Like many egg companies in 2007, this is not a year of expansion for Midwest Poultry Services, L.P. "Our goal is to keep the flock size where it's at," says Bob Krouse, president of the Mentone, Ind., firm.
While having no growth plans for the near term, longer term, Krouse says that companies like his, one of the nation's top egg companies with 6 million layers, will have to grow to match the needs of expanding customers. But not for a while, and not before some major industry issues are worked out.
Besides Indiana, the company has operations in Illinois, and Ohio, "where the feed markets are," says Krouse, who has been with the company for 24 years.
Animal Welfare Deters Industry Growth
Krouse is optimistic on profits in the near term. "Overall, I think the industry will be profitable over the next three years," he says. One big reason why is animal welfare. He, like others in the industry, are reticent to spend the $2 million to $4 million necessary for a new layer house, not knowing what his customers may demand on how eggs are produced.
Closely related, he says, is the capital outlay Midwest Poultry Services has invested over the past 5 years to increase cage space from 52 sq. in. to 64 sq. in. to meet new United Egg Producers animal welfare guidelines. Such shifts significantly contribute to why there was no surplus in eggs this summer, and strong profits for egg producers nationwide.
A big question surrounding the cage-free issue, Krouse says, is whether the marketplace or animal rights activists determine its outcome, and it's uncertain how customers will ultimately weigh in on the issue. What is certain, he says, is that the issue will keep egg producers cautious.
Market for Eggs Growing
"I think the market for eggs is growing and retailers will let their customers decide. Most will have a selection available. I can't see the 5 percent animal welfare activists denying 95 percent of a good inexpensive protein." He adds that he continues to believe that egg consumption will keep growing, "and that the American Egg Board is doing a good job to accomplish that."
Other issues keeping producers cautious about expanding are regulatory concerns, such as the environment, and current high feed prices coupled with an unknown demand caused by the emerging ethanol market that, he adds, "keeps people on the ropes a little."
It's been harder this time around, Krouse says, "to produce our way out of profitability like we did in 2004." Regarding the strength of egg prices, he continues, "We've been fortunate this year."
Despite Midwest Poultry Service's caution on growth now, its expansion has been impressive since its inception in 1968. The company began with 300,000 layers, created as a business for a feed company that was started in 1875. "Our company has evolved and changed as the egg business has," Krouse states.
Dramatic increases in corn and soybean prices notwithstanding, the company's commodity risk program has remained the same. It buys from local sources wherever possible. "If $2/cwt or $4/cwt, corn still will be 55 percent to 60 percent of the ration cost," explains Krouse.
Industry Needs to Get Creative
The industry, Krouse says, "has taken things about as far as it can on production efficiency. Now we have to get creative and take whatever the next step is." In his view, that includes packaging.
"When you go to the food packaging expo in Chicago, you see a lot that can be adjusted to our industry."