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AUGUST 2016 EX-FARM MARGINS STILL NEGATIVE DESPITE LOWER FEED COST

  

Sep 9, 2016

    

Introduction.

Comments supplementing the production summary tables for the latest series reflecting USDA August 2016 statistics and prices made available by the EIC on September 7th 2016, are tabulated together with comparison values from the previous August 17th 2016 posting.

EGG-CITE summarizes weekly USDA data on egg production and prices in each edition.

   

August 2016 Cost and Revenue Data

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 USDA ex farm blended egg price in July 2016 rose to 39.8 cents per dozen, 0.1 percent less than in July. The August 2016 value should be compared to 204.5 cents per dozen for the corresponding month in 2015 and 85.0 cents per dozen in August 2014. It is noted that from November 2014 through March 2015, prices were inflated due to implementation of California Proposition #2 in January 2015 and also at the end of this period by the seasonal pre-Easter rise. Thereafter prices responded positively to shortages caused by HPAI in the upper Midwest with a peak in August.
  • During the first four months of 2016 there was no material change in average feed price expressed as a component of the first-cycle production cost per dozen over the five regions monitored by the USDA. During May feed cost rose 10.3 percent over April to 35.75 cents and then by an additional 3.8 percent to 37.12 cents per dozen in June. The feed component of cost fell 3.5 percent to 34.79 cents per dozen in August. Feed cost during 2015 averaged 34.9 cents per dozen. The average feed cost in 2014 was 43.2 cents per dozen in contrast to 2013 which 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 data from the University of California), producers recorded a negative margin of -20.2 cents per dozen at farm level for flocks in August compared to a negative margin of -22.1 cents per dozen in July. The algebraic average margin for the first eight months of 2016 is -55.1 cents per dozen with losses experienced for each of the past five months.  Ex-farm margin for 2015 amounted to a monthly average of 74.5 cents per dozen. For 2014, average ex-farm contribution margin was 33.9 cents per dozen with all months positive. During 2013, a monthly algebraic average margin of 15.3 cents per dozen was earned.
  • The simple average price of feed for August over the 5-regions of $204.38 was 5.3 percent lower than in July. The Southeast recorded the highest cost among regions in August at $234.27 compared to the lowest region, the Midwest at $180.06 per ton. The average figure includes ingredients plus milling and delivery at approximately $10 per ton.  A 7.3 percent decrease in the price of soybean meal from $405 per ton in July to $376 per ton in August was a co-driver of the cost decrease. The price of corn decreased 4.9 percent to $144 per ton in August. There was a $58.93 per ton differential in corn price between the Midwest and the Southeast in August 2016. 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 the prevailing price of feed of $259.10 per ton for the five regions. 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.
  • The EIC-calculated the 6-Region total nest-run production cost in August to be 59.99 cents per dozen, 3.3 percent lower than 62.03 cents per dozen in July. Production costs during August ranged from 55.65 cents per dozen in the Midwest up to 75.60 cents per dozen in California which was higher than the Midwest region by 19.95 cents per dozen. The differential in feed cost between the Southeast and the Midwest regions was 9.7 cents per dozen in August.
  • Retail egg prices as determined by the Department of Commerce for July averaged 154.6 cents per dozen, up by 3.7 percent or 5.5 cents per dozen compared to June. In July 2015 and 2014 retail prices were 257.0 and 190.8 cents per dozen respectively. Over the past five months retail prices have not declined in proportion to ex-farm prices allowing higher margins at retail which depresses demand.
  

August 2016 Production Data

  • According to USDA data, the estimated average complement of U.S. hens in flocks over 30,000 during July amounted to 290.0 million, down 1.4 million from June. The total U.S. flock based on USDA data amounted to 299.6 million on August 1st 2016. The average annual flock sizes for 2012, 2013 and 2014 were 285.3, 289.1 and 303.0 million hens respectively. The advent of HPAI with unprecedented mortality has complicated all models projecting future flock sizes and prices. Although in the July report the EIC estimated a flock size of 326.7 million hens in December 2016, up from 323.8 projected in the May EIC report no forecasts were issued in August but it is doubtful that the flock will exceed 310 million. The previous model based on pullet chick placements and patterns of depletion is currently unrealistic. Pullet chick placements were down 26 percent in July compared to a seasonal reduction represented by a 9.3 percent reduction from June to July in 2015. It is possible that low prevailing prices will result in flock reduction due to some producers ceasing operation, from early depletion or adoption of single-cycle programs.
  • The total in-molt and post-molt population of hens in the 5-Regions monitored by the USDA increased by 1.0 percent in August 2016 to 21.4 percent of the national flock compared to 21.2 percent in July and the 2015 average of 20.6 percent. Hens were molted in late March due to an early Easter and the sharp downturn in prices thereafter.
  • USDA statistics show an anticipated decrease of 21.3 million pullets to be housed during August through December 2016 compared to the corresponding months in 2015. Pullet chicks hatched during January 2016 (23.8 million), February (25.23 million), March (23.7 million), April (24.2 million), May (28.6 million), June (29.05 million) and July (21.47 million) collectively represent an 11.6 percent increase, or 2.7 million pullets per month over the corresponding months in 2015. The large increases in pullet placements from February through June 2016 compared to corresponding months in 2015 is attributed to restocking after HPAI losses in 2015.
  • The hatchery supply flock increased from a level of 2.6 million hens in production in June 2015, coinciding with the end of the HPAI epornitic to 2.9 million hens in November 2015. Projections show a monthly average of 3.0 million and 2.8 million breeder hens in production during the third and fourth quarters of 2016 respectively. With decreased demand parent flocks will be depleted earlier than planned.
  • Slaughter of hens under USDA-FSIS inspection attained 4.56 million in July. This is lower than the pre-HPAI monthly average of 5.8 million hens over the period extending from January through May 2015 but consistent with the 6-year average of 4.98 million hens in July. Depending on availability of housing, flocks were retained from June through December 2015 to take advantage of higher prices. Regular mortality and alternative methods of flock disposal including landfills,  rendering and shipment of live hens to Canada, accounts for the majority of depletion amounting to an average of 12 to 13 million hens per month.
  • Average rate of lay attained 78.2 percent over the first seven months of 2016 and increased to 79.2 percent in July as new pullets transferred in late May and early June 2016 achieved peak production.  Average production reflects the balance between placement of pullets, their age at transfer and the rate of depletion of flocks or retention of molted hens for a second cycle. Average flock production will rise as weighted flock age is reduced by early depletion and restricting production to the first cycle.

July 2016 Export Data

  • According to USDA-FAS data, 283 thousand cases of shell eggs were exported in July 2016 representing 1.5 percent of total production. North America (33.3 percent of exports), East Asia (30.3 percent) and the Caribbean (24.0 percent) comprised the major importing regions. Exports of shell eggs during the second quarter of 2016 were 30.3 percent lower than the monthly average for the corresponding period in 2015 before the advent of HPAI. Exports will depend on possible future embargos, availability of eggs, international competition and domestic prices. During July 100 thousand cases of eggs were imported.
  • Exports of egg products in July 2016 amounting to 237 million case-equivalents represented 1.1 percent of U.S. output with North America (33.5 percent), East Asia (31.9 percent) and Central America (9.9 percent,) comprising the principal importing regions. Due to the shortage of breaking stock and reduced capacity through large in-line units, exports were curtailed in 2015 and volume decreased by 34.8 percent compared with 2014, attaining 1.7 percent of total U.S. output. For the first seven months of 2016 export volume was 39.8 percent lower than in 2015. During July imports corresponded to 90 thousand case-equivalents approximating pre-HPAI volume. 
  • Collectively, exports of shell eggs and products in July 2016 represented the equivalent of approximately 6.6 million hens in production during the month, attaining 519 thousand case-equivalents. This was a 45.9 percent decrease compared to monthly average shipments of 960 thousand case equivalents exported over the first four months of 2015 prior to the advent of HPAI. Actual net exports of both products and shell eggs amounted to 330 thousand case-equivalents or 4.2 million domestic hens representing 1.4 percent of a nominal 300 million hen flock.

AUGUST 2016 STATISTICS

COSTS & REVENUE                                                                                         

Parameter                                                                                                   JULY 2016               AUGUST  2016

5-Region Cost of Production ex farm (1st Cycle)                           62.03 c/doz                59.99 c/doz

                Low                                                                                          58.28c/doz (MW)      55.65c/doz  (MW)      

                High                                                                                         77.07 c/doz  (CA)        75.60 c/doz  (CA)         

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

                                                                        JULY 2016                                        AUGUST 2016.

                Feed                                              33.88c/doz                                          32.09 c/doz

                Pullet depreciation                     11.00 c/doz                                         10.75 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 Nov. ‘15)              7.85 c/doz

 

Ex Farm Loss according to USDA values reflecting August 2016:-

                                              39.8 cents per dozen1- 60.0 cents per dozen = -20.2 cents per dozen

       (July comparison 39.9 1 cents per dozen – 62.0 cents per dozen = -22.1 cents per dozen.)

Note 1:  USDA Blended egg price

                                                                                                                     JULY 2016              AUGUST 2016

USDA     ex-farm Price (Large)                                                                  39.9c/doz                39.8 c/doz               

                Warehouse/Dist. Center                                                           69.1c/doz                57.2 c/doz  

                Store delivered                                                                              74.5c/doz                62.7 c/doz

       

Dept. Commerce retail                                                                          149.1 c/doz  (June)   154.6c/doz (July)

 

5-Region Layer Feed Cost 

Layer Feed Cost (Average)                                                                   $215.79/ton                 $204.38/ton

                High                                                                                           $245.40/ton (SE)         $234.27/ton (SE.)

                Low                                                                                           $194.82/ton (MW)      $180.06 /ton (MW)

               Differential                                                                            $  50.58/ton                  $  54.21/ton

                                                                                                                  (equivalent to 13.7 cents per dozen)

Pullet  Cost   (19 weeks)                                                                            $3.79                                $3.71

 

VOLUMES OF PRODUCTION                                                                           

 

Parameter                                                                                    JULY 2016                           AUGUST  2016

Egg-strain eggs in incubators                                                44.08 million  (July)        38.2 million  (Aug.) -32%

Pullet chicks hatched                                                             29.05 million   (June)      21.5 million  (July)   -26%           

Pullets to be housed in 5 months                                        26.2 million     (Nov.)      19.4 million  (Dec.) -26%

National Flock in farms over 30,000                                   291.4 million   (June)      290.0 million (July)

National egg-producing flock                                               301.0 million   (July)       299.6 million (Aug.)                              

Proportion of flock in molt or post-molt                                                      21.4%                   (Aug.)

Total of hens in 1st cycle (estimate)                                                              235.5 million       (Aug.)                               

5-Region proportion of in molt or molted hens                                         21.2%                                  21.4%       

                High                                                                                             (CA)  36.0%                        (CA)  32.5%       

                Low                                                                                               (NE)     5.2%                        (NE)   4.0%

Hens processed under FSIS inspection                                              5.2 million (June)       4.6 million (July)    

Eggs produced                                                                                       7.10 billion (June)     7.36 billion  (July)

 Table-egg hens in flocks over 30,000 (97.2% of total U.S.)           291.4 million (June)        290.3 million (July)

“Top-6”  States hen population (USDA)                                     162.5 million (June)        161.5 million (July)

 

Proportion of U.S. Total by state, 2016                                                                    

*(over 30,000 hen flocks)

                   STATE                              JUNE 2016               JULY 2016                              Proportion by region (JULY 2016.)

               Iowa                            17.1%                 17.5%                                              MW     52.4%

               Ohio                            10.5%                 10.3%                                               NE       11.3%

               Indiana                       10.0%                   9.8%                                               SE        10.7%                                                                                                                                                                    

               Pennsylvania               8.6 %                   8.6%                                               SC       10.6%

               Texas                            5.5%                     5.5%                                              CA         4.0%    

               California                     4.1%                     4.0%                                              NW       4.6%  

               

                 (Values rounded to 0.1%)

 

Rate of Lay, weighted hen-week (USDA)                                                       78.6% (June)      79.2% (July)                                                                                                         

 

Actual USDA-ERS 2015 U.S. per capita annual egg consumption revised due to HPAI:-  252.9 eggs (-13.7 from 2014)

Projected USDA-ERS 2016 U.S. per capita annual egg consumption projected to be:-   264.0 eggs (+11.1 from 2015)

 

Eggs broken under FSIS inspection (million cases)

                                                                             JUNE 2015 6.675                JULY 2016 6.576                             

Cumulative proportion of total eggs                             31.1%                               31.2%

Monthly proportion of broken eggs                              33.8%                               31.6%

 

EXPORTS

 

Parameter                                                                                                               Quantity Exported 

 

Exports:-                             

 

Shell Eggs (thousand cases)                                             JUNE 2016     244       JULY    2016   283       

                                                                                               

Products (thousand case equivalents)                         JUNE 2016     245       JULY     2016   237          

                                                                                                                                               

Total       (thousand case equivalents)                           JUNE 2016     489        JULY   2016    520

Net Exports (thousand case equivalents                                                             JULY   2016    330*

  *Representing 1.4 percent of National production in July 2016