Escalating ingredient prices remain leading challenge to profitability
Layer feed increased to $291 per ton across the six-regions
Maro Ibarburu, program manager for the Egg Industry Center, located at Iowa State University, released the January-February Statistical Report on March 8, 2011, which was prepared in collaboration with Don Bell of the University of California at Riverside.
The outstanding factor influencing profitability in our industry continues to be the precipitous increase in the price of corn. In February, layer feed increased to $291 per ton across the six regions surveyed by the USDA. This is a 47.5% increase over February 2010. The escalation in corn price can be attributed directly to ethanol diversion with increased demand from China, India and some other nations contributing to the undesirable situation.
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:
- The U.S. estimated (6-Region) cost of production for February 2011 was 77.9 cents per dozen ex farm, which is 3.6 cents per dozen or 4.8% more than in January 2011. The range in production cost among regions extended from 73.32 cents per dozen in the Midwest to 81.32 cents per dozen in the South Atlantic. This value was fractionally higher than for California at 81.25 cents per dozen.
- The negative margin represented by “income minus cost” for February 2011 moderated to almost breakeven at -0.3 cents per dozen compared to -8.3 cents per dozen in January 2011 and 19.2 cents per dozen in February 2010. For 2011, the average margin during the first two months amounted to -4.3 cents per dozen compared to a positive value of 25.0 cents per dozen for the first two months of 2010.
- In evaluating the virtual breakeven margin for February it was noted that average feed cost for the six regions was 52.7 cents per dozen, with pullet depreciation at 10.5 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 2010. It is evident that escalation in ingredient prices will be the most significant challenge to attaining profitability in 2011.
- In February 2011 producers experienced an ex-farm loss of -0.3 cents per dozen corresponding to -0.5 cents per hen housed based on current monthly costs and revenue. During 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, increased by 2.4% to 76.3 cents per dozen for February compared to 74.5 cents per dozen in January 2011. The 2011 cumulative simple average UB price for the first two months of 2011 was 75.4 cents per dozen. The range over the six reported regions for February 2011 was 74.6 cents per dozen for the Northeast to 79.2 cents per dozen for the Southeast.
- The USDA-AMS determined an ex-farm price of 80.9 cents per dozen for February 2011 compared to 80.4 cents per dozen in January. Corresponding warehouse/distribution center and store delivery prices in February 2011were 99.1 cents per dozen and 104.6 cents per dozen respectively which was approximately 1% lower than the previous month. The farm-to-store spread was 23.68 cents per dozen which was 6% lower than the value of 25.23 cents per dozen for the previous month. Average ex-farm price for 2010 was 76.8 cents per dozen which is 6.2% higher than in 2009.
- In reviewing retail prices for table eggs, the Bureau of Labor Statistics and the Department of Commerce estimated a January 2011 average of 180.6 cents per dozen. The simple average retail egg price for 2010 was 166.4 cents per dozen.
- The Large-to-Medium grade white-egg price spread over six regions was 12.6 cents per dozen in February compared to 15.1 cents per dozen in January with an average spread of 22.8 cents per dozen during 2010. Regional spreads in February ranged from 10.8 cents per dozen in the Northeast and the Midwest to 15.8 cents per dozen in the South Central Region. The average spread for the six regions was 47% indicating a return to the high differentials during the immediate months in 2010 following the SE recall.
- During February 2011, layer feed averaged $291.20 per ton, which is 4.5% higher than the $278.40 per ton average based on six regions during January 2010. During February the price range among regions was $264.00 per ton in the Midwest rising to $308.40 per ton in the Southeast, exceeding California at $307.00/ton. The differential of $44.40 per ton is equivalent to approximately 7.7cents per dozen applying realistic industry production parameters.
- In February 2011 there were 39.7 million table egg-strain eggs in incubators. During 2010, the volume of eggs under incubation remained almost constant at an average of 38.73 million with a range of 33.4 million in August to 42.9 million in April 2010. The average number of eggs in incubators during the first two months of both 2010 and 2011 remained at similar levels demonstrating prudence in expansion.
- Pullet chicks hatched in February 2011 attained 20.7 million compared to a monthly average of 20.5 million chicks during 2010.
- Projections for pullets to be housed in future months based on the five months-previous hatch and incorporating a 5% mortality factor, included 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. The projected total for January to June 2011 will be 106.8 million pullets, which is 3.9% higher than the corresponding 6-months of 2010.
- For January 2011, the USDA-NASS estimated the national flock at 282.9 million hens, which was 2.3% lower than in December 2010. Applying the University of California model based on USDA-NASS data for chickens and eggs, it is estimated that the February 2011 flock would attain 283.5 million hens, rising to 289.1 million in December 2011, with a low value of 282.7 million hens in May 2011.
- As at the end of January 2011, 22.5% of the national flock was over 72 weeks of age. The seasonal pattern of an increase in molted flocks from October through December was different during the third quarter of 2010. In 2009 the proportion of second-cycle hens in the national flock was 24.7% (31.1% in 2009) compared to a range of 22.1% to 22.4% for the period September to November. For 2010, an average of 23.4% of the national flock had been molted compared to 24.8% during the corresponding period in 2009.
- Six regions reported a simple average of 24.3% molted hens in February 2011 virtually unchanged from January 2011. The actual proportion of molted hens in the U.S. varies widely, from 11.3% in the Northeast to 34.5% 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.
- During January 2011, USDA-FSIS data indicated that 5.9 million hens were processed compared to 5.6 million in December 2010. The FSIS value does not take into account any depleted flocks which are buried, rendered or shipped to Canada.
- The University of California projected an UB Large Midwest price of 103.5 cents/dozen for February 2011, compared to an actual value of 114.5 cents per dozen. The lowest projection for 2011 is now 92.3 cents per dozen in May with a November/December price forecast of 120 cents per dozen. Projections are 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 January 2011, the top six egg-producing states with 161.34 million hens represented 57.6% of the total of 279.9 million hens in flocks above 30,000 hens as recorded by the USDA. In descending order these states are Iowa [18.8% of total], Ohio [10.0%], Indiana [8.2%], Pennsylvania [8.6%], California [6.9%], and Texas [5.0%]. States reporting to the USDA-NASS represent 98.4% of all hens producing table eggs.
- The rate of lay for January 2011 attained 75.6%. This is 2.3% lower than in December 2010 during which an average of 77.4% was recorded. The rates of lay for January 2010 and 2011 were identical. Average rate of lay is a function of weighted flock age and is also influenced by climatic conditions.
- During January 2011, 5,668 million cases of eggs were broken under Federal inspection, which is 3.7% lower than in December 2010. The peak month of September 2010 (6582 million cases) followed the diversion of eggs from flocks infected with SE. In 2010 breaking was up by 3.9% over 2009. For January 2011, 30.3% of the 18.74 million cases produced were broken compared to 31.6% for 2010. 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 30.8% in 2009.
- For the last quarter of 2010, 17.224 million cases were broken compared to 16.397 during the same period in 2009. The difference of 0.827 million cases over the 4th Quarter of 2010 represented the output of an average of 4.2 million hens in production which were presumably infected with SE, requiring diversion to breaking.
- The revised egg consumption value for 2011 estimated by the USDA-ERS is 245.2 per capita, which is 1 egg or 0.45% lower than the consumption value of 246.2 eggs per capita recorded in 2010. Over the past seven years the highest per capita consumption amounting to 257.8 eggs occurred in 2006. The efforts of the American Egg Board in mounting a positive campaign promoting egg consumption contributed to maintaining projected consumption during the fourth quarter of 2010 although uptake was markedly depressed in September and part of October as a result of the SE-recall. It remains to be seen whether the press releases and promotional campaign will enhance consumption now that the AEB and the USDA have adopted the revised cholesterol content for generic eggs.
- During calendar 2010 the USDA-FAS recorded exports of 2.47 million cases of shell eggs representing approximately 1.1% of U.S. production. Major importers during 2010 were Hong Kong/PRC at 40.5% and Canada taking 29.3% of shipments. Shell eggs represented 35.8% of total exports to date.
- Combined exports of shell eggs and egg products expressed as “shell-egg equivalents” attained 6,869,000 cases for 2010, representing 3.2% of U.S. production. Major importers of egg products during 2010 were Japan (23.3%), Germany (18.6%), Canada (12.9%), S. Korea (5.7%) and Mexico (4.9%).