Abstract
In this paper, we investigate whether the U.S. broiler companies used public information sharing mechanisms to collude to reduce output and fix prices. Utilizing natural language processing methods, we converted quarterly earnings call transcripts of publicly traded broiler companies into structured data. We identified six keywords that could be used as signals: cut; balance; constrain; discipline; reduction; and adjustment. Our results show statistically significant and mildly elastic negative relationship between the keywords signals and three different broiler production precursors. For example, a 1% increase in the aggregated signal is associated with 1.5% reduction in the broiler-type hatchery supply flocks. The results are corroborated when using LASSO estimation to identify the most important elements in the vector of collusion signals.
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Notes
Agri Stats is a company that gathers and distributes dis-aggregated: financial information; production volumes; capacity; slaughter information; inventory levels; sales data; and other pieces of sensitive business information. AgriStats reports are available only to members: broiler producers that are granted access to various detailed monthly and quarterly plant-level data in exchange for hefty annual fees and voluntary submission of their own data to the pool; see, for example, Leonard (2017).
Traditionally, the most frequently referred to broiler prices have been: Urner Barry (a commodity price reporting service); Georgia Department of Agriculture (Georgia Dock); and the USDA wholesale composite (which is released by the USDA Economic Research Service). Urner Barry prices refer to prices of whole chickens with giblets—with or without fat & tail—and with a finished weight between 2.5 and 3.5 lbs.; the Georgia Dock prices refer to Georgia FOB Dock weighted average prices of ice-packed parts; and the USDA prices refer to national wholesale composite prices of whole birds. Historically all three price series moved closely together. However, beginning in 2008, the Georgia Dock price began to depart from the USDA composite price index, such that near the end of 2015 and the beginning of 2016, the Georgia Dock prices were 30% or even 50% higher than other price indexes (Charles, 2018) This departure has been interpreted by plaintiffs in various litigation cases against broiler companies as a signal of possible price manipulation and collusion.
For example, Maplevale Farms, Inc. v. Koch Foods, Inc. et al. No. 1:2016cv08637 - Document 541 (N.D. III. 2017). https://law.justia.com/cases/federal/district-courts/illinois/ilndce/1:2016cv08637/330954/541/.
Broilers are young chickens that are raised for meat. They account for the vast bulk of chicken meat that is produced and sold in the U.S. (as opposed to hens, capons, Cornish hens, etc.). The USDA, National Agricultural Statistical Service (NASS) Poultry Slaughter, reports that young chickens were 98.7% of chicken slaughter (by weight) in 2021.
Currently, there are only two primary breeding companies: Cobb-Vantress and Aviagen.
The peak in 2006 is the result of the merger of two major broiler companies Pilgrim’s Pride and Gold Kist.
On July 22, 2022, Cargill and Continental Grain announced the completion of their acquisition of Sanderson Farms Inc. As a part of the closing of the transaction, Cargill and Continental Grain formed a joint venture to combine Sanderson Farms with Wayne Farms—a former subsidiary of Continental Grain—and form a new privately held poultry business: Wayne-Sanderson Farms.
The full list of poultry processors that were named as defendants in various suits include: Amick Farms, Case Farms, Claxton Poultry, Fieldale Farms, Foster Farms, George’s, Harrison Poultry, House of Raeford Farms, Koch Foods, Mar-Jac Poultry, Mountaire Farms, OK Foods, Peco Foods, Pilgrim’s Pride, Tyson Foods, Perdue Farms, Sanderson Farms, Simmons Foods and Wayne Farms. Two broiler firms—Allen Harim, and Keystone Foods—are listed as co-conspirators. In addition to these broiler firms, AgriStats is charged as a defendant for facilitating the exchange of confidential, proprietary, and competitive sensitive data among the defendants and their co-conspirators.
Matsumoto et al. (2011) found that a typical earnings call last for about 46 min, with 18 min for the managerial presentation and 28 min for Q &A.
Since 2010, Keystone Foods has been owned by Brazil’s Mar frig Global Foods, another publicly traded company. However, Tyson Foods acquired Marfrig’s Keystone Foods in 2018. Once Keystone became a part of Tyson’s operations, the number of publicly traded firms went from four to three.
Pilgrim’s Pride’s 13 months of restructuring included the $800 million sale of a 64% stake in the company to the Brazilian beef giant JBS SA. While exiting from bankruptcy, Pilgrim changed its fiscal year-end from the Saturday nearest September 30 of each year to the last Sunday in December of each year. This change created a disconnect between the fiscal calendars of Tyson, Sanderson and Pilgrim’s, which must be addressed when dealing with the reporting periods of Pilgrim’s earnings calls.
To illustrate how often they appear in the earnings calls, we highlight (in bold) these six keywords in presented excerpts.
“Ready-to-cook poultry” means any slaughtered poultry free from protruding pinfeathers and vestigial feathers (hair or down), from which the head, feet, crop, oil gland, trachea, esophagus, entrails, and lungs have been removed, and from which the mature reproductive organs and kidneys may have been removed, and with or without the giblets, and which is suitable for cooking without need of further processing. Food Safety and Inspection Service, USDA, 9 CFR 381.1 Definitions. Legal Information Institute, https://www.law.cornell.edu/cfr/text/9/381.1.
For example, if the event date is February, the corn futures contracts included in the average for the 7 months window are: March, May, July, and September; and the soybean meal contracts included are: March, May, July, August and September. In models with the 3 months lead (eggs in incubators), both corn and soybean meal futures contracts included are March and May. In the chicks hatched model with 2 months lead, both corn and soybean meal included contract is only March.
This is the default setting for the cv.glmnet function in R.
We estimate Newey-West standard errors in R. The statistical package automatically calculates the optimal bandwidth (lag length) for Newey-West standard error correction using the command bwNeweyWest(). The default criterion used is the “Andrews automatic bandwidth selection” method, see Andrews (1991).
F-statistic tests the null hypothesis that all coefficients in the model are equal to zero.
The LASSO results, not reported here, are similar to those that were obtained with the complete sample.
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Both authors worked jointly on the conceptualization and modeling. Q.S. worked on data collection, estimation and preparation of figures and tables. T.V. wrote large parts of the main text. Both authors reviewed the manuscript.
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During 2019-2020, T. Vukina worked as a consultant in the broiler chicken antitrust litigation case No.: 1:16-cv-08637, U.S. District Court for the Northern District of Illinois, providing expertise in the organization of the broiler chicken industry for the plaintiffs’ lawyers.
Appendix: Excerpts from Earnings Calls
Appendix: Excerpts from Earnings Calls
Dick Bond - Tyson Foods - President, CEO
Within our Chicken segment, we previously announced that we would reduce our chicken production by 0.7%. Our recently implemented cutbacks are a little over 3%, taking into account both bird weight and headcount reductions. We intend to enact further cuts by late fall in the range of 2 to 3%. According to published reports, we also expect industry production to be down 3 to 4%. However, like our cuts, most of the industry’s cuts have only recently gone into effect.
–Tyson, 7/31/2006
Kenneth Zaslow - BMO Capital Markets - Analyst
Are you concerned at all that with, it seems like Tyson and Pilgrim’s Pride have been disciplined and the other chicken companies may be cheating a little bit in terms of their discipline and taking advantage of Pilgrim’s Pride and Tyson’s discipline. What concerns do you have with that and is that something that you may stop telling the public that you’re cutting production?
Rick Cogdill - Pilgrim’s Pride - CFO
I think as a general policy, you should not always count on us to tell people when we’re going to cut or when we’re going to increase production. We felt that it was such a material change with what had happened that we wanted to get the announcement out there a month ago. Regarding what other competitors do, that’s really up to each individual company to make the best decisions for themselves. Clearly there’s a lot of pent up capacity. So no one should infer by Tyson’s reductions or our reductions that in any way we’re going to forego good quality sales at the expense of production. So our competitors should not take any gratitude in our cutback because clearly we’ve got the capacity to reestablish that if the sales are warranted at a proper value.
-Pilgrim, 11/14/2006
Diane Geissler - Merrill Lynch - Analyst
Just a question on your comments on the production side for chicken. I hear what you’re saying about matching your supply with demand. Obviously you’re a large player within the industry. Wouldn’t it seem wise at this point, given we’re moving into the peak demand side where you generally see the best pricing, to kind of tighten up supply a little bit, particularly with what your competitors have said, PPC and some of the smaller players, so that you can see that burst in the acceleration in pricing that you normally get in the summer, rather than just kind of taking demand?
Dick Bond - Tyson Foods - President, CEO
Well, Diane I look back and I just say over the course of the last 3 or 4, 5 years, when margins got difficult, we were the ones that did some adjusting. And when we adjusted, the rest of the industry just filled right back in behind us and there were no changes, except by us. And I guess at some point in time, you say we’ve closed a number of facilities, we’ve done what we can over time to contribute and we’re done contributing.
–Tyson, 4/28/2008
Diane Geissler - Merrill Lynch - Analyst
Do you think it would be fair to say that because you have other businesses that seems to be performing well, that you’re willing to kind of use the position of strength in those two divisions to sort of push that chicken a little bit harder to see if you can get a little bit more discipline from the smaller players?
Wade Miquelon - Tyson Foods - EVP, CFO
I think what we’ve said all along is we’re going to match our supply and demand. We’re not going to cut beyond that and go out and buy open market meat to subsidize other people’s growth. We’re not going to be stupid either and outproduce what we have a good quality demand for.
–Tyson, 4/28/2008
Joe Sanderson - Sanderson Farms - Chairman & CEO
So long as this weakness continues, the poultry industry will need to cut production further to bring supply in line with demand. Leading indicators do not, at least at this point, lead us to believe that there has been a sufficient cut in the supply of chicken to offset this weakness. The market for boneless breast meat, wings, and chicken tenders weakened even further during August compared to July. And as I said in May, I believe it will take another round of production cuts this fall to bring supply into balance with weak demand for chicken in food service.
–Sanderson, 8/26/2008
Jeff Kanter - UBS O’Connor - Analyst
So you’re just going to go and take what the market gives you, essentially, and because it seems like Tyson’s going to do that a little bit, as well, is that correct?
Joe Sanderson - Sanderson Farms, Inc. - Chairman & CEO
It makes no sense for us to ramp up. Basically, what we see out there is a year of demand similar to 2009, and it doesn’t—there’s no reason to ramp up and my judgment is that based on what we see in Agri Stats, nobody is planning on—pullet placements say no ramp up and what I can glean from Agri Stats, people are not planning on ramping up. I see a lot of information from Agri Stats that tells me nobody’s going to ramp up.
–Sanderson, 12/8/2009
Heather Jones - BB &T Capital Markets - Analyst
A quick question on your cut back. You remark in your Press Release about you had this cut-back until you see improved demand from your customers. So, you mentioned earlier that the industry’s profitability improved in early 2009 following the cuts in 2008. If we get into 2012, and say the industry is profitable by the end of calendar Q1, should we interpret your comments that even as the industry returns to profitability, until you see an increase in pull from your customers, that cut-back’s going to hold?
Joe Sanderson - Sanderson Farms Inc - CEO and Chairman of the Board
I would think we would leave our cutback in place. The cutback is not going to improve demand. It’s just going to improve supply side. If our—what we think we need to do is reduce our supply. We’re not going to set any more eggs until we see—unless we pick up another big account or we can’t supply our customer needs.
–Sanderson, 8/25/2011
Farha Aslam - Stephens, Inc. - Analyst
And my final question is do you anticipate this time around the production cuts will be led by the larger players so just yourself and Tyson? Or do you think this time around it’s going to come more from the other 50% of the industry that’s smaller?
Rick Cogdill - Pilgrim’s Pride Corporation - EVP and CFO
I think this time around you’re going to see more of it come from the other market participants. And the reason I say that is because as we’ve mentioned in the past, we actually cut our production last year 5%. You saw that in our numbers. We were down about 3%, I believe, year over year. The market as a whole probably is going to come in close to flat. So it’s clear that Pilgrim’s was the party if—probably the primary party that led the reduction last year. And our plants need to run at some level of throughput in order to maintain reasonable efficiencies. And the rest of the market is going to have to pick up a fair share in order for the production to come out of the system.
-Pilgrim, 1/29/2008
Akshay Jagdale - KeyBanc Capital Markets - Analyst
I wanted to ask you about how you think of revenue in the context of volumes. My belief is that somehow the industry has shown a lot of discipline on the volume side, and it looks like your volumes are down 1% in the US. Do you think there’s a relationship there? The key question is, how quickly will the industry ramp up? So can you help me understand how you think about revenue in relationship to your volumes?
Bill Lovette - Pilgrims Pride Corp - President and CEO
I think that the first indication to look at is replacement, pullet placements. And again if you go back even as far back as December of last year and move forward, you can see that we’re not placing pullets to grow the industry in terms of heads. And then if you look at our breeder supply flock, and look at it relative to history, that’s obviously been constrained. And it takes 6–9 months before the first incremental breeder put on the ground can become productive. So it being May, that’s why I said the die is cast already for 2013. And even into early 2014, as March pullet placements were down 6%. So, I think the industry is doing an admirable job in being disciplined on the supply side. And I think we’ve got a combination where we combine that discipline with strong demand for product, and that’s why you’ve seen the pricing environment that we’re now enjoying. I don’t think that’s going to relent much this year.
–Pilgrim, 5/3/2013
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Sheng, Q., Vukina, T. Public Communication as a Mechanism for Collusion in the Broiler Industry. Rev Ind Organ 64, 57–91 (2024). https://doi.org/10.1007/s11151-023-09929-7
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DOI: https://doi.org/10.1007/s11151-023-09929-7