Effect of Feed Costs on Egg Costs

by 5m Editor
30 March 2009, at 12:00am

Dan Cunningham, extension poultry scientist at the University of Georgia, shows how rising feed costs have affected the costs of egg production in the March 2009 issue of the University's <em>Poultry Tips</em>.

In 2002, the United States government encouraged the production of ethanol and other biofuels through a combination of tax benefits and direct subsidies. Since most of the ethanol produced in the United States comes from corn, this programme increased the demands for corn supplies. In 2002, 11 per cent of available US corn was used for ethanol production. However, by 2008, 30 per cent of the US corn crop was used for ethanol production. The increased demand for corn supplies as a result of the diversion of significant amounts of corn for biofuel combined with the increased world demand for feed grains resulted in unprecedented feed price increases beginning in 2006. Table 1 shows the increased costs of important poultry feed ingredients from September 2006 through July 2008.

Table 1. Feed ingredient costs (2006-2008)
September 2006 2.69 182 292
June 2007 4.24 227 352
July 2008 6.92 405 898
Increase (%) 157 122 207

As a result of these increased feed ingredient prices, production cost per dozen for egg producers increased from $0.34 to $0.57 from September 2006 to July 2008 representing a 68 per cent increase (Table 2). During this same period, break-even cost, which includes processing and marketing costs, increased from $0.57 per dozen to $0.80.

Table 2. Effects of feed costs on egg costs (2006-2008)
Feed costs
Production costs
Break-even costs
September 2006 0.19 0.34 0.57
June 2007 0.27 0.43 0.66
July 2008 0.39 0.57 0.80
Increase (%) 105 68 40

The increased production costs related to the increased costs of feed ingredients has had a significant impact on egg producer costs. By October 2006, the increased feed ingredient costs were accounting for an additional $8.4 million monthly to costs of US egg production. By July 2008, the monthly effect of higher feed prices surpassed the $100 million level. The cumulative effect from October 2006 through July 2008 was more than $1.2 billion.

The rise in the demand for corn for ethanol production and soybeans for biodiesel has been an important factor in the increased feed costs experienced by all poultry producers. The increased costs in feed ingredients have resulted in more than $1.2 billion in cumulative costs for egg producers during the past two years. Given the projected mandate for ethanol production, demand for corn is likely to increase in future years. These factors will continue to pressure poultry producers' costs and profitability numbers making feeding efficiencies even more important.

This article is based on data from M. Donohue and D.L. Cunningham. 2009. Effects of grain and oilseed prices on costs of US poultry production. Manuscript submitted to Journal of Applied Poultry Research.

March 2009