The potential impact of Proposition 2 and the related AB1437 bill in California remains unknown, but Dolph Baker, chairman, president and CEO of Cal-Maine Foods, is sure of one thing: there will be fewer eggs in California in 2015. Baker, while participating in the Stephens Spring Investment Conference, called the two pieces of California egg legislation the biggest “wild cards” of the egg industry.
Proposition 2 looks to end the use of battery cages for laying hens, while AB1437 requires that all eggs sold in California be raised according to Proposition 2 standards. The U.S. egg industry is poised to have fewer laying hens once the laws are enacted, because Proposition 2 requires fewer birds in the same amount of space. With that in mind, the number of hens “theoretically” could be reduced by as much as one third, Baker said.
Adding to the uncertainty in the egg industry is a federal lawsuit, where the states of Missouri, Alabama, Iowa, Kentucky, Nebraska and Oklahoma aim to overturn AB1437. That suit has not yet been resolved.
However, it won’t be just U.S. producers that will be impacted if and when the laws take effect. Other countries that import eggs into California will also have to comply with the rules, according to Baker.
”California is also an importer of eggs and those eggs again will have to meet the Prop 2 standards. Either those eggs will go to a higher market in California, or they will come back the wrong way -- our way. There is still a lot that’s up in the air, but there will be fewer eggs in California as of January 1 of ’15,” said Baker.
Cal-Maine Foods, the largest egg producer in the United States, presently sells very few eggs in California, Baker said, but the company does see opportunities to do so in the future.
When asked how much the enactment of the two pieces of legislation in California would affect egg prices in that state, Cal-Maine Vice President and Chief Financial Officer Tim Dawson indicated it would be hard to determine. Dawson believes it will largely depend on how many egg producers in California will want to comply with the Proposition 2 standards and stay in the egg business. It will also depend on what egg producers in other states decide to do.
“How many will choose to comply with California standards? If enough producers in the rest of the country take birds out of their cages to comply with the California standards to better supply California, it will help ease the price pressure in California and will also help ease the supply in the rest of the country,” said Dawson.
Baker noted that eggs will always travel to the highest market, and if producers can get more money by selling eggs in California, they “will make adjustments to gather that market.”