California became the first state to impose standards on how laying hens are housed with the full implementation of Proposition 2 on January 1, 2015. At time of press, it was anticipated that millions of hens would be pulled out of cages and taken out of production in some existing flocks so that these flocks could produce in compliance with Proposition 2. If this did in fact happen, then the steady rise in the size of the U.S. table egg layer flock would be halted, at least temporarily.
The number of layers in production in the U.S. has risen in response to strong industry profitability and construction of new facilities in anticipation of Proposition 2, which will require more cage space to house the hens supplying California’s shell egg needs. While no one is sure how the Proposition 2-related lawsuits -- one on appeal and perhaps others waiting in the wings -- will play out, at least egg producers go into the new year with some really positive momentum and solid-looking economic fundamentals in their favor.
Increasing layer numbers
Because of the increase in size in the U.S. layer flock, Mark Jordan, director of poultry and egg services, Informa Economics Inc., said that the per capita egg supply in the U.S. in 2015 will reach its highest point in nearly three decades. He told the audience at Informa’s Annual Oilseed & Grain Trade Summit, in New Orleans, that "the egg industry is in a strong growth mode.”
There was very little decline in layer numbers this summer. Jordan said that, for the first time in a decade, the August 1 layer flock size was above the first-quarter average.
“We see a very solid year-over-year increase for the rest of (2014) and 2015 being larger as well,” he said.
Strong demand for egg products
Demand for eggs in the U.S. was strong in 2014, and it was particularly strong for egg products. Year-to-date through the end of September 2014, the number of eggs broken in the U.S. was up 5.1 percent from 2013. By the end of 2014, a record number of shell eggs were projected to broken in the U.S.
For 2015, Jordan said, “The processing side is going to be huge.” He projected that around 2.75 billion dozen eggs will be broken in the U.S. in 2015, which would be nearly 28 percent higher than the USDA total reported for 2013.
Jordan said that the egg processing industry has benefited from exceptional demand overall, but demand has been particularly strong for egg whites. He said that, in doing a “back-of-the-envelope estimate,” he came up with numbers suggesting that sales of the Egg White Delight breakfast sandwich from McDonald’s utilizes 10 percent of total U.S. egg white production.
Egg exports may decline in 2015
U.S. exports of eggs and egg products reached record heights in 2013, largely due to production shortfalls in Mexico caused by avian influenza. Exports of eggs and egg products from the U.S. to Mexico in 2014 were forecast by Jordan to come in at 1.051 billion shell egg equivalents. Informa projects that U.S. egg exports to Mexico in 2015 will decline by one-third from 2014 levels, to 0.706 billion shell egg equivalents, but will remain well above the historical average. Even with the drop in egg exports to Mexico, Jordan forecast total U.S. egg exports to remain above 5 percent of output in every quarter of 2015 except the first.
Forecasting profitability for 2015
Jordan said that even though demand for eggs tends to be separated somewhat from demand for meat, he believes that some of the strong demand and short supply situation for poultry and red meats may be part of what is fueling increased demand for eggs in the U.S.
For 2015, he said: “We think demand will taper back, but still be fairly strong overall.”
Egg white prices could decline 30-40 percent in 2015 from the current record high levels, according to Jordan. He also said that there could be a decline of shell egg prices of 10 percent in 2015. But, the declines in feed cost should offset declines in egg and egg product prices, so based on numbers Jordan presented, 2015 could be nearly as profitable for egg producers as was 2014. He projected that profit margins for egg processors will still be strongly positive in 2015, but not as high as 2014.
Lower cost rations
The record corn and soybean harvest in the U.S. in fall 2014 has led to dramatic reductions in the cost of rations for layers and pullets, and these lower feed costs will likely remain for all of 2015. Tim Brusnahan, vice president of consulting and principal, Richard A. Brock & Associates Inc., estimated the farm price for corn will be between $3.10-3.70 for the 2014-15 crop year. Speaking at WATTAgNet.com’s Grain and Meat Outlook Webinar, Brusnahan projected that the ending corn stocks for the 2014-15 and 2015-16 crop years will be more than 2 billion bushels. With this 2 billion bushel carryover, he estimated that the farm price for corn will remain well below $4 per bushel through the 2015-16 crop year.
Tom Scott, CEO, Informa Economics Inc., forecast that the farm price per bushel of corn would average $3 per for the 2014-15 crop year and $3.20 in the 2015-16 crop year. He told the audience at Informa’s Global Oilseed & Grain Trade Summit that the carryout of corn from the 2014-15 crop year is expected to be the largest since 2006-07.
Soybean prices expected to fall
Brusnahan estimated that the farm price for soybeans will be between $8.50-10.50 per bushel for the 2014-15 crop year and that bean prices will fall even lower to the $7.50-8.50 range for the 2015-16 crop year. Even with the expected decline in soybean prices, Brusnahan said that expected returns for planting soybeans will be better than for corn, so acreage is expected to shift from corn to soybeans for the 2015-16 crop year.
Scott said Informa estimates the average farm price for soybeans in the 2014-15 crop will come in at $8.80 per bushel. He predicted that the average farm price for a bushel of soybeans will decline to $7.40 for the 2015-16 crop year.
Brusnahan said the end of the “bull market” for crops will likely result in some acreage being pulled out of grain and oilseed production. He said that around a third of crop farmers in five key grain producing states - Minnesota, Nebraska, Indiana, Illinois and Iowa - are either under 35 or over 65. He explained that young farmers (under 35) might not have the capital to make it through bear markets for grain and that older farmers (over 65) may just quit farming rather than try to struggle through a bear market. He said that banks are getting concerned about the potential profitability of grain farmers in 2015.
