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AUGUST MARGIN REFLECTS DISPARITY BETWEEN DEMAND AND SUPPLY IMPACTED BY HPAI

  

Sep 4, 2015

    

Comments supplementing the production summary tables for the latest series reflecting August statistics and prices made available by the EIC on September 3rd 2015 are tabulated together with comparison values from the August 7th posting on EGG-CITE.

EGG-CITE documents USDA data on weekly egg production and prices each week concurrent with the recovery from HPAI outbreaks which impacted flocks in Iowa, Nebraska, Wisconsin and Minnesota, producing mainly for the egg-liquid segment of the Industry.

As of July 17th 2015 the USDA-APHIS documented the loss of approximately 38.5 million hens and 3.5 million pullets in 46 cases on layer farms representing 12 percent of all hens in flocks over 30,000 birds and 6 percent of rearing pullets. The loss was disproportionate in the egg-liquid segment of the industry with an estimated 33 percent of the supply flock no longer in production, principally in large in-line breaking complexes. States with confirmed cases in large (over 300,000 hen) egg-producing flocks comprised Iowa (7 complexes); Nebraska (5) Minnesota (3) and South Dakota (1).

The USDA reports data for six regions, respectively comprising the Northeast, South East (Mid-Atlantic), South Central, Midwest, Northwest and California (NW and California combined in some tables)

 

  

The EIC elected to break down costs to 1st and 2nd cycles from May onwards. This has complicated comparisons with previous data which aggregated all egg production irrespective of cycle. There were no outstanding differences in variable costs for 1st and 2nd cycle flocks. Accordingly values have been provided in this report for the first cycle which represents 70 percent of all U.S. output.  

  • The USDA ex farm blended egg price in August 2015 at 204.5 cents per dozen, was 29.3 cents per dozen higher than in July 2015, reflecting the impact of depletions due to HPAI. The August 2015 value should be compared to 85.0 cents per dozen for the corresponding month in 2014.
  • There was a 3.8 percent decrease in feed cost expressed as a component of the first cycle production cost per dozen over the 5-regions monitored by the USDA, attaining 34.7 cents per dozen in August compared to 36.1 cents per dozen in July. Year-to-date feed cost amounted to 34.84 cents per dozen for the first cycle. Taking both cycles into consideration weighted average feed cost (70% first cycle) was calculated to be 35.49 cents per dozen in August. The average feed cost in 2014 was 43.2 cents per dozen. The average monthly feed cost during 2013 was considerably higher at 50.12 cents per dozen reflecting the drought-affected crop of 2012.
  •   Combining data from the USDA and the EIC (formerly the University of California) , producers recorded a positive margin of 141.68 cents per dozen at farm level for first cycle flocks in August 2015 compared to an equivalent value of 67.33 cents per dozen in May 2015 before the onset of mortality. Farm profit for the first eight months of 2015 amounted to a monthly average of 71.83 cents per dozen. For 2014, average ex-farm contribution was 33.9 cents per dozen with all months positive. During 2013, a monthly algebraic average of 15.3 cents per dozen was attained.
  • The simple average price of feed over the 5-regions decreased by 4.0 percent in August compared to July. The August 2015, EIC 5-Region value attained $222.86 per ton. The Southeast recorded the highest cost among regions at $256.60 per ton. The average figure includes ingredients plus milling ($10/ton) and delivery ($3/ton).  A 2.6 percent decrease in the price of soybean meal from $407.48 per ton in July to $396.67 per ton in August contributed to a lower feed cost. The reduction was enhanced by a 6.0 percent decrease in the 5-region average cost of corn from $170.68 per ton in July to $160.44 per ton in August. There was a $54.50 per ton differential in corn price between the Midwest and the Southeast in August. Average feed cost during 2012 was $315.80 per ton compared to $300.80 for 2013.  Average feed cost per dozen during 2014 was 43.1 cents per dozen with an average cost of feed of $259.10 per ton. Feed price will continue to be the major factor driving production cost and hence margin. Each $10 per ton difference in feed cost represents 1.75 cents per dozen.
  • Average total nest-run production cost for both cycles in August 2015 for 6-regions was 63.18 cents per dozen.  Production costs during August ranged from 58.00 cents per dozen in the Midwest up to 78.62 cents per dozen in California which was also higher than the Midwest region by 20.02 cents per dozen. The differential in feed cost between the traditional high (West) and low-cost (Midwest) regions attained 7.4 cents per dozen in August.
  • Retail egg prices as determined by the Department of Commerce for July 2015 averaged 257.0 cents per dozen, unchanged from June but up 60.8 cents per dozen or 31.0 percent from seasonally lower values in May 2015. Shelf prices as determined in June and July  reflected the mortality which commenced in mid-April and the differential between wholesale and retail prices in July was no longer buffered by pre-HPAI inventory. Although mortality was initially confined mainly to in-line breaking complexes the total availability of eggs to meet both shell egg and liquid markets was constrained. The current situation in the supply chain for table eggs is influenced by price with some diversion to breaking. This is reflected in the disparity between total combined demand for liquid and table eggs compared to the production capacity which has been reduced by 10 to 12 percent. When previously the liquid and shell egg markets existed as separate entities with approximately 100 million and 200 million hens in each segment respectively, the  price of shell eggs as driven by post-HPAI demand effectively merged all egg production into a single market. The retail values for commodity eggs at 257.0 cents per dozen in June and July 2015 should be compared with a monthly average of 194.8 cents per dozen in 2014 and 191.0 cents per dozen in 2013.
  • According to USDA-NASS data, the estimate for flocks above 30,000 hens, representing 81.1 percent of the U.S. total, amounted to 262.7 million hens on August 1st 2015 compared to a January 27th projection of 302.5 million hens. The averages for 2014, 2013 and 2012 were 303.0, 289.1 and 285.3 million hens respectively. The advent of HPAI with unprecedented mortality has complicated all models projecting future flock sizes and prices. The EIC estimates a flock size of 289.1 million hens in December 2015 based on pullet chick placements.
  • The total in-molt and post-molt population of hens in the 5-Regions monitored by the USDA rose by 0.9 percent in July 2015 to 20.9 percent of the national flock compared to the average of 20.9 percent for the previous three months. It is possible that some Midwest producers who reduced stocking density to conform to California cage requirements may revert to 67 inches2 per hen using second-cycle flocks to satisfy demand at high prices justifying this strategy. This situation is expected to change as there will be an increased demand for pullets to replace over 38.5 million hens depleted in flocks producing table-egg and egg-liquid product and for the 3.5 million pullets lost to date from HPAI. This requirement will be over and above the 19 million pullets required each month to maintain a flock level of 300 million hens.
  • The inability of existing hatcheries to supply extra chicks over the short and intermediate term and the time-related biological restraints of rearing will dictate retention of a high proportion of hens through the second cycle as cage capacity will outstrip availability of replacements. USDA statistics show an actual reduction in the number of egg-strain eggs in incubators from 49 million in April 2015 to 44 million in July and August. It is hoped that the multipliers have increased the placements of parent flocks using molting, leased housing and other improvisations to maximize output over the short term. The hatchery supply flock is only scheduled to increase from 2.6 million hens in production in April to 2.9 million hens in November
  • Slaughter of hens under USDA-FSIS inspection attained 4.1 million in July, a reduction of 0.3 million from June as flocks were retained to take advantage of higher prices. Regular mortality and alternative methods of flock  disposal including landfills,  rendering and shipment of live hens to Canada from approved states, account for the majority of depletion amounting to an average of 12 to 13 million hens per month.  Again with longer cycles and additional molting the number of hens slaughtered will decline through the remainder of 2015.
  • Average rate of lay attained 77.7 percent in July as new pullets transferred in late May and early June achieved peak production.  Average production reflects the balance between placement of pullets, their ages and the rate of depletion of flocks or retention of molted hens for a second cycle. Average flock production will decline as weighted age advances with retention and more molting of older flocks.
  • According to USDA-FAS data, 321 thousand cases of shell eggs were exported in July 2015 representing 1.8 percent of total production.  North America (78.9 percent of exports was 83.1 percent in June) and East Asia (17.9 percent), comprised the major importing regions.

Reports from Mexico confirm that HPAI continues to be efficiently suppressed applying vaccination, contributing to an adequate domestic supply, supplemented from the U.S. Mexico will ship breaking-stock eggs from four states declared by SENASICA to be free of END to the U.S. Both Canada and Mexico have imposed embargos on U.S. states with confirmed HPAI.

  • Exports of egg products in July 2015 represented 1.1 percent of U.S. output with North America (45.5 percent of exports) Asia (57.7 percent, was 30.8 percent in June) and the EU (11.0 percent) comprising the three largest importing regions. Due to the shortage of breaking stock and idling of large in-line units, exports have been curtailed. The USDA is allowing importation of pasteurized liquid from the Netherlands and shell eggs from the EU, Mexico and Canada to compensate for deficiencies in supply to bakeries and food service customers.
  • Collectively, exports of shell eggs and products in July 2015 represented the equivalent of approximately 6.7 million hens (was 9.9 million in May) in production during the month, attaining 516 thousand case-equivalents. This was a 30.1 percent decrease compared to 737 thousand case equivalents shipped in May 2015.
  • Further declines in exports are anticipated. The import volume from June 23rd through August 13th according to the USDA amounted to 10.9 million dozen equivalent to the ongoing production of approximately 4 million hens. (See EGG-CITE posting of September 2nd)

 

AUGUST 2015 STATISTICS

COSTS & REVENUE                                                                                         

Parameter                                                                                                JULY 2015                     AUGUST 2015

6-Region Cost of Production ex farm (1st Cycle)                          64.46 c/doz                62.82 c/doz

                Low                                                                                          59.17c/doz (MW)      58.00c/doz  (MW)

                High                                                                                          81.44 c/doz  (CA)       78.62 c/doz  (CA)         

Components of 6-Region 1stCycle Cost of Production:-

                                                                       JULY 2015                                        AUGUST 2015.

                Feed                                              36.09c/doz                                          34.66 c/doz

                Pullet depreciation                     11.22 c/doz                                         11.02 c/doz

                Labor                                              4.00 c/doz                                           4.00 c/doz

                Housing                                          5.30 c/doz                                           5.30 c/doz

                Miscellaneous and other            7.85 c/doz (adjusted March ‘15)           7.85 c/doz

Ex Farm Contribution according to USDA values reflecting costs for the 1st Cycle in August:- 204.5 cents per dozen1- 62.82 cents per dozen = 141.68 cents per dozen (July 175.2  cents per dozen – 64.46 cents per dozen =  110.77 cents per dozen.)

Note 1:  USDA Blended egg price

                                                                                                                    JULY 2015                 AUGUST 2015

USDA     ex-farm Price (Large)                                                                 175.3c/doz                204.5 c/doz               

                Warehouse/Dist. Center                                                          206.6c/doz                260.4c/doz       

                Store delivered                                                                             212.1c/doz                265.9 c/doz

Dept. Commerce retail                                                                          257.0 c/doz  (June)   257.0c/doz (July)

5-Region Layer Feed Cost 

Layer Feed Cost                (Average)                                                                   $232.10/ton                 $222.86/ton

                High                                                                                           $265.55/ton (SE.)        $256.60/ton (SE.)

                Low                                                                                               $201.11/ton (MW)      $194.77 /ton (MW)

               Differential                                                                            $  64.54/ton                  $  61.83/ton

                                                                                                                (equivalent to 14.6 cents per dozen)

Pullet  Cost   (19 weeks)                                                                            $3.89                                $3.82

VOLUMES OF PRODUCTION                                                                           

Parameter                                                                                     JULY 2015                      AUGUST 2015

Egg-strain eggs in incubators                                                 43.80 million  (July)          44.43 million (Aug.)

Pullet chicks hatched                                                               23.43 million  (June)        21.29 million (July)            

Pullets to be housed in 5 months                                         21.1* million  (Nov.)         19.2* million (Dec.)

Estimated National Flock, Total hens on 1st Month            269.7* million  (July)         271.2*million (Aug.)                              

Proportion of flock over 72 weeks                                                               21.7*%            ( 2015)

No. of hens under 72 weeks                                                                     235*million      (April 2015)                               

5-Region proportion of molted hens                                                            19.7%                                20.9%                  

                High                                                                                          (CA.) 32.5%                        (CA)   36.0%     

                Low                                                                                             (NE)    3.1%                        (NE)      3.9%

Hens processed under FSIS inspection                                              4.3 million (June)       4.1 million (July)    

Eggs produced                                                                                       6.30 billion (June)     6.52 billion  (July)

 Table-egg hens in flocks over 30,000 (97.3% of total U.S.)           262.2* million (June)       262.7 *million(July) (May)

“Top-6”  States hen population (USDA)                                     140.9* million (June)       141.4*million (July)

Proportion of U.S. Total by state, 2015*                                                                    

*(over 30,000 hen flocks)

                   STATE                            JUNE 2015                JULY 2015                                  Proportion by region (July 2015.)

               Iowa                           12.7%                 12.4%                                              MW      47.5%

               Ohio                           11.7%                 11.8%                                                NE       11.7%

               Indiana                        9.8%                    9.9%                                                SE        12.2%

               Pennsylvania              9.0%                    9.0%                                                SC        11.1%

               California                    4.9%                    5.0%                                                CA         5.0%                     

                Texas                           5.7%                    5.9%                                                NW        3.6%

                 (Values rounded to 0.1%)

 

Rate of Lay, weighted hen-week (USDA)                                                       77.8% (June)      77.7% (July)                                                                                                                  

Projected USDA-ERS 2014 U.S. per capita annual consumption revised due to HPAI         249.9*eggs

                                                                                                                     *(13.5 egg decrease from 2014 actual)            

*Subject to revision as a result of losses attributed to HPAI


Eggs broken under FSIS inspection (million cases)           June 2015  6,408    July 2014  5,557                              

Cumulative proportion of total eggs                                                31.4%                   31.3%

 

EXPORTS

Parameter                                                                                                               Quantity Exported 

Exports:-                             

Shell Eggs (thousand cases)                                                      June 2015        322        July 2015    321       

Products (thousand case equivalents)                                   June 2015         195       July 2015     195          

Total       (thousand case equivalents)                                    June 2015         517       July 2015     516

  *Representing 2.9 percent of National production in July 2015