Conflict Drives Input Pain +0.6% w/w, +5.5% y/y; Energy, Packaging Surge; Softs, Meats Deflationary; HSY+, Wing Restaurants+, CPB-, EPC-; Grocers (ACI-, KR-) Caught in Cost Vise. Optimal Cost Factor
The Optimal Advisory Cost Factor accelerated on a y/y basis for the third week in a row. For the year, costs are up (+5.5% y/y) primarily on energy and packaging as oil again approaches $100/barrel. More importantly, costs are up sharply (~15%+) since February updates, leaving CPG companies scrambling for a 2027 narrative. Ironically, deflation in key perishables categories (dairy, eggs, meats ex beef) is hurting the comp outlook for food retailers (e.g. eggs @ ACI this week) even as costs rise broadly.
Cost tailwinds to watch: Meats/Proteins -27.4%, Softs/Sweeteners -10.5% y/y, HSY -14.4% y/y, Softs/Sweeteners -0.6% w/w after moving higher in the past month. See Fig 1.
Cost headwinds to watch: Energy/Freight +4.7% w/w & up 18.5% y/y, Oils/Oilseeds +12.0% y/y, Packaging +10.5% y/y, CPB +16.5% y/y, EPC +15.5% y/y. See Fig 1.
Higher energy costs & shipping risk are implicitly an immediate tax on everything: Within COGS, they drive the cost of packaging (esp. aluminum), inbound & outbound freight as well as farm level costs (diesel, fertilizer) that are key to plantings, supply & future food inputs. Within SG&A, they drive delivery costs. They also threaten revenue with more consumer budget constraints. We monitor weekly performance of key equity indices and macro indicators. See Fig 11.
After bottoming 3 weeks ago, Crude back up double digits w/w Middle East conflict expands to the Red Sea. Iran-backed Houthi rebels claimed two attacks on Saudi oil tankers in the Red Sea this week as Brent Crude rose again above $100 a barrel, now up roughly 60% ytd, but below the conflict peak. Shipping traffic and oil volumes likely to be disrupted again – halting a potential relief for outlooks in HPC and staples companies broadly.
Cost Factor +0.6% w/w, +5.5% y/y (vs. prior week +0.6 w/w & +4.3% y/y). Notable commodity moves this week include Bunker Fuel up 11% w/w and Diesel up 7% w/w after moderating in recent weeks. Coffee & Cocoa prices moderated this week after bouncing on El Niño based supply concerns.
In this weekly note, we identify spot input costs’ putative impact on the U.S. fast moving consumer goods (FMCG) value chain, most measurably impacting staples, staples retailers, restaurants & food service. Optimal’s proprietary cost factor weights ticker & sector specific cost trends using a proprietary formula based on 32 trackable spot cost inputs – 23 of which are updated as of last night, the other 9 are latest available.
Figure 1: Weekly Cost Factor Summary
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 2: Weekly Cost Factor Margin Context
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 3: Weekly Input Commodity Performance by Group
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 4: Biggest Input Cost Movers y/y
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 5: Food Sector Cost Factor
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 6: Beverage Sector Cost Factor
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 7: HPC Sector Cost Factor
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 8: Restaurant Level Cost Factor
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 9: Restaurant Employment Cost Index
Sources: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, USDA, BEA
Figure 10: Staples Sector Theme Box
Figure 11: Market Sector Performance
Sources: Optimal Advisory Proprietary Analysis, Bloomberg