The Chicken Coop Mortgage Bubble

The Wall Street Journal on Thursday examined a mortgage bubble that until now hasn't gotten much attention: the once-booming market for chicken housing. As the market for chicken has imploded, putting top producer Pilgrim's Pride into bankruptcy, many chicken farmers find themselves unable to pay their mortgages, which can run into the high six figures.

In the latter part of the article, we find that this bubble was at least in part inflated by Pilgrim's Pride itself. The company, now in bankruptcy proceedings, has canceled contracts with about 300 chicken farmers in Arkansas, Florida, and North Carolina.

But before the company imploded, according to a lawsuit filed by 74 Arkansas farmers, the company's representatives encouraged farmers to spend big on state-of-the-art coops. One farmer lost two coops in a tornado, and a Pilgrim's Pride rep told him: "Build them back as quick as you can and get 'em rolling again."

That was just last May. A Pilgrim's Pride spokesman told the Journal that at the time, "no one could have foreseen the dramatic changes that occurred in the U.S. chicken industry last summer."

Sure they could have. In fact, they did. Last May, when the tornado-struck farmer was being told to "get 'em rolling again," the poultry industry was already dealing with a massive oversupply problem (the lawsuit, by the way, was filed just a couple of months later). As it released weak second-quarter earnings, then-CEO Clint Rivers was loudly blaming ethanol subsidies for keeping feed costs high. The company was closing six distribution centers and a processing plant. If "no one could have foreseen" what was happening, why did Pilgrim's Pride announce that very May that it was cutting production by 5 percent?

And why was Rivers complaining, repeatedly, about oversupply? In a conference call with analysts on May 5, he cited the "oversupply of chicken in the United States" as being in large part to blame for the company's struggles. And, complaining again about costs, he called the situation "among the most difficult I have seen in 27 years in the business."

He was premature. By December, the company had declared bankruptcy and Rivers was out. Well, sort of out. Now, the company is pleading with the bankruptcy court to allow it to retain Rivers and his chief operating officer, Robert Wright, as "consultants" for a few months.

As chicken farmers across the south are losing their livelihoods and perhaps their homes, Pilgrim's Pride wants to pay Rivers and Wright—the men who led the company into bankruptcy proceedings—a total of nearly $500,000 to keep them on board for a few months. Why? Because "keeping them out of the marketplace" would give Pilgrim's Pride a competitive advantage, according to William Snyder, the company's new "chief restructuring officer."

Right. You wouldn't want them working for the competition. Or would you?