Editorial

      

Economic Study Needed for Egg Industry

Apr 7, 2017

    

During the past ten months, the U.S. egg production industry has recorded only one month in which the USDA nest-run price exceeded the cost of production.  The prolonged period of negative margins is attributed to an imbalance between supply and demand.

Given the initiation of Proposition#2 in California followed by HPAI with subsequent re-stocking and resulting fluctuation in wholesale prices from 2014 onwards, it would be appropriate for an economic study to be performed to determine the responsiveness of wholesale prices to supply.  During late 2014 prices were influenced by the projected introduction of California Proposition #2. 

  

In spring 2015 production, especially in the liquid segment was impacted by the advent of H5N2 highly pathogenic avian influenza. The result of depopulation persisted through the remainder of 2015 and early 2016. Replacement of flocks was followed by a sharp decline in prices as supply from an expanding national population of hens increased.

An economist would find considerable challenge in characterizing the egg market and specifically relating domestic shell egg and liquid production, exports and imports especially in times of shortage and oversupply.

From the profound fluctuation in supply and hence price, an economic study with derivation of appropriate models could provide valuable information on the relationship between numbers of hens, diversion of eggs to either the shell or liquid segments of the industry and the effects of exports and imports.  Predictive models could guide producers in investment decisions especially in view of the intended transition from conventional cages to alternative systems which will require investments in excess of $40 per hen for new buildings and equipment or proportionately less for conversions.

Events during the past three years represent an opportunity to analyze extremes in production and prices to develop economic models to guide future decisions.  It is suggested that USPOULTRY should consider requesting proposals to undertake a comprehensive economic study since the future expansion and profitability of the egg industry depends on decisions based on accurate forward projections and the effect of production volume in the various sectors on prices.