Egg recall expected to take toll on prices

Maro Ibarburu, program manager for the Egg Industry Center (EIC) located at Iowa State University, released the July-August Statistical Report on September 15. Unfortunately, the recent egg recall affecting approximately 6 million hens in Iowa has distorted projections of price and hen numbers.

The actual price projections are optimistic in the light of recent events but the seasonal trends are likely to be repeated.
The actual price projections are optimistic in the light of recent events but the seasonal trends are likely to be repeated.

Maro Ibarburu, program manager for the Egg Industry Center (EIC) located at Iowa State University, released the July-August Statistical Report on September 15.

Unfortunately, the recent egg recall affecting approximately 6 million hens in Iowa has distorted projections of price and hen numbers. The announcement of the recall and the magnitude of the event resulted in a short-term soaring in price followed shortly by a precipitous decline as consumers backed away from eggs in response to negative publicity.

The current report as distributed by the EIC is summarized for readers of Egg Industry, but data generated by using models, which are appropriate in times of relative stability, lose validity during short-term turmoil.

  • The U.S. estimated cost of production for August 2010 was 58.2 cents per dozen ex-farm, 0.5 cents per dozen less than the previous month. The range on production costs among regions extended from 53.3 cents per dozen in the Midwest to 62.1 cents per dozen in California.  
  • The margin represented by “income minus cost” for August was 4.2 cents per dozen reversing the negative trend from the past three months. For the first eight months of 2010 the average margin was 9.1 cents per dozen.
  • In evaluating the improved margin for August it was noted that feed cost was 34.7 cents per dozen, with pullet depreciation at 8.7 cents per dozen and other fixed and variable costs of 14.7 cents per dozen, applying the standard cost factors used by the EIC. These values remained unchanged through the first eight months of 2010. Contribution per hen, based on August figures attained 8.1 cents per bird which was an improvement over the -9.3 cents per bird value in July. The cumulative eight-month hen contribution now stands at 136.1 cents per bird.
  • The Urner Barry (UB) simple average price for six U.S. regions, assuming 80% large eggs, was 70.6 cents per dozen for August compared to 51.4 cents per dozen in July 2010. The seven-month simple average UB price was 67.2 cents per dozen.
  • The USDA-AMS determined an ex-farm price of 72.5 cents per dozen for August. Corresponding warehouse/DC and DSD prices were 89.8 and 95.3 cents per dozen respectively.
  • In reviewing retail prices for table eggs, the Bureau of Labor Statistics and the Department of Commerce estimated a July average of 144.1 cents per dozen, 3.5% lower than the June 2010 value of 149.4 cents per dozen but almost equivalent to the 149.4 cents per dozen recorded in July 2009. The simple average retail egg price for the first seven months of 2010 was 167.4 cents per dozen.
  • The large to medium grade white egg price spread over six regions was 27.5 cents in August compared to 22.1 cents per dozen in July with an average of 19.3 cents per dozen for the first eight months of 2010. Regional spreads ranged from 26.1 cents per dozen in the Southeast to 29.3 cents per dozen in the South Central region, a significant narrowing compared to values for July.
  • During August 2010, layer feed averaged $211.80 per ton, which is 4.5% higher than the seven-month average of $202.60 per ton based on six regions. During August the price range among regions was $186.2 per ton in the Midwest rising to $232.20 per ton in California. The differential of $46.00 is equivalent to approximately 8.00 cents per dozen applying realistic industry production parameters.
  • For the first eight months of 2010, commercial-egg strain eggs in incubators has remained almost constant at 38.964 million with a range of 33.4 million in August to 42.9 million in April. The corresponding 2009 value for the first eight months was 36.643 million.
  • Straight run hatch for July attained 38.05 million with an average for the first seven months of 42.2 million.
  • Projections for pullets to be housed in future months based on the five months’ previous hatch and incorporating a 5% mortality factor, include a range in the increase in placements from 15.75 million pullets in April to 21.44 million pullets in September 2010. The 12-month average of 18.21 million pullets per month for 2010 is 5.5% greater (1.0 million pullets) than the 12-month average of 17.26 million per month for 2009. The 2005 to 2009 monthly average was 16.8 million pullets placed each month.
  • For August 2010, the USDA-NASS estimated the national flock at 283.9 million hens, which is 3.8 million more than in July 2010, following historical trends. Applying the University of California model based on USDA-NASS data for chickens and eggs, it is estimated that the December 2010 flock will attain 291.8 million hens This incorporates the assumption of 9% mortality from 20 through 72 weeks of age.
  • As of the end of June 2010, 23.7% of the national flock was over 72 weeks of age. With the exception of March 2010, which was an aberration, the seasonal pattern of a decline in molted flocks from January through April appears to be holding although this may be affected by depletion of SE positive flocks in the Midwest. For the entire year of 2009, an average of 24.7% of the national flock had been molted compared to 31.7% in 2008.
  • Six regions reported a simple average of 24.2% molted hens in August 2010 reflecting all states surveyed by the USDA-NASS. The actual proportion of molted hens in the U.S. varies widely, from 8.9% in the Northeast to 37.3% in California. The eight-month average of 24.2% molted hens in the U.S. flock and differences among regions reflect production costs, revenue for eggs and realization value for spent hens.
  • According to the projections developed by the University of California, the most recent estimate of the national table-egg flock for September 2010 is 283.0 million hens. This number is expected to increase steadily to 291.2 million in December 2010. Given current projections of prices which are functions of supply and demand, flock sizes could be trimmed by depletion especially following evidence of SE infection and if consumer demand does not increase. Compensatory increased retention of known SE-negative flocks may occur in regions or for specialty product subject to available capacity including re-caging. Prolonged depression in price beyond current estimates will inevitably result in a decrease in hen numbers since flocks will be depleted at a rate faster than projected.
  • The University of California projected an UB large Midwest price of 117.3 cents/dozen for September, which is now obviously unattainable. The projections in the 140s for November and December are in question unless there is a marked restoration in consumer demand attaining approximately 120.0. The University of California forecast a post-January fall to 131.7 cents per dozen with April and May 2011 forecast to be 111.3 and 98.0 cents per dozen respectively. The actual price projections are optimistic in the light of recent events but the seasonal trends are likely to be repeated. If the UB price bottomed at the end of the second week in September as is hoped, demand — and  hence, prices — should increase. The prospect for a rise depends on there being no further recalls and the media recognizing and projecting that the problem in Iowa is not a general reflection on the industry.
  • In July, the top six egg-producing states with 159.54 million hens represent 57.8% of the total national flock of 275.94 million hens. In descending order these states are Iowa (19.5% of total), Ohio (9.9%), Indiana (8.3%), Pennsylvania (8.2%), California (6.9%), and Texas (4.8%). States reporting to the USDA-NASS represent 99.1% of all hens producing table eggs.
  • Rate of lay for the first seven months of 2010 attained 76.0%. This is higher than in 2009 during which an average of 75.3% was recorded. The positive difference of 0.7% in production level is equivalent to a daily volume approaching 5,500 cases. Average rate of lay is a function of weighted flock age and is also influenced by climatic conditions. It is noted that summer temperatures in the regions with the highest density of production have been unseasonably high in 2010.
  • During July 2010, 5,977 million cases of eggs were broken under Federal inspection, which is 3.7% less than in June and 2.3% more than in June 2009. For the first seven months of 2010, egg breaking was up by 1.9% over the corresponding period in 2009. For the year to date, 31.4% of the 125.693 million cases produced were broken compared to 30.8% for the entire year of 2009. It is noted that the proportion of eggs broken has steadily declined from the 2005 high of 35.1% to a projected value of 30% for 2010. The proportion of eggs broken in September will be influenced by diversion due to SE in Iowa. Values should remain at a higher level until affected flocks are depleted prematurely as unit breaking revenue has declined precipitously for this class of eggs, rumored to be in the region of 20cents per dozen.
  • The revised egg consumption value for 2010 is projected to be 247.1 per capita, almost 0.3%, lower than the 247.7 eggs per capita recorded in 2009. Over the past seven years the highest per capita consumption of 257.8 eggs was recorded in 2006. Values for the last quarter of 2010, estimated at 63.2 eggs per capita by USDA-ERS may have to be revised downward in response to the adverse publicity associated with the SE recall.
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