Meat Price Mania

The Canadian retail prices for meat have entered a mania phase.  How will Canadians react when more and more of us are forced to become vegetarians by unaffordable meat prices?

Figure 1:  Canadian Retail Prices of Meat, Sept. 2014.  Prime Rib roast of beef
is 277% higher than chicken.  How do they justify these pricing
differential?

Figure 1 shows data from Statistics Canada on the retail price of meat in Sept. 2014.  Click on the graph for a bigger version.  As expected, prime rib of beef is the most expensive.  I am pleased to see chicken is still the cheapest on a $/kg basis.

Note that prime rib is 277% more expensive than chicken.

CAFO (Concentrated Animal Feed Operation) has the biggest market share for beef, is usually the cheapest method of producing beef, and has an FCR (Feed Conversion Ratio) of around 5, while Ontario chicken has an FCR of around 1.72.  If all other factors are similar, the cost of feed is the biggest factor in determining the price of meat.  Therefore beef should  be 290% higher priced than chicken, but is actually just 277% higher.  Does this mean that beef is 4.7% too expensive, or chicken is 4.7% cheaper than it should be, or a combination of the two?

I think it's safe to assume that the prices are reasonably close to the correct ratio; but both beef and chicken need to be deflating in price, not inflating.

Figure 2:  Trends in Canadian meat prices for 2010 to 2014.  Stewing beef wins the race towards
unaffordability with a 9.9%/yr increase, doubling and re-doubling every 7 years, with a total increase of 52.3%
in price from 2010 to 2014.  Chicken is up 3.79% per year, doubling every 18 years, with a total increase of
16.1% from 2010 to 2014.

Figure 2 above shows the trends in Canadian meat prices for 2010 to 2014.  Stewing beef wins the race towards unaffordability with a 9.9%/yr increase, doubling and re-doubling every 7 years, with a total increase of 52.3% in price from 2010 to 2014.  Chicken prices are up 3.79% per year, doubling every 18 years, with a total increase of 16.1% from 2010 to 2014.

I wish to congratulate the Canadian chicken industry for resisting the natural urge to jack up prices like the other meat industries did in 2013-2014.

See, I can offer the #ChickenMafia a heart-felt complement when they deserve it.

It is interesting that, except for chicken, the cheapest meat cuts have the highest rate of price inflation.  As meat prices go up, more and more people will naturally gravitate towards the cheaper cuts of meat.  As stewing beef flies off the store shelves, the available supply of stewing beef  drops.  Stewing beef is usually the trims cut off the higher priced cuts of beef during the butchering process.  When that is all gone, butchers can start cutting up prime cuts of meat to make stewing beef (highly unlikely), or sell out and have a bare meat counter with no stewing beef for sale, or they can raise the price of stewing beef to balance supply & demand. 

Beef and pork were both suffering severe struggles on the farm in 2013-2014 due to the PED virus for pork, and the severe US drought in Texas and California.  Are these being used as excuses (or are just and reasonable reasons) for these extreme price increases?  Even weiners, mostly made from pork and chicken, jumped on the price inflation bandwagon in 2014.

However, chicken resisted the price inflation trend set by everybody else.

Did this Blog and its whiny voice have any influence in the #ChickenMafia's decision?  I doubt that.

It appears that the #ChickenMafia has determined that flying below the radar is in their long term best interest.  Large price swings tend to incur the attention and anger of the public, and that is when Supply Management might add the straw that breaks the back of SM's camel.

Instead, #ChickenMafia continues their policy of a "steady as she goes" inflation of 3.79% year over year, like clockwork.  Let the sleeping public stay asleep.  It appears the #ChickenMafia's strategy is working pretty well for them.

Hopefully, Supply Management can be changed so that the #ChickenMafia have a "steady as she goes" price reduction each and every year, requiring them to work very hard each year to find more and more methods to improve their efficiency and productivity, thereby lowering prices like clockwork.

In that way, the #ChickenMafia become excellent stewards for the public, using their government created monopoly to serve both stakeholders (ie. themselves, as well as the greater good of the public).

Does SM create higher prices?

In a recent posting on Better Farming, another person repeats the often made claims that Supply Management ("SM") doesn't create higher prices for the commodities that they control.  He provides the case of Australia and New Zealand as proof positive.

I assume he is referring to the removal of SM from their dairy industry in New Zealand.

For those interested, the Globe & Mail provides a good, short history on SM in New Zealand, why New Zealand developed the way it did, and then chose to abandoned SM, starting around the 1980.

I agree that doing away with, or modifying SM in Canada will not necessarily lower the price of previously SM commodities in Canada.  The world is complex, many factors interact to create the outcome.  Not all economists agree why there are "sticky prices" (also called nominal rigidity, market inertia, or market friction).

In 1998, Alan Blinder and others surveyed 100 corporations on how and why they made changes to their prices, so as to compare real-world actions against the 12 prominent theories economists have used to describe price stickiness.  Blinder wrote the book on price stickiness, called "Asking About Prices:   A New Approach to Understanding Price Stickiness", 400 pages, ISBN 978-0-87154-121-5, $34.95,

Alan Blinder is Gordon S. Rentschler Memorial Professor of Economics at Princeton University, where he has taught since 1971. He also founded and directs Princeton’s Center for Economic Policy Studies. He has served as vice chairman of the Board of Governors of the U.S. Federal Reserve System and as a member of the US President’s Council of Economic Advisers.  To me, it sounds like he might know what he is talking about.

Why don't companies change prices more frequently than they do?  The #1 reason provided was:

"It would antagonize or cause difficulties for our customers" which was 20.9% of all responses received (41 responses out of 196 total responses, from 151 firms.

Here is the survey answers received (click on graphs & tables for larger version):

Why don't you change your prices more often?, survey results from Blinder et al, for
151 US firms in various industries, 1998.

The top 6 reasons provided represent 81% of all answers received (ie. Pareto's "Vital Few").

Reasons for not changing prices more frequently.  Source:   Blinder et al.

Organizations tend to care about how customer's feel when they realize that angry or disrespected customers tend to get even by voting with their feet and/or wallets, leaving you for your competitors.  With a monopoly, that can't easily happen, so monopolists tend to be less concerned about what customers think or do.  This would mean that the top two reasons don't apply to monopolists, so they are ready to change prices much more easily, in both frequency and magnitude.

Blinder also provides data on the 4 major driving forces on those who change prices, and how long before a price change occurs after that exogenous event (ie. outside forces cause a change, then firm decides to change their prices in response):

How long after an exogenous trigger event does the firm change their prices?
Time lag in months.  As expected, it can be as fast as the same day for a firm
suffering cost increases (Mean - 3 Std. Deviations or zero, whichever is greater),
to as long as 15 months for a firm experiencing a decrease in their costs before
they pass those savings on to their customers (Mean + 3 Std. Deviations).
Source: Table 4.3, Blinder et al.

The firms were asked why they tend to avoid raising prices before their competitors do.  An overwhelming majority said,

"If we raised our prices first, we would lose too much business to low price competitors."

Obviously, not a concern when you're running a monopoly with 99.96% market share.  Guess why Canada's SM Mafia love raising prices on a consistent basis, like clock work?

Canada's Chicken Mafia are obviously not troubled by "Sticky Prices",
they make absolutely sure to raise prices almost continuously, rain or shine,
for the last 17 years and counting, 3.54%/yr price increase on average.
Graph from SFPFC's Blog posting on Feb. 28, 2013
Chicken Price Parity Will It Ever Come?

Flexible pricing is the opposite of sticky prices.  The most flexible pricing occurs when every trading opportunity is priced on a 1-off basis, without regard to any previous trades made.


Sticky prices serve a useful purpose in the marketplace.  In one simple model used to investigate sticky prices,

As I understand it, to get price reductions, there has to be:

1. a free market,
2. effective price discovery,
3. no or minimal collusion by the major players
4. a competitive marketplace, and
5. adequate slope on the price-volume supply curve
6. low or insignificant barriers or thresholds to the entry of new players
7. natural consequences (ie. bankruptcy, consumer shunning, etc.) for poor suppliers.

Without all of these and more factors, prices tend not to change for the better.
One of the biggest drivers of price changes are competitors.  If a competitor raises or lowers prices, other suppliers tend to follow the lead, or at least, it prompts them to reconsider their current strategy, and decide if they want to join, stand pat, or go in the opposite direction.  Witness the wave of retail gas price changes that often occur once one gas station bites the bullet, and changes their price.

The second biggest factor is the slope of a supplier's price-volume curve.  This means that there must be a significant difference to the total profits of the supplier if they are to go to the work and hassle of optimizing their price vs. volume factors (usually means low overhead cost suppliers are more motivated to change first in a competitive market).

There also must be low thresholds for new people to enter the marketplace.  Without this, the veterans often get sloppy and complacent over time, become less and less efficient over time, and don't take care of their customer's best interests.

When suppliers are saved from the natural consequences of poor service (ie. government grants, favors to "friends", regulatory entrapment and changing the rules in favor of status quo, etc.), the pain in the marketplace is allowed to continue a little longer, and to a greater degree.

Economists have found that price changes can occur second by second (ie. Chicago Board of Trade commodities), to as long as a 4 year cycle, but the median is around 1 year between price changes.  For more info, see Sticky Price Manifesto and Nominal Rigidity

To reach equilibrium, it usually takes between 3 to 7 time constants to get over 90% of the resulting price adjustment effect to have occurred.

We must therefore hold off in jumping to conclusions about price effects until 3 to 7 years have passed.

For example, someone who understands how the world works won't check the status every day on an acorn that they planted by digging it up to check for root development, then giving up in just seven days because nothing seems to have occurred as assumed.

It takes longer, you must have patience.

When SM is removed, either by government changing the laws, or by consumers bypassing the laws and SM's monopoly, we need to ensure that the new system meets the 7 requirements listed above, and we will soon enjoy the more affordable commodities Canadians deserve, and will enjoy more and more.

Canadian Chicken At Risk?

They signed my petition, but added that they support having Canadian chicken to feed Canadians.  They were afraid that my actions threatened to open the flood gates of foreign chicken into Canada, sweeping away Canadian farmers.

Good question.

Legitimate fear?

Is there any substance to this potential risk?

I have previously explained that under WTO (World Trade Organization) Treaties, Canada is required to allow 7.5% of the previous year's domestically produced kilograms of chicken  to enter Canada at a reduced import tariff, which is called TRQ (Tariff Rate Quota).

I have also previously Blogged about IREP chicken that is imported for the alleged purpose of processing that chicken in Canada, then re-exporting it out of Canada as a value-added product.  I say alleged, because many tonnes of that chicken gets "misplaced", mysteriously disappearing inside Canada, and is never exported.  This is cheap, US chicken (or other cheap chicken) that disappears; chicken that's 300% cheaper than domestic chicken.  The oppression and abuse of monopoly-priced chicken enforced by the Chicken Mafia ensures there is a white hot market for cheap US chicken in Canada, just like smuggled cigarettes.

Cheap chicken is the same as cash, a fungible asset. It's almost as good as cash, and easily disappeared for quick, un-traceable cash, if you know the right people.

When you add up all the imported chicken, we consume about 75% domestic chicken, and about 25% imported chicken.

As chicken prices drop with the Federal government's lowering of the non-TRQ import tariff, consumption of chicken will increase.  If the price of chicken in Canada falls, perhaps the chicken farmers, or the producers no longer want to participate to the same degree as they previously did (ie. it's no longer worth their while to produce chicken). This may mean that the amount of domestic chicken produced will drop, and the resulting shortage in chicken available will stabilize prices.  In the short term, this may increase chicken prices more than before the non-TRQ tariff reduction occurred.

In the alternative, the Chicken Mafia may have a change in heart, and support the non-TRQ tariff drop.  As market prices of chicken drops, they make it up on quantity sold.

If the government doesn't get scared and stop, but continues to lower the tariff on a steady basis, eventually it will become of greater and greater interest to Canada's chicken farmers to produce more chicken to feed the lowers prices and the greater demand.  If Canada's Chicken Mafia refuse to step up and serve the need, eventually the import tariff will attract foreign chicken to come to Canada and serve the domestic need.

I would prefer that Canada's Chicken Mafia choose to continue in their full participation, but it's a free country.  They're big boys.  They can make up their own mind.

If Canada's Chicken Mafia attempt a "work to rule" approach to frustrate the dropping non-TRQ tariff rate, eventually foreign chicken suppliers will be able to significantly with increased imports into Canada.  As a foreign brand, they need to gain consumer confidence and market share.  The incumbent brands have the advantage, so foreign brands will likely drop their price below the current market price.  Chicken price wars have just started.

Let's take a monopolistic price gouging example

Soon after Dupont invented nylon in  Feb. 1935 it soon became the most profitable product in the history of the company, totally changing the company's focus.  Dupont tightly controlled the market for nylon, and the market price.  Many felt Dupont was price gouging its customers.  For the next 15 years of the patent, Dupont gained between 33% to 50% of its profits from just one product:  nylon.  When the patent ran out, competitors started manufacturing nylon substitutes, and the price dropped sharply.  Realizing that all of DuPont's competitors had built their own nylon manufacturing plant in preparation for the ending of the patent, DuPont finally dropped the market price for nylon in the last few months before the patent ended.  By that time, it was too late.  The competitor's plants were built and ready to go, no matter what DuPont did to fiddle with the price at the last second.  Most customers were upset at having been gouged for 15 years, and defected in drove's to DuPont's competitors.  DuPont's monopoly and unlimited power on the nylon market came to an end within hours after the patent expired.

Perhaps the Chicken Mafia can learn a lesson from DuPont.  Price gouging of consumers creates many long memories, ready for revenge when the chance comes.

Factory Chicken has met its Match

The #ChickenMafia think they are guaranteed to win the battle against the Canadian consumer and Small Flockers.

And why not?  The #ChickenMafia have an interlocked grid of legislation at both the Federal and Provincial levels that protect their monopoly, Canada-wide.

Oh, wait a minute, that's right, I forgot, Alberta is so pissed off with the unfairness of the #ChickenMafia they have given notice, and dropped out of the deal.  It's used to be almost bullet proof, but significant cracks in #ChickenMafia amour are starting to show. .

Unfortunately for the #ChickenMafia, the tide may soon be turning against them, more and more.

If I heard great things about Small Flockers' chicken from my friends and neighbours, then I'd try to give that farmer a visit and check it out for myself.  With a few key questions, and looking the place over first hand, I'd quickly determine if I felt he was doing a reasonable job of it, and his chickens were safe to eat.  I'd then buy one and see how it tasted.

I think that is all very predictable and reasonable.

Now let's take it up another notch.

What would the typical consumer do if that Small Flockers' chicken tasted fantastic, AND was the same or lower price of what chicken is selling for in the nearest grocery store?

If it was me, I'd buy a year's supply of that affordable, great tasting chicken.

Does that mean that Small Flockers have to do charity and sell below their cost?  I don't think so.

Here's why.

By CFO's Live Price Bulletin for Quota Period A-122 (Jan. 25, 2014 - Mar. 22, 2014) for a chicken weighing between 0.9 kg to 1.1 kg, the farm gate minimum price is $1.720/kg.  Deduct from that the producer license fee of $0.0160/kg (CFO's levy) and $0.0044/kg for CFC's levy, for a total #ChickenMafia fee of $0.0204/kg, so the farmer gets a net sale price of $1.6996/kg for his chickens. By CFO's definition and Mission, that net income includes a reasonable return for the farmer's efforts.

In a previous Blog posting (see Small Flocker Price Difference ), I described how the #ChickenMafia pay about $388.375/tonne for their chicken feed (Quota Period A-121) according to CFO's feed price data.  As a Small Flocker, I currently pay $18.00 per 25 kg bag for my chicken feed, which is $720.00/tonne.  Note that this is 85.4% more expensive for Small Flockers than the #ChickenMafia.

When growing chickens, feed costs are about 60% of the total cost of production.  If we assume that Small Flockers and #ChickenMafia both have the same fixed costs per bird produced, and the only difference in total costing is the chicken feed, then we can calculate that Small Flockers farm gate price should be $2.601/kg    ie. 1.72*(0.6*1.854+0.4)=2.601

If you didn't do well in school on algebra. here's another chance to "get it". All others, skip to the next paragraph while I help my fellow citizens catch up. Chicken feed is 60% of the cost to raise chicken.  The total cost(feed + fixed costs) to raise #ChickenMafia chicken is $1.72/kg.  So what is the cost of chicken feed for raising a kg of chicken by the #ChickenMafia?  It is $1.72/kg * 60%= 1.72*60/100=$1.032/kg.  The Small Flocker's cost of chicken feed is 85.4% bigger than the #ChickenMafia's cost, so the Small Flockers cost of chicken feed is $1.032/kg * 1.854= $1.91332/kg.  The fixed costs for the #ChickenMafia farmer is 40% of the total cost, so the fixed cost is $1.72/kg * 40%= 1.72 * 40/100= $0.688/kg.  We'll assume that fixed cost is the same for the Small Flocker, so the Small Flocker's total cost of raising chicken is the cost of feed plus the fixed cost, which is $1.91322/kg + $0.688/kg, for a total cost of $2.60122/kg.

Therefore, if a Small Flocker charged $2.601/kg for his live bird at his farm gate, that would be similar or equivalent to the farm gate price charged by the #ChickenMafia.  With eviscerated meat being just 73.72% of the live bird weight, that farm gate price would be equivalent to $3.529/kg eviscerated meat   ie. 2.601/0.7372= 3.529

Allowing for transportation to and from, and the abattoir processing charge(ie. transform a live bird to eviscerated meat ready for cooking), let's assume its $3 per bird.  For a 1 kg bird, slaughter adds $3.00/kg to the cost, so our total Small Flocker farm gate price is $3.529/kg+$3.00/kg=  $6.529/kg.

Our retail chicken price survey conducted (see Ontario Chicken Prices ) found fresh whole chickens selling at $6.59/kg.  Therefore, even though Small Flockers are forced to pay an 85.4% premium for their chicken feed, they can supply fresh, safe, nutritious chicken meat at $6.529/kg, which is just below the #ChickenMafia current retail chicken price in grocery stores.

Look no further for a safe, affordable, supply of chicken that a Small Flock farmer near you.

From this example, we can see that chicken factories don't necessarily have "economy of scale".  Alternatively, their economy of scale advantage is wiped out by the price gouging by all the middlemen downstream of the farmer.

On a similar basis, Big Barn reports that UK farmers typically receive just 9% at farm gate of the retail price charges in stores.  By selling direct to consumers at the farm gate at just 50% of retail prices, farmers can earn 555% more than selling through traditional distribution chains.  This benefits the farmer with greater return, benefits the consumer with a 50% discount and fresher foods; all at the expense of the current distribution chain who is seen as price gouging and inefficient.

Many trans-national agriculture mega corporations have their fingers in the pie all along the chicken supply chain, from eggs to broiler to feed mills to processors to further producers (ie. making raw whole chicken into drumsticks or chicken nuggets, etc.) to distribution.   They won't do it voluntarily as it would hurt themselves and their #ChickenMafia buddies, but lets assume their feed mill henchmen gave Small Flockers a break, and supplied chicken feed at the same price as the #ChickenMafia.  Then the Small Flockers farm gate price could be $1.72/kg too.  Add on the 73.72% weight change (life bird to ready-to-cook meat) plus $3.00/kg for slaughter, and we have a Small Flocker price at farm gate of $5.33/kg (ie. 1.72/0.7372+3.00= 5.33).  Now, Small Flockers' farm gate ready-to-cook chicken price is 19.11% cheaper than the #ChickenMafia.

Tastes better, more nutritious, and 19% cheaper.  Exactly why does the #ChickenMafia deserve that guaranteed monopoly?  I suggest they don't deserve it, they need it to protect them from the Small Flockers.  It isn't the hords of foreign barbarians bearing chicken that the #ChickenMafia need to worry about, it's the enemy from within, the Small Flocker, who will finish off this dinosaur.

The #ChickenMafia is huge and powerful dinosaur.

 Exactly how does the small, independent Small Flocker going to eat the #ChickenMafia dinosaur?

One steak at a time, that's how.

The trick is to get that #ChickenMafia dinosaur to squat over top of our BBQ.



 

Celebrations: ! or ?

Retail chicken prices should soon see a "huge" price drop of $1.06 per kg (ie. an 18.365% price drop).  CFO's quota period A-120 (Oct. 6 2013 to Nov. 30 2013) is when cheaper chicken will leave farm gates throughout Ontario, and start to work its way towards the grocery store meat counters. 

Thank-you to all who helped make this price decrease happen for the Canadian people.  I say Canada for a good reason, even though it is only Ontario that this drop has been ordered by Ontario Farm Products Marketing Commission ("OFPMC").

The reason I say "Canada" is that Ontario is about 1/3 of the total chicken market in Canada, and almost all the other provinces have traditionally taken their farm gate live chicken pricing lead from Ontario.

Perhaps I need to explain further.  Bogus farm gate live chicken prices charged by Chicken Farmers of Ontario ("CFO") were ordered reduced by OFPMC by 6.9 cents per kg. in Ontario.  That is what the main stream media and CFO's press releases focus on, but that is just the beginning of the story.
 
With a 16.3% drop in the FCR (Feed Conversion Ratio) as ordered by OFPMC, and feed is about 60% of the total variable cost of live chicken production, that is a 9.7% drop in live chicken prices.  With 73.72% weight for eviscerated chicken meat from live birds, that live bird price decrease should be equivalent to a 7.21% drop in eviscerated meat cost.  In a previous Blog posting, I showed that the average retail price for chicken was $5.75/kg for Dec. 16, 2012 to Jul. 27, 2013.  According to CFO, the average live price for birds weighting 0.9 to 1.1 kg (ideal weight) during that same time period (Quota periods A-114 to A-118) was $1.8778/kg.  We therefore calculate an overall markup of 254.72% during the marking up of the slaughter, wholesale, and retail steps in the #ChickenMafia 's supply chain.

Just for interest sake, if we assume all 3 steps gets an equal percentage markup (NB: we don't know this), then each of those processing steps gets an average markup of 31.18% (ie. 1.3118*1.3118*1.3118= 2.5472).

If price increases get marked up as they travel from farm to retail meat counter, so should price decreases (I know, it's true heresy in the #ChickenMafia, a price decrease!).  Therefore as the equivalent eviscerated meat price drops 7.21% at the farm gate due to OFPMC's order to CFO, the retail meat counter price, using the same 254.72% markup rate, should cause the retail meat price to drop by 18.365%. For an average retail price of chicken at $5.75/kg. before the price decrease, that comes out to be a $1.06/kg price drop.

At least those 254.72% price markups were in place when the price of chicken was going up.  We will soon learn if the #ChickenMafia is as quick to follow the Ontario prices down, as they were in following Ontario price increases.

It is interesting that other agriculture media report (see "Chicken prices cut begins today" posted on Ontario Farmer with a byline date of Nov. 1, 2013) an Ontario chicken price drop of just 6.9 cents per kg.  They specify neither what this prices refers to (live or eviscerated), nor where it is located at (ie. farm, slaughter, wholesale, or retail), thereby not clarifying fully.

Note that I say this is what should happen.  However, I fear reality will be more cruel than this.  Most likely, there will be asynchronous price changes (ie. a hysteresis):

• Fast (and highly probable) price increases
   
• Slow (and highly improbable) price decreases.

We obviously need the media to celebrate this victory for Canadian consumers, alerting consumers as to what could become true.

Without the expectation and anticipation of a retail price drop for chicken, it will never happen, as somebody else along the #ChickenMafia supply chain between the farm gate and the grocery store meat counter will grab that price reduction as extra profit for themselves.

How do we ensure that Canadians get the savings they deserve?  If the CFO is now forced to stop raping consumers, is it OK for somebody else in the #ChickenMafia to start raping consumers?

Let's get your ideas in the comment section below:

• What will you personally do to get your fair share of this chicken price reduction ?
  
   
• What should other people or groups be doing to help ensure all Canadians benefit from this price reduction so retail chicken prices drop?

Gouger and Gougee

CFC's data on Wholesale & Retail Prices in Canada
for chicken, 2010 - 2013

Who is the gouger, and who is the gougee for Canadian chicken?

Chicken Farmers of Canada supplies market data in their monthly Chicken Fax issued Sept. 6, 2013 that may help answer this question.  The two graphs on the right were extracted from there.

The top graph shows remarkable stability in wholesale prices for chicken during a 4 year period (2010 to 2013).  Wholesale prices occur between the slaughter plants and the grocery stores.

The bottom graph shows the Consumer Price Index for chicken, beef, and pork from Jan. 2008 to August 2013.  Here we see an almost constant upward trend in chicken prices.

Statistics Canada Table 326-0020 shows that the fresh or frozen whole chicken retail prices between Jan. 2010 and July 2013 went from a CPI of 133.7 to 147.0

Live chicken pricing at farm gate, 2010 - 2013

Over this 43 month period, retail chicken prices went up at an average inflation rate of 2.68% per year.  Meanwhile, wholesale prices are virtually flat, constant, always the same, more or less.

Note that it isn't just chicken, for beef and pork are up to the same tricks.  I'm not sure who is leading the dance, but they're all jiving to the same tune.

This graph shows the life chicken price paid at the farm gate.  There have been steady price increases, plus seasonal variations.  Most of the price increases were related to the increasing chicken feed prices that the Chicken Mafia fraudulently inflated even more so they could get additional unjust profits.  See Blog posting here where Ontario's government forced the Ontario wing of the Chicken Mafia to roll back the bogus FCR charges they had been making for the last 10 years; a cool $136.59 million per year previously being stolen by the Ontario branch of the Chicken Mafia.

There has been a knock down, drag out fight between chicken farmers and chicken processors over the quantity and price of chicken for a very long time.  The processors have complained the chicken farmers are protected by a guaranteed price minimum, while the producer takes all the risk on getting a price that is profitable and selling all the chicken before it goes rotten.

On this battle between chicken producers and processors, I have received a CD full of documents from the Federal Farm Products Council based on a Access to Information Act request.  More on these juicy disclosures as soon as I finish reading all 692 pages.

As bad as the farmers have been, the tail-end of the Chicken Mafia  (ie. the retail vendors & grocery stores) aren't much better.

I therefore conclude that the chicken farmers have been gouging the public for at least 10 years.  The retail grocery stores are now taking their turn at gouging the public between 2010 to 2013.

It warms my heart when everybody plays together nicely and take turns.

It's good that both gougers share and take turns screwing the public.

When do we get Cheaper Chicken?

Ontario residents want to know exactly when we get cheaper chicken.

On July 11, 2013, Ontario's Farm Products Marketing Commission ("FPMC") ordered Chicken Farmers of Ontario ("CFO") to drop the feed conversion ratio ("FCR") price adjustment factor by 16.3%.  CFO has been using this bogus FCR to screw the Ontario consumer for the better part of 10 years.

I've been getting phone calls, email, and conversations in person. Even the Globe & Mail has expressed an interest.

My best estimate is:   Never!

Think about crude oil and fuel (gasoline, diesel, home heating oil, etc.).  When there is a spike in crude oil prices, ever liter of fuel almost instantly gets upwardly re-priced at the new crude price plus the cost to change it from crude to gasoline or diesel.

If there is a sudden drop in crude oil prices, it takes forever (or at least 3 to 6 months) for the first penny to slowly work its way towards the consumer.  The consumer has to fight and competitively shop for each and every penny drop in retail prices.

Should we expect anything different here?

When CFO vacates 16.3% on the FCR, that should create a  9.78% drop in the minimum price of chicken.  Realize that is the minimum legal price.  Chicken producers could always charge more, and perhaps that is just what they will do, all 1,114 of them in Ontario.  In that case, there is nothing to hope for.

However, members of Ontario Independent Poultry Processors Association ("OIPPA") and Association of Ontario Chicken Processors ("AOCP") may have some bargaining power with the factory chicken producers.  They may be able to use this and some hard bargaining to get a lower price of chicken.

If they do this, there may be hope.

However, there are further processors for chicken that process it after the slaughter plant.  That could be breaded chicken fingers, TV dinners, ground chicken, and many other variations.  Ontario Independent Poultry Processors Association ("OIPPA") has some of these further processors as members.  Ontario has about 65 per cent of Canada’s further processors.

In addition, there are brokers, distributors, and wholesalers; all of whom would like to become (or stay) millionaires.  That means they will try to grab some or all of the vacuum created by CFO's correction in their bogus FCR pricing.

Finally, some retail stores have been using "cheap" chicken as a loss leader to attract customers.  These large grocery chains may use this lower cost chicken to raise their profits, changing chicken from a loss leader to a profit centre.

If all of these steps in the chicken chain from chicken factory to retail meat counter get a pang of conscience, or are asleep at the switch, there is hope that the consumer will see a price reduction.

The new pricing starts in Chicken Quota Period A-120 (Oct. 6 to Nov. 30).

At current consumption rates, there is usually 1 to 3 months supply of fresh and/or frozen birds in the system (depending on cut, grade, geography, and supply chain).  Since the Chicken Mafia want to delay the introduction of cheaper chicken as long as possible, we will assume a FIFO (First In, First Out) inventory system so that profits and product freshness are both maximized.

We can therefore hope for reduced chicken prices starting as early as the slim chance of Dec. 1, 2013 to the possibility of Feb. 1, 2014, or most likely never.

However, there is hope.  Consumer expectation is everything.  If EVERYBODY knows and expects a reasonable and timely drop in chicken prices, that expectation could carry the day.

If everybody tells there butcher, meat counter re-stocking student worker, or grocery store managers about this bogus FCR, the 16.3% reduction, and their expectation to see it as a retail price reduction of 7.21% at the retail meat counter.

If we all start our lower chicken price expectation marketing today, we just might get an early Christmas present at the meat counter.

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.

Why?

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?

Chicken Monopoly Pricing

Have you been wondering why your weekly grocery bill keeps going up?

In part, perhaps it's caused by the monopolistic actions of Ontario's marketing boards.

Almost all of Ontario's chicken is produced in mega chicken factories.  These chicken producers, lead by their monopolistic marketing board, the Chicken Farmers of Ontario ("CFO"), must be doing something right.  It is truly amazing how chicken has taken over the Canadian marketplace since 1971 (see CFO`s Chart 4 below).  Unfortunately, it has been at the expense of farmers who raise beef, pork, and turkeys.

Source:   http://www.cfo.on.ca/documents/CFONewsletter-Winter2012.pdf

Typically, whenever an industry is able to increase its total production volume and their market share, this usually means that industry`s fixed overhead costs can be spread over a growing production volume, thus providing lower cost of production, and dropping prices for the consumer.  Unfortunately, Ontario chicken doesn't follow this logical and typical expectation.



Source:   http://www.cfo.on.ca/documents/CFONewsInsight-October292012_000.pdf

In the CFO`s Chat 1 shown above, the "A-80" to "A-114" scale on this graph refers to each chicken production cycle.  A chicken production cycle starts with the filling of the chicken factory with day-old chicks, then raising them to market weight over the next 8 weeks, then collecting the full-grown chickens and shipping them off to the slaughter plants).  Cycle A114 occurred in the Fall of 2012.

As you can see from CFO's own data, the cost of chicken on a $/kg basis has been steadily rising.  CFO says that the major factor that controls the price of chicken is the cost of the feed that the producers need to feed those chickens.  Note that the cost of chicken closely tracks the cost of the feed that the mega-factory chicken producers pay for the feeding of those chickens.

However, take a closer look.  Note that the two lines get closer and closer together as we go forward in time.  CFO drew this graph so that feed prices is above the chicken prices, perhaps to disguise the fact that their profit margin is rising.  That means that the price of chicken is slowly, ever so carefully controlled by CFO, is going up faster than the price of feed.  CFO sets the selling price for all chicken in Ontario.  It seems that CFO has applied the "boiling frog" methodology to maximize their market share of the meat market, and consumer acceptance of those rising chicken prices.   This data suggests that chicken producers aren't getting any more efficient, they just pass on their rising production costs to the consumer, and then add on top even more profit for themselves.

CFO summarizes Stats Canada statistics in http://www.cfo.on.ca/documents/CFONewsletter-Winter2012.pdf as follows:

• Over the last 9 years, consumers have suffered a retail price increase of 38% for fresh chicken.  In spite of this price increase (or because of it), consumers spent 5.9% more of their weekly grocery money on chicken in 2012, as compared to 2011.  In spite of this ever rising price increase, chicken sales in 2011 were also up by 4.3% over 2010.    (Ref:   op. cit.)

• Compare chicken to the cost of other fresh meat in Ontario`s stores.  Chicken prices have risen far faster than the price of beef , pork, or turkey.

• Chicken has the biggest share of the fresh meat protein market, 33.3% in 2012, so a rise in prices for chicken has a huge effect on the total grocery bill for Canadians.     (Ref:   op. cit.)
  
  
• In spite of Toronto being one of the largest markets for chicken, and being geographically close to CFO's major chicken producers and the major slaughter plants, in 2012 Toronto had to pay a 4.2% premium for fresh whole chicken when compared to the rest of Canada.   (Ref: http://www3.agr.gc.ca/apps/aimis-simia/rp/index-eng.cfm?menupos=1.01.02&REPORT_ID=116&LANG=EN&ACTION=promptReport ).

I wonder why?