The egg business is a huge billion-dollar industry and it’s still growing! It’s a great way for farmers, distributors, retailers, and other folks in the industry to make some serious money.
When it comes to raking in the profits, the big guys with streamlined production processes, solid supply chains, and smart marketing tactics tend to come out on top.
But don’t count out the little guys just yet! Small-scale farmers can still make a decent profit by tapping into specialty markets like organic, free-range, or unique types of eggs.
The Success and Challenges of the Egg Industry
Introduction
In 2022, the nation’s largest egg producer, Cal Maine Foods, had a successful year with a nearly 32% increase in revenue from 2021. However, the egg industry is not without controversy, as it is a low margin and volatile industry that is sensitive to market changes and environmental factors.
This article will explore the success and challenges of the egg industry, with a focus on Cal Maine Foods.
The Egg Industry
The egg industry is a $10 billion industry with nearly 13% annual growth in profit from 2017 to 2022. More than 9 billion eggs were produced in the United States in December 2022, with over half of the eggs being table eggs.
White eggs produced by battery chickens account for about 8%, while cage-free chickens account for 19%, organic free-range for 6%, and hatching eggs for nearly 14%.
The industry is a relatively low margin business, given that producers are responsible for growing the hens, keeping them fed, and exposed to things like corn and soybean costs, creating a volatile margin structure with low margins over time.
Cal Maine Foods
Cal Maine Foods is the only public egg producer and holds nearly 17% of the market share. The company operates farms, processing plants, hatcheries, warehouses, offices, and other properties around the country.
As of May 2022, the company had more than 42 million layers that lay eggs and 11.5 million pullets and breeders. Cal Maine Foods is a vertically integrated business, controlling the egg production process from the time the chick is hatched until it can no longer lay eggs. Prices are very dynamic and move up and down every single day.
Success and Challenges
Cal Maine Foods reported its highest revenue since 2016 in 2022, with a 64% increase in share prices, while consumers paid an average of $4.30 for a dozen eggs compared to $1.80 in 2021.
The company’s success is a testament to its experienced management team and biosecurity measures. However, the industry’s controversies cannot be ignored, as each bird is given less space than the dimensions of an iPad to live its entire life, leading to issues of animal welfare.
The egg industry is a successful and challenging industry, with Cal Maine Foods being one of the top players. While the industry has seen growth and success, there are still controversies and challenges that must be addressed to ensure sustainable and ethical practices.
Avian Influenza and its Impact on Egg Prices in the US
Introduction: Avian influenza is a highly contagious virus that affects birds and has resulted in massive losses for the US poultry industry since the outbreak in February 2022.
The impact of this outbreak on egg prices has been significant, and the market has dictated higher prices due to the decreased supply of eggs. Additionally, new regulations have gone into effect, which further complicates the market dynamics.
Avian Influenza Outbreak in the US
The avian influenza outbreak in the US has resulted in the destruction of millions of infected birds across the country, making 2022 an outlier year.
As of January 2023, more than 58 million birds have died since the beginning of 2020, resulting in a decrease of 5% of laying hens in the US compared to the same time in 2021. The flu is lethal and can kill up to 100% of chickens within 48 hours, making the outbreak one of the deadliest in US history.
Impact of Avian Influenza on Egg Prices
The US has lost around 43 million egg-laying hens, which is about 10% of the population, due to the disease itself or depopulation since the outbreak began in February 2022. The loss of egg layers has significantly impacted egg prices, with a 6-8% increase in some cases.
However, for every 1% layer lost, prices have gone up about 15%, which is significant when talking about supply shocks between 2022 and 2023.
New Regulations
New regulations have gone into effect in Massachusetts and California, making it illegal for hens to be confined in battery cages, which is the norm on industrial egg farms.
These laws went into effect in January 2022, making Massachusetts and California the only two states that require this. Other states are expected to follow, and the Humane Society of the United States has led the campaigns to ban the use of cages in 11 states.
The industry needs to convert its existing capacity from caged eggs to cage-free eggs, which is expensive and time-consuming.
Impact of Regulations on Egg Prices
The regulations on the use of battery cages have caused disruptions in the market, which has resulted in an increase in egg prices.
The spread between cage-free and conventional eggs has remained small because consumers need eggs, and the regulations have mandated the use of cage-free eggs in specific markets. Producers need time to modify their operations, and these laws are expected to go into effect gradually.
The avian influenza outbreak in the US has had a significant impact on egg prices, and the market has dictated higher prices due to the decreased supply of eggs.
Additionally, new regulations on the use of battery cages have caused disruptions in the market, which has further complicated the dynamics of the egg market in the US. The industry needs to adapt to these new regulations, which is expected to be expensive and time-consuming.
Cal-Maine Foods to Invest Over $100 Million in Cage-Free Egg Production Capabilities
In fiscal year 2021, Cal-Maine Foods announced that its board of directors had approved several new capital projects, estimated to cost more than $100 million, to expand the company’s cage-free egg production capabilities.
In this article, we will examine Cal-Maine’s plans to fund these projects, the shift to cage-free egg production, and the impact of economic and environmental factors on the industry’s outlook.
Funding the Projects
Cal-Maine Foods plans to fund the new capital projects through available cash on hand, investments, and operating cash flow. These projects include converting facilities to cage-free egg production, which has become increasingly popular due to demand from companies and consumers alike.
In a 2022 poll, 80% of all likely voters in the US somewhat supported Proposition 12, which requires the use of cage-free housing systems for hens.
Shift to Cage-Free Egg Production
To meet this demand, retailers have committed to only selling cage-free eggs, including Walmart, which plans to do so by 2025. The industry estimates that converting from conventional to cage-free egg production costs approximately $45 per bird.
This number may be closer to $50 or $55 per bird in recent years, with a base of 325 million hens, indicating a significant investment of billions of dollars from an industry perspective.
Impact of Economic and Environmental Factors
In California, where Proposition 12 went into effect in 2022, the wholesale price of eggs in 2020 was only $0.08 per dozen. However, high feed prices have significantly affected margins, as corn is a massive ingredient for feed and a substantial cost of production.
The industry is also sensitive to macroeconomic indicators such as inflation and energy prices, as running barns is energy-intensive. In addition, the industry is vulnerable to avian flu, regulation changes, geopolitical tensions, pandemics, and supply chain disruptions, which can impact the price of eggs.
Outlook for the Industry
Cal-Maine Foods stated that it has worked to build a business model that can effectively deal with the industry’s inherent volatility while creating value for customers, shareholders, team members, and communities.
The industry is expected to experience 1.2% revenue growth in the next few years due to steady uptick in egg prices, per capita egg consumption, and demand from chicken egg production. However, economic or environmental factors can change the outlook, and the recent influx of conventional white eggs in the market poses a risk to pricing.
Conclusion
The egg industry has experienced a turbulent couple of years, with the avian flu wiping out more than 58 million birds, affecting everyone from the producer to the consumer. The pricing of eggs has been affected by the recent economic and environmental factors, and experts are closely watching the industry’s outlook. However, experts are not worried about the industry’s future, and they believe that it will be just fine, as the industry is in transition, and it is not terrible.
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