Yоu Might Be Paуing Tоо Much Fоr Yоur Chicken

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Young at a commercial farm. How chickens are priced has become a contentious topic as the industry has consolidated.

William Widmer for Newspaper Post

Beef prices at grocery stores are lower. So, too, are pork prices. But chicken? Steady as she goes.

A glut of corn and soybeans has led to lower prices for a variety of meats. But chicken in grocery stores has bucked the trend, leaving prices up for shoppers and buoying the fortunes of major chicken producers.

Why the prices have diverged remains largely a mystery. But much of the scrutiny is focused on the Dock, a chicken pricing index that is obscure outside the food industry but widely used by grocery stores in America when buying chicken from producers.

This week, the market price of a 2½- to 3½-pound chicken on the Georgia Dock was $1.10 a pound — down 5 percent from 18 months ago. During the same period, an index widely used by restaurants and food service companies has fallen considerably. The Urner Barry index, as it is called, priced the same size chicken at 72 cents a pound — down 33 percent from 18 months ago.

In October, the federal Department of Agriculture began compiling a price for such birds. That price this week was 71 cents a pound, nearly matching the price set by Urner Barry.

As a result, the prices reported by the Georgia Dock have started to raise questions among investors, some of whom have bet against the price of poultry company stocks. They contend that the way the index is compiled has kept the retail price of chicken artificially high.

“It’s a calculation that’s not very representative of what chicken is really selling at,” said Will Sawyer, an investment analyst who follows the meat industry at Rabobank.

How chickens are priced has been a contentious topic for the last three decades as the industry has consolidated. Only a handful of companies now sell most of the country’s poultry.

The issue heated up again recently. Last month, Maplevale Farms, a food service company in upstate New York, filed a class-action lawsuit claiming that the big chicken processors were using a data company, Agri Stats, in a “conspiracy” to set prices high. “Agri Stats reports are so detailed that a reasonably informed producer can discern the identity of competitors’ individual broiler complexes,” Maplevale asserted.

The chicken producers have denied the accusations and said they would fight the lawsuit.

The Georgia Dock, put together by the Georgia since 1966, is used by many supermarket meat buyers as a starting point for negotiations with chicken producers. The index today is based on data from 10 of the 11 companies that process poultry in the state.

Once a week, Arty Schronce, an employee at the department, calls facility managers, who give him information including how many birds were processed each minute on how many production lines and over what number of shifts, and the average price per pound of poultry sold. Mr. Schronce enters the figures into a formula used to calculate the price of a 2½- to 3½-pound bird, as well as prices for parts of chickens. The price is published once a week on the department’s website.

But critics say the index does not do enough to verify the data it receives. They also say the two largest producers in the state, Pilgrim’s Pride and Tyson Foods, hold too much sway over the index. The prices supplied by the largest producers are weighted more heavily by the index than the prices from other producers.

The Agriculture Department had long included the Georgia Dock in a weekly report on poultry production and prices. But in the spring, it began asking questions about how the index was compiled, according to emails between federal and state officials. The documents, which were obtained through a Freedom of Information request, were provided independently to Newspaper Post and authenticated by the agency.

In the summer, the department told Mr. Schronce that to remain on the weekly report, the Georgia Dock needed to start verifying the prices producers were giving them, among other changes.

But in a later email sent to Gary Black, Georgia’s agriculture commissioner, the Georgia department conceded that it could not verify the numbers it had been using to compile the Georgia Dock. And it said the department “is in agreement with the poultry industry that there is no desire to review invoices for verification of data reported.”

In August, the United States Department of Agriculture dropped the Georgia Dock from its weekly report and now provides only a link to its website.

Julie McPeake, a spokeswoman for the Georgia Agriculture Department, said on Thursday that after meeting with U.S.D.A. officials, the state is “currently vetting a new model to serve as a trend analysis of demand.”

In an email, Ms. McPeake said the industry expressed “quite a bit of concern” about the speed with which changes in the Georgia Dock were going to take place and “the decision was made to examine the process further.”

“Given that poultry is our No. 1 industry, with a $25.5 billion economic contribution and responsible for 103,000 jobs, it is important that any changes we make to the index is fully researched to ensure we are best serving our industry partners,” she said.

Tyson, the country’s largest poultry producer, declined to make anyone available to talk about the Georgia Dock. Cameron Bruett, a spokesman for JBS, the large Brazilian meat business that controls Pilgrim’s Pride, declined to answer questions about the index, sending a statement instead in which he noted its importance.

Mike Cockrell, chief financial officer of Sanderson Farms, the nation’s third-largest poultry producer, at a cold storage facility. About 35 percent of the company’s production is sold to supermarket chains.

William Widmer for Newspaper Post

“Given the scale and obvious importance of the poultry industry in the state of Georgia, the poultry market data provided by the Georgia Department of Agriculture has long served as a critical price discovery tool for producers, processors, distributors and retailers in Georgia and nationwide,” Mr. Bruett wrote.

The U.S.D.A. and Urner Barry, unlike the Georgia Dock, collect information on prices from buyers, sellers, distributors and other middlemen trading chicken on the spot market.

Terence Wells, a market reporter at Urner Barry who monitors the chicken and turkey markets, said that he and his team speak to all the large chicken producers each day. “We then speak to a number of other players in the market, distributors and retail buying groups, traders and brokers, buyers and sellers,” he said.

The Agriculture Department uses a similar “double verification” system to compile its index of chicken prices. “Its real purpose is to show exactly what the product is worth each given week,” said Jason V. Karwal, who oversees the U.S.D.A.’s livestock, poultry and grain market news division.

The Urner Barry and U.S.D.A. figures have helped lower the cost of chicken for restaurants, which have also been helped by lower beef and pork prices. Restaurant companies like McDonald’s and Buffalo Wild Wings have noted the lower costs of meat, which have helped offset rising wages and slumping sales. Restaurant prices, however, have largely stayed the same.

The Georgia Dock prices have come in handy to the big poultry producers.

In 2014, avian flu hit and many countries around the world banned American chicken, causing the price of dark meat cuts like thighs, which are favored overseas, to plummet. That temporarily hurt the industry.

But in the bigger long-term trend since the financial crisis, people are eating more at home and looking for cheaper meat. The average American ate 90 pounds of chicken in 2015, according to the National Chicken Council, compared with 84.9 pounds in 2008.

Much of that chicken is being bought by supermarkets. For example, about 35 percent of the production from Sanderson Farms, the third-largest poultry producer, is sold to supermarket chains. Pilgrim’s Pride, the second-largest, declined to say what portion of its production is destined for grocery stores, but it has told Wall Street analysts the amount is about half.

Mike Cockrell, chief financial officer at Sanderson Farms, said the higher demand from consumers may account for the strength of the Georgia Dock compared with the other indexes. All but one of the grocery stores that buy from Sanderson use the Georgia Dock to negotiate prices, he said.

“The retail grocery store remains the strongest market for chicken,” Mr. Cockrell said. He added, “We were profitable in the fourth quarter of last year, for instance, only because we were making money from the chicken we were selling to the retail market.”


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