2007 shaping up to be strong year for profits
At the time of year when producers typically lose money, they were showing strong profits, even with high feed costs.
In early May, the profit picture for U.S. egg producers was nothing short of phenomenal: the Urner Barry Midwest large price quote was $1.06/dozen, nearly double year-ago levels, and well above the three-year average of 65 cents. At the time of year when producers typically lose money, they were showing strong profits, even with high feed costs.
Why such strong prices? Two key reasons why in the view of Gene Gregory, president and CEO of the United Egg Producers, Atlanta, Ga.:
"The industry did a better job of controlling the supply side, getting rid of more hens and molting more"; and
"We took another export order to be filled."
"The net effect," Gregory says, "is that prices were as high as they've ever been for this time of year." Gregory notes that shell egg producers need about an 85-cent quote to break even with today's feed costs.
Survey: Many Cutting Back
A survey conducted in late April by Egg Industry and Egg Industry Insider (see charts) bears out Gregory's view that producers are cutting back on layer numbers. When asked, "Do you plan to reduce flock numbers between now and the rest of the year," 41.9 percent said yes, with 58.1 percent saying no. Of those who said they would reduce flock numbers, 40.5 percent said by 5 percent to 10 percent; 37.8 percent said by less than 5 percent; while 18.9 percent said they would reduce flock numbers by more than 10 percent.
Of those who said they planned to increase flock numbers by the end of the year, 46.3 percent said yes. Of those, 30.8 percent said they would increase flock numbers by 5 percent to 10 percent; 26.9 percent said by more than 10 percent; and 15.4 percent said by less than 5 percent.
Most producers were optimistic that 2007 profits would best 2006. Asked how they expected the remainder of 2007 profits to compare with 2006, 34.8 percent said higher by 5 percent to 10 percent; 24.2 percent said higher by 10 percent or more; 21.2 percent said no change; 10.6 percent said higher by less than 5 percent; and 9.1 percent expected profits to be lower for the rest of 2007 compared to 2006.
(For a list of other measures producers said they were taking or considering to maximize profits for the remainder of 2007, see sidebar )
Concern Over Corn Prices
In Gregory's view, one important reason why producers have done a better job controlling supply this year than most years is concern over high corn prices driven by the dramatic increase in ethanol use. Another factor, he says, is the uncertainty over exports.
Could the egg industry stay profitable until Labor Day? Gregory thinks that unlikely, and does not look for additional supply cuts. And if producers do not make additional flock reductions, and no additional export orders surfaceand nothing was in the works at presstimeegg prices could crash to the point where producers could be losing money by mid-June. That said, profits as of early May were far in excess of many earlier expectations.