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When Supplies are low Prices are Cracking

by 5m Editor
10 January 2008, at 11:00am

MANHATTAN, US - In his work as a poultry specialist with Kansas State University Research and Extension, Scott Beyer often fields questions about eggs and nutrition, but recently another topic has been popping up.

"Lately, many of the questions I receive are related to the cost of eggs at the grocery store," Beyer said. "Wholesale prices in the fall of 2007 were at least 30 to 40 percent higher than a year earlier."

The average price of large eggs in the Midwest region was $1.48 per dozen on Jan. 4, 2008 -- more than double the average price of 69 cents a year earlier (Jan. 3, 2007), according to the U.S. Department of Agriculture Egg Market News Report.

"Most people assume that higher grain prices are boosting egg prices, but most of the increase is due to supply and demand," Beyer said. "Right now supplies are down, demand is up."

Beyer, who has coached K-State's Poultry Judging Team to two national championships and several reserve championships since 1995, said egg supplies are down for a number of reasons. Producers are working to meet voluntary guidelines to increase cage space, which means fewer hens can be housed in their facilities. Other animal welfare regulations also are increasing the cost of egg production.

In addition, the export market for eggs has been strong as the dollar has remained rather weak, compared to other currencies.

A backlog of stored processed dried eggs has been reduced, and last summer's heat and drought in the southeastern United States reduced egg production and egg size.

"Flock numbers are down as well," said Beyer, "after an Ohio producer closed his farm a couple of years back and a few others reduced flock size to deal with disease issues."

Supplies have also been impacted by alternative production methods. Some producers are turning to free roaming or free range production, which reduces the number of eggs produced by each hen. Others have begun offering value-added eggs, such as eggs with more lutein and omega fat, to improve their nutritional value.

"When eggs are in tight supply," he said, "even small losses due to such changes can result in price swings," he said.

Consumer demand has been strong, Beyer added, citing per capita consumption that has continued a steady increase after decades of decline.

"Eggs were forced to compete with cereal for the breakfast table, as people began to focus on easy-to-prepare items. The association of blood cholesterol levels with heart disease further reduced egg consumption since eggs contain cholesterol in the yolk," he said.

The link between egg consumption and heart disease has been proven untrue, however, the poultry specialist added. In turn, many of the same universities that once published research showing that people should eat fewer eggs are now touting all the nutritional advantages of eggs.

"It's not likely that the prices of eggs that you buy in the supermarket will decline any time soon," Beyer said. "Grain prices have moderated but will probably stay higher than average, due to the use of corn for ethanol. Since corn is about 70 percent of the feed ration for a hen, the price of eggs will be impacted with swings in corn prices."

A weak dollar's impact in other countries should help sustain egg prices for a while, too.

"It's also doubtful that egg supplies will increase any time soon," he said. "In the past when egg prices increased, the highly competitive industry raced to expand by adding more facilities. However, fears about the strength of the economy and higher interest rates mean that producers are reluctant to borrow funds to add facilities. High steel costs have increased building and cage costs, and it can take years to secure the needed building permits to expand a facility."

Regulatory issues add costs as well, Beyer said. Even if a producer were ready, it might take two years to get a new facility ready to pack eggs.

Consumers should be aware that despite the relatively high prices for eggs, this isn't a "get rich" time for producers, the K-State animal scientist said. Higher margins are just helping producers retire debt incurred during the last industry downturn.

Like most agricultural products, the egg sector is cyclical, he said. And, since egg producers do not receive government subsidies, sooner or later the high prices will moderate.

Even at current prices, eggs are still a good nutritional value for most shoppers, Beyer said. Because they are almost 100 percent digestible, eggs remain the standard for measuring the nutritional quality of other foods.

"And on a pound-for-dollar basis, eggs are still one of the best food products for the value of your money in a supermarket," he said.

5m Editor