Social, economic forces will cause more changes in egg industry
Changes occurring in the U.S. egg industry are likely to accelerate the trend towards larger farms and greater industry consolidation, and may shift farms to the South.
The social and economic environments in the United States are forcing change on the egg industry in some unprecedented ways. Animal welfare considerations, the renewable fuels mandate, and Salmonella control measures will each play major roles in shaping what the future of the American egg industry will look like. While nothing about the future can be known with 100 percent assurance, a logical analysis can give insight into what the expected outcomes will be.
Enriched colony housing
The U.S. egg industry has taken the first steps in a likely transition from traditional cage configurations to enriched colony enclosures. A full transition would roughly double the cubic footage of buildings required to house the current U.S. flock. This transition will probably also make some existing housing prematurely obsolete, because the new enclosures may not fit efficiently in some older buildings.
The capital required to build a new egg farm will increase greatly, and the capital cost per egg produced will increase along with it. Maro Ibarburu-Blanc, economist, Egg Industry Center, said that feed accounted for 60 percent of total cost of egg production in the years 2006-2010, but the feed cost per egg will drop to around 51 percent of the total cost in enriched colony housing because of the higher capital investment per bird.
Because there will be fewer birds per square foot in enriched colony housing as compared to traditional cages, supplemental heat may be required in parts of the Midwest and Northeast in the winter time to maintain air quality and optimum temperature for bird performance. If supplemental heat is needed, then this may provide a comparative advantage to egg producers in the Southern states.
The size of the typical U.S. egg farm in terms of the number of layers housed has been increasing, and larger farms tend to have inline egg packing facilities. Enriched colony farms are scaleable, so a transition to this type of enclosure should not reverse the trend to larger farms. If the industry went to cage-free production, you would expect smaller farm sizes, but with enriched colonies, the farms will continue to have larger houses with more birds.
It is possible that some producers that have relatively small farms, by today’s industry standards, may be unwilling or unable to make the investment to convert their houses.
The rate of consolidation in the egg industry would be expected to accelerate as a result of this housing transition. Ibarburu-Blanc said that medium sized farms, those under a million layers, may get bigger, or cease production, while really small farms may continue producing eggs, but as niche players in things like cage-free or organic production.
Impact of ethanol
The economics of grain purchasing by locale have been changed drastically by the ethanol industry. Places that used to have a negative basis for corn now have ethanol plants and have a basis. Iowa used to have a huge corn surplus and serve as a source of corn for animal feeding operations in many other states, but now because of ethanol production, Iowa has no corn surplus. Egg producers in Midwestern states have less of a comparative advantage for corn cost than they have had at any other time.
Proximity of egg producers to ethanol plants will provide a comparative advantage on the use of DDGS as an alternative feed ingredient. Some research has shown that high quality DDGS, when supplemented with the proper mix of amino acids and enzymes, can be incorporated in layer rations at the 20 percent to 30 percent range and yield significant feed cost savings.
Food safety considerations
Current Salmonella control programs on egg farms put a much higher emphasis on pest control than had been the industry norm in the past. Tighter houses with manure belts will replace existing high-rise and deep pit houses. This transition will occur along with the enriched colony transition. Less outside air needs to be drawn into manure-belt houses to maintain ammonia at the desired low levels in the atmosphere in the house than is the case for deep pit houses. This provides an advantage for producers in the winter time when they are trying to retain bird heat in the house, which will be more critical when fewer birds are housed per square foot.
Salmonella control programs call for the eggs to be diverted to breaking if the flock is found to be SE positive. Ibarburu-Blanc said that the lost revenue for diverting eggs from shell egg to breakers is about $0.10 per dozen. He reports that some producers have told him that this potential loss will accelerate or at least continue the industry’s move away from molting, because a shell egg producer doesn’t want to risk having to keep a flock through a second production cycle once it is Salmonella enteritidis positive.
Egg industry future trends
The expected transition to enriched colony housing, growth of the ethanol industry and enhanced Salmonella control programs present egg producers with a future with higher capital investment cost, higher feed cost and a need to control the environment for the birds more stringently than in the past. These forces, along with others, will likely continue the shift to larger farms and greater industry consolidation. The industry will continue to move to larger farms with inline egg packing and many smaller offline production facilities will either expand or close.
Coupling the impact that ethanol producers have had on increasing the corn basis in the Midwestern states with the possible need for supplemental winter-time heat for layer houses may lead to a shift in future production to Southern states or at least the southern Midwestern states.
Because of the large size of new farms, locating farms may rely more on neighborhood acceptance of animal agriculture and demand for manure than on proximity to the Midwest than has been the case in the past.