Egg prices soared to traditionally excessive ranges in 2022 — and one group is alleging the pattern is due to one thing extra nefarious than easy economics.
Throughout all egg sorts, customers noticed common prices leap 60% final 12 months — among the many largest proportion will increase of any U.S. good or service, in accordance to the patron worth index, an inflation measure.
Giant, Grade A eggs price $4.25 a dozen in December, on common — a 138% enhance from $1.79 a 12 months earlier, in accordance to U.S. Bureau of Labor Statistics data.
The business narrative has largely targeted on a historic outbreak of avian influenza — which has killed tens of hundreds of thousands of egg-laying hens — as the first driver of these larger prices.
However Farm Motion, a farmer-led advocacy group, claims the “real culprit” is a “collusive scheme” amongst main egg producers to repair and gouge prices, the group stated in a letter to the Federal Commerce Fee.
Doing so has helped producers “extract egregious profits reaching as high as 40%,” in accordance to the letter, issued Thursday, which asks FTC Chair Lina Khan to examine for potential profiteering and “foul play.”
An FTC spokesman declined to remark due to a common company coverage concerning letters, petitions or complaints acquired from third events.
Nonetheless, meals economists are skeptical an inquiry would uncover wrongdoing.
“I don’t think we’ve seen anything that makes us think that there’s something there other than normal economics happening right now,” stated Amy Smith, vice chairman at Superior Financial Options.
“I think it was just kind of a perfect storm of stuff that came together,” she added.
Economics or ‘profiteering’?
The U.S. suffered its deadliest outbreak of chook flu in historical past in 2022.
The illness, which is contagious and deadly, impacts many forms of birds, together with egg-laying hens.
In December, the common variety of “layers” was down 5% from a 12 months earlier, at a whole 374 million birds, in accordance to USDA data revealed Friday. General manufacturing of desk eggs fell by 6.6% over the identical interval, to 652.2 million, knowledge confirmed.
These business figures do not appear to sq. with a two- or three-digit proportion spike in egg prices final 12 months, Farm Motion claims.
“Contrary to industry narratives, the increase in the price of eggs has not been an ‘Act of God’ — it has been simple profiteering,” the group stated.
For instance, the earnings of Cal-Maine Meals — the nation’s largest egg producer and an business bellwether — “increased in lockstep with rising egg prices through every quarter of the year,” Farm Motion claimed. The corporate reported a tenfold enhance in earnings over the 26-week interval ended Nov. 26, for instance, Farm Motion stated.
Whereas different main producers do not report such data publicly, “Cal-Maine’s willingness to increase its prices — and profit margins — to such unprecedented levels suggests foul play,” Farm Motion wrote.
Max Bowman, Cal-Maine’s vice chairman and chief monetary officer, denied the allegations, calling the U.S. egg market “intensely competitive and highly volatile even under normal circumstances.”
Hen flu’s important impression on hen provide has been probably the most notable driver, whereas egg demand has remained robust, Bowman stated in a written assertion.
Bills for feed, labor, gas and packaging have additionally “risen considerably,” feeding by to larger total manufacturing prices and, finally, wholesale and retail egg prices, he stated. Cal-Maine additionally does not promote eggs instantly to customers or set retail prices, Bowman added.
Cal-Maine’s assertion appears to sq. with the overall outlook of meals economists reached by CNBC.
“We’ve never seen [these prices],” stated Angel Rubio, senior analyst at Urner Barry, a market analysis agency specializing within the wholesale meals business. “But we also haven’t seen [avian flu] outbreaks month after month after month like this.”
In economics, markets are nearly by no means completely “elastic,” Rubio stated. On this case, meaning there’s usually not a 1:1 relationship between egg or hen provide and egg prices.
Through the prior bird-flu outbreak in 2015, wholesale egg prices rose about 6% to 8% for each 1% lower within the variety of egg-laying hens, on common, Urner Barry present in a latest analysis.
About 42.5 million layers (about 13%) have died because the 2022 outbreak, in accordance to Urner Barry. Prices have elevated about 15% for each 1% lower in egg layers over that point, on common, Rubio stated.
The dynamic is essentially due to a “compounding effect” of demand, Rubio stated.
For instance, as an instance a huge grocery store chain has a contract to purchase eggs from a producer at a wholesale worth of $1 per dozen. However that egg provider then suffers a bird-flu outbreak. All provide from that supply comes offline briefly. So, the grocery store chain should then procure eggs from one other provider — elevating demand for the opposite provider’s eggs, which could finally promote eggs to the grocery store for $1.05 or extra a dozen.
As soon as a farm suffers a flu outbreak, it seemingly will not produce eggs once more for at the very least six months, Rubio stated.
This dynamic is going on concurrently throughout a number of farms and supermarkets. Hen flu additionally usually dissipates in the summertime, however outbreaks started anew in final autumn heading into peak demand season across the winter holidays, Rubio stated.
Some excellent news for customers could also be forward, although, economists stated.
Wholesale egg prices had declined to about $3.40 a dozen as of Friday, down from a peak $5.46 a dozen on Dec. 23, Rubio stated. (Present wholesale prices are nonetheless nearly triple their “normal” degree, Rubio stated.)
On common, it takes about 4 weeks for wholesale worth actions to be mirrored within the retail marketplace for customers, Rubio stated.
“The pricing market is already coming down post-holiday,” stated Smith at Superior Financial Options.
The Easter vacation is normally one other interval of excessive seasonal demand, nonetheless, which means prices might keep elevated by March, assuming the bird-flu outbreak does not worsen, economists stated.