Second half of 2008 still looks profitable
But questions loom for 2009.
Virtually everyone in the egg business looked for 2008 to be a good one, and it still will end up being so, although adding up the year, profits won't be quite as rosy as they looked just months ago. The reason why: sky-high feed costs. Even so, egg production will end up being profitable in every month the second half of the year, or nearly so.
The Urner Barry Midwest price quote for May looked likely to average $1.10, near break even, "and prices will likely move up 10 cents to 20 cents from there to November-December," says Bob Pike, vice president and general manager for Braswell Foods, Nashville, N.C.
But Pike is concerned about 2009, as "a 100,000 birds here, a refurbishing there" could add up to an unprofitable industry by the third quarter of next year, possibly earlier. He adds that even the switch to more specialty egg and cage-free egg production will add to total egg production.
One surprise in 2008, Pike says, is that specialty egg consumption is so high in light of the weak economy. "Eggs are still a very affordable protein source compared to chicken, pork, or beef," he says, "and eggs are a comfort food." As for his company, "we're flat" in terms of increasing production, Pike says. "We're settling out."
Prices near 2007 Levels
Prices for the second half of 2008 will be close to last year's, in the view of Dolph Baker, resident of Cal-Maine Foods, Jackson, Miss. "We'll have good profits, but not the record profits like last year," he says, due to skyrocketing grain costs. Baker notes that not much expansion is underway, thus the flock size "is not getting out of control." He adds that even May was profitable, the least profitable month on average. Baker looks for each month in the second half of the year to be profitable.
Expansion at Bay
Two factors are combining to keep expansion at bay, he says: high grain costs and the uncertainty over California's ballet initiative this November on whether caged egg production will be banned. In addition, Baker notes that construction costs for new facilities "have really increased." Agreeing with Pike, he notes that egg demand "has been holding up very well."
Among Baker's largest concerns is the impact animal welfare issues will have on the industry. "They (animal rights groups) have a huge budget and we're an easy target," he says. "If we don't fight it, we'll lose" an important battle, he says. The good news is that the attack against the industry is occurring when egg prices are high, thus it's easier for egg producers to contribute to an effort to counter the activists, he says.
One factor aiding egg prices is a 100 carton export deal to the Far East put together by United States Egg Marketers (USEM) in early May, says Gene Gregory, president and CEO of United Egg Producers (UEP), Atlanta. "This will cut the supply and improve the market," he adds.
Overall, however, Gregory looks for exports in 2008 "to be considerably lower than 2007. There are three key reasons why. One is that as of July 1, eggs shipped into Europe have to be stamped with the company code and how they were produced (from caged or cage-free systems); even if they're used in companies that only use them for breaking. The second is that the weak U.S. dollar has made eggs more expensive to countries with stronger currencies. Lastly, Gregory says, U.S. egg prices are at historically high levels right now.
That said, Gregory notes that egg prices dropped 63 cents since Easter to $1.04 per dozen by May. He thinks the second half of 2008 will be profitable overall with strong egg prices, but due largely to the explosion in grain prices, the possibility exists "of an unprofitable month or two even though I hope that's not the case. As we get into the fall, we anticipate that prices will improve." Skyrocketing grain costs have increased cost of production by 30 cents per dozen, Gregory states.
Producers should be profitable the last quarter of the year if not before, Gregory says. He looks for the flock size in 2008 to average 1 million to 2 million birds more than 2007. Much of what Gregory is seeing is producers who are remodeling with existing buildings rather than putting up new complexes. "We're doing a better job managing supply," he adds.
Like others interviewed for this article, Gregory does not look for major expansion the second half of 2008 because of high grain prices and concern over the possibility of changes in animal welfare rules, even though he believes the industry will win the battle in California. Despite which way the vote goes in California, he says the industry will face more battles over its right to continue with conventional production even though it has succeeded thus far in all state efforts.
Nearly $1.50 by December
In his May price projections, Dr. Don Bell, University of California-Riverside poultry scientist, estimates prices to gradually increase from 119.5 cents per dozen in May (Urner Barry large market quote) to 132.7 cents in September, and dip to 129.6 cents in October. From there, Bell projects, prices will rise to average 149.7 cents per dozen in both November and December. Looking at early 2009, Bell looks for prices to be 137.3 cents per dozen in January, decline to 130.3 cents in February, but increase to 137.3 cents in March of next year.
Bell's data shows that U.S. profits dipped from 62.3 cents per dozen in March to 19.9 cents in April, as both costs rose and egg prices declined. Profits per hen declined from 116.5 cents in March to 36 cents in April.
Wholesale Prices up 51 Percent
USDA-ERS notes in its April Livestock, Dairy, and Poultry Outlook that the wholesale egg price in the New York region averaged $1.59 in first quarter 2008, up 51 percent from first-quarter 2007. The department expected a decline in prices to $1.27 to $1.33 in the second quarter, and "while quite a decline from the first quarter, it is still 41 percent higher than in the same period in 2007.
Over the first two months of 2008, table egg production was 1.05 billion dozen, up 0.5 percent from the previous year. The high prices for eggs over the last two quarters is expected to gradually result in higher table egg production. USDA's forecast for 2008 table egg production was increased by 20 million dozen. The total for 2008 is now 6.49-billion dozen, a 1-percent increase from the previous year.