Odd Lots Talks Beak Capitalism on Money Stuff Talking Chicken

0:00Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency? Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

0:45In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit EasyCater.com slash podcast. Hello, OddLots listeners. We have something very special for you. Joe and I appeared on an episode of Bloomberg's latest podcast. It's called Money Stuff, and it is hosted by two people that I think you will recognize from OddLots. Matt Levine, the esteemed financial columnist and chronicler of capitalism, as well as Katie Greifeld, who knows all things ETFs and horses as well.

1:32And Joe and I were there to talk about chicken. That's right. So if you recall, back in November, Tracy and I released a three-part series called Squawk Lots, where we explained how the U.S. economy can be understood through the lens of chicken, basically taking the entire industry from egg to sandwich, so to speak. And so we were delighted to go on with Matt and Katie and talk about our work. Technically, it was called Beat Capitalism. Oh, that's right. But Squaflots was our codename for it for a long time. That's right. It was called Beat Capitalism. That's right. All right. It's been a long time.

2:04Yes, it has. OK, so we hope you enjoy this special episode of Money Stuff and definitely give it a listen.

2:15Bloomberg Audio Studios. Podcasts. Radio. News. Hello, and welcome to a very special crossover episode of the Money Stuff slash Oddlots podcasts. I'm Matt Levine, and I write the Money Stuff column for Bloomberg Opinion. And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television. And we have two very special guests in the studio with us today, Katie. Their names are Joe Weisenthal and Tracy Alloway. Wow. This is very exciting. I like the pause to build suspense, Katie. I've been told to pause and then say names slowly for Gravitas. So it's working. It worked? Yeah, it worked.

2:57It worked. All right. We've established Gravitas.

3:05For what it's worth, Tracy and I spent three years of Odd Lots workshopping ways to introduce guests. And I know we're only the second time you've had external guests. So don't feel any anxiety. My heart is pounding. Don't feel any anxiety about the guest. Do you remember how we used to do it, Tracy? Yeah. Yeah, we used to pretend that neither of us or one of us didn't know what we were going to talk about. And it was like, guess what we're going to talk about? But it didn't make any sense because, like, we clearly knew what we were going to talk about. It took us a while. How are we doing so far?

3:33Because I feel like it's not going super well. It's going fine. What are we going to talk about? What? Someone should make a clocking noise. You brought us here. Let's talk about chickens. You guys obviously have a lot to say. You did a three-part series on chickens recently, which was pretty cool because I feel like this was something different for you guys. Yeah. Every once in a while, we like to shake things up and do something slightly different. Last year, we actually did a three-part series on the rollout of New York's legal marijuana market called Potlots. This one was a three-part series about chicken, and the code name for it was Squawk Lots.

4:10But the actual name was Beat Capitalism. And the idea was you can actually explain a lot of really interesting themes in the American economy through the medium of chicken. Yeah. You just think from like egg to chicken sandwich or egg to chicken tender or egg to McNugget. I mean, speak for yourself. There are just so many interesting like the sort of premise is there are just so many really interesting things that can be discussed along that entire supply chain. So whether it's avian flu and how to keep the flock of the birds, whether it's concentration in the poultry market, whether it's the nature of the labor market, how the big poultry companies contract with independent growers and so forth who raise the chickens themselves, which is interesting.

4:57Then there's questions about pricing and so forth. And then commodity prices. And then the chicken sandwich wars and the consumer experience of why Papa's versus Panda Express versus whoever. There's a million different things, even within all these things, where it's like we can learn a little something about how the economy works through that trajectory. How did you decide on that? Was that like you're like, we want to talk about chicken first, and then later you realize there are a lot of lenses? Or were you like, we need to talk about antitrust? What is the right answer for antitrust? I actually, I'm struggling to remember what the exact genesis is.

5:28Oh, is the answer that you were looking at? I remember. Chickens in your backyard? Yeah. Yeah. I have a long-term love of chickens, and my great ambition in life is to one day have backyard chickens, and I'm inching closer to that dream. When you say love of chickens, do you mean alive chickens to hang out with, or dead chickens to eat, or totally indifferent? Both. All farms. Like one, then the other? Well, I would raise chickens, and I would have eggs, and that way I would be immune to egg inflation. But I know some people who raise meat chickens, and I don't think I would do that. It's depressing because meat chickens are very different to egg laying chickens.

6:05They look different. They don't really do anything. They kind of just like waddle around and flop over. And then one day you kill them. Yeah, it's sad. The other thing, too, in addition to Tracy's affinity for chickens, we've done a lot of chicken episodes in the past. So there's this guy, Glenn Hickman, that we talked to. We've talked to him twice on the show. He has a big egg operation in Arizona. And so we talked about when egg prices were surging. We talked to him when avian flu, which unfortunately, like, is getting headlines again. We talked to him. We've talked to Samuel Rines, an analyst who thought that wings stopped the country's biggest chicken chain and the biggest single buyer.

6:41And there are certain lessons about pricing power that we learned because, you know, as wholesale wings went up, they raised their prices aggressively. when wholesaling prices went down, they did not cut their prices. So we've done a lot of chicken-related content in the past. It's like, oh, why don't we put some of this together? This was the surprising thing when we were putting together the list of people that we wanted to speak to for this series. Like 80 % of them we had actually spoken to before. So unknowingly, we were already a chicken podcast. Wow. It's like it found you guys. Yes. When you were putting together that list, where was Ray Dalio on the list?

7:16wait what does Ray Dalio say about chicken do you not know? are you pretending to not know? no I honestly don't now I feel really dumb oh does he have that huge chicken coop? no he invented chicken mignets oh what? no he didn't I feel like this is too good to be true it's too good to be true he didn't because we talked about the history of China so what's the urban legend? according to Ray Dalio this comes from Ray Dalio including on podcasts and I think on the Bridgewater website But when he was working on Wall Street before he started Bridgewater, he was like doing commodities stuff. And one of his clients was McDonald's.

7:52And McDonald's were – I think this is like – according to your history, like this is a few years after they had like introduced the chicken nugget. But before they rolled it out nationally. And they were worried apparently about volatility of chicken prices because they're like, well, we can't put chicken nuggets on the menu if the price is going to go up and down because they have to pull it off the menu or raise the prices. It would be terrible. well, we need to take the volatility out of chicken prices. And they came to Ray Dalio, allegedly, and they were like, can you sell us a chicken price hedge?

8:23And Ray Dalio was like, well, there's not like a liquid chicken market at the time. This is, I think, from the Bridgewater website. He argued that since a full-grown chicken was nothing more than a baby chick plus corn and soy meal, the price of the grains were the volatile costs, and they could hedge corn and soybean prices. Oh, that's interesting. And so he sold McDonald's a bunch of corn and soy derivatives, and they were able to roll out the chicken McNugget. Yeah. First of all, I love that Ray Dalio's chosen creationist story for himself, his background legend, is I helped invent chicken McNuggets.

8:56Oh, that's a good one, though. Secondly, McDonald's did not invent chicken McNuggets, which is something that we learned from the podcast. McDonald's did not invent the chicken nugget. But Ray Dalio shepherded the chicken McNugget as a menu item into the world. Sure. Okay, fine. We'll let him have that one. But the interesting thing is we did learn about volatility in pricing because this is something that the Wingstop CEO actually brings up. One of the reasons we saw chicken wing prices specifically go up so much in the aftermath of the pandemic was that it turns out they're the most volatile like part of the chicken.

9:29Can I say I have a contrary opinion. I think Ray Dalio did invent the chicken McNugget. Anyone could invent a fried lump of chicken. It takes a true genius to invent the financial hedging instruments that allows it to be commercialable. So I now accept the premise that actually he and not the person who like put the chicken meat in batter should get actually be the true father. I think that financial engineering is underrated. Is that moving force in like the real economy? I like this. And he did the financial engineering behind the chicken. Tracy is shaking her head. Well, you're right. It gets to an interesting question about what drives progress.

10:04Is it underlying technology or is it the finance? First, the chicken nugget. The soybean future. Which came first, the nugget or the financial engineer gets a bad rap. And it turns out if you need that to commercialize. But it brought us easy to consume protein. Yeah, I take it. I now give the crown to right. Do you think that, right, like every major innovation, like there's the step of physical invention and then there's the step of like working out the financing. And like the financing people are generally unheralded but well paid. Yeah, they're okay. And heralded. I think Dalio is managing.

10:36Yeah. But this is Joe's pitch to try to get Ray on the podcast, I think, to talk about chicken. We should have him on our podcast to talk about it. You know, who is the New York Mets manager who claimed to invent the wrap? Do you remember that? Who is it? You know the wrap sandwich? I've heard of it. The New York Mets manager in the 90s claimed to have invented the wrap sandwich. I can't remember his name right now. Anyway, it sort of reminds me of that. It's like claiming to invent the apple pie. Like, if you just say it loudly enough. Yeah. It's probably true. Yeah. Can we talk about why wings are the most volatile part of the chicken?

11:08I did not know that. I would have thought it was, I guess, any other part of the chicken. From your podcast, I thought it was that the supply of chickens is set by the demand for chicken breasts. And so the demand for chicken breasts goes down. The supply of chickens goes down. And wings do not drive the supply of chickens. And so the wing price is just like. Thank you for listening. That's exactly it. You learned something. I think that's cool. The chicken breast is like the benchmark from which all the other parts. It's like the big part and it's like the thing that's most used. And so like essentially if you're a Wingstop, you're buying like a sort of like.

11:44Leftover. The discarding. Yeah. I like thigh, by the way. It's more than the breast. I think it's like a better, it's like the best cut. Have you guys had chicken feet? No. Oh, yeah. They're really good. And in Asia, people always say they're a really good source of collagen. So like a lot of young women or older women will eat them for skincare purposes. I believe it. Do you eat it or do you just sort of slather it on your face? No, no, you eat it. You like nibble on it. Oh, man. You can get it at most dim sum places in Chinatown here. So if we ever want to take a trip, it's actually, I really find them quite delicious.

12:18I would love to watch you guys eat that. I'm not very adventurous myself, but boy, do I like being included. I have a new puppy and I get served a lot of ads for a lot of dog food products. And there's definitely like an extremely foot looking chicken foot product. I do feed my cat dried chicken hearts. Like that's a little crunchy cat snack. You've had some vital chicken hearts? No, have I had chicken hearts? Yeah, I have. Or chicken liver. Is that something? Oh, chicken liver is. Yeah. I think I've had chicken hearts too. You can make Thanksgiving stuffing out of chicken liver. It's really good.

12:51Timely. Yeah. We'll provide our recipe for chicken liver Thanksgiving stuffing after this podcast. Can I say, so this is a three-part series. Yeah. The part that caught my ears the most was just like the physicality of the chicken and how it's changed that the idea that like a chicken in the 1920s looks so much different than a chicken in the 2020s. Like I feel like I knew that somewhere in the back of my mind, but this really brought it into stark focus for me, just how much we've changed chickens. Yeah. So chickens, like a lot of domesticated animals, are like the products of, you know, centuries and certainly decades of evolution.

13:29Chickens, in case you're wondering, I think they originally came from forests of Indonesia. And back then they were like skinny little jungle birds. And I think they were mostly like black. Anyway, they spread around the world. It turns out everyone loves chicken. One of the most fascinating parts of chicken history, and I don't know why I know this, but for some reason I do, is in the 1850s, there was a chicken bubble. So what happened was Queen Victoria got really into chickens, like breeding chickens, exotic chickens. And because she was the queen, a bunch of other people got into it. And it sort of became this fad where people were paying like lots and lots of money to get really exotic chickens.

14:13Were they eating them or just breeding them? No, they were just breeding them. They were pets. Just love of the game. Selling them to other people. Yeah. The bubble eventually burst, by the way. And the really interesting... In fact, did they eat them? Probably. But the really interesting thing is because exotic chickens became cheap, Charles Darwin started doing research with all these different chickens from around the world on evolution. So the Victorian chicken bubble indirectly influenced our understanding of evolution. This is like how the telecom bubble in 99 and 2000. And then we had the broad bubble.

14:44And then, yeah, because of the bubble, we had the evolutionary theories of Darwin. I didn't know that. This didn't come up, did it, on the podcast? No, I couldn't figure out where to put it in. I saved it for this podcast. Perfect. There's a really funny book that was written sort of contemporaneously with the 1850s all about it's called Hen Fever and it's about the chicken bubble. And it has the most amazing illustrations, including it has this picture of a guy blowing a bunch of different bubbles. And some of them are like what you would expect, like the South Sea expeditions and railway stocks and things like that.

15:17But then some of them are Shanghais and Cochins, which are types of chickens. And then there's one that's labeled female novelists. So I guess in the 1850s, they thought female novelists were fat. Too many. Pipe down. By the way, that was my favorite of the three. I really like the consumer angle. Obviously, it's fun to talk about the chicken sandwich wars. It's interesting, like the market structure and some of the antitrust questions and the power. But like I do think like one of the great sources of wealth in modern society is abundant access to fairly inexpensive protein. And the story of the chicken getting plumper and plumper, the antibiotics that are used to keep them alive and keep them growing and avoid sickness, the sort of feeding mechanisms and so forth that have turned the sort of scrawny bird that Tracy was talking to and a sort of very tasty bird.

16:07Like to me, that's like that's riveting. That's exciting. That's progress right there. Then it did turn— Add in the soybean futures to make it more— Yeah, right, and the soybean futures, which, of course, are crucial. Which we really, like—that's the thing. We could have done, like, because chicken is so rich, we could have done episodes on feed futures because chicken is just so inherently connected to everything else. This could have been, like, a 12-part series easily, I think. I was going to say, you've got to get Ray Dalio on. Yeah, well, Ray Dalio— Now we're in a booking war. Victorian chicken bubble, the grain market that underpins chicken nuggets.

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17:24Giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform. All while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast.

17:55Wait, I want to talk about the market structure. Yeah. There's an episode on essentially like how a chicken is like Uber, where the farmers who farm the chickens don't own the chickens. they are outsourced from like these big they call them integrators like Tyson and Purdue where they like the integrators deliver hours old chicks to the farmers the farmers take care of them for a couple of weeks and then the integrators take them back and turn them into chicken nuggets why is it like that that's a really good question I think it's just like an outcrop of the way the chicken industry evolved by the way I have a interesting fact if you don't know chickens can still be sent live through the U.S.

18:36mail. So you can live order baby. Have you done that? No, but I don't really want to. I would rather go to like a local agricultural tractor. Yeah, exactly. But anyway, so the way it worked is in the sort of 1920s, 1930s, we started getting these big broiler houses. So people discover this is actually one of Joe's favorite stories. The woman in Delaware. Yeah, there was a woman in Delaware who had a great name, Cecile Longsteel. And she ordered what? She ordered 100 chickens? No, it was like 10 chicks. She ordered like 10 chicks in the mail and accidentally ordered 1 ,000. So she's like, all right, I guess I'm going to become a farmer.

19:12That never happens to me. No, it doesn't happen to me either. The point about Uber, and so then people get into the farming business. They're like, oh, I like the idea of farming. And it doesn't seem that bad to be a chicken farmer. But like they're extremely highly constrained. And the integrators, they deliver them the chickens. They tell them the exact specifications of the barn, the temperature, the feed, how much feed, and so forth. And then they compete against each other in what's called the tournament system. So you as the farmer are actually responsible for a lot of the capital investments that are needed to raise chickens.

19:47Meanwhile, the big integrators like a Tyson or a Purdue, they provide a lot of the inputs. So the baby chicks themselves, they'll tell you like what medicines to use, what kind of food. And so in the eyes of the farmers, they feel like they are absorbing a lot of the big risks here while not really having a lot of control over stuff that ultimately affects the end product. And then the tournament is you have this pool of farmers in an area and your pay for some period is how far above or below the average of that pool. Yes, you're pitted against each other. You're pitted against each other. There's like a fixed pot.

20:26And then each round, you know, some people had the best chickens or the heaviest chickens or whatever it is. And some had the worst and so forth. And so it's very constrained type of farming. If you imagine farming in Iowa in some idyllic sense, which I think some people still do, but I think we also know it's big industrial business. It's not that vision. Yeah. So sort of like retailers, like, not owning their real estate. It's like weird that, like, the capital requirement comes from the, you know, individual small farmers and, like, these big companies aren't making the capital investments.

20:59It seems to be a super beneficial way of structuring their business for the big companies, right? You could see why they like it. And by the way, like— Asset light. Yeah, that's exactly it. And they will argue that like actually providing the initial round of chicks and the food and the medicine is like a big cost center. And they are taking that on. But again, like all the farmers we spoke to had pretty similar complaints. It's not like Uber. It's not like literally they're just like, you know, like a matching app. Like they have a lot of. Yeah, that's right. That's right. But, you know, sometimes like with Uber, you're like, oh, you can like be an entrepreneur, you know, like they pictured that.

21:34But in the end, the rules of the business are heavily constrained, and it's all within the context of Uber and policy changes that Uber can make, et cetera. It's similar to that in that there is a cap on one's ability to be sort of like actually a business owner in the sense of how constrained it is. Oh, you can be a farmer. You can like farm, but it's like, no, really, you're just like following their orders. Speaking of Uber, it also gets to something else in the modern U.S. economy, which is sort of the prevalence of the middleman and the power that they wield over the economy. So Uber basically matches passengers with drivers, and it makes a lot of money from doing that.

22:13If you look at the farming industry, for every dollar that comes out of agriculture, farmers get like 20 cents. The other 80 cents is going to someone else. And a lot of the someone else turns out to be middlemen, like the distribution networks, the integrators in some respect, the packaging, things like that. And there's the role of the pricing algorithm setting. So this is really interesting because we talked to all these like antitrust experts, et cetera. And there are like various targets to the integrators themselves, whether they're uncompetitive things. And this has come up over the years.

22:46But another thing that's come up across a range of industries, again, chicken as the lens to uncover other aspects of the economy, is can you have tacit price-setting systems not via people getting in a smoke-filled room and— Doing nefarious things. But via a third-party pricing entity that everyone uses as some agreed-upon oracle. And people make this claim in all kinds of different industries these days. And again, I'm not an antitrust lawyer expert. I don't have a view on this, but it is certainly one area that the antitrust-focused people are, like, eager to sink their teeth into. We talked about this on our podcast about farmers markets because there's like a Cornell project that like gives basically like market price information to people running stalls at farmers markets.