Saturday, June 8, 2013

USA vs. Canadian Chicken to Feed Price Ratios

Why is US chicken getting cheaper and cheaper, yet Canadian chicken is getting more and more expensive?

Let's take a look at the underlying data.

About 60% of the cost of producing chicken meat is the cost of the feed.  Corn and soybean meal are usually two of the main components in chicken feed.  Here is some USA data on the price comparison between Chicago Board of Trade ("CBOT") 48% soybean meal and whole fresh chicken at the dock in Georgia USA.  As you can see, chicken-soya ratio is dropping, meaning better & better yields and efficiency.

 The Canadian price of soybean meal is usually defined by FOB Hamilton, as the majority of soybeans are grown in Ontario, there are two large mills in Ontario (Bunge in Hamilton and ADM in Windsor), comparable in tonnage.  Here is a graph that shows soybean meal price FOB Hamilton compared to CBOT.  Note there is a small consistent premium price for FOB Hamilton, about $25 per MT.  Trucking costs for the feed to the farm is usually another $20/MT.  I suggest that this indicates prices are maintained the same in Chicago and Hamilton, with arbitrage and trucking charges being the only difference.  Free trade at work.  If either Chicago or Hamilton get arrogant in its pricing, soybean meal quickly gets trucked from one centre to the other, regaining competitive balance.

 Below, we can see a comparison of Canada vs. USA on their chicken to soybean price ratio, Canada in red and USA in blue.  Note that Canada is steadily rising, while USA is steadily dropping.  US is getting better, Canada is getting worse.


I suggest Chicken Farmers of Ontario ("CFO") has some explaining to do.  Does anybody at CFO look at data like this?  If not, why not?  Isn't that something they should be doing, helping to explain trends to their member farmers, and help them decide that this is important, and needs to be addressed.

Does CFO even care?

Is CFO chicken of facing the truth?

Or does CFO prefer to stick their head in the sand like an ostrich?

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