Chicken Billionaire Bemoans Higher Prices At Every Link In The Supply Chain, From Farm To Table

Start with corn.

Russia’s unprovoked war in Ukraine, among other factors, has pushed the price to more than $8 a bushel. That means Josphseph Grendys, the billionaire chief executive of Koch Foods, is paying $3 million a week more than he did a year ago to feed his chickens.

“That’s real money,” Grendys told Forbes. “We like producing cheap. That’s what our company stands for. But right now we have no choice but to raise prices.”

The pressure is coming from every link in the supply chain, from farm to table. Koch, the country’s fifth-largest poultry producer with an estimated $3.3 billion in annual revenue, has been forced to pay higher prices for just about everything. Koch has passed the inflation along to customers, but still, Grendys says, demand for chicken is outstripping the supply, making further price hikes a possibility.

According to Grendys, the price of soybean oil has doubled, making products like chicken nuggets more expensive. Shipping bottlenecks have pushed prices for exporting chicken products through ports up as much as 200%. Trucking costs, with a nationwide shortage of drivers, have skyrocketed more than 20% and fuel surcharges, to ship by train, have risen as the price of diesel has doubled. The cost of natural gas, which runs processing plants, has also doubled. Labor costs are 20% higher, too. And that’s not even counting the looming threat of avian flu, which has sent a shiver through the industry but thankfully hasn’t spread enough to force the killing of Koch’s factory flocks. Nearly 38 million birds, including turkeys and egg-layers, have been infected and slaughtered in the U.S.

“When you look at everything it takes just to put a chicken through a plant and the costs, I’ve never seen anything like it,” Grendys said.

Grendys has spent years pulling in sky-high profits, and even during the worst inflation in 40 years, Koch Foods is able to report record sales volumes weekly. In fact, Grendys complains that demand is so high that Koch can’t keep up.

Tyson Foods, a Koch competitor, raised its 2022 outlook last week as it anticipates higher prices will lift Tyson’s financial profile. Revenue for the year could hit between $52 to $54 billion, up from the original projection of $49 to $51 billion. Tyson said it has passed higher prices along to shoppers.

“We are working closely with our customers to ensure that the fair value of our products incorporates the inflationary cost pressures impacting our business,” said CEO Donnie King, who first joined Tyson in 1982, during then-record-setting inflation. King said that for the first half of 2022 that Tyson’s cost of goods sold rose 15%.

“Every part of our business has been impacted by inflation,” King said.

That includes the same inputs as Koch — live animals, cooking oils, transportation and fuel. King vowed that Tyson will “combat inflation and increase profitability.” Operating income still fell for the first six months of the fiscal year. One culprit was $285 million of higher feed costs as prices for ingredients like corn and soybeans shot up.

JBS-backed Pilgrim’s Pride, the second-largest U.S. chicken processor after Tyson, brought in a record $4 billion in profit in the first quarter, up 30% from the year prior. Sanderson Farms, America’s third-largest chicken supplier, reports its latest results May 27.

The consolidation of the meat industry has given more pricing power to companies like Tyson. The biggest consolidation has been in beef, where four companies control 85% of the U.S. market for fed cattle. Four pork and chicken companies supply 70% and 50% of their respective markets.

Food prices such as those for poultry will continue to remain high and may even go up, according to Brian Marks, an economics professor at the University of New Haven who’s studied inflation.

“I don’t see any relief in the near term,” Marks said.