High-flying egg prices show no sign of cracking
By Matt Andrejczak, MarketWatch
Last update: 12:37 p.m. EDT March 28, 2008
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SAN FRANCISCO (MarketWatch) -- If you haven't shopped for eggs lately, get ready for some sticker-shock: A dozen eggs cost $2 or more in most U.S. cities, up about 45% in just eight months.
And the lofty price tag is likely to stick for the foreseeable future, according to those that track the industry.
Supplies are tight, demand remains strong, and wholesale prices are stubbornly high.
"Normally, we see a decline in prices after the Easter holiday," said economist David Harvey of the U.S. Agriculture Department. "But with the number of birds in the laying flock continuing to be down, we may not see much of a drop."
In the New York area, for instance, the wholesale price for a dozen Grade A eggs is set to average $1.60 for the January-through-March period, up from $1.05 in the same period during 2007, Harvey forecasts.
"Producers are being really responsible, keeping supply in check," said Chad Gregory, senior vice president at United Egg Producers, a national trade group. "So this could last a while."
This is keeping prices high.
For the first quarter of 2008, the average price for one dozen regular eggs was $2.16, up 55 cents compared to the prior quarter. The average price for "cage-free" eggs increased 23 cents to $3.00 per dozen, according to the American Farm Bureau Federation.
The farm group based its informal survey on 76 volunteer shoppers in 32 states.
Driving up egg prices are much-higher costs for corns and soybeans.
These feed-grains account for more than 50% of what it costs to produce a raw egg. In the past year, feed costs have shot up 15 cents to 20 cents per dozen eggs, said Gregory of United Egg.
Now, the break-even cost for an egg producer in the Midwest is 90 to 95 cents per dozen eggs, up from 70 cents a year ago, he said.
Such costs are keeping a lid on the available supply of eggs. In the past, egg producers have been known to boost supply too quickly to cash in on attractive wholesale prices.
However, "that's not happening right now," said John Langston, senior analyst at Hodges Capital Management, which owns Cal-Maine stock. "People are scared to jump in."
The egg industry is largely comprised of private producers, about 60 of which operate egg-making chicken flocks numbering above a million.
John Davenport, who runs Priority Capital Management, another Cal-Maine shareholder, said the profits may prove too tempting to some egg producers. He suggests supply will increase, but he can't pinpoint when.
"The profits are so high now, it's inevitable," Davenport said.
Another factor keeping egg prices high in the grocery store is a decline in the number of chickens that lay eggs: The Agriculture Department estimates the number of egg-producing chickens is 2% below 2007's levels.
Under a voluntary industry-certification program, egg producers have increased bird-cage sizes the past few years, capping the number of chickens per barn. The number of chickens per cage is down to four or five birds, from six or seven, according to Gregory.
Accordingly, a barn that once housed 100,000 chickens may be down to 70,000, he said.
"The overall supply is way down from two to three years ago," Gregory added. End of Story
Matt Andrejczak is a reporter for MarketWatch in San Francisco.
By Matt Andrejczak, MarketWatch
Last update: 12:37 p.m. EDT March 28, 2008
PrintPrint EmailE-mail Subscribe to RSSRSS DisableDisable Live Quotes
SAN FRANCISCO (MarketWatch) -- If you haven't shopped for eggs lately, get ready for some sticker-shock: A dozen eggs cost $2 or more in most U.S. cities, up about 45% in just eight months.
And the lofty price tag is likely to stick for the foreseeable future, according to those that track the industry.
Supplies are tight, demand remains strong, and wholesale prices are stubbornly high.
"Normally, we see a decline in prices after the Easter holiday," said economist David Harvey of the U.S. Agriculture Department. "But with the number of birds in the laying flock continuing to be down, we may not see much of a drop."
In the New York area, for instance, the wholesale price for a dozen Grade A eggs is set to average $1.60 for the January-through-March period, up from $1.05 in the same period during 2007, Harvey forecasts.
"Producers are being really responsible, keeping supply in check," said Chad Gregory, senior vice president at United Egg Producers, a national trade group. "So this could last a while."
This is keeping prices high.
For the first quarter of 2008, the average price for one dozen regular eggs was $2.16, up 55 cents compared to the prior quarter. The average price for "cage-free" eggs increased 23 cents to $3.00 per dozen, according to the American Farm Bureau Federation.
The farm group based its informal survey on 76 volunteer shoppers in 32 states.
Driving up egg prices are much-higher costs for corns and soybeans.
These feed-grains account for more than 50% of what it costs to produce a raw egg. In the past year, feed costs have shot up 15 cents to 20 cents per dozen eggs, said Gregory of United Egg.
Now, the break-even cost for an egg producer in the Midwest is 90 to 95 cents per dozen eggs, up from 70 cents a year ago, he said.
Such costs are keeping a lid on the available supply of eggs. In the past, egg producers have been known to boost supply too quickly to cash in on attractive wholesale prices.
However, "that's not happening right now," said John Langston, senior analyst at Hodges Capital Management, which owns Cal-Maine stock. "People are scared to jump in."
The egg industry is largely comprised of private producers, about 60 of which operate egg-making chicken flocks numbering above a million.
John Davenport, who runs Priority Capital Management, another Cal-Maine shareholder, said the profits may prove too tempting to some egg producers. He suggests supply will increase, but he can't pinpoint when.
"The profits are so high now, it's inevitable," Davenport said.
Another factor keeping egg prices high in the grocery store is a decline in the number of chickens that lay eggs: The Agriculture Department estimates the number of egg-producing chickens is 2% below 2007's levels.
Under a voluntary industry-certification program, egg producers have increased bird-cage sizes the past few years, capping the number of chickens per barn. The number of chickens per cage is down to four or five birds, from six or seven, according to Gregory.
Accordingly, a barn that once housed 100,000 chickens may be down to 70,000, he said.
"The overall supply is way down from two to three years ago," Gregory added. End of Story
Matt Andrejczak is a reporter for MarketWatch in San Francisco.
