Cal-Maine reports imbalance of cage and cage-free eggs

Executives from Cal-Maine Foods presented at the Stephens 2021 Annual Investment Conference on December 2 and discussed the company’s financial results and the uncertain market situation facing all U.S. egg producers.

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Automatic egg sorting process at the poultry farm, sunset, production
Automatic egg sorting process at the poultry farm, sunset, production
Chaser223 | BigStock.com

Executives from Cal-Maine Foods presented at the Stephens 2021 Annual Investment Conference on December 2 and discussed the company’s financial results and the uncertain market situation facing all U.S. egg producers.

After the company’s first fiscal quarter, it holds approximately 19% of the U.S. retail market share and 40.8 million layers, 12% of the US layer market share. In fiscal 2021, it generated $1.3 billion in sales, 1.1 billion dozen eggs and 64 million pounds of egg products. However, the last few years have presented challenges that affect not only Cal-Maine, but the entire egg industry.

The imbalance

“Big business continues to be a challenge. It’s been a tough three years. Our company and the industry experienced exceptional retail demand in 2020,” stated Dolph Baker, chairman and chief executive officer.

He continued to explain that the IRI reported a retail demand increase of about 10% since 2019 due to a larger number of meals being prepared at home. The increase the industry has seen in food service and hospitality demand greatly offset the retail demand, causing a supply and demand imbalance.

However, a drop in retail demand occurred this year due to cooking fatigue and the ability to dine out again as well as higher feed, labor, packaging and delivery costs.

“Demand uncertainty and higher costs are not sustainable. The industry balance sheets are bruised,” Baker stated.

Will California firm up the supply and demand situation?

According to the company, there are more cage-free eggs available than demand today due to customers converting in advance of the demand. However, because converting to cage-free takes multiple years, it must start now for retailers to meet 100% cage-free pledges. 

“We have all the national retailers that came out years ago with pledge to go to 100% cage free. We have legislation in different states. Starting January 1st all eggs sold and produced in California have to be from cage-free production,” he stated. 

“Producers that went ahead and started converting caused too many cage-free eggs and they've had to be down packed into commodity conventional eggs. Hopefully, California over the next few weeks as they convert will clean up some of these eggs. We have other states following suit through 2026.”

However, there is only so much preparation that companies can commit to due to the unproportionate balance sheet and the price of converting, according to Baker.

“It's $45 average, per bird to convert. If all those that have committed plus all the states that have legislation convert, you're talking about the industry having to spend over $6 billion and I don't see how that can happen.”

Mergers and acquisitions

“Historically Cal-Maine has grown mostly through acquisition since going public in 1996,” stated Max Bowman Vice President, Chief Financial Officer, Treasurer, Secretary and Director.

While Cal-Maine has multiple cage-free expansions in process, Baker made clear that there are very few cage-free facilities for sale right now but believes there will be more. “Most of these companies that have called (to sell their farms), there’s generational turnover in their families. The capital requirements to go cage-free are big. I think there will be additional opportunities (to buy).”

As the company has moved towards producing more cage-free and other premium eggs, facilities have had to be built to accommodate those needs. “We're completing a project in Delta, Utah, just in time for California,” stated Bowman. Other cage-free projects include expansion in Guthrie, Kentucky and Okeechobee, Florida

“A new product company that we're getting off the ground is Meadow Creek. We hope to be up and running about late spring.” 

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