Retail Egg Prices Have Room To Rise
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Deflation impacted food retailers’ sales last year, but one major supplier’s difficulties highlight the extent of the challenge.
The nation’s largest egg supplier, Cal-Maine Foods, said sales for its second quarter ended Nov. 26, fell by 54 percent to $253.5 million as it experienced a perfect storm of sorts related to supply and demand. The company reported a net loss of $23 million compared to a profit of $109 million during the comparable period the prior year. For the six month period, sales declined to $493 million from nearly $1.16 billion and the company reported a loss of $53.9 million compared to a profit of $252 million. The performance reflected what Cal-Maine Foods Chairman, President and CEO Dolph Baker characterized as extremely challenging market fundamentals.
“Following the 2015 avian influenza (AI)-related laying hen losses, USDA data shows the egg industry has repopulated farms with laying hen numbers beginning to approach pre-AI levels. However, market demand trends have not kept pace with the higher production levels,” Baker said. “While retail customer demand has been steady, egg export demand has not fully recovered following the aftermath of the AI outbreak. We have also experienced reduced demand for egg products, as many commercial customers reformulated their products to use fewer eggs when prices spiked, and have been slow to resume previous egg usage. Together, these factors have created an oversupply of eggs, and prices have fallen dramatically from the record high levels last year.”
Average selling prices in the second quarter were 51 percent lower than the prior year, but they are not likely to stay there for long. Recent USDA reports show the size of the laying flock of chickens has begun to moderate and Cal-Maine said it has already seen a sharp rise in egg prices since the end of November. Another factor contributing to an eventual price increase is the growth of cage-free eggs where the industry is looking to bring supply online to keep pace with escalating retail demand. Cage-free eggs fall into a segment Cal-Maine calls “specialty eggs” which accounts for 22.4 percent of its business. Specialty egg prices have typically been less volatile than conventional eggs, which proved to be the case in Cal-Maine’s second quarter, as the average selling price for specialty eggs was down 13.2 percent while non-specialty egg prices fell nearly 65 percent.
“We remain focused on expanding our specialty egg business, especially cage-free eggs,” Baker said. “We have made significant investments across our operations to meet anticipated demand, as food service providers, national restaurant chains and major retailers, including our largest customers, have stated objectives to exclusively offer cage-free eggs by future specified dates. While we expect this multi-year conversion will be a disruption for our industry, we believe it provides an opportunity for Cal-Maine Foods, and we are working closely with our customers to achieve a smooth transition.”