Avian flu creates losses for some, profits for others

The highly pathogenic avian influenza outbreak in the upper Midwestern U.S. in the spring of 2015 resulted in the loss of over 40 million table egg layers and pullets. Some egg producers, like Rembrandt Foods, the country’s third largest with operations in Minnesota and Northern Iowa, suffered heavy losses from avian flu. For companies like this, the avian influenza outbreak has required depopulation of farms, extensive cleaning and disinfection, lost egg production and employee layoffs.

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The highly pathogenic avian influenza (HPAI) outbreak in the upper Midwestern U.S. in the spring of 2015 resulted in the loss of more than 40 million table egg layers and pullets. Some egg producers -- like Rembrandt Foods, the country’s third largest, with operations in Minnesota and Northern Iowa -- suffered heavy losses from avian flu. For companies like this, the avian influenza outbreak has required depopulation of farms, extensive cleaning and disinfection, lost egg production and employee layoffs. But, for companies that haven’t suffered bird losses, the economic impact of the avian flu outbreak has been positive.

Cal-Maine Foods, the world’s largest egg producer, reported a net profit of $143 million for the fiscal quarter fo 2015 that ended August 29. This profit was earned on reported sales of 258,774,000 dozen eggs, which works out to 55 cents of profit per dozen eggs.

Post Holdings, owners of Michael Foods, just announced the purchase of Willamette Egg Farms for a reported $90 million, or about two-thirds of Cal-Maine’s profit from the previous quarter. The impact of the lost hens from the U.S. layer flock on egg prices and profitability is staggering. Any economics teacher could use this year’s U.S. egg industry data to do a really effective demonstration of supply and demand and price discovery in a free market.

For the three-month period of June, July and August 2015, which roughly matches Cal-Maine’s fiscal quarter, the U.S. table egg layer flock was on average 11 percent smaller in 2015 than during the same period in 2014, and egg production was down around the same amount. Imports of eggs and egg products into the U.S. have helped to mitigate this lost egg production to a small degree, but not enough to keep egg prices from reaching and staying at record highs this summer. The size of the U.S. table egg layer flock is not expected to fully recover until 2017, so the forecast for profitability is good for at least the next 12-15 months. Consumers have not been turned off of eggs by the avian flu outbreak, so demand is still high.

 Look for U.S. egg producers to reinvest some of these profits into improved biosecurity infrastructure, expanded cage-free layer housing and acquisition of other egg producers. 

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