Lobster Prices Collapse

The Financial Times is reporting Maine lobstermen suffer as prices fall.

Gerry Cushman, who runs a lobster boat out of Port Clyde in Maine, usually works overtime in November hauling traps so that he can salt away money for the long, cold months ahead.

But his prospects of building a winter nest egg this year are bleak. An unusually large lobster harvest, coupled with a weak US economy, has pushed lobster prices to their lowest point in more than two decades.

Seafood shops along Portland Harbor are selling lobsters for as little as $3.89 per pound, which is about what you pay for a pound of cold cuts at the supermarket. The low prices are due mainly to an imbalance in lobster supply and demand. Consumers are dining out less at a time when the lobster catch in Maine and Canada has increased by between 10 and 20 per cent from last year.

“Consumers started pulling back from going out to eat as often and pulling back on discretionary spending,” says John Norton, president and chief executive of Cozy Harbor Seafood, a seafood processor in Portland. “To a certain extent, lobster is a celebratory item and people weren’t feeling celebratory in October.”

Dan Zawacki, chairman of Lobster Gram, a Chicago-based internet lobster marketer, recently introduced the “Lobster Bail Out”, to help stimulate sales.

The company is selling its live lobster packages for up to half their regular price and donating a portion of its sales to help the Lobster Institute, a research organisation at the University of Maine. Since the promotion began, the company has shipped more than 600 packages of between two and six lobsters. “In this economy, our customers are not going out and buying themselves a new convertible or remodelling their kitchens but they may think, ‘Sure, I’ll spend a hundred bucks to get a bunch of lobsters and have a great dinner,’” says Mr Zawacki. “The lobstermen need our help.”

Larry Lobster Jr. Disagrees

Larry Lobster Jr., son of Larry the Lobster, disagrees with the lobster promotion idea.

Larry The Lobster was the subject of an April 10, 1982 comedy routine by Eddie Murphy on Saturday Night Live. In an early example of interactive television, Murphy held Larry, a live lobster, aloft and declared that the show's audience would determine whether he lived or died.

Murphy then read two "900" phone numbers, one for those who wanted to spare Larry, and another for those who wanted to see him cooked. In the span of 30 minutes, viewers made nearly 500,000 calls, sending phone traffic soaring.

The heavy phone use stood as a record, or near-record for many years. The spike in traffic perplexed AT&T employees, who eventually figured out that the program was responsible.

Though the phone network survived the spike, it was sufficiently threatening to operations that AT&T established communication with the television networks so that they could be warned of potentially disruptive future events; this system remains in use to this day.

Larry was initially spared by about 12,000 votes. 239,096 callers voted to save him and 227,452 voted for him to be boiled.

In an exclusive interview, Larry Jr. asked for a permanent moratorium on lobster harvests and said "Let Them Eat Tofu".

Cattle Futures Drop

Bloomberg is reporting Cattle Fall as Slowing Economy May Cut Beef Demand; Hogs Steady.

Cattle futures fell the most in two weeks on speculation beef demand will shrink as the economy slumps. Hog futures were little changed.

"Beef is an upper-end meat, as far as the economy is concerned, and therefore in all likelihood is going to take a major hit in demand," Kruse said. "It's hard to conceptualize how cattle prices can stay in the 90s next year, when we're looking toward one of the worst economic recessions in years."

High-end cuts of beef may become a "delicacy" as cash- strapped consumers trade steaks for cheaper hamburgers, Kruse said. McDonald's Corp., the world's largest restaurant company, said yesterday that October sales climbed 8.2 percent from a year earlier as consumers, pinched by rising food bills, bought more double cheeseburgers for $1.

"McDonald's same-store sales were up over 8 percent in the last measurement, and to me that's bearish for beef," Kruse said. "It's just one more sign that the consumer is not just backing down the food supply chain, but running down it toward the cheapest level. McDonald's dollar hamburgers are what they're going to eat instead of at a nice steakhouse."

About 60 percent of restaurant operators surveyed by the National Restaurant Association reported declining same-store sales for September, according to a monthly statement from the trade group on Oct. 31. The association's Restaurant Performance Index, which tracks sales and traffic, fell to the lowest level in its six-year history in September.

The cost of beef has advanced because the supply of cattle to U.S. slaughterhouses is shrinking, Kruse said. Feedlot operators cut purchases of young animals in six of the last seven months because of higher costs for corn, which means fewer animals will be raised to slaughter weights, USDA data show.

Cattle Futures



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Corn Monthly Chart



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Corn prices are back on planet earth after rising in hyperbolic fashion then crashing like nearly other commodity.

On the other hand, cattle futures have been range bound in a rising pattern since 2003. Prices are in the middle of that range and seem poised to break out of that trendline to the downside once feedlot operations are back to normal.

Fast Food Restaurants Cut Corporate Jobs

Given the bleak economic backdrop it is not surprising that Taco Bell, Pizza Hut cutting ‘hundreds’ of corporate jobs.

Yum Brands, the parent company of Irvine-based Taco Bell, told the Associated Press today that it plans eliminate hundreds of jobs at its corporate headquarters. Layoffs are also targeted at Taco Bell and Pizza Hut.

“As Taco Bell realigns for growth, approximately 10% of our headquarters and above-restaurant employees have been affected, either through job cuts, changes or moves to another brand within Yum. None of our restaurant-based employees have been impacted,” Creed said. “It is always difficult when good people—our friends and colleagues—are faced with a job change. We are providing support to these employees including severance regardless of tenure, continuation of medical benefits, outplacement services and employee, family and financial planning assistance.”

Yum (YUM)officials could not immediately be reached for comment.

In the AP report, Yum spokesman Jonathan Blum said that a couple hundred more positions are being shifted from Yum’s corporate headquarters in Louisville to the company’s brands. “The restructuring is part of Yum’s strategy to sell more company-owned stores to franchisees,” he said.

Franchisee Buyer Beware

That corporations are selling company-owned stores to franchisees is a sign of overexpansion and economic stress. This is a horrible time to try and start a new business.

Why Pay More?

After struggling for years Taco Bell is in turnaround mode with a new value menu.

Yum said Taco Bell and Pizza Hut received a sales boost from the introduction of new value menu items during the quarter. Yum Chief Executive David Novak said Taco Bell's new Why Pay More Value menu, introduced in May, is exceeding the chain's expectations.

"Why Pay More is resonating with customers in today's economic environment," Novak said of the menu, where food items range from 79 cents to 99 cents.

Yum said soaring prices for beef, chicken and cheese contributed to a 16 percent drop in operating profit, which was $158 million for the third-quarter. Weak sales at KFC also dragged down Yum's U.S. results.

KGC, the chain's first-ever "non-fried" chicken product, is in test phase in certain markets and will debut nationally in early 2009. The chain also plans to introduce more portable chicken items next year, Novak said.

Portable Grilled Chicken? Sheeesh. Who wants portable grilled chicken as a fast food concept? Besides, there are too many restaurants already. Do we need more? Why?

The KGC venture is a waste of money for YUM, especially as they attempt to cut corners elsewhere.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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