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Proposed funding of project to evaluate the price of eggs under conditions affecting supply

08/18/2019

Prior to 2015 the U.S. egg industry was characterized by seasonal fluctuation in demand with peaks over Easter and Christmas yielding high unit prices followed by declines in consumption with a corresponding reversal in the price trend. In addition cyclic periods of overproduction depressed prices at approximately three-year intervals stimulating consolidation among producers.

      

 Factors that have impacted the relatively predictable traditional relationship between production volume and price include:-

 

  • Transition from conventional cages to alternative aviary and floor systems in response to welfare demands by consumers, QSRs and retailers
  • Highly pathogenic avian influenza leading to the depletion of 40 million hens in 2015 with disruption of the fairly stable relationship between the shell egg and liquid sectors that under normal conditions operate independently
  • Investment in new in-line shell egg complexes housing over two million hens and requiring capital expenditure of over $100 million per location.
  • The rise in branded enriched specialty, organic and cage-free eggs accompanied by the emergence of store brands
  • Increased productivity of current commercial strains given improved nutrition and immunization over an extended non-molt cycle.
  • Consumers accepting the nutritional content and value of eggs in the absence of concern over cholesterol content.

 

Given the changing situation producers faced with investment decisions should have a clear understanding of the factors influencing the price of shell eggs in a more complicated market influenced by extrinsic and intrinsic factors affecting production and demand.

 

  Currently producers, integrators and financial institutions that provide capital are obliged to make investment decisions without the benefit of quantitative data or economic models depicting supply and demand relationships. This is especially the case with erection of alternative housing systems with or without replacement of existing flocks. Clearly ad hoc decisions are being made to implement, cancel or re-schedule new complexes without reference to models describing the price elasticity of generic shell eggs and alternative presentations.

 

 

 EGG-NEWS has previously advocated for a study on egg prices as determined by supply and demand especially when factors such as disease occur. The events of 2015 involving HPAI and its aftermath are self-evident. The fipronil crisis in the EU and then HPAI in S. Korea are examples of a transitory increase in export demand drawing shell eggs from the domestic market and into the liquid sector of the industry.   

 

It is proposed that a team of agricultural economists preferably at a Land Grant University should be invited to submit research proposals (RFPs) to develop models to determine future prices for generic and alternative types of shell eggs, given defined levels of production. Events contributing to wide swings in price since 2014 would provide a valuable dataset to establish correlations between production and price accepting that demand has displayed a shallow trajectory in recent years Additional considerations should include the relationship between shell-egg and egg-liquid components of the industry under conditions that restrict output of either or both segments.

 

 It is suggested that a modular approach should be implemented with RFPs reflecting the most immediate needs of the Industry. A comprehensive and detailed project requiring extensive research with a distant completion date is disfavored.

 

The question now is to determine the terms of reference and how a project could be funded. Let us not follow the parable of the mice that decided that if the house cat could be fitted with a bell they would be warned of its approach. The impasse then became which of the mice would bell the cat!