Broiler lawsuit ignores economic reasons for cutbacks

A class-action antitrust lawsuit charges that U.S. broiler companies conspired to reduce chicken production to cause chicken prices to rise to “unprecedented” levels during the period from 2008-2014. In a press release, a 50 percent increase in chicken prices is what is described as “unprecedented.”  During the period of time the lawsuit addresses, a number of significant events occurred to change the economics of poultry production in the U.S.  The country’s largest broiler company, Pilgrim’s Pride, filed for chapter 11 bankruptcy protection.  The Renewable Fuel Standard (RFS), enacted in 2005, ramped up and ethanol production assumed the role as the largest user of corn in the U.S. Combine the growth of the RFS with a few droughts and corn prices reached record high levels. In fact, one might even refer to the U.S. average corn price in 2012 of $6.67 per bushel, nearly three times the $2.28 average for 2006, as “unprecedented.” Ultimately, the positive economics of producing corn caused acreage to be shifted to corn production and the cost of virtually all food products increased.  The Great Recession which started with the financial crisis in 2007-2008 and lingered past 2010 reduced consumer income and borrowing while increasing consumer saving. Consumers had less money to spend on meat and per capita red meat and poultry consumption declined by 9 percent from 2007 to 20014.  It shouldn’t be a surprise that individual broiler companies responded to these economic challenges in similar manners. Reducing chick placements and culling breeder flocks a few weeks early is a reasonable response to ongoing losses on sales of chicken on commodity markets. Reducing orders for future flocks of breeders is also to be expected when total feed costs reach previously unimagined levels at the same time that there is a surplus of animal protein on the market. Remember that the droughts during this time frame also reduced productivity of pasture land in the western U.S. which resulted in cattle being brought to market rather than being held over as breeding stock.