2005: A year most of us would like to forget
If the price of eggs at the farm level is of importance to you, then 2005 was not very good.
According to Don Bell, it has been one of the worst loss years on record for the egg industry. Despite a small reduction in on-farm costs, some favorable export orders and a small late year-end price increase, the average egg producer lost approximately $1.32 per hen in 2005. These numbers are average nationwide and can vary somewhat by region.
Gene Gregory from the United Egg Producers (UEP), had some thoughts on the pricing situation:
“The tendency is for producers to build additional facilities for more birds. This process only adds more birds to the already over-populated flock, which obviously lowers the price. It is highly recommended that expansion be done through mergers and acquisitions instead of more housing. As in many years past, the good prices enjoyed during the last half of 2003 and the first half of 2004 created some false optimism for the future. The industry increased their flock size to the point where it exceeded demand and lower prices resulted for the entirety of 2005. Over the years it’s been proven that demand does not fluctuate dramatically and cannot sustain the increase in production that occurs when prices are high.”
Gregory sees consolidation on the increase in the future with the possibility of marketing cooperatives being formed that will provide a more manageable working relationship in dealing with supply and demand.
The egg products industry has continued to change during 2005. With approximately 30% of the eggs produced being broken for egg products, USDA reports that about 42% of these eggs are produced on in-line production units. This does not include farms that are producing solely for the egg breaking market. This trend has influenced the shell egg market which can no longer send surplus eggs to the breaker market, and those producers will have to adjust to this change.
With all of these changes, as well as increased fuel and packaging costs, it is doubly important that the price discovery process reflects the true costs from the farm. Some of the increased costs have not been part of the price discovery quotes and as a result the producer has suffered. Gregory warns that this critically important issue needs to be addressed on a regular basis and updated often to insure equitable price discovery.
The animal welfare issue continues to plague the egg industry, as it does for all of animal agriculture. It will not go away in the future, as the activists are well organized and well funded to carry on their agenda. The problem is discussed and the industry is advised at all meetings held during the year about its severity. The European example of inactivity in fighting the animal activists has been brought to the attention of producers many times. This includes the negative results that have come from the inaction and the decline of the egg industry in the affected countries in Europe. This has prompted the UEP and American Egg Board (AEB) to continue their aggressive activities to handle the attacks.
One of the very positive actions has been the United Egg Producers Certified logo which insures that eggs produced under that seal are within the scientific guidelines established by the UEP Scientific Committee. Unfortunately, with low egg prices extending over a long period of time, the UEP Certified program is now in question. Another positive action is the revised molting procedure that has replaced feed withdrawal with a nutrition-based formula method.
There was good news at the end of the year with a spike in egg prices that started at Thanksgiving, and went through the end of the year. Gene Gregory states that now that Urner Barry is reporting prices using the “UEP Certified” production as a criteria, the industry found there was a shortage of these eggs during the high-demand holiday period There was some sell-off of non-UEP Certified eggs, but it did not seem to affect the price of the certified eggs. This is a major plus for the “UEP Certified” program.
For several years the egg industry has been facing challenges from environmental activists, who have now gone from the local and state levels to the Federal Environmental Protection Agency. Chad Gregory at UEP has been devoting a great deal of time lately to these issues. “The EPA is now aggressively addressing both water and air pollution from agricultural operations throughout the country and will be developing rules and regulations that will affect egg farms. In the past, CAFOs were either exempt or simply not significant enough to warrant evaluation regarding air and water quality. This will be changing and the industry needs to be prepared to meet the challenges head-on.”
Gregory has emphasized that the UEP is meeting these challenges and is preparing the egg industry with information and activities that insure they will be ready when the time comes for change. The survival of the producers will depend on their being informed and ready to react to the changes that are coming. Science is the answer, according to Gregory, and UEP is preparing the necessary tools to handle the problem. It is interesting to note that other animal species, which are also affected by the EPA initiatives, are using the UEP methods, in some cases, to address their problems.
The American Egg Board, while helping to finance some of the issues discussed above, continues its good work with the promotion of eggs in many various ways. The advertising program is running well as are the many promotional activities AEB develops. Joanne Ivy, Senior VP at AEB received the “Egg Person of the Year” award at the recent International Egg Commission meeting in Holland. AEB has devoted time and resources in the promotion of egg products, as well as shell eggs, and has presented interesting promotions through advertising and promotional materials to users of egg products. They also work very closely with food manufacturers and chefs to promote the use of eggs.
Every year, Egg Industry magazine conducts a survey of egg producers to find out a little more as to how they are conducting their businesses and some of their thoughts about the future of the industry. Of those producers responding, 49% said they feel the total numbers of birds will remain about the same in 2006. Some 23% say the flock will increase, while 28% feel it will decline. When asked how they felt about the 2006 price situation, 49% of those responding feel prices will remain similar to 2005, 30% feel prices will increase and 8% predict a decrease.
On the liquid-egg side, 43% of respondents think this sector of the industry will increase while 37% feel it will remain the same. Only 11% predict the amount of liquid-eggs will decline. When asked about egg products and further processing, 46% of the respondents feel this sector will increase and 41% see it staying the same.
When asked, 22% of the producers replied that they have increased their production through building expansion while only 3% have expanded through acquisition in 2005. Based on what happened to the industry in 2005, and the recommendation of Gene Gregory, these numbers need to be reversed.
The discussions and the statistics of this report are very similar to the January 2005 Egg Industry account. The industry remains united and the problems and concerns are certainly being addressed. High bird numbers (about 280 million) seem to be the main culprit and the resulting low prices create a weakness in the industry that makes it difficult to cope with multiple ongoing issues. Hopefully the report in January 2007 will be very different and we can continue to see the industry smiling once again.