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News and analysis on the global poultry
and animal feed industries.
Don-Bell
The full impact of increases in feed cost was not recorded in the first quarter since there was considerable carry-over stock and some producers had hedged their purchases.
on August 7, 2008

Bell reflects on future trends, feed prices, animal welfare

The full impact of increases in feed cost was not recorded in the first quarter since there was considerable carry-over stock and some producers had hedged their purchases.

Egg Industry (EI): What are the current challenges facing the U.S. egg industry?

Don Bell: Maintaining profitability is perhaps the biggest challenge, especially in the face of unprecedented increases in feed cost. This is mainly due to diversion of corn to ethanol. Welfare is also a consideration as evidenced by impending ballot initiatives in California, my home state. Environmental regulations are unwieldy, frequently vague and require significant capital and operating expenditure.

EI: You have performed a valuable service over the years in providing regular statistical and economic reports. Will this work continue after your retirement?

DB: An Economic Research Center has been established at Iowa State University. An initial grant of $2 million from the Iowa Egg Council has been made and it is anticipated that additional funds will be available. I serve on the steering committee and we will shortly meet to recruit and select the first director who will be an agricultural economist with an interest in egg production.

EI: How do you view the development of the industry over the next decade?

DB: There will have to be more consolidation. There are just too many companies in competition. Differences in profitability among companies due to structure, size and location creates competitive advantages, which may be destructive over the short or intermediate term due to injudicious expansion. It is inevitable that too many hens will impact revenue. Profitability must ultimately determine the size of the industry.

EI: What are your views on future trends in marketing?

DB: There will be a limit to expansion in specialty eggs. The differential in cost between generics and eggs with special attributes will restrain consumption. I do not believe that exports of shell eggs will be a significant factor, possibly accounting for only 2 percent of sales at most. Consolidation will allow the larger companies to negotiate more forcefully with the large supermarkets. Currently, two chains represent 33 percent of all food purchased in the United States. We are seeing innovative packing of eggs to cater for larger units of purchase.

EI: Your monthly reports have shown an increase in production cost from 62 to 70 cents per dozen this year. Please comment on the causes and future trends.

DB: The major reason for the increase has been the escalation in grain prices due mainly to diversion of corn to ethanol. This has narrowed margins. The full impact of increases in feed cost was not recorded in the first quarter since there was considerable carry-over stock and some producers had hedged their purchases. The inflationary effect was clear in the second quarter and will increasingly erode profit for the rest of 2008. Some benefit has been obtained from using feed additive enzymes, which improve nutrient quality and can lower feed and hens egg costs.

EI: How are we going to train the next generation of poultry managers, health professionals, and plant operators?

DB: We will have to draw on our universities and community colleges. Providing we can offer stable and remunerative career opportunities, we will attract graduates from programs in agriculture, agribusiness, nutrition, food science, veterinary medicine and marketing. The challenge will be to integrate their talents and experience as we see the departure of the "generalists" who established and grew with our industry.

Don Bell can be contacted at Don.Bell@ucr.edu, His website is www.animalscience.ucdavis.edu/extension/avian.

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