Industry returning to traditional seasonal prices

Maro Ibarburu, program manager for the Egg Industry Center located at Iowa State released the November-December Statistical Report on January 9, 2011, which was prepared in collaboration with Don Bell of the University of California at Riverside.

It is evident that the industry is returning to traditional seasonal prices with the post-Christmas decline evident. The volume of shell eggs reaching the market may still be restrained by premature depletion of flocks and diversion as a result of 45-week and post-molt confirmation of infection with SE in individual flocks in some operations.

The table below highlights the pattern in commodity egg sales during the four months following the SE-recall. The values reflect the monthly algebraic means for commodity egg sales derived from weekly IRI reports compared with the corresponding months of 2009. The pattern of decreased demand coupled with a rising price denotes a decline in supply attributed to depletion and diversion as noted in previous Egg Industry reviews of monthly statistical reports. 

The current report as distributed by the EIC is summarized for readers of Egg Industry. The major trends over the past month are noted in the statistics and comments below. It is emphasized that data generated using models which are appropriate in times of relative stability loose predictive accuracy during short-term market turmoil.

• The U.S. estimated (6-Region) cost of production for December 2010 was 69.4 cents per dozen ex-farm, which is 1.7 cents per dozen or 2.5% more than in November. The range in production cost among regions extended from 65.5 cents per dozen in the Midwest to 72.9 cents per dozen in the South East. This value was fractionally higher than for California at 72.8 cents per dozen.
• The margin represented by “income minus cost” for December attained 23.1 cents per dozen compared to 34.3 cents per dozen in November and only break even in October. For 2010 the average algebraic margin attained 9.4 cents per dozen compared to 6.7 cents per dozen in 2009.
• In evaluating the breakeven margin for December it was noted that feed cost was 44.4 cents per dozen, with pullet depreciation at 9.8 cents per dozen and other fixed and variable costs amounting to 14.7 cents per dozen, applying the standard EIC cost factors. These values other than the feed and pullet categories remained unchanged through the first ten months of 2010. It is evident that escalation in ingredient prices will be the most significant challenge to attaining profitability in 2011.
• Producers attained a farm profit of 23.1 cents per dozen corresponding to 65.8 cents per hen housed based on December costs and revenue, compared to 34.4 cents per dozen in November, a breakeven situation in October and a loss of -32.7 cents per bird in September. For 2010, ex-farm profit was 9.4 cents per dozen or 232.6 cents per hen.
• The UB simple average producer price for six U.S. regions, assuming 80% large grade eggs, was 96.5 cents per dozen for December compared to 100.2 cents per dozen in November 2010. The 2010 cumulative simple average UB price was 70.2 cents per dozen. The range over the six reported regions was 95.1 cents per dozen for California to 99.8 cents per dozen for the South Central Region.
• The USDA-AMS determined an ex-farm price of 106.7 cents per dozen for December compared to 109.3 cents per dozen in November. Corresponding warehouse/distribution center and store delivery prices were 124.8 cents per dozen and 130.3 cents per dozen respectively, unchanged from November. The farm-to-store spread was 23.67 cents per dozen which was appreciably higher than the value of 20.95 cents per dozen in November. Average ex-farm price for 2010 was 76.8 cents per dozen which is 6.2% higher than in 2009. The farm-to-store delivery spread of 22.5 cents per dozen for 2010 was 1.7% lower than the corresponding value in 2009.
• In reviewing retail prices for table eggs, the Bureau of Labor Statistics and the Department of Commerce estimated a November average of 167.5 cents per dozen, 15.0% lower than the November 2010 value of 145.6 cents per dozen. The simple average retail egg price for the first eleven months of 2010 was 164.8 cents per dozen.
• The Large-to-Medium grade white-egg price spread over six regions was 40.5 cents per dozen in December compared to 36.1 cents per dozen in November with an average spread of 22.8 cents per dozen during 2010. Regional spreads in December ranged from 37.1 cents per dozen in the North East to 43.5 cents per dozen in the South Central Region. The average spread for the six regions was 12.2% comparing November and December 2010. In contrast an exaggerated value of 78.7% was recorded for the October-November comparison.
• During December 2010, layer feed averaged $258.40 per ton, which is 19.1% higher than the $216.60 per ton average based on six regions during 2010. During December the price range among regions was $238.80 per ton in the Midwest rising to $274.40 per ton in California. The differential of $35.60 per ton is equivalent to approximately 6.3 cents per dozen applying realistic industry production parameters.
• During 2010, the volume of commercial-egg strain eggs in incubators remained almost constant at an average of 38.73 million (compared with 36.57 million in 2009) with a range of 33.4 million in August to 42.9 million in April 2010.
• Straight-run hatch for November attained 39.0 million with an average for the first eleven months of 2010 at 41.17 million.
• Projections for pullets to be housed in future months based on the five months-previous hatch and incorporating a 5% mortality factor, includes a range in the increase of 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 2006 to 2010 monthly average was 15.96 million pullets placed each month. April 2011 placement will be 17.6 million, which is 1.1% higher than the 3-month average of 17.8 million for the first quarter of 2011 and 17.2 million for the corresponding quarter in 2010.
• For November 2010, the USDA-NASS estimated the national flock at 281.1 million hens, 2.1 million less than in October 2010. Applying the University of California model based on USDA-NASS data for chickens and eggs, it is estimated that the January 2011 flock will attain 282.9 million hens, rising to 292.6 million in December 2011.
• As at the end of November 2010, 21.7% of the national flock was over 72 weeks of age. The seasonal pattern of an increase in molted flocks from October through December appears to be different during the third quarter of 2010. In 2009 the proportion of second-cycle hens in the national flock was 26.2% (31.1% in 2009) compared to a 21.4 % average for October and November of 2010. This may reflect either the disinclination to molt flocks based on potential return from prevailing egg prices and feed cost. An alternative may be that some flocks are identified as SE positive immediately prior to molt or at resumption of production resulting in depletion, reducing the number of older hens. For the eleven months of 2010 an average of 24.5% of the national flock had been molted compared to 23.7% during the corresponding period in 2009.
• During November 2010, USDA-FSIS data indicated that 4.0 million hens were processed compared to an eleven-month average of 5.6 million hens. The quantity processed in November represents a restoration to the more limited pre-Christmas volume. The FSIS value does not take into account any depleted flocks which are buried, rendered or shipped to Canada.
• Six regions reported a simple average of 24.0% molted hens in December, down 2% from November 2010. The actual proportion of molted hens in the U.S. varies widely, from 9.5% in the North East to 34.0% in California. An average of 23.9% molted hens was recorded in the six-regions during 2010. Differences among regions are attributed to production cost, revenue for eggs and realization value for spent hens.
• According to projections developed by the University of California, the most recent estimate of the National table-egg flock for January 2011 is 282.9 million hens following an actual value of 283.2 million in December 2010. This number is expected to increase steadily to 292.6 million by the end of the year. Given current surveillance programs as mandated by the FDA, national flock size could be trimmed further by depletion following evidence of SE infection or if consumer demand is depressed following any additional recalls. Compensatory increases in flock size by retention of known SE-negative flocks may occur in regions or for specialty products, subject to available capacity including re-caging. Although UB prices during mid-November through early December reverted to pre-recall projections developed mid-year, a depression in price would be expected following any additional identifications of SE. A decline in consumption consequential to adverse publicity would 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 130.6 cents/dozen for January 2011. The latest projection for March 2011 is 129.4 cents per dozen, contingent on current trends in flock depletion and consumer demand. It is reiterated that each 10 cent per dozen difference between forecast and actual UB price is equivalent to $30 million per month over 165 million hens producing generic eggs.
• In November, the top six egg-producing states with 158.57 million hens (157.7 million in October) represented 57.3% of the total of 276.6 million hens in flocks above 30,000 hens as recorded by the USDA. In descending order these states are Iowa [18.7% of total], Ohio [10.1%], Indiana [8.1%], Pennsylvania [8.4%], California [7.0%], and Texas [5.1%]. States reporting to the USDA-NASS, represent 98.4% of all hens producing table eggs.
• The rate of lay for the first eleven months of 2010 attained 76.2%. This is fractionally higher than in 2009 during which an average of 75.7% was recorded. Average rate of lay is a function of weighted flock age and is also influenced by climatic conditions.
• During November 2010, 5,491 million cases of eggs were broken under Federal inspection, which is 6.0% lower than in October but 9% more than in November 2010. For the first eleven months of 2010, egg breaking was up by 3.9% over the corresponding period in 2009. For the year to date, 31.9% of the 198.43 million cases produced were broken compared to 30.8% for the entire year of 2009. It is noted that on a year-to-year basis the proportion of eggs broken has shown a steady decline from the 2005 high of 35.1% to a projected value of 30% for 2010.
• The revised egg consumption value for 2010 is projected by the USDA-ERS to be 246.6 per capita, about 0.45% 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 occurred in 2006. The efforts of the American Egg Board and the UEP in mounting a positive campaign promoting egg consumption and a less aggressive media initiative by the FDA contributed to attaining a projected value of 62.7 eggs per capita for the fourth quarter although consumption was markedly depressed in September and part of October.
• During October 2010 the USDA-FAS recorded exports of 268,000 cases of shell eggs contributing to a ten-month total of 1,997 000 cases representing approximately 1.5% of U.S. production. Major importers during 2010 to date were Hong Kong/PRC at 40.7% and Canada taking 24.9% of shipments. Shell eggs represented 31.2% of total exports to date.
• Combined exports of shell eggs and egg products expressed as “shell-egg equivalents” attained 5,883,100 cases for the first ten months of 2010, representing 3.8% of U.S. production. The cumulative export of egg products was 24% higher in 2010 to date compared to the corresponding period in 2009. Major importers during 2010 were Japan (23.1%), Germany (19.9%), Canada (12.1%), S. Korea (6.1%) and Mexico (4.5%).