Major increase in hen numbers anticipated by December
U.S. egg production costs increased mainly due to escalations in feed cost.
U.S. egg production costs increased 15 percent — from 63.9 cents per dozen in January 2008 to 73.22 cents per dozen in June — mainly due to escalation in feed cost. Those costs are part of the latest cost summary, flock size, and egg price estimates issued by University of California-Riverside Poultry Professor Emeritus Don Bell.
At the end of June, corn was quoted at $7/bushel compared to $3.50/bushel in January. Corresponding values for 48 percent soybean meal were $438/ton and $265/ton. It is estimated that for every $1/bushel increase in corn, feed cost increases by 6 cents per dozen due to the concurrent escalation in other ingredients and the impact of pullet depreciation. The full impact of the increases in corn and soybean meal were not reflected in first quarter due to the moderating effect of carry-over stock from 2007 and possible hedging by larger producers.
In reviewing the contribution margin, U.S. producers generated 58 cents per dozen for the first quarter of 2008 but this declined sharply to 14 cents per dozen in the past quarter. The 33 percent decline from $1.24 per dozen for the first quarter to 88.6 cents per dozen in the second quarter combined with the increases in feed cost reduced profitability.
The most disturbing prediction in the July 11 report is the anticipated increase in the number of hens from 280.1 million at the beginning of June to 291.1 million by December. The projection is based on hatch data, mortality pattern, USDA slaughter data and estimates based on 5-year trends.
Bell projects a moderate rise in Urner Barry Midwest Large prices from $1.27 per dozen in June to $1.52 for November and December, followed by a rapid decline from $1.08 in January 2009 to $1.01 in April and a drop to 93 cents by May. Production cost could exceed 75 cents per dozen by January 2009. Some relief may occur in the unlikely event of a reduction in the rate of diversion of corn to ethanol and providing the recent floods do not reduce USDA predictions of yield and total harvest.
Contrast with broiler industry
The broiler industry should maintain prices due to a rational program of reducing output. Two large integrators announced that they have deferred construction of new complexes or other expansion and virtually all companies have announced reductions in output with concurrent shifting of their product mix to heavier birds. Restraint in expansion is possible with an oligopolistic industry segment such as broilers in which the top five producers represent 60 percent of production.
Greatest challenge for egg industry
Maintaining a profitable national hen flock is currently the greatest challenge to the egg industry. Fluctuation in profitability due to cycles of over-supply will inhibit long-term investment. Consolidation and acquisition is inevitable if the industry does not react to the prospect of over-supplying a market dominated by price sensitive consumers.