KANSAS CITY — Driven in part by a larger U.S. profile for discount European grocery chains and lower everyday prices at some mega-retailers, increased demand for graded eggs has prices on an upward trajectory and puts egg breakers in a bind as they look to retain profitability while competing for eggs to process.

Egg breakers often are reluctant to adjust prices too quickly due to the volatility of shell egg prices. But a run-up in the price of breaking stock eggs has forced some processors to implement steady increases for the dried, frozen and liquid egg products they supply.

Prices of nest run eggs in the week ended March 16 were $1.15 to $1.20 a dozen, a 121% increase since mid-January when prices began to rise. Prices are now more than four times higher than a year ago.

Egg product prices have followed breaking eggs higher, initially for yolks and then for whites. Dried egg yolk increased $1.90 a lb over the last four months of 2017, an 84% increase, before descending, though they remain 66% higher than a year ago. From September to November, frozen yolks rose nearly $1 a lb, a 100% increase.

Egg product prices chartAfter remaining steady for much of that period, egg white prices dipped briefly before beginning weekly increases exceeding other egg product categories. Liquid white prices have more than doubled in 2018. Frozen whites at 75c to 78c a lb in the week ended March 16 were 63% higher than late-January levels. Dried whites were up 95c a lb, or 30%, since Jan. 19 and were up 62% from a year ago.

To meet steadily rising demand, U.S. egg production has increased. Although the U.S. Department of Agriculture lowered its 2018 egg production forecast by 10 million dozen — a 0.1% decrease to 8,935 million dozen — in its latest World Agricultural Supply and Demand Estimates report, the figure still represents a 1.4% increase from a year ago and a 4.2% increase from 2016.

Changes in the retail scene have increased the demand for table eggs, an industry source said. Two German discount grocers have launched rapid expansion plans in the United States.

The more-established chain, Aldi, has had a U.S. presence since 1976, but doubled its U.S. store count since 2002. The 150 locations opened in 2017 bring the total above 1,750. Lidl, a competitor of Aldi in Europe for decades, opened 10 U.S. locations in the summer of 2017. Bringing their rivalry to America had repercussions within larger chains as well. Walmart began cutting prices on staple ingredients, which put pressure on Kroger and other major grocery companies. An increase in grocery locations increased graded egg demand, pulling eggs to retail that might have otherwise gone to egg breakers, according to trade sources.

Egg carton“Featuring eggs as a loss leader to increase foot traffic is not new, but retail chains using everyday low prices to compete for consumers is,” said Richard Broad, vice-president, Bender Goodman Co., Inc. “As a result, there has been an increase in cartoned egg sales this year (per U.S.D.A.).”

Meanwhile, interest in cage-free eggs has increased. But some analysts say cage-free production is getting ahead of the curve, ramping up beyond demand and without taking out a commensurate number of traditionally-housed chickens.

Cage-free flocks could increase this year along the lines of a recent trend. In its March cage-free shell egg report, the U.S.D.A. estimated the cage-free laying flock at 51,857,000. That’s up 4,057,000 layers, or 8.5%, from October. Weekly cage-free egg production of 22,611,810 dozen in the March report is up 1,699,320 dozen, or 8%, from October.

McDonald’s, Taco Bell, Walmart, PepsiCo and numerous other restaurants, retailers and food processors have each made cage-free pledges. In a rush to take advantage of the opportunity to get into new markets, some companies are producing cage-free eggs without contracts in place that would guarantee a premium to traditionally-produced eggs.

But as cage-free egg production now exceeds demand, some companies have adjusted ambitious plans. Cal-Maine Foods committed significant resources to cage-free production but announced in October it was scaling back.

Breakfast sandwiches

“The higher price gap between conventional eggs and specialty eggs has resulted in reduced demand for specialty eggs,” Dolph Baker, chief executive officer of Cal-Maine, explained at the time. “We have adjusted our production levels in line with current customer demand for cage-free eggs, and we are well-positioned to increase our capacity when demand trends change.”

Despite the recent increase in egg and egg product demand, egg replacers continue to claim a larger share of the egg product market than a few years ago, and newer plant-based egg alternatives also are coming on the market. Following the massive U.S. avian influenza outbreak of 2015, many food producers pulled eggs out of formulas due to high prices and short supplies. Even though flocks have recovered and prices have stabilized, many have kept their new formulations.

“I don’t know of many companies that have decided to increase egg usage to the prior, higher levels now that prices have dropped,” Mr. Broad said. “Though driven by price, reducing or eliminating eggs has served for some as an opportunity to address animal welfare issues, sustainability and, in addition, a growing interest in vegan foods.”

Mr. Broad will present an egg market outlook at the annual Sosland Publishing Purchasing Seminar in June.