What a bucket of chicken wings might tell the Fed
Broiler chickens feed at Ward Family Farms in Pawnee, Oklahoma, U.S., March 22, 2020. Picture taken March 22, 2020. Purchase Licensing Rights
NEW YORK, June 25 (Reuters Breakingviews) - Wings are the appendage of the moment for the American eater. Wholesale prices for the poultry parts are in record territory, perhaps egging on producer Sanderson Farms (SAFM.O) to consider selling itself, as reported by the Wall Street Journal earlier this week. It’s also a microcosm of the Federal Reserve’s contention that pockets of severe inflation are transitory. For poultry, that could be so – but it’s more complex than just winding back the clock.
Some things are working as an economist at the U.S. central bank might expect. Wings currently cost roughly twice what they went for a year ago, according to U.S. Department of Agriculture figures. “At $3.25 [per pound] wings, somebody’s going to figure out some way to substitute for that,” Sanderson boss Joe Sanderson said during the company’s earnings call on May 27.
Restaurant chain Wingstop (WING.O) did just that earlier this week, unveiling a tongue-in-cheek Thighstop brand and new menu items to go alongside its traditional wings. Prices for other chicken parts like thighs aren’t surging as much.
Yet Americans’ tastes have changed, helped by several eateries like Restaurant Brands International’s (QSR.TO) Popeyes launching successful chicken sandwiches in recent years. And the market isn’t as flexible as it might seem.
It's true that one driver of rising chicken prices is feedstock inflation. That might be a passing distortion caused by the pandemic, in line with the Fed's thinking. But supply is also affected by the number of chickens available. And Tyson Foods (TSN.N), the biggest meat producer in the world by sales, is struggling to meet demand.
Part of the problem is that eggs fertilized by one particular type of rooster turned out not to hatch at the needed rate, crimping production and somewhat scrambling the company’s performance for the first three months of this year.
Meanwhile Wingstop executives are not alone in believing that part of the wing supply problem – a shortage of labor at meat processors – stems from government stimulus that has discouraged people from working. If they are right, the Fed and lawmakers have a problem. Their combined monetary and fiscal stimulus is supposed to boost employment, but they also need people to want the jobs.
Assuming Americans continue to eat more chickens – and especially wings, a reversal of price increases could take longer than the Fed expects for reasons such as these. The central bank is, of course, looking at a bigger picture. But there’s still something policymakers can learn from a bucket of wings.
Follow @richardbeales1 on Twitter
CONTEXT NEWS
- Chicken-wing wholesale prices in the United States have soared this year compared to last, with jumbo wings spending much of this year “in record territory,” according to Lampkin Butts, a Sanderson Farms senior executive, speaking during the company’s quarterly earnings call on May 27.
- The Mississippi-based chicken producer is considering selling itself, the Wall Street Journal reported on June 21, citing people familiar with the matter.
- Restaurant chain Wingstop on June 21 launched a Thighstop brand and menu items “addressing consumers' fear of a chicken wing shortage head-on ... and giving thighs the attention they deserve.”
For more insights like these, click here to try Breakingviews for free.
Editing by Lauren Silva Laughlin and Marjorie Backman
Breakingviews
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.
