The Stock Exchange News

The National Restaurant Association’s Restaurant Performance Index (RPI) “posted a modest gain” in August, according to the association’s monthly RPI release. The index increased 0.4 percent in August to 100.6. Perhaps more notable is the fact that this is the first increase in the overall index in five months. The matched its highest level in nearly 5 year at 102.2 in March but had fallen steadily before the August reversal. The index is constructed so that values above 100 indicate expansion while those below 100 indicate contraction of the restaurant sector.

The August increase was caused by a 0.8 point increase in the Current Situation Component which rose to 100.6. This component is itself comprised of four “indicators”, two of which improved sharply in August. The primary improvement was shown in same-store sales which improved by 2 full points to 103.6. Customer traffic also improved sharply, gaining 2.5 points to reach 101.4. Both the labor and capital expenditures indicators were down slightly for the month.

Sixty-one percent of the survey respondents reported higher same store sales than one year earlier in their August responses. Only 25% reported lower sales. Both of those are sharp improvements from July when only 53% reported higher yr/yr sales and 36% reported lower. It appears, at present, that July may have been an aberration to some extent as no monthly figures this year are nearly as bad. We wonder how much impact the hot weather may have had.

August’s Expectations Component was steady with July at 100.7. Not surprising, three of the four expectations indicators (same store sales, labor and capital expenditures) were also stable. The fourth, business conditions, did show some improvement in August, reaching 100.9, its highest level since April. Restaurant owners, however, remain cautious in their outlook for economic conditions with only 29% expecting better conditions six months hence and 20% expecting worse. Those are improvements from July’s 29% and 20%, respectively, but are far from a ringing endorsement of what is happening right now. The figures were in the upper 30%’s and lower 10%’s, respectively, for January through May before falling sharply this summer.

Feeder cattle prices continue to be whipsawed to some degree by changing fed cattle and feed futures. The declines since early summer took prices down more than $20/cwt from record high levels in June before reversing in July as corn futures began to moderate. Since that time, lower corn futures have helped feeder cattle futures but lower fed cattle futures have put a cap on any rallies.

Feeder cattle, of course, represent about the most transparent derived demand that we know of. Their value is determined primarily by the ultimate revenues they will earn as finished cattle and by the cost

of transforming them 700-800 yearlings to finished animals after roughly 6 months of high-energy diets in feedlots. Live cattle futures exert a positive impact on feeder cattle value while corn futures exert a negative impact and those two have been at odds for much of the summer.

Then there is the supply factor and the fact that feedlots have large investments in facilities that they would like to keep fully employed. We have mentioned often this past year that feeder cattle supplies are tight and getting tighter. Lower numbers and excess feedlot capacity will still be positive influences on feeder prices.