Majority says: Hen numbers, shell egg prices to remain steady

Egg production from non-confined systems is not anticipated to increase.

1002 E Isurvey

The 2009 annual survey of the U.S. egg industry was completed by 37 companies including 13 of the top 20 as ranked by hen numbers (Table 1). Collectively the responses represented 176 million layers. Of this total 153 million were company-owned with the remainder under contract.

During the past year respondents added 4.6 million hens of which 85% were housed in new buildings. In the 2008 survey, respondents predicted the addition of 6.9 million hens. The discrepancy suggested that market realities constrained expansion.

For 2010, respondents proposed adding 6 million hens of which 90% will be placed in new buildings. The previous move towards re-caging existing building is apparently slowing.

Hen population in 2010

Most respondents did not anticipate a change in hen numbers during 2010. Approximately 60% of the respondents estimated that hen numbers would remain in the vicinity of 285 million by December 2010. The remainder forecast an increase in the national flock by December. The projections by Don Bell based on a model incorporating pullet placements estimates 283 million hens in December 2010 which is consistent with the opinions of the respondents

Classification of shell egg production

Respondents forecast that nearly 84% of eggs to be produced in 2009 would be generic with 14% of output branded (Figure 1). These figures suggest a shift to generic and away from nutritionally enhanced eggs in comparison to values reflected the 2008 survey.

The most recent company reports from the larger egg producers include comments concerning the incremental contribution from branded and specialty eggs in a market where unit revenue from generics is depressed by lower demand relative to supply. The inconsistency between forecast as reflected in the 2009 survey and current industry trends may be a function of bias inherent in the responders.

Anticipated prices in 2010

There was a general agreement that prices in 2010 for the various categories shown in Figure 2 would be essentially unaltered from 2009. The only exception was an inclination towards a decrease in unit revenue for organic eggs which became apparent during the second half of 2009. Egg price projections by Don Bell confirm the impression of respondents concerning price stability but with the implicit acceptance of seasonality characteristic of the U.S. market.

Segmentation of the U.S. shell egg market

The various segments representing shell egg sales are indicated in Figure 3. Supermarkets represent the largest single component of the distribution chain at 58% of sales. Institutions, including restaurants and food service, are the second largest category at 23%.

Factors influencing the U.S. egg industry

Respondents were asked to rank 11 factors of current concern according to importance ranging from 0 (not important) to 5 (extremely important). The rank scores for the 11 determinants are shown in Figure 4. Consistent with recent voter initiatives and impending legislation, bird welfare was regarded as the most important factor influencing decisions during the coming year. This is effectively an increase compared with the 2008 survey which was conducted before the November ballot for California Proposition 2.

The influence of the regulatory environment increased in 2009, possibly as a result of the initiatives announced by the new Obama administration especially in the areas of the environment, food safety and regulation of the relationship between contractors and integrators.

Compared with the 2008 survey, the cost of feed, packaging and fuel were regarded as less important. This is attributed to the fact that prices of ingredients were lower during 2009, consistent with the decline in the cost of crude oil which is regarded as the major determinant of the price of corn and soybeans.

A concurrent escalation in the price of crude oil and concomitantly the cost of the major feed ingredients may be at variance with the predictions of our respondents. What does emerge from the survey is that the industry is faced with a number of issues all of which can impact profitability and which will require major consideration in both planning and execution to maintain profitability.

Non-confined housing of flocks

During 2009, 40% of the respondents indicated that they operated non-confined flocks suggesting the need to supply a broad range of products to the marketplace. On a hen population basis approximately 55%of non-caged hens are operated by contractors. The proportion of hens in aviaries, which are virtually all owned by companies, increased slightly from 18% in 2008 to 21% for the current survey.

Of the respondents intending to expand into non-confined production in 2010, 56% will erect new housing and 44% will make use of contractors (Figure 5). The location of respondents in the U.S. obviously influences strategy with respect to “cage-free” and organic product. In the Southeast there are still a large number of obsolete broiler breeder houses which are suitable for floor production. Producers are willing to pay contractors an acceptable fee which facilitates production of eggs at a competitive value. In the absence of available contractors, producers have no alternative other than to erect new facilities or to retrofit existing houses with old cages to accommodate flocks on litter.

The proposed requirements for outside access for organic flocks will effectively eliminate large in-line aviary complexes of which at least four are currently in production. If the suggested requirements are adopted these units will be obliged to function as “cage-free” facilities or could produce a new category of product conforming to organic specifications without the USDA seal.

For 2010, 50% of expansion for non-confined systems will comprise aviaries in new buildings. Approximately 25% will be derived from aviary systems retrofitted to existing houses presumably following removal of obsolete conventional cages. Virtually the same proportion of hens will be housed in existing houses with installation of nests, feeding and watering systems and slats. None of the respondents indicated any intention of erecting new houses for egg production on the floor, presumably using either slats, litter or a combination of these installations (Figure 6).

Impact of intended legislation

In the 2009 survey, respondents were asked to predict the effect of welfare-related legislation on the distribution of egg production through 2013. It is evident from Figure 7 that egg production will decrease in California following passage of Proposition 2 in November 2008. Responses suggested that restricted welfare legislation would result in more consolidation in the industry and that egg production would increase in the Midwest. It was not considered likely that egg production would increase in the Southeast. This may reflect lower feed ingredient prices in the Midwest which favors production in that region together with proximity to markets.

Surprisingly respondents did not consider that restrictive welfare legislation would result in an increase in the production of eggs from non-confined systems despite the intention of the welfare organizations promoting restrictions on cage housing. This probably represents a general opinion that individual states such as California and Michigan will ban cages but production will migrate to states in the Midwest where protection is afforded and costs will become strained.

Cooperative marketing

More than half of the respondents (53%) reported participating in either a regional cooperative marketing organization or a franchisee arrangement. Eggland’s Best was noted as the predominant cooperative with a presence in 21 states supported by national promotion and distribution.

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