News and analysis on the global poultry
and animal feed industries.
on February 12, 2007

What the Crystal Ball Foretells

Expect more consolidation, continued challenges on animal welfare and the environment, and high feed costs over the next three to five years.

As egg industry executives look deep into their crystal balls for what is ahead for producers over the next few years, five key trends stand out:

1. Consolidation is set to increase, due, in part to the growth in size of end users who will demand egg companies large enough to serve their needs;

2. An increasing number of egg companies will band together to form cooperatives, both as a way to effectively compete with large egg firms by creating organizations that collectively market, as well as to buy inputs such as Styrofoam in large quantities;

3. Feed costs are expected to remain high, due to ethanol demand for an increasing volume of corn that livestock producers and corn exporters will have to compete against;

4. Animal welfare and environmental challenges will only continue. There is a real possibility that caged production could be outlawed in some states with small numbers of egg producers. Particularly vulnerable will be producers with caged production systems in states that allow measures to be put before citizens in referenda; and

5. On the consumer demand side, the growth in demand for specialty eggs will only continue in the years ahead, and eggs packed with more nutrition and health benefits could well boost consumption among some key population groups.

Cost-Plus Pricing

An additional trend is the move to more cost-plus pricing, says Gene Gregory, president of United Egg Producers, Atlanta. “The retail market doesn’t like wide price swings,” he says. “They don’t mind producers making money, or even a high price, but they don’t like wide swings,” Gregory adds.

Will the egg industry find a way to avoid gyrations between profit and loss? Not likely, in Gregory’s view. “The industry has not proven that it can balance supply and demand,” he says, and it has the ability to boost egg supplies rather quickly that create times of surplus and accompanying low egg prices.

One major issue producers now face is the environment—both from air quality and manure management perspectives—but he is optimistic that the industry will be able to find solutions over the next few years so egg producers can avoid being subject to excessive regulations.

The industry will continue to be challenged on the animal welfare front, Gregory says, noting that three states—New Hampshire, Connecticut, and Arizona, have bills introduced into their legislatures that would ban caged egg production. “This issue is very, very serious, and it is likely that caged production will be banned in some states.” Most likely, he says, would be for bans to occur in liberal states with little or no egg production. “It would be difficult (for such a measure to pass) in Iowa,” he says.

Gregory notes that 25 states have referenda, and it would be easier for opponents of caged production to win on a ballot initiative than in the legislative process, where the egg industry has an opportunity to defend itself. He thinks the strategy of caged layer opponents is to pick off easy states first, then with victories in hand, approach states more difficult for them to succeed in.

On both environmental and animal welfare issues, it’s important for the industry to fund scientific studies to find solutions, and then for the industry to follow scientific guidelines, says Bill Rehm, president of Daybreak Foods, Lake Mills, Wis.

Is the U.S. More Export Competitive?

Coming off two back-to-back export orders by United States Egg Marketers that have played a role in boosting prices, is it possible the United States can become more export competitive in the future? Not likely, Gregory says. “We export less than 2% of production, and I don’t see that changing very much. More countries are setting up barriers all the time.” He adds that the recent sales to Europe occurred, in part, due to the weak U.S. dollar versus the Euro, and the price of products in Europe.

However, Marcus Rust, an owner of Rose Acres Farms, Seymour, Ind., sees the possibility that high-priced grain could make U.S. eggs more competitive in some markets as it may become more cost effective to import the end product than to import grain to feed to chickens.

One issue several industry executives mentioned that will have to be resolved over the next few years is the dramatic increase in the percentage of in-line production on the egg products side that now approaches 50% of the total. The rate of increase cannot continue at recent levels, says Larry Seger, president of Wabash Valley Produce, Dubois, Ind. “You can’t have all table eggs and all eggs for egg products produced in-line,” he says. Seger notes, for example, that over the Christmas holidays, shell egg prices went up, while egg products declined in price.

David Thompson, president of Pearl Valley Eggs, Pearl Valley, Ill., says that at the same time there will be more consolidation in the industry, “people will band together in co-ops and sell products as a group. There is no need for us to be butting heads all the time.” What Thompson doesn’t see a lot of over the next few years “is a lot of expansion. People have been burnt pretty badly over the past few years.” EI

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