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Saturday, May 4, 2013

Chicken Feed Price Conspiracy

Since chicken feed represents about 60% of the total cost of producing chicken, I thought we might verify CFO's calculation of the chicken feed prices.
Comparison of CFO's Chicken feed prices vs. StatsCan data for chicken feed prices.  Data is
highly correlated, but slightly shifted in time periods (assumed due to reporting delays, or
dates of quota periods).


The graph above shows CFO's data (blue curve), and compares it with the data from Statistics Canada (red curve).  Notice the similar shapes to the curves, just shifted in time.

That time shift is to be expected, as the historical data takes time to collect before it can be used to adjust the live chicken selling price.  For example, CFO's Quota Period A-106 (August 14, 2011 – October 8, 2011) uses average feed prices from May 23, 2011 to July 11, 2011, the previous 3 month period.  Unfortunately since QP A-106, CFO no longer discloses this feed price averaging date range information.  CFO has chosen to be even more secretive about where and when it calculates this number from, so everybody is kept guessing.  Nothing like being open & accountable!

OK, so it is obvious that CFO gets the info from StatsCanada.  I found the data in Table 329-0059 of  StatsCanada data here  You can add the column of data called "Complete feeds, poultry".  But where does StatsCan get its data from?

StatsCan sends out a questionnaire, found here  They are supposed to report the sale prices in effect as of the 15th of the month.  The survey form kindly reminds the person that their data will be kept confidential by StatsCan, but they are not cautioned to answer truthfully.  I wonder why?  Under Section 31 of the Statistics Act they can be convicted and fined $500 and/or 3 months in jail if they provide false or mis-leading information.

According to Allltech's Annual Report Canada's 72 feed mills produced 0.96 million tonnes of broiler chicken feed in 2012.  There are about 38 feed mills in Ontario.  However, StatsCan data is for all of Canada.  What does the price of feed in BC or the Yukon have to do with growing chicken in Ontario?

Since StatsCan only asks for the price on the 15th of the month, what would happen to the data reported to StatsCan if just before the close of business on the 14th of the month, they implemented a price increase, effective immediately.  That higher price would be in effect for all day on the 15th, but on the 16th management changes its mind, and restores the original price.  The feed mill could "honestly" report the higher price on the 15th, StatsCan would dutifully report those higher prices, and CFO would copy down those higher prices, and 60% of that 1-day price increase would find its way into the higher price for live chicken.

If the feed mills add just $0.01 to the $/tonne price they report to StatsCan on the survey, multiplied by the 0.96  million tonnes per year they produce, and that is a total of $9,600.00 gained, less the cost of the $500 fine under Section 31 of the Statistics Act (catch them if you can), and you have a net profit of $9,100 per year for just putting down an extra penny on a survey form; not bad profit margin for a paper survey cheating.  Jack the bogus price even more on the survey, and your profits increase proportionally.

Does StatsCan know about this?  Are they regularly checking to ensure this, or something similar isn't going on?  Who will contact StatsCan to find out for sure?  Send them a link to this post and we'll see what they say.

But why would a feed mill do such a sneaky thing?  Because of vertical integration.  Many of the feed mills own broiler growing operations, or have guaranteed customers who must buy their feed from their mill.  Some mills have established magical linkages between themselves and those permitted to buy and sell of chicken quota to their "friends".  This is one sure way to boost the overall profits in the chicken monopoly.

But if the feed mills were playing these kind of games with feed prices, wouldn't the chicken farmers complain?  No, not at all.  In a previous post I showed how a chicken farmer gets all of his money back from any feed price increase, plus the farmer gets a 5.9% bonus of any feed price increase due to bogus FCR calculations.  So if the feed mills try to cheat the system, they share the spoils with the farmers.  Of course, all of this cheating, if this hypothetical situation actually occurs, is taken from the consumer's pocketbook.

Perhaps this is another reason why Canadians pay a 50% to 300% premium price for chicken, higher than most everybody else in the world.
StatsCan data on various animal feed price indices from 2002 to 2012.
All indices were defined equal to 100 in 2002.  Feeds used by Supply
Management animals (eg. dairy cows, chickens, turkeys) increased significantly
faster than feeds for non-SM animals.  Is this an attempt of feed mills to
ride the SM-coat tails for a higher pricing advantage?  

The graph here on the right is StatsCan data from the same table, shows the price increases charged at the feed mill producing the various feeds.  Dairy, poultry, dog, and cat foods were all indexed to be 100 by StatsCan definition in 2002.

Look who has the highest feed price increases:  poultry and dairy.  Dog & cat foot is up 20%, but dairy and poultry is up 60%.

Wait a minute, aren't poultry and dairy also the ones on Supply Management, where playing tricks in the shadows actually gets you higher profits, enabling the legal gouging of consumers.

In 2013, broiler chickens represent 4.89% and egg laying chickens are  4.07% of the total animal feed market in Canada, for a total of 8.96% for chickens.  Dairy is 50.91%, turkeys are 0.92%, so SM feeds are a total of 60.79% of Canadian animal feed consumption.  Do you see why the feed mills are interested in maximizing SM feed prices?

Of course, when you average in a normal, competitive market price increases for cat & dog food that consumers have a very watchful eye on, with the out-of-control sky high feed prices for the Supply Management Boys, you get the red curve, which is the overall average feed prices, in the middle between the two extremes.

So can we then calculate that poultry feed prices are 33.3% too high due to cheating in the system (ie. 1.6/1.2= 1.33)?  Taking 60% of that 1.33 premium (viz. feed is 60% of the total cost for raising chicken), we get a 19.98% premium in the live chicken prices at farm gate.  Add the bogus FCR multiplier of 5.9% and we get a total screwing of the consumer at the farm gate of 27% (1.059*1.1998= 1.27).  Since everybody downstream does a percentage markup on the chicken, the 27% premium at the farm gate gets marked up too, to become a 77% premium after the slaughter plant (40% markup for changing a live bird into an eviscerated chicken carcass).  Once it gets to retail, it has seen a second 40% markup (viz. cost of wholesale packaging, distribution, warehousing, shipping, refrigeration, and profit), the chicken feed price conspiracy has become an extra 249% premium unfairly gouged out of the consumer.

It appears I have explained 249% of the 300% or more of the price gouging that Canadians pay for their chicken; more than anybody else in the world.

The other 50% is from Supply Management encouraging and allowing all quota based chicken farmers to grow more and more fat, dumb, and happy to collect their CFO-induced quota cheque each Quota Period.  Note that New Zealand farmers have a FCR of 1.38 while CFO chicken producers are around 1.82 and this inefficiency raises live bird prices by 19.14% (see Blog posting Why not Export Canadian Chicken? ).  When that is marked up all the way through the system, we have a total consumer gouging of another 233.5%, for a grand total potential screwing of the consumer of 482.5%.

So you see, you should thank your lucky stars than most retail stores use chicken as a loss-leader and sell it to you for just a 300% gouging, rather than the full force of the 482.5% screwing that these mobsters think they want, and you deserve to be screwed out of.

Do you remember a few months ago when all the Too Big To Fail banks were caught cheating on the LIBOR bank rate, artificially jacking up this reference interest rate that $300 trillion in loans reference for their rates, defrauding the public by merely boosting the number they entered on the LIBOR survey they regularly filled out.  Just pretend that this LIBOR interest rate is 0.001% higher than it really is, fill out the survey, then everybody around the world multiplies the LIBOR by their share of the $300 trillion in debt that directly or indirectly reference LIBOR, and you gouge extra millions in interest out of the public, so the cheaters could earn extra profits and bonuses.  They just had to fill in the survey form and Presto! they gained millions in gouged fees.  If the "upstanding, honest, and faithful" banksters did the LIBOR scam for almost a decade, is it that crazy to suspect this same technique or similar jigging of the system by a handful of feed mill operators?

I'm sure all the above is just a co-incidence, don't you think?  I'm sure this is just one of those conspiracy theories cooked up by somebody who wears a tinfoil hat to protect them from UFO radiation and mind probes.

The picture kind of looks like me, but I don't remember the cat.
Tinfoil hats are ready for the Chicken Feed Price Conspiracy

2 comments:

  1. Nice article tanks to sharing with us. keep up posting such valuable information.

    ReplyDelete
    Replies
    1. Thanks for posting. It is interesting to learn about the links behind the scenes between the feed industry and its chicken customers. No wonder we have some of the highest chicken prices in the world with these cozy relationships.

      Delete

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