Poultry markets in chaos

by Ron Sterk
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Highly pathogenic avian influenza has been detected in flocks totaling more than 33 million commercial poultry.

As of May 14, highly pathogenic avian influenza had been detected in flocks totaling more than 33 million commercial poultry — mainly chickens and turkeys — since it hit the key Midwest production region in early March. Incinerators are being shipped to the Midwest from other states to dispose of dead and euthanized birds. The situation is unprecedented in U.S. agriculture, and the poultry industry, especially the egg products market, is in chaos.

“At the point of print, the industry has lost approximately 22 million laying hens, which represents a little over 7% of the national flock,” said Maro Ibarburu, associate scientist and business analyst, in a special report dated May 8 from the Egg Industry Center (E.I.C.) at Iowa State University. “This results in a significant reduction in the egg supply and perhaps the largest short-term change the U.S. egg market has ever experienced.”

The brunt of the impact of A.I. on eggs has been in Iowa, the nation’s largest egg producing state and the largest supplier of eggs for processing (versus graded eggs sold at retail). It was estimated about 40% of Iowa’s 58 million egg laying hens had been or will be culled due to A.I. as of last week.

“Grocery stores in some areas already have signs up notifying customers of short supplies and prices are beginning to climb,” one news service said last week.

Mr. Ibarburu said, “It is simply too early to project the effect on egg price under a major A.I. outbreak situation like this. There is no way to predict where a price change will occur along the chain of production and if that change will be passed on to consumers. There are so many variables in the marketplace that the retail egg price and eggs available have a very loose correlation when trying to project egg prices.”

While the price of graded eggs at retail may be the last to be affected, breaking egg prices used by processors have soared the past two to three weeks. Traders said prices quoted by Urner Barry, the nation’s primary private poultry and egg pricing source, were rising daily. Egg prices reported by the U.S. Department of Agriculture also were increasing daily.

Egg prices reported by the U.S. Department of Agriculture also were increasing daily.

Prices of breaking stock eggs and some egg products have nearly doubled since mid-April, and prices for all products have increased sharply. (See Egg Products in the Ingredient Markets section, Page 64.)

And price isn’t even the main issue.

“The challenge now is supply,” said an egg processor. He noted that liquid egg users will be the hardest hit because liquid products have a shelf life of only five to seven days, while frozen and dried products can be stored much longer.

A broker in Texas said he was told some suppliers could provide only 25% of the liquid eggs bought by a user in the previous 90 days. One supplier updated its weekly pricing sheet at midweek last week with increases of about 5% to 15% for dried egg products, he said.

“You can hear the hurt in the voice of buyers,” an egg processor said of food manufacturers searching for egg product supplies.

While egg substitutes exist and some reformulation likely will occur, they cannot be used in all applications, such as mayonnaise, for which eggs are part of the “standard of identity,” the processor said. As with other aspects of the rapidly evolving situation, it’s difficult if not impossible to quantify the impact on food manufacturers at this time.

While the U.S.D.A. compensates poultry producers for losses as a way to encourage reporting of A.I., it still is the producer who is taking the brunt of the impact with several losing flocks in excess of 1 million chickens and one totaling 5.7 million in Iowa. As of April 14, there were 158 detections of A.I. in 15 states, including  142 in commercial flocks and 16 in “backyard” flocks, of which 111 were turkeys, 30 were chickens and the remainder were other poultry or mixed flocks. About 27.5 million chickens died or will be culled and 5.7 million turkeys, as of last week. Those numbers comprise about 9% of the nation’s laying flock and about 2% of U.S. turkeys.

What may be frightening is the United States is considered to have the “strongest A.I. surveillance program in the world,” according to the U.S.D.A.’s Animal and Plant Health Inspection Service, which is working with state agencies, universities, associations and private industry to combat the virus. Once A.I. has been detected, response includes quarantine, eradication, monitoring, disinfecting and testing.

The spread of the disease should show this summer as the virus cannot survive above certain temperatures, although there seems to be some debate about what that temperature is. One industry source said it could take up to five months to store the chicken population once the virus is under control. While it’s not known when that control will occur, he noted that period may coincide with the migration of wild birds back south, which may start the cycle all over again.

There are two types of A.I. — low pathogenic (L.P.A.I.) and highly pathogenic (H.P.A.I.), and several iterations of those as the virus may mutate rapidly, the U.S.D.A. said. L.P.A.I. is common and typically not a serious threat to poultry or humans, although it has been known to mutate to H.P.A.I.

There are several strains of H.P.A.I., and three (H5N2, H5N8 and H5N1) have been detected in the current outbreak. A.I. spreads rapidly and can mutate quickly. The spread has followed migratory bird routes known as the Pacific, Central and Mississippi flyways. It was first detected last December in the Pacific Northwest. While the U.S. strains contain part of the Asian strains, which were transmitted to humans, the U.S.D.A. is quick to note they are “not the same virus as the H5N1 virus found in Asia, Europe and Africa that has caused some human illness.”

The strains prevalent in the United States have never been transmitted from birds, eggs or products to humans, and high heat, used in pasteurizing of egg products, will kill the virus. The threat to humans was deemed low by the Centers for Disease Control and Prevention. But on a more somber note, one egg industry source offered a word of caution, noting the tendency of A.I. to quickly mutate.

There have been three prior outbreaks of H.P.A.I. in the United States (1924, 1983 and 2004). The 1983 outbreak resulted in the loss of 17 million birds in the Northeast and caused retail egg prices to rise 12%, Mr. Ibarburu said, adding that “the market of the 1980s is not the market of 2015.”

The current outbreak of H.P.A.I. is by far the worst in numbers of birds affected.

As great as the impact may be on the egg products market, it may be even worse on the
turkey industry. The largest number of cases to date has been detected in Minnesota, the nation’s largest turkey producing state. It is assumed turkey supplies will be tight this Thanksgiving. But like the egg situation, it’s too early to forecast what the final impact will be.

The impact of A.I. goes well beyond direct chicken, egg and turkey markets. The reduction in flocks reduces feed demand, especially for corn and soybean meal. Poultry, egg and egg product exports are affected. Three countries have banned all shipments so far and others have restricted shipments from infected areas. The impact on food processors has been noted, and the final impact on consumers is yet to be seen.
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