Supply & Demand And The Price Of Eggs

Bring on the Omelets: Bigger Flocks Send Egg Price to Decade-Low by Sydney Maki of Bloomberg. Excerpts:

"Supplies in the U.S. have surged so much in recent months that prices are the lowest for this time of year in at least a decade. It will probably take awhile for consumers to eat through the surplus inventory, so the government is predicting egg costs will drop more than any other food group in 2017.

The slump marks a sharp turnaround in the egg business. In 2015, an avian influenza outbreak forced farmers to destroy millions of birds and prices skyrocketed. Eager to take advantage of the rally, producers expanded flocks that were the biggest ever by the end of last year. But demand hasn’t keep pace. While some farms have scaled back in recent months, hens have gotten more productive, keeping the market flush with supply."

Demand for any food item is usually pretty steep or inelastic. If the price of eggs falls, you might eat a few more but you can only put so much in your stomach and then there is the cholesterol. So any change in supply will affect price quite a bit.

What might be happening now is that farmers over reacted to the high prices caused by decrease in supply from the avian influenza. The current increase in supply might have more than offset the previous decrease.

"The market was temporarily starved for eggs, and now it’s drowning," said Tom Elam, president of Carmel, Indiana-based consulting firm FarmEcon LLC. "There’s just too many eggs out there.”

Retailers were charging $1.414 on average for a dozen eggs in May, the lowest for the month since 2006, Bureau of Labor Statistics data show. Prices have plummeted 52 percent from a record $2.966 reached in September 2015. Costs are on track to fall by as much as 6 percent this year, the U.S. Department of Agriculture forecasts. The decline comes even with overall food inflation projected at as much as 2 percent.

Retailers were charging $1.414 on average for a dozen eggs in May, the lowest for the month since 2006, Bureau of Labor Statistics data show. Prices have plummeted 52 percent from a record $2.966 reached in September 2015. Costs are on track to fall by as much as 6 percent this year, the U.S. Department of Agriculture forecasts. The decline comes even with overall food inflation projected at as much as 2 percent."

""Historically, the egg industry has experienced many boom and bust cycles with periods of overproduction disrupting the supply-demand balance," Cal-Maine Chief Executive Officer Adolphus Baker said during a presentation earlier this month."

"for now, farmers aren’t reducing their flocks fast enough to have a major impact on prices, Elam said. At the same time, even with smaller animal numbers, egg production is rising because the hens are younger and genetically more productive, said Knox Jones, a dairy analyst at Advanced Economic Solutions."

As of June 1, 100 hens produced an average 77.1 eggs per day, the USDA said in a June 23 report. That’s up 1 percent from 76.3 a year earlier.

Adding a further drag on prices, the industry-wide move to increase cage-free production is limiting farmers’ ability to trim flocks. By 2050, as much as 75 percent of output will be cage-free, up from about 14 percent now, Jones estimates. The move comes as companies such as McDonald’s Corp. have pledged to move to cage-free eggs to meet growing demand from consumers focused on animal welfare."