Egg product prices rally after months near historical lows

by Ron Sterk
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Ron Sterk

After more than 10 months of stagnant price activity for egg products and low or negative profit margins for many egg producers, the market rocketed skyward in late August and so far in September. The rapid escalation of prices surprised many in the trade, and producers remain cautiously optimistic that the sudden change will have staying power.

Egg and egg product prices were mostly unremarkable for years through the first quarter of 2015, yielding to seasonal trends and swings in production, which can be adjusted quickly for chickens and eggs compared to other live animal production. But that changed when a massive avian influenza outbreak wiped out millions of laying hens in 2015, creating shortages and sending egg and egg product prices to record highs with most prices peaking in August of that year. The industry quickly replenished flocks lost to A.I., a trend that sent egg white prices to then record highs in 2014 waned, the industry added millions of cage-free laying hens, and egg prices swooned for the next 10 to 16 months, hitting historic lows in May 2016.

Egg prices showed no sign of recovery until December 2016, and even then prices remained below breakeven for the next eight months in most cases. Egg products followed a similar path with most prices bottoming in October 2016. But unlike eggs, most dried and frozen egg products showed no signs of life for the next 10 months, until August 2017.

Egg production
A rapid escalation of egg prices has surprised many in the trade, and producers remain cautiously optimistic that the sudden change will have staying power.
 


Since mid- to late-August, breaking stock egg prices have jumped 55% to 96% to near or above breakeven levels. Dried egg products have risen 7% to 45%, except for white, which was unchanged, frozen egg products jumped 16% to 35%, except for white, which was unchanged, and liquid products surged 25% to 114%, including white, up 80%. Liquid product prices tend to follow egg prices more quickly than frozen or dried and also reflect the market for surplus breaking stock to some degree.

Many in the trade were surprised by the rapid run-up in prices, and they question whether the price strength will last. Several factors appear to have converged to bring about the higher prices.

Producers appear to finally be trimming the U.S. laying flock, which by some accounts was more than 20 million birds too large as cage-free flocks were added without a like reduction in conventionally housed hens. At least 10 million birds have been taken out of the conventionally housed laying flock, one source said, and he contends another 10 million need to be taken out to sustain higher prices. The average number of all laying hens during July was 370,935,000, down 1.5% from a peak of 376,570,000 in December 2016 but up 1.7% from July 2016, U.S. Department of Agriculture data indicated.

At the same time, producers continue to add cage-free hens, which, if not countered with a reduction in conventionally housed hens, could again lead to an oversupply of eggs, traders noted. The number of cage-free laying hens totaled 45,800,000 in September, up 22% since the first of the year and up 50% from September 2016, according to the U.S.D.A. (Note that the reduction in total flock size was partially offset by the addition of cage-free layers.)

Domestic demand for egg products also has been good, if not better than expected. The industry lost a chunk of demand to egg replacers (or other products) as the result of high prices and unavailable supplies during the A.I. crises. While it’s believed some of that demand has been permanently lost, some may have come back during the long period of low egg product prices.

Export demand has been mixed but also encouraging. A major outbreak of A.I. in South Korea (and many other parts of the world) failed to generate the increase in exports many expected. More recently, discovery of the banned cleaning agent fipronil in eggs in about 40 countries again has the U.S. industry hoping for a boost in egg and product exports. The fipronil problem appears to have originated in The Netherlands, spread to most of the European Union and now is a world-wide concern, although not an issue in the United States.

While exports may provide a temporary boost in demand, the primary focus is the domestic market, and that largely depends on the number of laying hens since demand tends to be more stable. Processors are waiting to see if the laying flock size can be kept in check so that egg and product prices remain at profitable levels.

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