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As cheese prices surge, gas price spike set to also strike delivery-centric pizza biz

After weekend drone attacks sliced Saudi oil output in half, the delivery-centered pizza business may soon get a one-two punch from both higher gas prices, and surging cheese costs.

September 16, 2019 by S.A. Whitehead — Food Editor, Net World Media Group

The big story this week for the delivery-centered pizza restaurant business is, of course, the price of gas after the weekend's drone attacks on Saudi Arabian oil facilities that have cut the oil-producing nation's stores in half, leaving the world short of an estimated 5% of its total oil supply. 

This morning, the Guardian reported that about an hour into trading in Europe, oil prices were posting their biggest spike on record, leaving some analysts to predict $100 barrels may soon be in the offing. At this hour, the exact source of the oil field attacks was still the subject of speculation, though U.S. officials have said that Iran is responsible. However, Houthi rebels have said they launched the attack from Yemen, according to German-based news agency, DW. 

Add to this near-certainty of mounting gas prices, the fact that cheese prices have also soared dramatically in recent days, and you have the makings of some serious operational cost adjustments for many pizza brands. 

Cheese 

Cheese market prices were up over last week's trading, with barrels closing Friday at $1.92, while 40-pound blocks came in at $2.21, according to the USDA Agricultural Market News Service. The weekly average for barrels was up 11 cents to $1.85, while blocks surged ahead 13 cents to average $2.10 for the week. 

Despite the prices — which the USDA said recall those of five years ago — demand for cheese remains strong, with pizza cheese makers reporting seasonal increases in orders, thanks in some part to school orders now that the new academic year is off and running. 

So, even with production reported to be active nationwide, cheese market prices have soared to points not seen since the most bullish year on dairy markets this decade in 2014. The USDA reports that most of those involved closely in cheese markets have also been surprised by the abrupt bullish move in the commodity's prices. 

Wheat

Following what is increasingly appearing to be the tone of markets of concern for pizza brands, cash bids for wheat last week were also higher. Wheat was 4 3/4 cents lower, to 18 cents higher, according to the USDA Agricultural Markets News Service last week. Kansas City U.S. No. 1 Hard Red Winter, ordinary protein rail bid was 14 3/4 cents higher, from $4.78 1/2-$4.88 1/2 per bushel. Kansas City U.S. No. 2 Soft Red winter rail bid was not quoted.  

St. Louis truck U.S. No. 2 Soft Red Winter terminal bid was 10 to 18 cents higher, at $4.86 per bushel. Minneapolis and Duluth U.S. No. 1 Dark Northern Spring, 14.0 to 14.5 percent protein rail, was 4 3/4 cents lower to 1/4 cent higher, at $5.87 1/4 per bushel. Portland U.S. Soft White wheat rail was steady to 5 cents higher, from $5.70-$5.80 per bushel.

Vehicle fuel

As political leaders in the US and worldwide work to pinpoint the exact source of the attacks on Saudi oil production facilities this weekend, energy analysts are working to determine just what a loss of 5% of the world's fuel supply will have on the prices businesses and consumers pay at the pump. 

According to the Guardian, Energy Aspects Analyst Amrita Sen said it will take a few weeks before the pump prices start to reflect the effect of the attack. However, other analysts contacted estimated that prices could jump 25% or higher than what they were last Friday. In fact, some market experts suggest that the ultimate effect could be a return to the prices paid five years ago, which would be a hike of 50% more than current prices of slightly more than $50 a barrel. 

Today, however, at the time of this writing, AAA reported that the average US price for a gallon of regular is $2.56, which is about even with last week, but 8 cents lower than last week and 29 cents under what we paid last year. Mid-grade ($2.90) and premium ($3.16) followed that same general trend. Diesel ($2.93) and E85 ($2.27) were also down from last month, though not as steeply as gasoline prices. 

Natural gas

For the seven-day period that ended on Sept. 11, natural gas spot prices rose at most locations with Henry Hub spot prices rising from $2.42 per million British thermal units (MMBtu) to $2.59/MMBtu over that span. 

At the New York Mercantile Exchange (Nymex), the price of the October 2019 contract increased 11 cents, from $2.445/MMBtu to $2.552/MMBtu on Sept. 11. The price of the 12-month strip averaging October 2019 through September 2020 futures contracts climbed 9 cents/MMBtu to $2.561/MMBtu.

Net injections to working gas totaled 78 billion cubic feet (Bcf) for the week ending Sept. 6. Working natural gas stocks are 3,019 Bcf, which is 15% more than the year-ago level and 2% lower than the five-year (2014-18) average for the week.

The natural gas plant liquids composite price at Mont Belvieu, Texas, rose by 30 cents/MMBtu, averaging $4.86/MMBtu for the week ending Sept. 11. The price of natural gasoline, ethane, propane, butane, and isobutane all rose, by 6%, 12%, 5%, 3% and 5%, respectively.

According to Baker Hughes, for the week ending Tuesday, Sept. 3, the natural gas rig count decreased by two to 160. The number of oil-directed rigs fell by four to 738. The total rig count decreased by six, and it now stands at 898.

Pizza company stocks

Pizza Hut parent, Yum Brands was the loser last week in trading, when the triple-QSR company dropped in value from $119.21 on Sept. 6 down to $111.36 last Friday. 

Meanwhile, competitor, Domino's recorded a nice bounce in value over the week's trading closing up $7.70 to end the week at $245.05. Papa John's also got a lift in value, closing Friday at $52.24, up $2.61 from the previous Friday's close. 

Photo: iStock 

About S.A. Whitehead

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Pizza Marketplace and QSRweb editor Shelly Whitehead is a former newspaper and TV reporter with an affinity for telling stories about the people and innovative thinking behind great brands.