Is the Chicken Industry Rigged?

On Dec. 8, 2009, Joe Sanderson, the chief executive officer of Sanderson Farms, held a routine earnings call with bank analysts. His aim was to reassure them that the company’s recent profits weren’t about to disappear, as the chicken industry’s usual business cycle dictated they would. For decades, poultry had been volatile in a frustratingly predictable way: When times started getting good, companies flooded the market with chicken, causing prices to crash. Sanderson Farms was having a pretty strong year, so naturally the analysts were expecting a downturn.

Sanderson told them that the industry had learned from its mistakes. There wouldn’t be a bust this time. Then he said something rather extraordinary: His competitors weren’t planning to ramp up production. He knew this because it had been communicated to him by a virtually unknown company. “I see a lot of information from Agri Stats that tells me nobody’s going to ramp up,” he said. Sanderson was right. The following year, Sanderson Farms reported that its profits had surged 64 percent. For the next six years, strategic production cuts and skyrocketing profit margins were the norm in the $90 billion chicken business.

At first the transformation puzzled industry watchers. Some speculated that a merger spree during the 1980s and 1990s was responsible—with fewer decision-makers in charge and fewer competitors, the remaining companies could more easily survey and predict the landscape. But Sanderson’s conference call suggested another source for the shift: Agri Stats, a private service that gathers data from poultry processors, produces confidential weekly reports, and disseminates them back to companies that pay for subscriptions.

Many industries, such as health care and retail, make use of information-sharing services, but Agri Stats provides chicken producers with a rare level of detail, in uncommonly timely fashion. The company’s reports, portions of which Bloomberg Businessweek reviewed, contain exhaustive data about the internal operations of the nation’s biggest poultry corporations, including bird sizes, product mixes, and financial returns at participating plants. According to a 2011 presentation prepared by Agri Stats, the company gathers information from more than 95 percent of U.S. poultry processors.

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