The title paraphrase from Richard III encapsulates the concern and anxiety we all share regarding the immediate future of the shell-egg segment of our industry.  Clearly, we are on the downside of the wholesale-price roller coaster due to the effects of COVID-19.  In March, panic buying cleared supermarket shelves of eggs and other perishables, driving up price to levels not seen since the 2015 HPAI epornitic.  As noted in commentaries and weekly reports in EGG-NEWS documenting sharp declines in national stock level over three consecutive weeks, the surge in demand was transitory. Now we are facing the realization that the supply pipeline is completely filled and retail demand has returned to a normal level resulting in an equally sharp decline in price, dropping this week at a daily rate of almost twenty cents per dozen. 

The supply situation is complicated by diversion of shell eggs to retail from for the food service sector following a waiver regarding labeling by FDA* This action apparently resulting from a petition forwarded by the UEP effectively adding approximately 20 million hens to the retail shell market.  This has resulted in a profound depression of current and short-term prices even if there is a carryover in the demand surge from eating at home. The justification of the FDA action is questionable given that any reasonable person could have predicted that the surge would be of short duration. Now the established shell industry will endure artificially depressed prices until COVID-19 restrictions are lifted and the equilibrium between the supply of shell eggs is correlated with the combined demand from retail and food service sectors.

In retrospect April 2020 is the reverse of April 2015 when the majority of HPAI losses were among a few large in-line breakers resulting in migration of eggs from the retail market to breaking to supply manufacturers and food service.

The impact of COVID-19 is evidenced by the warnings issued by major dining and QSR chains all of whom have withdrawn guidance. Market research company NPD CREST recorded a drop of 42 percent in transactions for the last week of March with sector reports of a 79 percent decline for traditional and casual dining restaurants and 40 percent for QSRs. McDonald's announced on April 9th that U.S. same-store sales fell by 13 percent compared to March 2019. Most McDonald’s stores are open and 90 percent have drive-through installations with many locations offering home delivery.  Closing universities, corporate dining and schools has further reduced egg sales through the food service pipeline to a trickle.

The egg industry moved into 2020 with little in the way of working capital reserves, having endured eight continuous months of prices below cost of production.  Financial institutions are now disinclined to extend facilities to the egg industry and support including the USDA Market Facilitation Program, benefiting other sectors of agriculture, is unavailable to egg producers.

There is no immediate prospect for restoration of what we regarded as  "normality".  Unless COVID-19 can be controlled, the economy cannot be opened up without sacrificing hundreds of thousands of lives. There is hope that the sacrifices to date in the form of social distancing and home confinement are “flattening the curve” Not even the most eminent of public health authorities or epidemiologists can provide a clear timeline for resolution.  Even when restrictions are lifted we will still be faced with a susceptible population vulnerable to a re-emergence of infection possibly in the fall.

The impact of COVID-19 on the shell egg industry will be expressed in a number of ways:-

• Independent small-scale producers reliant on the sale of eggs to either breakers or packers will be deprived of their markets and will either be acquired by packers, which is unlikely, or will cease production as they exhaust their working capital. Contracts will be cancelled as flocks are depleted.
• Large producers may acquire smaller but efficient competitors but only if synergy can be achieved
• Rationalization will clearly result in a reassessment of the size of the national flock which may shrink by as many as 30 million hens across the breaking and shell segments of the industry
• Expenditure on capital development of new cage-free complexes and conversion of existing units will be deferred. Financial institutions will not be receptive to applications for funding complexes holding two million hens costing upwards of $100 million. The collateral value of egg production facilities is now heavily discounted and the capacity to service loans is highly questionable unless prices advance to a level consistent with an acceptable return on investment.

• In the immediate term, producers will deplete older flocks and consider molting mid- cycle flocks to conserve finances and have flocks commencing production when market demand returns.

• Chick producers will probably reduce their parent multiplier flocks as anticipated pullet orders are deferred.
• Reduction in production volume and the need to conserve resources will have an effect on the allied industry with equipment manufacturers impacted followed by suppliers of packaging material and even biologics

• Producers will attempt to restrict costs. Curtailing biosecurity or reducing the intensity of flock vaccination and monitoring would be counterproductive

Supermarket chains may realize their myopia in nickeling and diming egg producers. For decades the egg industry has been forced to lose money for many months each year, making it up at Christmas and Easter. This cycle must be replaced by independent and rational decisions on supply.  There is little to be done on the demand side of the profit equation. It is clear that the activities of The American Egg Board cannot motivate significant increases in consumption although their endeavors have produced incremental annual improvements. Without the efforts of the AEB and the ENC erosion in both the shell and liquid sectors would have occurred.  We cannot look to the export market for salvation.  The volume represented by Hong Kong and our USMCA partners along with minor importers represents at best 10 million hens in production.

COVID-19 will not simply miraculously disappear in May.  The direct and indirect effects will persist through 2020 and will change our industry in many ways. Hopefully new attitudes towards restraint in production will emerge. We can no longer function on the basis of “Don’t cut him and don’t cut me---cut the guy behind the tree” The Industry is obviously legally restricted from colluding on hen numbers but independent interpretation of volume and price data published by the USDA is possible.  Decision makers in the industry would have benefitted from the results of a comprehensive economic analysis of the 2015 HPAI outbreak quantifying the interaction among the breaking and shell-egg sectors and determining the price elasticity of eggs.

It is hard to be optimistic as of mid-April, but the U.S. egg industry has endured many challenges and there is hope that the health of our nation and its economy will soon be restored.  We must above all not make a mistake of previous years by injudicious expansion after recovery.

*FDA Guidance Document, Temporary Policy Regarding Packaging and Labeling of Shell Eggs Sold by Retail Food Establishments During the COVID-19 Public Health Emergency.