Chicken stocks
had an ugly day today, after the Wall Street
Journal reported that a Colorado federal grand
jury had indicted current and former executives at a pair of U.S. chicken
processors on charges of price fixing. Publicly traded Pilgrim’s
Pride and privately held Claxton
Poultry Farms denied the allegations
of collusion.
Pilgrim’s
Pride stock tumbled 12.4% today, dragging down other processors not named in
the indictment. Tyson Foods fell
3.8%, and Sanderson
Farms dropped
6.2%. Shares of Brazilian protein giant JBS, which
controls Pilgrim's, lost 2.9%.
It has already
been a rotten year for protein processors, which have dealt with a shift
in demand from restaurant meals to at-home dining. And coronavirus
outbreaks at several facilities have caused disruptions and increased labor
costs. Pilgrim’s, Tyson, and Sanderson shares are all down at least a
third in 2020.
Barron's Al Root warns today that U.S. consumers shouldn't expect to
suddenly see lower meat costs as a result of the federal investigation of
chicken pricing. Agribusiness is complicated, and there's a lot that goes into
what we pay at the grocery store.
Protein pricing is highly dependent on grain
costs. Export markets play a large roll, too. And the life cycles of America’s
favorite proteins are vastly different. It takes several years to raise beef
cattle, a couple of years to raise hogs, and several months to raise chickens.
Supply can’t always respond quickly to demand.
What’s more, one protein can
be readily substituted for another—by individual U.S. consumers and
restaurants. And one cut of meat can be substituted for another cut. Ground
beef, for instance, is cheaper than steak.
Price fixing
has long been suspected by dairy and poultry buyers, Al writes, but it's a
difficult claim to prove for the above reasons. And because most of
the supply chain is controlled by a few major processors, transparency
isn't great.
Read the rest of Al's report
here.
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