.
The last commodity to truly affect our concession stand is sugar. Although it is not a direct commodity, when sugar greatly rises, as it has done over the past three years, candy prices follow. What is sugar forecast to do in 2012? Well, in 2011 sugar rose to a 30-year high in March and then plunged and ended up down for the year. The bottom line is that sugar supply and demand is leveling out. Rabobank states, "We forecast lower international sugar prices in 2012 as the market shifts into a surplus for the first time in three seasons.” Candy prices in the concession market have risen in the last three years, but the upward price trend should slow. This is welcome news for the confection industry, as prices should stabilize in 2012.
And the overall consumer price index I mentioned? Food prices will rise again this year by an average of 2.5 to 3.5%, with some categories higher than others, but with the overall upward trend in higher food costs continuing. This should come as no surprise, since we surpassed the seven-billion mark in world population in October of last year. We all have to eat. But for the concession stand, oil, corn and candy are our main concerns and they will be lower, higher and flat, respectively.
E-mail your comments to Anita Watts at email@example.com.