Economists say that the cure for low prices is low prices. If the price for eggs or widgets gets low enough for long enough, producers will reduce output and, eventually, prices will rise. At the present time, egg prices are not high enough to cover costs and, as we all know, the major culprit is high feed costs.
Analysts, who make a living looking at grain prices, have concluded that $6 per bushel corn is likely to be with us through at least the 2012 harvest. If feed costs are not coming down, then egg prices need to go up and stay up in order for the egg industry to return to profitability. The surest way to get prices up is to reduce supply. Since egg prices are relatively inelastic, a small reduction in supply can result in a significant change in price.
Production cutbacks are always great in the third person, as in the other guy cut production. No one enjoys cutting their own production, but it is a dangerous game to assume that the other guys will cut back when you haven’t. When corn futures for July delivery were hovering around $7.50 per bushel did you feel secure that you would get a price for your eggs that could cover costs in July? Have you made plans to cull flocks earlier?
Each producer needs to make decisions based on their own unique financial situation. When grain prices peaked in the summer of 2008 most broiler and turkey producers in the U.S. reduced placements. Some cutbacks were made by choice and others were made by the banks. It is not good for business when your banker decides how many birds you are going to have.
I hope that each egg producer carefully considers the impact that prolonged $6 corn prices will have on their bottom line, because the fall of next year is a long time from now.