Loading summary
Transcript125 lines
- [00:00]
Joe Weisenthal
Direct lending has been one of the most dynamic areas of the private alternative space these last few years, having grown massively as a source of capital for both corporate borrowers, but also financial sponsors that have kept going from strength to strength and have needed that private capital to foster the growth that they've been experiencing.
- [00:18]
PGIM Voice
For leading alternative investing insights, listen to Speaking of Alternatives from pgim the forces.
- [00:27]
Carmen Rodriguez
Shaping markets and the economy are often hiding behind a blur of numbers.
- [00:31]
Tracy Alloway
So that's why we created the Big Take from Bloomberg Podcasts to give you the context you need to make sense of it all.
- [00:38]
Carmen Rodriguez
Every day in just 15 minutes, we dive into one global business story that matters.
- [00:42]
Tracy Alloway
You'll hear from Bloomberg journalists like Matt Levine. A lot of this meme stock stuff is, I think, embarrassing to the SEC.
- [00:49]
Carmen Rodriguez
Follow the Big Take podcast on the iHeartRadio app, Apple Podcasts, or wherever you listen.
- [00:59]
Tracy Alloway
Bloomberg Audio Studios Podcasts Radio News.
- [01:06]
Justin McElroy
The chicken sandwich war on Twitter has people.
- [01:08]
Carmen Rodriguez
Clucking all over the country.
- [01:10]
Tracy Alloway
It's chicken chaos in Milwaukee. Long lines outside Popeyes. If you didn't jump on that Popeyes chicken sandwich craze, you're too late. Popeyes is officially sold out.
- [01:20]
Justin McElroy
Beatings, stabbings, and even car crashes. People behaving very badly in Los Angeles and across the country for that fact, trying to get their hands on Popeyes Chicken Sandwich in LA Two people On.
- [01:32]
Tracy Alloway
August 12, 2019, Popeyes released their famous chicken sandwich. It was a humble fried chicken breast with pickles and mayo on a brioche bun priced at a very reasonable $3.99.
- [01:45]
Justin McElroy
Some people called it a masterpiece. Some others were just thrilled to see a delicious alternative to Chick Fil? A. To be honest, I can't actually remember whether I had it or not. I'll just say those are really. Those are really delicious. I totally get it. I get why people love all these sandwiches.
- [02:01]
Tracy Alloway
I'm sure you remember what happened after this, Joe. Dozens of imitators were launched. I mean, Taco Bell, of all places, even did a version a crispy chicken sandwich. Taco and Chick Fil? A came out swinging. They claimed that they, and not Popeyes, were the original inventors of the chicken sandwich. Meanwhile, Popeyes struggled to keep the sandwiches in stock. Fights broke out. There was even a lawsuit. A guy from Tennessee asked for $5,000 in damages after he couldn't get hold of one. The chicken sandwich craze was pure mayhem. Or should I say, mayhem.
- [02:37]
Justin McElroy
But what's really important about the chicken sandwich wars is that they never really ended. Okay, you weren't seeing Them hit the headlines in quite the same way anymore. But on menus around the country, chicken is more popular than ever. Burger chains have been launching chicken wings. Donut shops have chicken wraps. So you might have an opinion on who ultimately won the chicken sandwich battle. But the real winner of the war was the chicken itself. Or maybe I should say the real winner is the American eater.
- [03:01]
Tracy Alloway
Yeah, there are more chicken products on offer than ever. In fact, America's consumption of chicken continues to grow even as appetites for other types of meat like beef have stalled. The average American consumed a whopping 116 pounds of chicken in 2023, and that number is only expected to grow, making chicken by far the most consumed meat in America. Each of us is eating something like 20 adorable chickens worth of white meat every year. And what's interesting is that's been happening even as poultry prices have surged. Fresh whole chicken used to cost about $1.60 per pound. A decade ago, it now goes for almost two bucks. That's an almost 25% increase and higher than the jump in broader inflation, which, as we all know, has been a huge deal in recent years.
- [03:52]
Justin McElroy
So speaking of inflation, egg prices have become a prime example of recent price pressures. With wholesale egg prices surging by 207% between 2022 and 2023. Chicken farmers blamed outbreaks of bird flu for the increase, but some saw it as corporate price gouging, result of a handful of powerful companies supposedly taking advantage of consumers at a difficult time. And generally, it looks like the bird flu was a big part of the story. But it did happen at a time when prices for all kinds of things were surging. So it's easy to understand why people saw it as a. As a macro thing.
- [04:24]
Tracy Alloway
So we have to ask, what exactly has been driving the price increases in eggs and that sweet, sweet chicken meat? Why has the chicken industry evolved in the way that it has? And what does it say about the nature and future direction of America's economic model?
- [04:46]
Justin McElroy
Welcome to Beak Capitalism, in which we explore some of the thorniest issues facing the US Economy through the medium of chicken.
- [04:54]
Tracy Alloway
In this special three part series from all thoughts, we are going to examine eggs. Get it?
- [05:00]
Justin McElroy
So there's going to be chicken puns, huh?
- [05:01]
Tracy Alloway
There are definitely going to be chicken puns. Get used to it. Now we are going to examine all of these questions and more because it turns out chicken has a lot to say about things like inflation and the relationship between workers and big companies. And it creates some big existential questions about what kind of economy we actually want to have. First up, what actually happens when the price of a chicken sandwich or an egg or even a simple chicken wing takes fight?
- [05:46]
Michael Skipworth
The chicken sandwich wars were an extremely challenging time for me as a person. It was hard on my family. It was hard on my friends, mainly because every time I'd read a press release about these things, I had to go buy one. I ate so many chicken sandwiches during that war, I was the real casualty. I'm the one that had to totter into my, you know, drive two hours to the nearest Popeyes to go try the sandwich. I didn't.
- [06:11]
Tracy Alloway
That's Justin McElroy. He's 1/3 of the My Brother, My Brother and Me podcast. And the chicken sandwich wars were a big deal for him. He spends part of the podcast reading out fast food press releases, and there were a lot of those flying around at this time.
- [06:27]
Michael Skipworth
A lot of American fast food competition, especially during the time period this is happening. Our mid to late 2000s is really a race to the bottom of who can sort of like reorganize the ingredients in the kitchen in the most disturbing way to try to net headlines. You know, we'll put some Doritos in it. Look, we found some Fritos lying around. We shoved that in it. Do you like this? Is this anything? And a lot of it seemed pretty desperate. And I think what was so interesting about Popeyes Chicken sandwich is that they had the courage as a brand to say, what if we just made something good? And that was kind of the whole hook was it was really good to eat and it was wild. And this is just a sandwich that was. It got famous for being extremely good to eat, which I think was a real breath of fresh chicken.
- [07:14]
Justin McElroy
So, as the nation's de facto chicken war correspondent, Justin has thought a lot about why this particular combo took off like it did. Sure, there was a novelty value and they were delicious.
- [07:25]
Michael Skipworth
I tend to believe that the best chicken sandwich is the one that's nearby.
- [07:31]
Justin McElroy
But chicken sandwiches were also cheap.
- [07:33]
Michael Skipworth
I know we are wild about these things as a nation especially. One of the great things is that it's cheaper than beef. So we are just wild about that, and I think we'll continue to be as long as we got all these millions of people to feed.
- [07:47]
Tracy Alloway
Chicken is still relatively cheaper than a lot of other types of meat, but that doesn't mean that prices for chicken products never went up. Today, a Popeyes spicy chicken sandwich costs close to $6 in many cities. That's about a 50% increase from its launch price of $3.99. And that price went up despite that intense competition among the sandwich makers.
- [08:11]
Justin McElroy
And in that respect, the chicken sandwich wars might be emblematic of some wider pricing trends. People love chicken, whether it's in sandwich form or something else. And we keep buying it even as prices go up and companies keep giving us new ways to consume it.
- [08:23]
Tracy Alloway
To understand that, we need to talk about my personal favorite chicken item, wings. But the demand for chicken wings is pushing the price to historic levels. So how high will the cost of eating wings go?
- [08:37]
Justin McElroy
Your super bowl party is going to cost about 14% more than it did last year. A lot of this is the labor shortage, the supply chain crunch.
- [08:47]
Tracy Alloway
Restaurants and suppliers say prices for chicken wings have gone on through the roof.
- [08:51]
Joe Weisenthal
It's a no brainer that Wingstop is getting in on the chicken sandwich wars, but with its own twist.
- [08:57]
Justin McElroy
Wingstop is one of the biggest wing chains in America, and even they got into the chicken Sandwich game. In 2022, the company launched its own sandwich offering, introducing not just one, but a dozen different flavors of chicken and carb combos.
- [09:12]
Joe Weisenthal
So we saw an opportunity to do it different, to do it the Wingstop way. And the launch was pretty incredible because we planned it out, we did all of our forecasting, and we were confident, we had plenty of inventory when we launched to be able to meet any sort of scenarios we could come up with around demand. But the fact was, we sold out in a week, which was pretty remarkable. To just see the strategy was right, the timing was right. The only thing was wrong is we didn't plan for that much volume, but we were able to take a step back, build up supply and relaunch again. And it has been a bit of a game changer for our brand because we're bringing in a record number of new guests into our brand, quarter after quarter.
- [10:01]
Tracy Alloway
That's Wingstop CEO Michael Skipworth, and he says chicken sandwiches did a couple things for his business. They got a bunch of new customers through the door and boosted sales, of course. But there was something else, too.
- [10:14]
Joe Weisenthal
There's also a supply chain side of the strategy. The more breast meat that we use, which is where that chicken sandwich filet comes from, where our boneless wings come from, the better. It puts us in a position to negotiate our overall buy with these poultry companies and help us execute our supply chain strategy, which is really one that's centered around in chicken wings.
- [10:39]
Justin McElroy
And this is where we need to talk about where wings actually come from.
- [10:42]
Tracy Alloway
Is it from chicken?
- [10:44]
Justin McElroy
Yes. But according to Michael, chicken wings are one of the most volatile commodities out there. And obviously they're a huge component of Wingstop's business. The company says it's the biggest customer for wings in the country.
- [10:55]
Joe Weisenthal
About volatility in chicken wings and what that can do to the Wingstop restaurants, P and L, it could be as much as a 10 percentage point swing in our food cost, which is incredible amount of fluctuation. Now, the reason you see so much volatility in the price of wings is the reality of the fact that these poultry companies, they are not growing these chickens for the wings. They're setting the size of the flock, how many birds they're going to harvest based on breast meat demand. The chicken wings themselves represent 6 to 8% of the bird. It's a fall off product. And so why you see so much volatility in the price of wings, it clearly is a supply and demand dynamic, but the demand is not what's driving the supply. It's really centered around the overall market for breast meat. And so that's what's created a lot of volatility in that commodity. And there can be years where that spot market hits, you know, below $1 a pound and then take a year like 2021. After the pandemic where every single brand out there added chicken wings to their menu, you saw that spot market hit an all time high of $3.21 a pound.
- [12:32]
PGIM Voice
What do you see on the horizon? Uncertainty or opportunity? Whatever you see at pgm, we can help you rise to the challenges of today when active investing and disciplined risk management are needed most. Drawing on deep expertise across the world's public and private markets in pursuit of long term returns, our investments shape tomorrow today. Pursue your tomorrow with pjim, a leading global asset manager.
- [13:03]
Marin Sums
Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money, whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Marin Sums at Webb and every week senior reporter John Stepak and I answer your questions about personal finance and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families. My question is whether you think maxing out my company pension match is enough for when it comes to saving for.
- [13:41]
Tracy Alloway
My pension, should I attempt to pay my child's university fees and living costs. My partner and I have excess savings. So should we overpay on our mortgage or should we put the money into stocks?
- [13:53]
Marin Sums
From Bloomberg Podcasts, tune into Marin Talks Money. Follow Marin Talks Money on Apple Podcasts, Spotify or wherever you listen.
- [14:03]
Justin McElroy
Like a lot of things in the aftermath of the pandemic, the price of chicken wings soared after 2020, jumping more than 70% between 2021 and 2022 alone. There were the usual supply chain disruptions. A lot of poultry processors had to curb production because of worker shortages. Labor costs went up. So did shipping and packaging costs.
- [14:22]
Tracy Alloway
But there was higher demand too. Americans reacted to the trauma of the pandemic in what I think is a very relatable way. They ordered wings, lots of them. Demand for chicken wings jumped when we were all isolating. After all, wings are both delicious and can be transported pretty easily. Anyone who's ever ordered a couple dozen at 2am because they're the fastest and most delicious thing around probably knows this well.
- [14:48]
Justin McElroy
At the height of the price spike, some restaurants were even labeling chicken wings at quote market price. You know, like lobster. Some grocery stores put limits on the amount of drums and flats you could purchase. For a company like Wingstop, the soaring cost of its primary product proved to be an opportunity as well as a challenge.
- [15:04]
Tracy Alloway
And for one analyst, chicken wings became key to understanding the entire economy.
- [15:10]
Carmen Rodriguez
I'm Sam Rines and I'm a macro strategist with WisdomTree.
- [15:14]
Justin McElroy
Part of Sam's job is to predict winners and losers in the macro economy and in the years after the pandemic. If you wanted to understand who was winning, you needed to know chicken wings.
- [15:24]
Tracy Alloway
According to Sam, wings are the perfect pandemic study of all those one off disruptions. It gave companies a reason to raise their prices, a strategy he calls price over volume.
- [15:38]
Carmen Rodriguez
Price over volume is the ideal idea that companies coming out of the pandemic and through the Ukraine crisis used the excuses that they had to increase prices well beyond what they would have in the pre pandemic, pre Russia invasion of Ukraine period in order to maintain their margins in that environment. That came at the expense of volumes. So the idea of price over volume is companies found it much more interesting to increase prices than to attempt to maintain their volumes over time. So your wing stops, your McDonald's, your Burger Kings, Taco Bell, KFC. A lot of these restaurants really figured out that, you know, you kind of have it out there that labor is getting more expensive, that your protein is getting more expensive so you can raise prices and you can raise prices pretty dramatically relative to what you could previously. They learned very, very quickly that it is much, much cheaper to gain margin by changing a price tag than it is to invest in putting more volume out there. It flows straight to the bottom line, and you don't have to move prices down anywhere near as quickly as anticipated, if at all.
- [17:00]
Justin McElroy
At a time when there were lots of shortages and higher costs, price over volume could be a pretty compelling strategy for businesses. In 2021, as chicken wing prices were nearing their height, Wingstop said it had increased menu prices by about 10%.
- [17:13]
Carmen Rodriguez
You know, they talked about how their suppliers had worked with them, and so their realized costs were only up like 70% still. That's, you know, you sell chicken wings and they're up 70% in pricing. That's a pretty big deal for you. What was intriguing about that was it gave them an excuse to raise prices. Right. So what did Wingstop do? Wingstop raised prices and they raised prices significantly.
- [17:37]
Tracy Alloway
Those price increases didn't necessarily mean that Wingstop was suddenly making a bucket load of chicken money. But being able to charge more did help protect their profit margins at a difficult time. As Sam points out, Wingstop wasn't unique in this respect. A bunch of other companies like Pepsi, Home Depot, even Walmart arguably did something similar for Sam.
- [18:00]
Justin McElroy
What really differentiates the price over volume idea is what happened when chicken wing prices started to come down. But Wingstop's menu prices didn't suddenly drop alongside them, so they raised prices.
- [18:11]
Carmen Rodriguez
Where it began to show through was at the other side of the chicken wing crisis. Chicken wing prices fell and they fell back to where they had been previously. And they fell back, you know, call it from almost $3 per pound back to around 85 cents a pound. And those are peak to kind of trough pricing. But if you think about that, that's a pretty powerful thing when you haven't moved your price if you're a Wingstop, so you've got the chase up in price. You're not moving your price lower to kind of give back to the consumer. You're maintaining that price now. So all of a sudden your margins have really begun to expand, and that's not going to go anywhere anytime fast.
- [18:55]
Justin McElroy
So the price increases of the past could still be a tailwind for a business like Wingstop. Today, the company says it's increasing menu prices by a smaller amount, just one to two points, which is closer to the historical average. But they're still rising, and from a higher starting point, too.
- [19:09]
Tracy Alloway
In an economy where consumers keep spending and entire industries are raising prices altogether. At the same time, prices can go up and stay there even when input prices, the cost of actually making the stuff, start to fall. It's an added wrinkle in the way we think about prices, and one that could come back to rear its ugly head even as inflation has slowed.
- [19:33]
Justin McElroy
The Meg is a 2018 science fiction film about a 75 foot megalodon, a giant shark basically, that terrorizes a group of scientists working in the Pacific Ocean. For Sam Rhines, though, MEG is something different though could still be pretty scary.
- [19:46]
Tracy Alloway
Is it a giant chicken?
- [19:49]
Justin McElroy
No. Here's Sam.
- [19:50]
Carmen Rodriguez
What companies learned was really that consumers pay attention to the meg, right? And kind of the scary shark out there, which is milk, eggs and gasoline.
- [20:01]
Justin McElroy
That's the meg. Milk, eggs and gasoline.
- [20:05]
Carmen Rodriguez
And when you have egg prices that are going up dramatically and doing it very quickly, you better have an excuse to, you know, for that price to be moving and you better be able to explain why the cost of everything that includes eggs is also going up. Whether it's mayonnaise, whether it's bread, et cetera. That's really going to have an effect on the consumer psyche, but at the same time they're not necessarily going to step back from consuming it. So a lot of the companies out there, whether it's Pepsi, whether it's Kraft Heinz, conagra, they found that consumer demand is rather inelastic, that there is not anywhere near the sensitivity to price that they thought there was pre pandemic, pre invasion.
- [21:06]
PGIM Voice
Bonds are back and so is all the credit. PGIM Fixed Income's monthly podcast series. From the latest trends to long term perspectives, you'll get timely fixed income insights from leading economists, research analysts and investment professionals. Whether you're new to bonds or a seasoned investor, tune in to all the credit wherever you get your podcasts. This podcast is intended solely for professional investor use. Past performance is not a guarantee of future results.
- [21:36]
Marin Sums
Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money, whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Marin Sums at Webb and every week senior reporter John Steppeck and I answer your questions about about personal finance and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families. My question is whether you think maxing out my company pension Match is enough for when it comes to saving for.
- [22:14]
Tracy Alloway
My pension, should I attempt to pay my child's university fees and living costs? My partner and I have excess savings. So should we overpay on our mortgage or should we put the money into stocks?
- [22:26]
Marin Sums
From Bloomberg Podcasts, tune in to Marin Talks Money. Follow Marin Talks Money on Apple Podcasts, Spotify, or wherever you listen.
- [22:36]
Tracy Alloway
People love chicken so much that even as prices go up, they keep buying. I gotta admit, Jo, my personal price elasticity for chicken wings is extremely inelastic. It is the opposite of a rubber band or a rubber chicken. If prices go up, I am definitely still buying.
- [22:55]
Justin McElroy
Point taken. But the idea that prices, and by extension, inflation, might act a little differently in extraordinary times is starting to gain some traction. And Sam isn't the only one who's thinking about this.
- [23:06]
Isabella Weber
My name is Isabella Weber. I'm an economist at the University of Massachusetts Amherst, and I've been working on inflation for a number of years. First in the context of China's transition to a market economy, which was all about structural ruptures, and then in the context of the overlapping emergencies of recent years.
- [23:23]
Tracy Alloway
The soaring price of chicken wings wasn't the result of a single thing. The events of 2020 clobbered supply chains and led to labor shortages. Russia invaded Ukraine in early 2022, which caused the price of grains, the basic building block of poultry feed, to go up. Then there was an outbreak of bird flu, which we'll talk more about in a second. Demand for wings spiked at that same time, and companies like Wingstop responded to that environment by raising their prices. Put it all together and you had a recipe for record wingflation.
- [23:55]
Justin McElroy
Isabella says the worry is that these types of inflationary events, what she calls overlapping emergencies, are becoming more common. And this isn't just a US phenomenon. Globally, prices for poultry are still up 33% since the pandemic.
- [24:07]
Isabella Weber
When we talk about the overlapping emergencies of recent years, I would refer to a conjunction of different things that have been kind of in the making for a while, but that have been culminating in recent years and that are also not really going away. The first is, of course, climate change. It's no longer an issue that kind of will bother our children or grandchildren, but it's an issue that is relevant in the here and now. Global warming is a reality. Extreme weather events have become very frequent pretty much anywhere in the world. If you ask people, can you think of an extreme weather event, they will probably be able to name one that is not very far away from them. And on top of this situation around climate and weather, we have mounting geopolitical tensions. We have an unstable global order that is as unstable as it hasn't been in many years, if not decades, which all of these things can have implications for the stability of production networks, for the stability of distribution, and therefore ultimately for the stability of economies, societies and democracies and states and so on, which then of course has again feedback dimensions into the degradation of the natural environment, into climate change, into the fight against climate change, and into the geopolitical environment.
- [25:23]
Justin McElroy
There's another thing playing out too. When all these different emergencies hit the headlines, consumers hear about it, they pay attention. And so when companies decide to respond to higher input prices by raising their prices, those price increases might seem reasonable to customers, especially if everyone is doing it at the same time.
- [25:39]
Tracy Alloway
It's a different way of thinking about prices to the way we usually do. In traditional economics, we tend to think about price as the result of the relationship between supply and demand. When demand is high and supply is low, prices go up. And the inverse happens too, prices go down. When demand is low, companies are supposed to compete on cost.
- [26:00]
Justin McElroy
But when there are all these emergencies and one off disruptions in the news, price setting starts to look a little bit more complicated. If everyone has an excuse to raise prices because there's a major emergency like a global pandemic, then maybe businesses don't really feel as much pressure to lower prices.
- [26:16]
Isabella Weber
In the context of these overlapping emergencies and specifically in the context of tangible shocks that consumers see and listen to on the news, watch on tv, such as climate disasters, such as war, such as supply chain blockages, like for example, the images of the Port of LA that so many consumers have seen in that kind of context, when they walk into the store and they see that prices have gone up, they think that these price increases legitimate or that these price increases make sense. They don't come out of thin air. This is to say that firms navigate prices also as social relationships, as part of the relationship with their customers. And on the demand side, this means that the elasticity of demand is not God given, but is context dependent. The willingness of people to pay is context dependent.
- [27:06]
Justin McElroy
And of course, even if prices for essentials like chicken go up, we can't.
- [27:10]
Tracy Alloway
Just stop eating food, although the intermittent fasting bros might try.
- [27:14]
Justin McElroy
We might consume less of it or try to find cheaper alternatives, but we can't stop buying it altogether. And as Isabella points out in an inflationary environment, it might even be that people spend more on basics.
- [27:24]
Isabella Weber
Generally speaking, the more essential or the more basic a good is, the lower the price elasticity, right? You can even get like kind of perverse effects where if inflation is high and consumers fees squeeze, they might end up spending more money on essentials than on less essential goods. And hence their price elasticity for these essentials might even be declining in an inflationary environment. And I would argue that firms are very much aware of that. If you, for example, look at the earnings calls of Tyson and the question of demand elasticity on chicken, then you see that they refer to chicken as a protein that is a staple that people have as part of their day to day diet, as their daily bread, if you want so. So that the demand elasticity is relatively low. So yes, I would argue that in the context of food and agriculture, when we talk about basic food staples, the demand elasticity tends to be relatively low. Which means that if prices shoot up, you do not get a strong demand response and instead you basically get a very heavy cost burden carried by consumers that cannot do without this stuff.
- [28:38]
Tracy Alloway
The Meg Stor strikes again. Not only do we pay more attention to the price of essentials like milk, eggs and gas and chicken meat, but we don't have much of an option to stop buying them. Everything might taste like chicken, but that doesn't mean we'll all just stop buying the real deal. And speaking of essentials, let's talk eggs. The eggsentials.
- [29:00]
Glenn Hickman
My name is Glenn Hickman. I'm the president of our family business, Hickman's Egg Ranch in Buckeye, Arizona. We have a few million chickens and we sell eggs around the southwest.
- [29:13]
Tracy Alloway
Glenn Hickman runs the biggest egg operation in Arizona. It's still family owned 80 years after Glenn's grandmother started the business with just a few egg laying hens.
- [29:23]
Glenn Hickman
This is our 80th year and there's a picture hanging in my office that my dad is still alive. He's 95 years old and he's in kind of a baby stroller with his father who is feeding some chickens that are, you know, you would call cage free or free range.
- [29:40]
Justin McElroy
Today, Hickman Family Farms includes a feed mill and a processing plant that's capable of shelling more than 750,000 eggs per hour.
- [29:48]
Glenn Hickman
Size wise, you know, Hickman's is probably larger than some and smaller than the biggest ones, but the egg business is still pretty concentrated. There's not much more than 20 or 25 producers that really produce probably 85% of the product that's out there. So, you know, we have a few million chickens.
- [30:07]
Tracy Alloway
Hickman is on the supply side of the economy. He makes the things that other people are buying, in this case, eggs. But his customers aren't really you and me. Instead, he's selling to the big grocery stores.
- [30:19]
Glenn Hickman
Everyone knows who they are. They're the Walmart's of the world, they're the Kroger's of the world. They're the Safeway's, the Aldi's. Those are national customers. And then we also have, you know, regional retailers that operate in, in different areas. And then you also have the institutional grocers, the national ones such as Cisco and US Food Service. And then you have regional retailers also. Beyond that, you have smaller distributors that tend to go into restaurants, you know, produce companies, meat companies, smaller institutional grocers.
- [30:52]
Tracy Alloway
In early 2023, the structure of the egg market became exciting for all the wrong reasons.
- [30:59]
Justin McElroy
That's so bad tracing.
- [31:01]
Tracy Alloway
Look, I'm just going to say, if you don't like egg and chicken puns, you should already have exited the podcast.
- [31:09]
Justin McElroy
Oh, I remember this. Wholesale prices for eggs jumped. If you look at the consumer price index, egg inflation reached a stunning 70%.
- [31:16]
Tracy Alloway
Year on year, a new emergency was raging. Avian flu, fresh off the back of the COVID 19 pandemic. And all those snarled supply chains, there was something new to worry about. Bird flu is highly contagious. It spreads rapidly, especially among chickens that are crowded together in commercial poultry houses. They can die within days once it strikes, and it can quickly wipe out entire flocks.
- [31:41]
Justin McElroy
Yeah, and if there's any sign of it in a commercial bird or egg operation, chickens need to be culled. So the result of the most recent outbreak is that more than 100 million birds have been lost in the U.S. that's an egg prices soaring and even turned them into a political movement, something chicken sandwiches never really managed to achieve.
- [31:59]
Glenn Hickman
You know, we're trying to do the best we can to get more eggs out there. I think it's unfair that when politicians squawk, they use a dozen eggs as a benchmark for higher egg prices and those kind of things. And I think that's just because people relate to eggs. They're like in 98% of all refrigerators, so they are a staple. But believe me, that the egg farmers in the United States are trying their dangest every single day to produce the maximum amount of eggs to satisfy the demand out there.
- [32:33]
Justin McElroy
Okay, so what is actually happening when the price of eggs goes up? How do prices Hatch, so to speak.
- [32:38]
Tracy Alloway
Now you're getting into it, Joe. Okay, here's Glen.
- [32:42]
Glenn Hickman
The egg market is kind of an unusual animal. The board of trade, that commodities trade on corn, soybeans, and those kind of things, that's actual cash pricing. That's transacted during the day. The egg business tends to be a little bit different. There's a national market that's quoted by a third party that has no interest in either retail or production, and they observe trades between unaffiliated parties. From there, they come up with an index that they quote each day, and the egg producers tend to sell off that index. So if the egg market is quoted up, then we go. Our prices go up, it quotes down, and we go down. But we really don't have a lot of leverage to say, gee, I don't really care what the market is. This is what I'm going to sell my eggs for. So we tend to all follow the same market, and we negotiate deals relative to that market with our major customers.
- [33:42]
Tracy Alloway
So when Glenn is selling his eggs to a customer, a big grocery store or someone like that, he starts with an egg index price and negotiates a discount from there.
- [33:51]
Justin McElroy
And of course, that raises the question of where the egg index price comes from.
- [33:55]
Glenn Hickman
So the benchmark price is set by this third party. And they collect data from many sources. Our industry owns a nonprofit called Egg Clearinghouse, and so it's blind trading. If I need to buy a load of eggs or I need to sell a load of eggs, I posted on this clearinghouse, they match buyers and sellers, and that information is public. The blind trading, the participants are not known, but the kind of egg is detailed, the area from which it's shipped, the area from which it delivered, and those kind of things. Additionally, we may trade privately with another producer, and when we do that, it behooves us to have accurate market quotes. So it's better to provide that information to the market reporter, whether it comes from a public trading platform or a private transaction.
- [34:51]
Tracy Alloway
Joe, which came first, the chicken or the egg price index? Okay, so when avian flu starts hitting laying flocks in the US and farmers have to cull sick chickens, it takes a while to build back supply.
- [35:04]
Glenn Hickman
What mostly affects the price of eggs is whether or not we have enough production to meet the normal demand. When you have to depopulate a flock or a farm, that's not normal in our business. Normally, if a typical farm has 10 buildings and they each have 100,000 birds, you probably have a flock going in and out about every two months, and you have the replacement growing capacity to accommodate that. So when you have an entire farm that goes out of production, they're cold, as you say, and. And now you have 10 barns empty without any kind of outside help, if you will, you're going to grow a barn of replacement bullets every 10 weeks. So it's going to take you an entire cycle.
- [35:53]
Justin McElroy
So supply is clearly a factor in the benchmark egg price going higher. But there's still an open question about what happens after that once eggs hit the shelves of grocery stores.
- [36:02]
Tracy Alloway
The bigger the customer, the higher the discount they can potentially negotiate from egg farmers like Glenn. But there are only so many companies that egg farmers can actually sell to.
- [36:12]
Glenn Hickman
The consolidation and concentration of the grocery industry has obviously had an impact on how every industry responds to that. At one point in time, Hickman's egg Ranch had 100,000 chickens. And we thought we had the bull by the horns. We had plenty of customers that we could service. Now a large grocer can consume in a region easily the eggs from a million birds each week. So we have these relationships now that Instead of having 20 customers each buying 50 cases of eggs, we have one large customer buying the production from a million birds. So that concentration is always concerning. And I.
- [36:57]
Tracy Alloway
Chicken occupies a unique position in the US Diet. We eat a lot of it, whether it's eggs from the grocery store in sandwich form or takeout wings. And like many things, prices went up in recent years. Understanding what helped do it can deepen the way we think about inflation in general.
- [37:14]
Justin McElroy
Yeah, there's no single thing at play here. There's a lot of demand for chickens. People love it, people need it. And when there's lots of demand and supply gets hit by overlapping emergencies, whether it's Covid or bird flu, prices go up.
- [37:26]
Tracy Alloway
And when all those emergencies are hitting an industry all at once, when they're all in the news, companies have a reason, an excuse even to raise their prices and potentially keep them there.
- [37:38]
Justin McElroy
But recent issues facing the poultry industry illustrate a wider point about America's economy and the decisions being made about how it should be structured and who benefits from it.
- [37:48]
Tracy Alloway
Next up on Beat Capitalism, we are going from buying chicken sandwiches to the business of actually growing the birds. Welcome to the Thunderdome. Now with added chicken. Beat Capitalism is written by Tracy Alloway, Carmen Rodriguez and Joe Weisenthal.
- [38:09]
Justin McElroy
Produced and edited by Carmen with the help of Kale Brooks and Dashiell Bennett. Our Odd lots theme song and sound mixing was Chickenized by our engineer, Blake Maples.
- [38:22]
Tracy Alloway
This meaty serving of chicken industry puns and information was fact checked by Dash and Kale.
- [38:28]
Justin McElroy
Brendan Newnham is our Executive Producer and Sage Bauman is Bloomberg's Head of Podcasts.
- [38:33]
Tracy Alloway
If you enjoyed this three part deep dive into the chicken industry, please consider leaving a positive review on your favorite podcast platform. Thanks for listening.
- [39:07]
Marin Sums
Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money, whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Marin Sums at Webb and every week senior reporter John Stepek and I answer your questions about personal finance and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families. My question is whether you think maxing out my company Pension Match is enough for when it comes to saving for.
- [39:45]
Tracy Alloway
My pension, should I attempt to pay my child's university fees and living costs? My partner and I have excess savings, so should we overpay on our mortgage or should we put the money into stocks?
- [39:57]
Marin Sums
From Bloomberg podcasts, tune into Marin Talks Money. Follow Marin Talks Money on Apple Podcasts, Spotify, or wherever you listen.