Chickenization: An Odd Lots Crossover

Summary

"Chickenization: An Odd Lots Crossover" – A Comprehensive Summary

In a unique collaboration between Bloomberg's Money Stuff podcast and Odd Lots, hosts Matt Levine and Katie Greifeld delve deep into the intricate world of the chicken industry in the episode titled "Chickenization: An Odd Lots Crossover," released on November 29, 2024. Joined by special guests Joe Wiesenthal and Tracy Alloway, the discussion offers a multifaceted exploration of the economic, historical, and environmental dimensions of modern poultry farming.

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1. Introduction to Chickenization

The episode opens with Matt Levine and Katie Greifeld introducing Joe Wiesenthal and Tracy Alloway, setting the stage for an in-depth conversation about the chicken industry. The term "Chickenization" serves as a metaphor to dissect various aspects of the American economy using chickens as a focal point.

Notable Quote:

• Katie Greifeld [03:14]: "Let's talk about chickens. You guys obviously have a lot to say."

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2. Historical Context: The Victorian Chicken Bubble

The conversation traces back to the 1850s, highlighting the "Victorian chicken bubble." Queen Victoria's fascination with breeding exotic chickens sparked a nationwide craze, leading to inflated prices and rampant breeding. This fervor eventually burst, making exotic chickens affordable and inadvertently influencing Charles Darwin's evolutionary studies.

Notable Quotes:

• Dr. Cal Clark [14:13]: "The Victorian chicken bubble indirectly influenced our understanding of evolution."
• Matt Levine [14:24]: "This is like how the telecom bubble in '99 and 2000 led to the broadband rollout."

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3. Modern Chicken Industry Structure

Transitioning to the present, the hosts dissect the modern chicken industry's structure, dominated by large integrators like Tyson and Purdue. Farmers, akin to Uber drivers in the ride-sharing model, do not own the chickens. Instead, integrators supply chicks, dictate farming practices, and reclaim chickens for processing. This setup imposes significant constraints on farmers, limiting their autonomy and financial control.

Notable Quotes:

• Meta AI [19:29]: "Why is it like that?"
• Dr. Cal Clark [21:27]: "You're pitted against each other... it's very constrained type of farming."

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4. Market Dynamics and Price Volatility

A central theme is the volatility of chicken and egg prices, heavily influenced by factors like avian flu. The discussion references Ray Dalio's role in stabilizing chicken prices for McDonald's through financial engineering. By hedging corn and soybean prices—critical feed components—Dalio helped mitigate price swings, enabling the consistent rollout of products like Chicken McNuggets.

Notable Quotes:

• Matt Levine [07:54]: "Ray Dalio sold McDonald's a bunch of corn and soybean derivatives."
• Dr. Cal Clark [09:03]: "One of the reasons we saw chicken wing prices go up was their volatility."

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5. Antitrust Concerns and Market Control

The episode delves into antitrust issues, questioning whether integrators wield excessive control over the poultry market. The use of standardized indices, such as the Georgia Dock Index, raises concerns about tacit price-setting mechanisms. The hosts compare these practices to those in other industries, like real estate with RealPage, highlighting the intricate balance between information provision and competitive fairness.

Notable Quotes:

• Meta AI [23:38]: "Can you have tacit price-setting systems not via people getting in a smoke-filled room?"
• Matt Levine [25:01]: "If you have everyone's prices, I can undercut by a penny and gain market share."

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6. Environmental and Health Impacts

Industrial chicken farming's environmental footprint is scrutinized, particularly the issues of wastewater runoff and its detrimental effects on ecosystems. Additionally, the crowded conditions in large-scale farms facilitate the rapid spread of diseases like avian flu, posing risks of mutation and transmission to other animals, including pigs—a potential vector for zoonotic diseases.

Notable Quotes:

• Dr. Cal Clark [37:55]: "Crowded conditions make it difficult to segregate farm chickens from wild birds."
• Meta AI [38:54]: "Environmental impacts like manure runoff are real costs we have to take seriously."

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7. Consumer Trends and Future Alternatives

The hosts explore consumer preferences, such as the popularity of different egg types and the burgeoning market for lab-grown chicken. While the demand for affordable protein remains a societal hallmark, alternatives like lab-grown meat are emerging as potential solutions to mitigate the ethical and environmental challenges of traditional farming.

Notable Quotes:

• Katie Greifeld [42:50]: "What does the cow industry look like? Is it as depressing?"
• Matt Levine [43:08]: "How does it spread? How quickly does bird flu spread and what does that mean for the industry?"

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8. Reflections and Balancing Progress

In concluding remarks, the hosts and guests reflect on the dual nature of industrial chicken farming. While it has democratized access to affordable protein, fostering economic efficiency and consumer satisfaction, it simultaneously raises significant ethical, environmental, and health concerns. The balance between maintaining progress and addressing these challenges remains a central tension within the industry.

Notable Quotes:

• Meta AI [41:40]: "There's a lot of interesting tensions... it's a mix."
• Dr. Cal Clark [42:22]: "I want both the people and the chickens to be happy. That's my version of an ideal future."

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Key Takeaways

• Economic Significance: The chicken industry serves as a microcosm for broader economic principles, including supply chain dynamics, market concentration, and the role of financial engineering in stabilizing prices.

• Antitrust Implications: Large integrators' control over the supply chain raises concerns about market fairness and the potential for tacit collusion through standardized pricing indices.

• Environmental and Health Concerns: Industrial farming practices contribute to environmental degradation and facilitate the spread of diseases, highlighting the need for sustainable and ethical farming solutions.

• Consumer Influence and Future Directions: Shifts in consumer preferences and technological advancements, such as lab-grown meat, may drive transformative changes in the poultry industry.

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Conclusion

"Chickenization: An Odd Lots Crossover" offers a nuanced examination of the chicken industry's complexities, intertwining historical anecdotes with contemporary economic analysis. Through engaging dialogue and insightful commentary, the episode underscores the intricate interplay between market forces, regulatory frameworks, and societal values in shaping one of the world's most ubiquitous food sources.

Transcript

[GiveWell]

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[Dr. Cal Clark]

Not just here's Dr. Cal Clark of Xaron Labs.

[Meta AI]

Meta's open source AI model llama helps us collaborate with universities to help radiologists catch more errors.

[Leonardo da Vinci]

Learn [e-mail] Open in 15th century Florence, the great inventor Leonardo da Vinci dreamt of creating a flying machine. But something kept getting in his way. Admin. Piles of it. Luckily, Leo used the smart buying tools on Amazon Business so he could work more efficiently with the extra time. He not only invented the flying machine, but actually built it.

[Dr. Cal Clark]

Magnifico.

[Meta AI]

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[Dr. Cal Clark]

Splendido.

[Leonardo da Vinci]

Whoa, easy there, Leo. Amazon Business, your partner for Smart Business Buying.

[Dr. Cal Clark]

Bloomberg Audio Studios Podcasts Radio News.

[Matt Levine]

Hello, and welcome to a very special crossover episode of the Money Stuff Odd Lots Podcasts. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

And we have two very special guests in the studio with us today. Katie.

[Katie Greifeld]

Their names are Joe Wiesenthal and Tracy Alloway. Wow, this is very exciting.

[Dr. Cal Clark]

I like the pause to build suspense. Katie.

[Katie Greifeld]

I've been told to pause and then say names slowly for gravitas. So try it out.

[Dr. Cal Clark]

It's working.

[Katie Greifeld]

It worked.

[Meta AI]

Yeah, it worked. It worked.

[Matt Levine]

All right, we've established some gravitas.

[Meta AI]

For what it's worth, Tracy and I, like spent three years of Odd Lots workshopping ways to introduce guests. And I know we're only the second time you've had external guests, so don't feel any.

[Katie Greifeld]

My heart is pounded.

[Meta AI]

Don't feel any anxiety about the guest. Do you remember how we used to do it, Tracy?

[Dr. Cal Clark]

Yeah. We used to pretend that neither of us or one of us didn't know what we were going to talk about. And it was like, guess what we're going to talk about? But it didn't make any sense because like, we clearly knew what we were going to talk about.

[Meta AI]

It took us a while.

[Katie Greifeld]

How are we doing so far? Cause I feel like it's not going super well.

[Meta AI]

It's going fine.

[Matt Levine]

What are we going to talk about?

[Meta AI]

What?

[Katie Greifeld]

Someone should make a clucking.

[Dr. Cal Clark]

You brought us here.

[Katie Greifeld]

Let's talk about chickens. You guys obviously have a lot to say. You did a three part series on chickens recently, which was pretty cool because I feel like this was something different for you guys.

[Dr. Cal Clark]

Yeah, every once in a while we like to shake things up and do something slightly different. Last year we actually did a three part series on the rollout of New York's legal marijuana market called Potlots. This one was a three part series about chicken and the code name for it was Squawk lots, but the actual name was beat capitalism. And the idea was you can actually explain a lot of really interesting themes in the American economy through the medium of chicken.

[Meta AI]

Yeah, you just think from like egg to chicken sandwich or egg to chicken tender or egg to McNugget.

[Katie Greifeld]

I mean, speak for yourself.

[Meta AI]

There are just so many interesting. Like the sort of premise is there are just interesting things that can be discussed along that entire supply chain. So whether it's avian flu and how to keep the flock of the birds, whether it's concentration in the poultry market, whether it's the nature of the labor market, how the big poultry companies contract with independent growers and so forth who raise the chickens themselves, which is interesting. Then there's questions about pricing and so forth and then commodity prices and then the chicken sandwich wars and the consumer experience of why Popeyes versus Panda Express versus whoever. There's a million different things even within all these things where it's like we can learn a little something about how the economy works through that trajectory.

[Matt Levine]

How did you decide on that? Was that like you're like, we want to talk about chicken first and then later you realize there are a lot of lenses or were you like, we need to talk about antitrust?

[Dr. Cal Clark]

What is antitrust? I actually, I'm struggling to remember what the exact genesis.

[Matt Levine]

I remember that you were looking at chickens in your backyard.

[Dr. Cal Clark]

Yeah, yeah. I have a long term Love of chickens. And my great ambition in life is to one day have backyard chickens. And I'm inching closer to that dream of chickens.

[Matt Levine]

Do you mean alive chickens to hang out with or dead chickens to eat or both? Totally different.

[Dr. Cal Clark]

Both forms. Like.

[Matt Levine]

Like one, then the other.

[Dr. Cal Clark]

Well, I would raise chickens and I would have eggs, and that way I would be immune to egg inflation. But I know some people who raise meat chickens, and I don't think I would do that.

[Katie Greifeld]

Seems hard.

[Dr. Cal Clark]

It's depressing because meat chickens are very different to egg laying chickens. They look different. They don't really do anything. They kind of just, like, around and.

[Meta AI]

Flop over, and then one day you kill them.

[Dr. Cal Clark]

Yeah, it's sad.

[Meta AI]

The other thing, too, in addition to Tracy's affinity for chickens, we've done a lot of chicken episodes in the past. So there's this guy, Glenn Hickman, that we talked to. We've talked to him twice on the show. He has a big egg operation in Arizona. And so we talked about when egg prices were surging. We talked to him. When avian flu, which unfortunately, like, is getting headlines again, we talked to him. We've talked to Samuel Ryan, an analyst who thought that Wingstop, the country's biggest chicken chain and the biggest single bo. And there are certain lessons about pricing power that we learned because, you know, as wholesale wings went up, they raised their prices aggressively. When wholesale wing prices went down, they did not cut their prices. So we've done a lot of chicken related content in the past. It's like, oh, why don't we, like, put some of this together?

[Dr. Cal Clark]

This was the surprising thing when we were putting together, you know, the list of people that we wanted to speak to for this series, like, 80% of them we had actually spoken to before. So unknowingly, we were already a chicken podcast.

[Katie Greifeld]

Wow.

[Meta AI]

Yeah.

[Katie Greifeld]

It's like it found you guys.

[Dr. Cal Clark]

Yes.

[Matt Levine]

Putting together that list, where was Ray Dalio on the list?

[Dr. Cal Clark]

Wait, what does Ray Dalio say about chicken?

[Matt Levine]

Do you not know?

[Dr. Cal Clark]

No.

[Matt Levine]

Are you pretending to not know?

[Meta AI]

No.

[Dr. Cal Clark]

Shoot.

[Meta AI]

Now I feel really dumb because it's.

[Dr. Cal Clark]

Like, oh, does he have that huge chicken coop?

[Katie Greifeld]

Or.

[Dr. Cal Clark]

Oh, no, that's the London guy.

[Meta AI]

Oh.

[Matt Levine]

What?

[Dr. Cal Clark]

No.

[Katie Greifeld]

I feel like this is too good to be true.

[Matt Levine]

It's too good to be true. But it's, like, a little bit true.

[Meta AI]

Because we talked about the history of generic cocktails. So what's the urban legend according to Ray Dalio?

[Matt Levine]

This comes from Ray Dalio, including on podcasts and I think on the Bridgewater website. But when he was working on Wall street before he started Bridgewater. He was like doing commodities stuff. And one of his clients was McDonald's. And McDonald's were, I think this is like, according to your history, like, this is a few years after they had, like introduced the chicken McNugget, but before they rolled it out nationally. And they were worried, apparently about volatility of chicken prices because they're like, well, we can't put chicken nuggets on the menu if the price is going to go up and down because they have to pull it off the menu or raise the prices. It would be terrible. We need to take the volatility out of chicken prices. And they came to Ray Dalio, allegedly, and they're like, can you sell us.

[Dr. Cal Clark]

As one does hedge?

[Matt Levine]

And Ray Dalio was like, wow, there's not like a liquid chicken market at the time. This is, I think, from the Bridgewater website. He argued that since a full grown chicken was nothing more than a baby chick plus corn and soy meal, the price of the grains were the volatile costs. And they could hedge corn and soybean prices.

[Dr. Cal Clark]

Oh, that's interesting.

[Matt Levine]

And they could. And so he sold McDonald's a bunch of corn and soybean derivatives and they were able to roll out the chicken McNugget.

[Dr. Cal Clark]

Yeah. First of all, I love that Ray Dalio's like, chosen creationist story for himself. His background legend is I helped invent Chicken McNuggets.

[Matt Levine]

That's a good one, though.

[Dr. Cal Clark]

Secondly, McDonald's did not invent Chicken McNuggets, which is something that we learned from the podcast.

[Matt Levine]

McDonald's did not invent the chicken nugget, but Ray dalio Shepherded Chicken McNugget as a menu item.

[Dr. Cal Clark]

Sure, okay, fine, we'll let him have that one. But the interesting thing is we did learn about volatility in pricing because this is something that the Wingstop CEO actually brings up. One of the reasons we saw chicken wing prices specifically go up so much in the aftermath of the pandemic was that it turns out they're the most volatile, like, part of the chicken.

[Meta AI]

Can I say I have a contrarian opinion. I think Ray Dalio did invent the chicken McNugget. Anyone could invent a fried lump of chicken. It takes a true genius to invent the financial hedging instruments that allows it to be commercial. So I now accept the premise that actually he and not the person who, like, put the chicken meat in batter should get actually be the true father of the chicken.

[Matt Levine]

McDonald's. I think that Financial engineering is underrated as a moving force in, like, the real economy.

[Meta AI]

I like this tape.

[Matt Levine]

He did the financial engineering behind the chicken. Tracy is shaking her head.

[Dr. Cal Clark]

Well, you're right. It gets to an interesting question about what drives progress. Is it the underlying technology or is it the.

[Meta AI]

Which came first, the chicken McNugget?

[Matt Levine]

The Soviet future?

[Meta AI]

Which came first, the nugget or the financial engineering gets a bad rap. And it turns out if you need.

[Dr. Cal Clark]

That to commercialize, to make it easy to consume protein.

[Meta AI]

Yeah, I take it I now give the crown to wrap.

[Matt Levine]

Do you think that? Right. Every major innovation, there's the step of physical invention, and then there's the step of working out the financing. And the financing people are generally unheralded, but well paid and.

[Meta AI]

Heralded.

[Dr. Cal Clark]

I think Dalio's managing.

[Matt Levine]

Yeah.

[Dr. Cal Clark]

But this is Joe's pitch to try to get Ray on the podcast. I think to talk about chicken.

[Matt Levine]

We should have him on our podcast.

[Meta AI]

To talk about, you know, who is the New York Mets manager who claimed to invent the rap. Do you remember that? You know, the rap sandwich?

[Katie Greifeld]

I've heard of it.

[Meta AI]

The New York Mets manager in the 90s claimed to have invented the wrap sandwich. I can't remember his name right now. Anyway, it sort of reminds me of that.

[Katie Greifeld]

It's like claiming to invent the apple pie. Like, if you just say it loudly enough, it's probably true.

[Meta AI]

Yeah.

[Katie Greifeld]

Can we talk about why wings are the most volatile part of the chicken? I did not know that. I would've thought it was, I guess, any other part of the chicken from your podcast.

[Matt Levine]

I thought it was that the supply of chickens is set by the demand for chicken breasts. And so demand for chicken breasts goes down, the supply of chickens goes down, and wings do not drive the supply of chickens. So the wing price is just like.

[Meta AI]

Thank you for listening.

[Dr. Cal Clark]

That's exactly it. You learned something.

[Katie Greifeld]

The chicken.

[Matt Levine]

That's cool.

[Katie Greifeld]

The chicken breast is like the benchmark from which all the other breasts apart.

[Matt Levine]

And it's like the thing that's most used. And so, like, essentially, if you're a wingstop, you're buying like a sort of like leftover discard.

[Meta AI]

Yeah. I like thigh, by the way. It's more than the breast. I think it's like a better. It's like the best cut.

[Dr. Cal Clark]

Have you guys had chicken feet?

[Katie Greifeld]

No.

[Dr. Cal Clark]

Yeah, they're really good. And in Asia, people always say they're a really good source of collagen. So, like, a lot of young women or older women will eat them for skincare. Purposes, I believe.

[Katie Greifeld]

Do you eat it or do you just sort of slather it on your face?

[Dr. Cal Clark]

No, no, you eat it. You, like, nibble on it.

[Katie Greifeld]

Oh, man.

[Meta AI]

You can get it at most dim sum places in Chinatown here. So if we ever want to take a trip. And it's actually, I really find them quite delicious.

[Katie Greifeld]

I would love to watch you guys eat that. I'm not very adventurous myself, but boy, do I like being included.

[Matt Levine]

I have a new puppy and I get served a lot of ads for a lot of dog food products and there's definitely like a extremely foot looking chicken footprint.

[Katie Greifeld]

I do feed my cat dried chicken hearts. Like, that's a like, little crunchy heart snack. I think you've had some chicken hearts.

[Meta AI]

Chicken hearts I've had. Yeah, I have. Or chicken liver. Is that something?

[Matt Levine]

Chicken liver is.

[Dr. Cal Clark]

Yeah.

[Meta AI]

But I think I've had chicken hearts too.

[Dr. Cal Clark]

I make a Thanksgiving stuffing out of chicken liver. It's really good.

[Katie Greifeld]

Timely.

[Dr. Cal Clark]

Yep. Well, we'll provide our recipe for chicken liver Thanksgiving stuffing after this podcast.

[Katie Greifeld]

Can I say. So this is a three part series. Yeah. That caught my ears the most was just like the physicality of the chicken and how it's changed that. The idea that, like a chicken in the 1920s.

[Meta AI]

Yeah.

[Katie Greifeld]

Looks so much different than a chicken in the 2000s. Like, I feel like I knew that somewhere in the back of my mind, but this really brought it into stark focus for me just how much we've changed. Chickens.

[Dr. Cal Clark]

Yeah. So chickens, like a lot of domesticated animals, are like the products of, you know, centuries and certainly decades of evolution. Chickens, in case you're wondering, I think they originally came from forests of Indonesia. And back then they were like skinny little jungle birds. And I think they were mostly like black. Anyway, they spread around the world. It turns out everyone loves chicken. One of the most fascinating parts of chicken history, and I don't know why I know this, but for some reason I do, is in the 1850s, there was a chicken bubble. So what happened was Queen Victoria got really into chickens, like breeding chickens, exotic chickens. And because she was the queen, a bunch of other people got into it and it sort of became this fad where people were paying, like lots and lots of money to get really exotic chickens.

[Katie Greifeld]

Were they eating them or just breeding?

[Dr. Cal Clark]

No, they were just breeding them.

[Katie Greifeld]

They were pets.

[Dr. Cal Clark]

Selling them to other people.

[Katie Greifeld]

Yeah.

[Dr. Cal Clark]

The bubble eventually burst, by the way, and the really interesting. Probably, but the really interesting thing is because exotic chickens became cheap. Charles Darwin started doing research with all these different chickens from around the world on evolution. So the Victorian chicken bubble indirectly influenced our understanding of evolution.

[Meta AI]

This is like how the telecom bubble in 99 and 2000 and then we had the broadband roll on it.

[Matt Levine]

And then.

[Meta AI]

Yeah, then because of the. We had the evolutionary theories of Darwin. I didn't know that. This didn't come up, did it on the podcast?

[Dr. Cal Clark]

No, I couldn't figure out where to put it in. I saved it for this podcast specifically.

[Katie Greifeld]

Perfect.

[Dr. Cal Clark]

Specifically. There's a really funny book that was written sort of contemporaneously with the 1850s all about. It's called Hen Fever and it's about the chicken bubble. And it has the most amazing illustrations, including it has picture of a guy blowing a bunch of different bubbles. And some of them are like what you would expect, like the South Sea expeditions and railway stocks and things like that. But then some of them are Shanghais and Cochins, which are types of chickens. And then there's one that's labeled female novelists. So I guess in the 1850s they thought female novelists were fat.

[Katie Greifeld]

Too many. Pipe down.

[Meta AI]

By the way, that was my favorite of the three. Like, I really like the consumer angle. Obviously it's fun to talk about the chicken sandwich wars. It's interesting, like the market structure and some of the anti trust questions and the power. But like, I do think like one of the great sources of wealth in modern society is abundant access to fairly inexpensive protein. And the story of the chicken getting plumper and plumper, the antibiotics that are used to keep them alive and keep them growing and avoid sickness, the sort of feeding mechanisms and so forth that have turned this sort of scrawny bird that Tracy was talking to and a sort of very tasty bird. Like to me that's like, that's riveting. That's exciting. That's progress right there.

[Katie Greifeld]

That needs to be that.

[Matt Levine]

And the soybean futures to make it more.

[Meta AI]

Yeah, right. And the soybean futures, which of course are crucial, which we really like. That's the thing we could have done. Like, because chicken is so great, we could have done episodes on feed futures because chicken is just so inherently connected to everything else.

[Dr. Cal Clark]

This could have been like a 12 part series easily.

[Katie Greifeld]

I think I was gonna say you've gotta get Ray Dalio on. Yeah, well, Ray Dalio, now we're in a booking war.

[Dr. Cal Clark]

Victorian chicken bubble. The grain market that underpins chicken nugget.

[GiveWell]

Givewell, a nonprofit that researches and recommends giving opportunities, takes the impact of donations seriously to ensure their recommendations withstand tough scrutiny. Givewell had their own researchers spend months trying to identify flaws in their past work. They then publish their findings, mistakes and all for any donors to use for their giving. It's this kind of rigor that can help your donation make a big impact on the world. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities they've found. Over 125,000 donors have used GiveWell to donate more than $2 billion. Rigorous evidence suggests that these donations will save over 200,000 lives. If you've never used GiveWell to donate, you can have your donations matched up to $100 before the end of the year or as long as matching funds last. To claim your match, go to givewell.org and pick podcast and specify where you heard this ad. Make sure they know that you heard about GiveWell well from this podcast.

[Dr. Cal Clark]

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[Matt Levine]

Wait, I want to talk about the market structure. Yeah, there's an episode on essentially like how chicken is like uber where, like, the farmers who farm the chick chickens don't own the chickens. They are outsourced from these big. They call them integrators, like Tyson and Purdue, where the integrators deliver hours old chicks to the farmers, the farmers take care of them for a couple of weeks, and then the integrators take them back and turn them into chicken nuggets. Why is it like that?

[Dr. Cal Clark]

That's a really good question. I think it's just like an outcrop of the way the chicken industry evolved. By the way, I have a interesting fact. If you don't know, chickens can still be sent through the U.S. mail. So you can live order baby.

[Katie Greifeld]

Have you done that?

[Dr. Cal Clark]

No, but I don't really want to. I would rather go to like a local agricultural tractor supplier. Yeah, exactly. But anyway, so the way it worked is in the sort of 1920s, 1930s, we started getting these big broiler houses. So people discovered. This is actually one of Joe's favorite stories. The woman in Delaware.

[Meta AI]

Yeah, there was a woman in Delaware who had a great name, Cecile Long Steel. And she ordered what, she ordered 100 chickens?

[Dr. Cal Clark]

No, no, it was like 10 chicks.

[Meta AI]

She ordered like 10 chicks in the mail and accidentally ordered a thousand. So she's like, all right, I guess I'm gonna become a farmer.

[Katie Greifeld]

That never happens to me.

[Meta AI]

No, it doesn't happen to me either. The point about Uber. And so then people get into the farming because they're like, oh, I like the idea of farming. And it doesn't seem that bad to be a chicken farmer. But, like, they're extremely highly constrained. The integrators, they deliver them the chicken, they tell them the exact specifications of the barn, the temperature, the feed, how much feed, and so forth. And then they compete against each other in what's called the tournament system.

[Dr. Cal Clark]

Yeah, so you as the farmer, are actually responsible for a lot of the capital investments that are needed to raise chickens. Meanwhile, the big integrators, like a Tyson or a Purdue, they provide a lot of the inputs. So the baby chicks themselves, they'll tell you, like, what medicines to use, what kind of food. And so in the eyes of the farmer, they feel like they are absorbing a lot of the big risks here while not really having a lot of control over stuff that ultimately affects the end product.

[Meta AI]

And then the tournament is you have this pool of farmers in an area, and your pay for some period is how far above or below the average of that pool.

[Matt Levine]

Yes.

[Dr. Cal Clark]

You're pitted against each other.

[Meta AI]

You're pitted against each Other there's like a fixed pot and then each round. And some people had the best chickens or the heaviest chickens or whatever it is, and some had the worst and so forth. And so it's very constrained type of farming. If you imagine farming in Iowa in some idyllic sense, which I think some people still do, but I think we also know it's big industrial business. It's not that vision.

[Matt Levine]

Yeah, it's sort of like retailers like not owning their real estate. It's like weird that the capital requirement comes from the individual small farmers and these big companies aren't making the capital investments.

[Dr. Cal Clark]

Seems to be a super beneficial way of structuring their business for the big companies. Right. You could see why they like it. And by the way, like asset light. Yeah, that's exactly it. And they will argue that like actually providing the initial round of chicks and the food and the medicine is like a big cost center and they are taking that on. But again, like, all the farmers we spoke to had pretty similar complaints because.

[Matt Levine]

I think Uber, it's not like literally they're just like, you know, like a matching app. Like they have a lot of.

[Meta AI]

Yeah, yeah, that's right, that's right. But you know, sometimes like with Uber, he's like, oh, you could like be an entrepreneur. You know, like, they pitch at that. But in the end, the rules of the business are heavily constrained. And it's all within the context of Uber and policy changes that Uber can make, et cetera. It's similar to that in that there is a cap on one's ability to be sort of like actually a business owner in the sense given how constrained it is.

[Matt Levine]

Oh, you can be a farmer, you can like run a farm. But it's like, no, really, you're just like following their order.

[Dr. Cal Clark]

Speaking of Uber, it also gets to something else in the modern US Economy, which is sort of the prevalence of the middleman and the power that they wield over the economy. So Uber basically matches passengers with drivers and it makes a lot of money from doing that. If you look at the farming industry, for every dollar that comes out of agriculture, farmers get like 20 cents. The other 80 cents is going to someone else. And a lot of these someone else turns out to be middleme, like the, you know, the distribution networks, the integrators in some respect, the packaging, things like that.

[Meta AI]

And there's the role of the pricing algorithm setting companies. So this is really interesting because we talked to all these like antitrust experts, et cetera, and there are like various targets of the integrators themselves, whether they're uncompetitive things. And this has come up over the years. But another thing that's come up across a range of industries, again chicken as the lens to uncover other aspects of the economy is can you have tacit price setting systems not via people getting in a smoke filled room and doing nefarious things, but via a third party pricing entity that everyone uses as some agreed upon oracle. And people make this claim in all kinds of different industries these days. And again, I'm not a antitrust lawyer expert, I don't have a view on this, but it is certainly one area that the antitrust focused people are like eager to sink their teeth into.

[Matt Levine]

We talked about this on our podcast about farmers markets because there's like a Cornell project that like gives basically like market price information to people running stalls at farmers markets. And I sort of jokingly suggest that that is analogous to like you know, the DIJ brought a case against RealPage in the rental business and then you talk about they brought a case against acristats in the sort of big agriculture business.

[Dr. Cal Clark]

Lurking beneath every antitrust case is a discussion over whether you're actually breaking the law or it's a. It's just good business, right?

[Matt Levine]

It's wild because it's like, you know, in the olden days like you'd get together in a room and you'd be like, oh, these are our prices, these are our prices. And you'd like wink or whatever and it'd be like we've agreed to set prices here. There's no like explicit agreement but it's just like if everyone has each other's prices, then there is an argument that I'm not really sure is true. It seems to be true. There's an argument that, that like allows them all to.

[Meta AI]

It's a coordinating mechanism.

[Matt Levine]

Yeah, it's a coordinating mechanism. If I know everyone's prices, I can undercut everyone by a penny and I can, you know, gain market share. And that doesn't seem to be.

[Meta AI]

I know the question is in some these instances whether you get penalized or whether now I don't have any. I do not know whether this ever came up in the agri stats claim in, in some of the interest in agristats. But isn't one of the arguments, at least in RealPage that some of the allegations are that there was some penalty to landlords who deviated or that there was some Right.

[Matt Levine]

I don't think it's quite that, but I think it's that realpage is both like providing the information and also providing a pricing recommendation. And so RealPage, which pushes those up, let's say. But if you're providing pure information, like I think if you have a literal.

[Meta AI]

If I have a spy etf, I'm going to look at the ticker on the Bloomberg terminal first before I sell it.

[Dr. Cal Clark]

Right, you'll do market research.

[Meta AI]

Yeah, yeah. Did that actually happen in the old days? Like people like, oh, smoke filled room wink. Like did that really happen? Or is that just a metaphor that we use to describe coordination?

[Dr. Cal Clark]

Are you asking Matt, if you're talking about.

[Meta AI]

I'm asking Matt as a lawyer.

[Matt Levine]

The most famous cartel is opec, where they meet in a room. Right. And there have been recent cases, you know, like the FTC is a little concerned about some like us shell producers going to those meetings. And like there's like a dinner. And like was the dinner to discuss raising prices or not? Like the people say no. The FTC says yes. It's like a little. There was definitely a dinner. What did they talk about at the dinner? There's a famous story, and I'm not forgetting on where, where it was. There's a famous story of a company like there was a formal policy that they would say we are not going to collude with competitors and then they'd wink to say they were. And then like they sent out a memo or like there's like a recording of someone saying I didn't wink. Like it's like, it's like a famous story in antitrust enforcement.

[Dr. Cal Clark]

But Matt, to your point, your point earlier about like, okay, if you could see everyone's prices or you have like a rough guideline about what's going on with prices, why don't you just undercut your competitors? This is something that we talk about in the first episode when we're talking about the consumer experience and inflation. And the answer is, well, if you only have a hand of big companies that are doing this, you know, first of all, the incentive is not necessarily there to try to get into a price war. This is the classic like antitrust argument. If you consolidate companies and they raise their prices, they have more market power. But there's another aspect going on in the past few years, which is we had the big pandemic. We had avian flu, we had labor shortages, we had all these massive one off specific events. And when that happens, you know, consumers hear about them. And so if companies say, well, we have to raise our prices because of avian flu or because of the pandemic consumers are more willing to kind of accept that and they have fewer alternatives, right? If everyone is doing it at the same time because of these same like exogenous shocks, then where are you going to go to get cheap eggs or chickens?

[Matt Levine]

Check out Beak Capitalism on the Odd Lots podcast feed. Wherever you get your podcasts.

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[Matt Levine]

Do you guys know about the Georgia Doc?

[Meta AI]

No.

[Dr. Cal Clark]

Like Doc like D O C K this rings a bell.

[Matt Levine]

Actually I wrote about this years ago. I don't know if it's still thing. There have been like periodic waves of antitrust interest in the chicken industry and there was one in like 2017, 2018 that I used to refer to as Chicken Libor. There's a thing, an index called the Georgia Doc Index, which was set by a guy, his name was Artie Schrontz. He worked for the like Georgia Department of Agriculture or whatever and he would call chicken producers every day, every week or whatever and say what price are you getting for like two and a half pound chicken? Which as I learned from your podcast, no one produces two and a half pound chickens anymore. So the people would like make up a number and they'd tell him the number and he'd write it down and that would go into the Georgia Dock index. And then a lot of like chicken supply contracts were set as like a.

[Dr. Cal Clark]

You know, premium so psychosis they were pushing it off.

[Meta AI]

It's chicken live.

[Matt Levine]

So like there were allegations that they were you know, reporting too high prices to the Georgia.

[Dr. Cal Clark]

We have another episode for our 12 part series.

[Meta AI]

It's interesting, over the years you learn like how many indices that exist that you can find a chart of are essentially put together like this years ago, probably about like nine years ago. I remember talking to someone who was working at Bloomberg actually and there was like some scrap metal index and it was just like you call, there were like a handful of junk metal yards that you call up and then you get the price. Actually, you know, speaking of another one is lumber. And what's really interesting, so the company that creates the lumber index, I think it's called random Lengths actually and they're the ones who create the benchmark futures. They Also have a very interesting thing. So they do this, they call various places, how much did you sell a piece of lumber for each day? And then what's actually cool is you can read the contract and they talk about all of the ethical things that like the rules of the question because they are aware that all indices such as these create situations potentially like Georgia Docs or Libor. And so they actually have a whole set of rules about the collection process that addresses basically exactly this question.

[Katie Greifeld]

I thought you were going to bring up the dog kill index. That's.

[Meta AI]

This is Tracy's obsession.

[Katie Greifeld]

I don't think anyone is pushing up the price of that benchmark article.

[Dr. Cal Clark]

This was, this was one of our questions at a recent Bloomberg quiz was like, which of these indexes is actually real? Which of these terminal indexes? And the one that was real was the dog kill index. Almost no one got the. That right.

[Meta AI]

Yeah, that's a. How many.

[Dr. Cal Clark]

No one believes that that actually exists. You know, we used to have a Colombian. Oh, yeah. So it's basically the number of dogs that die in the possession of airplanes when they're in air transit.

[Meta AI]

This is a very macabre episode.

[Katie Greifeld]

I know.

[Dr. Cal Clark]

But speaking of macabre indexes, we used to have a Columbia kidnapping index too, but I think they discontinued that once they know that died down a bit.

[Katie Greifeld]

Some deep lore.

[Meta AI]

This is lore.

[Katie Greifeld]

I do want to talk about the price of eggs more. Yeah. Because that's another index.

[Matt Levine]

Right? There's like.

[Dr. Cal Clark]

Yeah, that's benchmarking. Yeah.

[Katie Greifeld]

Well, it's sort of become one of, at least in my circles, one of the most watched indexes because you talk about inflation and the thing that people complain about is gas and eggs. And I mean, Tracy, you were mentioning that there's well explained reasons why the price of eggs has been so volatile, bird flu being one of them. And I'm never quite sure where we are in the cycle of bird flu because it's an issue. And then it feels like it died down again. Now we're talking about bird flu again. And I just don't know where we are in terms of how worried I should be about bird flu.

[Dr. Cal Clark]

So when we started the series, we did not really expect eggs to become this huge political talking point, but they did during the election and where we are with bird flu. Okay. So we had a really big spike in 2022 and we saw the price of, eg, eggs shoot up that since died down. But if you look at the egg price index on the Bloomberg, there's more than one by the Way we have a bunch of different ones. You can see they're starting to go back up again. And that's because we are getting more bird flu reported. The interesting thing is we're starting to get it in other animals too. So, you know, cows, pigs are the really worrying one because pigs have like a genome that is very similar to humans. And so the concern is that if it gets into pigs, it'll mutate into.

[Katie Greifeld]

Something that would be question like, at what point? Personally, I need to be concerned about contracting bird flu in some way.

[Dr. Cal Clark]

When more pigs start getting bird flu and when it starts mutating, some smart.

[Meta AI]

People I know are like, anxious, yeah.

[Dr. Cal Clark]

Yeah, you need a pig mutation index on the Bloomberg terminal. That would be really worrying.

[Katie Greifeld]

Got to get our best and brightest on us. That's worrisome. Well, before I spiral, let's just keep it to, like, the chicken industry because I do wonder, I mean, how does it spread? One of the parts that was a hard listen when it came to this episode was listening to, I think it was Craig Watts describing how he had like 30,000 chickens in 20,000 square feet. It sounds like these birds are just on top of each other. So I mean, how quickly does bird flu spread and what does that mean for the industry?

[Dr. Cal Clark]

So you're right. This is one of the downsides of industrial scale chicken farming, which is you have a lot of birds and you have them in a relatively crowded space. Has heard me tell this story before. Not many people know that I was born in Arkansas and so I spent time there with my grandma and she used to take me to like chicken farms for fun or something. I don't know why, but I would walk into these like giant warehouses thinking like, oh, this is going to be fun. I'm going to play with like fluffy baby chicks and I love chickens, blah, blah. And you'd walk in and you'd be like looking around and there are a lot of dead chickens. They're just like lying there. You know, they get cleaned up once a day or so, but there's a lot. So, yeah, this is the issue. So you have crowded conditions. It's very difficult to segregate farm chickens from the wild bird population. Like wild birds that have avian flu can still get in. They can eat the grain, infect it that way. And so that's one reason why it's been really hard to stamp out.

[Meta AI]

Speaking on this point. You know, another interesting angle here is the sort of externalities of industrial. What's his name? Austin Frerick. One of the Guys and talk about the wastewater runoff, et cetera. And so, like, like I said, I am an optimist about the existence of cheap protein, and I think it's a marker of a wealthy society. But there are some interesting costs that we have to take seriously, and one of them is environmental and what it does to sort of the various water streams and some of these areas where there is life, a lot of industrial farming and excrement gets in the water, which is really bad, obviously. And so there are, you know, obviously bird flu itself, and the potential for that to move into other animals is scary. But then there are also this sort of, like, slower burn issues. And why in some farming communities, there's been, like, a pushback about, like, how much more of this do we want and how much everyone else has. Cheap chicken is sort of slow degradation of the environment around it so depressing.

[Dr. Cal Clark]

We'Ve left you speechless.

[Matt Levine]

Is there like a. Is there, like, an artisanal chicken farming ecosystem or is that just there must be at those.

[Dr. Cal Clark]

Well, I mean, backyard chickens would be one way of doing that.

[Matt Levine]

If you go to a store to buy, like, the fanciest chicken you can find, is it still from a giant warehouse or.

[Dr. Cal Clark]

That's actually a good question. I know of one. Again, I'm slightly obsessed with chickens. I know of one, like, avian geneticist in the northeast who breeds. Breeds really interesting chickens, and he's sort of like, on a small scale. So maybe they do exist well on.

[Katie Greifeld]

A slightly bigger scale. I interviewed the CEO of Vital Farms last week, and one of their advertising points is that it's like 107 square feet per chicken. So that was really interesting. He also said, I thought this was interesting, too. On his most recent earnings call. Our challenge right now, as always, is that I can't get the chickens to lay more eggs in the short runs. So a lot of demand and not a lot of eggs. But, I mean, that's interesting again, that they're advertising on that point that we give these chickens all this space.

[Meta AI]

Are brown eggs just, like, better than white eggs? I feel like we have. They don't look as nice. So I think people just assume they must be either better for the environment or healthier. Is there anything to that?

[Dr. Cal Clark]

Have you seen the Easter egger chickens?

[Meta AI]

No.

[Dr. Cal Clark]

These are the ones that lay eggs in all different colors. So, like, blue and green and white and brown.

[Katie Greifeld]

You. My stupid question to you feed them different.

[Dr. Cal Clark]

No. No, you don't. They just do it. I don't. The one thing I don't know is like whether one Easter egger produces, like, only green eggs and then another Easter egger will produce, like, only pink ones.

[Katie Greifeld]

I thought that the bunny rabbits laid the Easter eggs.

[Dr. Cal Clark]

Yeah, that's right.

[Katie Greifeld]

Katie, you thinking that chickenization. I said that right. Do other, other animal industries look like this? Does the pork industry look like this? What does the cow industry look like? Is it as depressing?

[Dr. Cal Clark]

Yeah. So this is another talking point from the podcast, which is this very, you know, up until now, unique model of producing chickens, where the big integrators are outsourcing a lot of those big capital risks, is becoming more common in agriculture itself. So the big example, Joe brought this up earlier would be pig farming in Iowa. And it gets to interesting questions in business about who should bear the ultimate costs of a business. We kind of talked about that earlier. But again, to Joe's point earlier, it gets to interesting questions about who should bear the environmental costs. So maybe all of America is okay with Iowa, like, being responsible for raising our pigs and having to deal with like, manure runoff and stuff like that and spoiling its water system. But probably Iowa is not.

[Meta AI]

Can I just say, like, after having done this series, I don't really view it as depressing. I don't want this to be seen as like, you know, some sort of Jeremiah against the chicken industry. I just think there's a lot of interesting tensions, Right. Like there's benefits to industrial scale chicken farming. There's complicated market aspects of industrial chicken scale farming. There's amazing consumer outcomes like the chicken sandwich wars. And like, those are very delicious. And there are costs, whether it is the risk borne by the farmers, the risk of disease, and the risk of environment. It's a mix. Right. Like, I don't. But I didn't perceive the whole project to be like an anti chicken thing at all.

[Dr. Cal Clark]

No, I want both the people and the chickens to be happy. That's my version of an ideal future.

[Katie Greifeld]

Well, that's like, I can't, as an animal freak, can't get past the chickens and like, you know, them falling over because, like, they've been.

[Meta AI]

Yeah.

[Katie Greifeld]

To this point where, you know, they can't stand up straight. I don't know if this came up in any of your discussions, but, like, where are we on lab grown chicken? Because I.

[Meta AI]

Another thing. Yeah, we.

[Katie Greifeld]

Another episode that like, cheap protein is great for a society. It's the marker of a successful society. But surely there's a way to achieve that without what's happening to these animals really showing my true colors on this podcast are you vegetarian? No.

[Meta AI]

Okay. There's no judgment.

[Katie Greifeld]

I was for several years, and then, you know, I lost.

[Dr. Cal Clark]

Joe is vegetarian, too.

[Meta AI]

I was. I was raised vegetarian. I had my first meat when I was age 24.

[Katie Greifeld]

Whoa.

[Meta AI]

When I moved to New York, I was like, all right, there's just too much good food.

[Matt Levine]

Never looked back.

[Meta AI]

Yeah, I didn't. I didn't. And I, like, went straight. I was like. I tried.

[Dr. Cal Clark]

Wait, what was it? Do you remember?

[Meta AI]

So I ate a piece of sushi, which is a little weird because people are like, oh, it's raw. But I looked at people like. And then a week later, I was, like, eating steaks.

[Katie Greifeld]

That's a hard launch.

[Meta AI]

Yeah, it's a hard launch. Yeah. My parents were hippies, and so I was raised vegetarian.

[Katie Greifeld]

Yeah, I was a vegetarian for, like, ages 11 to 14. I feel like I stunted my growth. I'm shorter than both my parents. But anyway, it doesn't matter.

[Meta AI]

You're a podcaster.

[Katie Greifeld]

Nothing does.

[Matt Levine]

Thanks for coming on, guys.

[Meta AI]

Thanks for having us. That was a blast.

[Dr. Cal Clark]

Yeah. Thank you for letting us talk about chicken.

[Katie Greifeld]

No one made a chicken sound or a punishment. Yeah, no.

[Dr. Cal Clark]

You made one pun.

[Matt Levine]

I did?

[Dr. Cal Clark]

Yeah. I was very proud of you.

[Meta AI]

Wait, what did I say?

[Dr. Cal Clark]

I can't remember. But you did make one.

[Matt Levine]

And that was the Money Stuff podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodlumberg.net Ask us a question and we might answer it on air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff podcast is produced by Anna Mazarakis and Moses Andam.

[Katie Greifeld]

Our theme music was composed by Blake Maples. Special thanks this week to Carmen Rodriguez.

[Matt Levine]

Brendan Francis Newnham is our executive producer.

[Katie Greifeld]

And Sage Bauman is Bloomberg's head of podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

[Katie Greifeld]

Thanks for listening to the Money Stuff podcast. If you never want to miss a story, become a Bloomberg.com subscriber today. Check out our special intro offer right [e-mail] podcastoffer or click the link in our show notes. You'll also unlock deep reporting, data and analysis from reporters around the world.