Beak Capitalism, Part 1: Chickflation

Everybody loves chicken. And, it turns out, that this humble bird can tell us quite a lot about the way the world works. In this three-part series, the Odd Lots team is exploring some of the thorniest issues facing the US economy, through the medium of chicken. In this first episode, we’re looking at chicken from the consumer side. Why do we love it so much? What goes into the price of something like a hot wing or an egg? And what can chicken tell us about the way we think of inflation? We speak with prominent economists, analysts, CEOs, and even a chicken sandwich war correspondent, to discuss. It’s time for Squawk Lots! Become a Bloomberg.com subscriber using our special intro offer at bloomberg.com/podcastoffer. You’ll get episodes of this podcast ad-free and exclusive access to our daily Odd Lots newsletter. Already a subscriber? Connect your account on the Bloomberg channel page in Apple Podcasts to listen ad-free. See omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:15Speaker 01

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• 0:44Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 0:51Speaker 00

  The chicken sandwich war on Twitter has people clucking all over the country.

• 0:54Tracy 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.

• 1:05Speaker 03

  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 August 12th, 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.

• 1:29Joe Weisenthal?

  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.

• 1:45Tracy 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.

• 2:19Tracy Alloway?

  Or should I say mahen?

• 2:21Joe Weisenthal?

  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.

• 2:46Tracy 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 $2.

• 3:27Tracy Alloway?

  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.

• 3:36Joe Weisenthal?

  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 macro thing.

• 4:08Tracy 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?

• 4:31Speaker 06

  Welcome to Beak Capitalism, in which we explore some of the thorniest issues facing the US economy through the medium of chicken.

• 4:39Tracy Alloway?

  In this special three-part series from All Thoughts, we are going to examine eggs, get it?

• 4:44Speaker 06

  So there's gonna be chicken puns, huh?

• 4:46Tracy Alloway?

  There are definitely gonna 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.

• 5:12Tracy Alloway?

  First up, what actually happens when the price of a chicken sandwich, or an egg, or even a simple chicken wing, takes flight?

• 5:30Speaker 06

  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 do that.

• 5:55Tracy Alloway?

  That's Justin McElroy. He's one 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.

• 6:11Speaker 06

  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 Sandwiches 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, uh, it got famous for being extremely good to eat,

• 6:56Speaker 06

  which I think was a real breath of fresh chicken.

• 6:59Joe Weisenthal?

  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.

• 7:10Speaker 06

  I tend to believe that the best chicken sandwich is the one that's nearby.

• 7:16Joe Weisenthal?

  But chicken sandwiches were also cheap.

• 7:18Speaker 06

  I know we are wild about these things as a, 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.

• 7:32Tracy 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.

• 7:55Joe Weisenthal?

  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. We keep buying it even as prices go up and companies keep giving us new ways to consume it.

• 8:08Tracy Alloway?

  To understand that, we need to talk about my personal favorite chicken item, wings.

• 8:13Speaker 07

  But the demand for chicken wings is pushing the price to historic levels. So how high will the cost of eating wings go?

• 8:22Tracy Alloway?

  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.

• 8:31Speaker 07

  Restaurants and suppliers say prices for chicken wings have gone through the roof.

• 8:36Speaker 03

  It's a no brainer. Now Wingstop is getting in on the chicken sandwich wars, but with its own twist.

• 8:41Joe Weisenthal?

  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.

• 8:57Speaker 06

  So we saw an opportunity to do it different, to do it the way. Wingstop Way. And the launch was 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 is 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

• 9:42Speaker 06

  number of new guests into our brand quarter after quarter.

• 9:46Tracy 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.

• 9:58Speaker 06

  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.

• 10:23Joe Weisenthal?

  And this is where we need to talk about where wings actually come from.

• 10:27Tracy Alloway?

  Is it from chicken?

• 10:28Joe Weisenthal?

  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.

• 10:39Speaker 06

  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 six to eight percent of the bird.

• 11:23Speaker 06

  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.

• 12:16Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 12:32Speaker 06

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service institutional clients.

• 12:41Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reece Merrick of Ripple says.

• 12:49Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80 year old policy and not actually in. With what the technology can do and offer. And again, that's very different in Dubai.

• 13:08Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 13:17Speaker 01

  With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatgpt.com.

• 13:55Joe Weisenthal?

  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.

• 14:13Tracy 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 2 AM because they're the fastest and most delicious thing around probably knows this well.

• 14:39Joe Weisenthal?

  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.

• 14:56Tracy Alloway?

  And for one analyst, chicken wings became key to understanding the entire economy. I'm Sam Ryan.

• 15:02Speaker 06

  And I'm a macro strategist with Wisdom Tree.

• 15:05Joe Weisenthal?

  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 is winning, you needed to know chicken wings.

• 15:15Tracy 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.

• 15:29Speaker 06

  Price over volume is the 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 Wingstop, your McDonald's, your Burger Kings, Taco Bell, KFC,

• 16:14Speaker 06

  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.

• 16:52Joe Weisenthal?

  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%.

• 17:05Speaker 06

  You know, they talked about how their suppliers had worked with them. So their realized costs were only up like 70%. 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.

• 17:28Tracy 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.

• 17:51Joe Weisenthal?

  For Sam, 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.

• 18:00Speaker 06

  So they raised prices. 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 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.

• 18:46Joe Weisenthal?

  So the price increases of the past can 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.

• 19:00Tracy Alloway?

  In an economy where consumers keep spending and entire industries are raising prices all together 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.

• 19:24Joe Weisenthal?

  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 Ryan's, though, Meg is something different that could still be pretty scary.

• 19:38Tracy Alloway?

  Is it a giant chicken?

• 19:40Joe Weisenthal?

  No, here's Sam.

• 19:42Speaker 06

  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.

• 19:52Joe Weisenthal?

  That's the Meg: milk, eggs, and gasoline.

• 19:56Speaker 06

  And when you have egg prices that are going up dramatically and doing it very quickly, you better have an excuse 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,

• 20:38Speaker 06

  that there is not anywhere near the sensitivity to price that they thought there was pre-pandemic, pre-invasion.

• 20:56Speaker 01

  With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatgpt.com.

• 21:33Tracy Alloway?

  People love chicken so much that even as prices go up, they keep buying. I gotta admit, Joe, 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.

• 21:53Joe Weisenthal?

  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.

• 22:03Tracy Alloway?

  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. 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

• 22:45Tracy Alloway?

  that environment by raising their prices. Put it all together, and you had a recipe for record wingflation.

• 22:52Joe Weisenthal?

  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.

• 23:05Tracy Alloway?

  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

• 23:47Tracy Alloway?

  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...

• 23:55Speaker 07

  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.

• 24:20Joe Weisenthal?

  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.

• 24:37Tracy 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.

• 24:57Joe Weisenthal?

  But when there are all these emergencies and one-off disruptions in the news, price sitting 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.

• 25:13Speaker 07

  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 L.A. 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.

• 25:54Speaker 07

  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.

• 26:03Joe Weisenthal?

  And of course, even if prices for essentials like chicken go up, we can't just stop eating food.

• 26:08Tracy Alloway?

  Although the intermittent fasting bros might try.

• 26:11Joe Weisenthal?

  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.

• 26:22Speaker 07

  Generally speaking, the more essential or the more basic a good is, the lower the price elasticity, right? You can even get that kind of perverse effect where if inflation is high and consumers feel squeezed, 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,

• 27:06Speaker 07

  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.

• 27:36Tracy Alloway?

  The Meg 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 egg essentials.

• 27:57Speaker 06

  My name is Glenn Hickman. I'm the president of our Our family business Hickman's Egg Ranch in Buckeye, Arizona. We have a few million chickens and we sell eggs around the Southwest.

• 28:10Tracy 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.

• 28:20Speaker 06

  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 would call cage free or free range.

• 28:37Joe Weisenthal?

  Today Hickman Family Farms includes a feed mill and a processing plant that's capable of shelling more than 750,000 eggs per hour.

• 28:45Speaker 06

  Size wise, 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.

• 29:05Tracy 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.

• 29:16Speaker 06

  Everyone knows who they are. They're the Walmarts of the world, they're the Krogers of the world, they're the Safeways, the Aldi's. Those are national customers. And then we also have, you know, regional retailers that operate 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.

• 29:49Tracy Alloway?

  In early 2023, the structure of the egg market became exciting for all the wrong reasons.

• 29:57Joe Weisenthal?

  That's so bad tracing.

• 29:59Tracy Alloway?

  Look, I'm just gonna say, if you don't like egg and chicken puns, you should already have exited the podcast.

• 30:06Joe Weisenthal?

  Uh oh, I remember this. Wholesale prices for eggs jumped. If you look at the Consumer Price Index, egg inflation reached a stunning 70% year on year.

• 30:14Tracy Alloway?

  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.

• 30:38Joe Weisenthal?

  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 US. That's an egg prices soaring and even turn them into a political movement, something chicken sandwiches never really managed to achieve.

• 30:57Speaker 06

  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 staple. But believe me, the egg farmers in the United States are trying their damnedest every single day to produce the maximum amount of eggs to satisfy the demand out there.

• 31:31Joe Weisenthal?

  OK, so what is actually happening when the price of eggs goes up? How do prices hatch, so to speak?

• 31:36Tracy Alloway?

  Now you're getting into it, Joe. OK, here's Glenn.

• 31:39Speaker 06

  The egg market is kind of an unusual animal. The Board of Trade, 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

• 32:23Speaker 06

  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.

• 32:39Tracy 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.

• 32:48Joe Weisenthal?

  And of course, that raises the question of where the egg index price comes from.

• 32:52Speaker 06

  So the benchmark price is set by this third party and they collect data from many sources. Our industry owns a nonprofit called Egg Clearing House. 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 post it 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 kinds of things. Additionally, we may trade privately with another producer.

• 33:34Speaker 06

  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.

• 33:48Tracy Alloway?

  Joe, which came first, the chicken or the egg price index?

• 33:51Joe Weisenthal?

  Ugh.

• 33:52Tracy Alloway?

  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.

• 34:01Speaker 06

  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 eat 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 culled, as you say, and now you have 10 barns empty without any kind of outside help, if you will.

• 34:43Speaker 06

  You're going to grow a barn of replacement bullets every 10 weeks. So it's going to take you an entire cycle.

• 34:50Joe Weisenthal?

  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. Lunt's eggs hit the shelves of grocery stores.

• 34:59Tracy 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.

• 35:10Speaker 06

  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.

• 35:54Tracy 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.

• 36:11Joe Weisenthal?

  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.

• 36:24Tracy 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.

• 36:35Joe Weisenthal?

  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.

• 36:45Tracy Alloway?

  Next up on Beak Capitalism, we are going from buying chicken sandwiches to the business of actually growing the birds. Welcome to the Thunderdome, now with added chicken.

• 37:02Tracy Alloway?

  Beak Capitalism is written by Tracy Alockway, Carmen Rodriguez, and Joe Weisenthal.

• 37:07Joe Weisenthal?

  Produced and edited by Carmen with the help of Kale Brooks and Dashell Bennett.

• 37:15Joe Weisenthal?

  Our Odd Lots theme song and sound mixing was chickenized by our engineer, Blake Maples.

• 37:20Tracy Alloway?

  This meaty serving of chicken industry puns and information was fact-checked by Dash and Kale.

• 37:25Joe Weisenthal?

  Brendan Nunnem is our executive producer and Sage Baumann is Bloomberg's head of podcasts.

• 37:30Tracy 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.

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