- Cal-Maine Foods, the nation's largest producer of shell eggs, was sued in state court by the Texas attorney general over accusations that the company unfairly raised prices last month during the coronavirus pandemic. The suit seeks to prohibit Cal-Maine from selling eggs at too-high prices, as well as to recover consumers' funds.
- Demand for eggs grew quickly in March as people around the nation stocked their pantries in preparation to remain homebound. Cal-Maine's price for a dozen generic eggs more than tripled between February and March, from $1.02 to $3.18. "On information and belief, Cal-Maine has not experienced any supply issues or other disruptions that are driving it to charge more for eggs," the lawsuit says. "It is simply charging more because it can, or, more specifically, because the pandemic caused market demand to jump. In summary, Cal-Maine is taking advantage of a disaster by offering for sale, and/or selling, eggs at exorbitant or excessive prices."
- Cal-Maine denied the accusations in a written statement. "Since 1958, we have operated with honesty and integrity," Cal-Maine spokesperson Jeff Eller said in an email sent to Food Dive. "We are steadfast in our belief these charges are grossly unfair and without merit. The domestic egg market is intensely competitive and highly volatile. For decades, we have priced most of our sales off an independent, third-party market quote published by Urner Barry Publications, Inc. We have no control over this market quote and it fluctuates wildly from week to week and sometimes day to day. We have been consistent in our pricing practices whether we sell at a profit or at a loss. We will vigorously defend ourselves from this government overreach into agriculture, and look forward to speaking more in the future."
While demand, prices and production of most foods have seen big changes during the coronavirus pandemic, eggs are a true outlier.
Considering where Cal-Maine's numbers were just two months ago, it's difficult to believe the company is being sued for price gouging. The publicly traded company filed its most recent quarterly report on March 30, just as pandemic and Easter demand were reaching their peak. The report covers the quarter that ended Feb. 29. Compared to a year prior, net sales were down 10%. The company's net income had fallen by more than half — down to $13.7 million from $39.8 million. And while Cal-Maine posted a profit, shareholders did not receive a dividend because of steep losses in the previous quarter.
So a month after Cal-Maine said it had nearly $62 million in losses to make up before it could start paying dividends again, it's being taken to court.
Eggs have become one of the hardest products for consumers to find on grocery shelves. Stay-at-home orders for coronavirus made people start preparing like there was a "national snowstorm" on the way, Urner Barry Director of Egg and Egg Products Brian Moscoguiri told Food Dive. As a result, demand everywhere spiked and grocery stores ordered far more eggs than normal. Moscoguiri said these volumes were anywhere from double to six times the regular amount.
By all accounts — including that of Cal-Maine in its 10-Q report it filed with the Securities and Exchanges Commission as part of its March 30 quarterly earnings — prices are way up. According to Nielsen statistics emailed to Food Dive, within a month's time, the dollar value of egg sales compared to a year prior went from down 5.9% during the week ending Feb. 29 to 85.2% more the week ending March 21.
But the egg market is more complex than it seems on the outside. For starters, the egg supply is relatively fixed. According to the United Egg Producers, at the end of last year, there were 340 million laying hens in the United States. Each day, about 82% of egg-laying hens produce one egg. Last year, they produced 99.1 billion retail eggs.
But every egg that is produced is not destined for grocery shelves. The American Egg Board said about 60% go there. Of the remaining eggs, about 9% go to foodservice, and the rest are "breaker" eggs that go to food manufacturers for inclusion in other products. Moscoguiri said this breakdown cannot be easily shifted. Eggs for food service and breaker eggs don't undergo grading, which the USDA requires to guarantee quality of eggs that are sold to consumers in the grocery store. And production lines for breaker eggs may run straight to the processing facility, meaning it could take more of an effort to change this supply line.
The FDA has made some allowances for foodservice eggs to be sold at retail. As processed foods see a big bump in demand, it may not make sense to divert breaker eggs to retail.
Moscoguiri said Urner Barry sets its baseline pricing based on several factors, including stock prices, larger commodity prices and where things are selling in the markets. While producers use the Urner Barry Index differently to set prices — some do have preferred profit margins, while some hew more closely to the recent markets — Moscoguiri said everything is generally based on supply and demand.
"Price has an influence on both supply and demand so that things can find a balance again," Moscoguiri told Food Dive. "And though prices skyrocketed there because of the unprecedented demand in a very short period of time, price is starting to fix the lack of availability on the shelf."
Prices and demand have started to regulate. Grocery stores currently have eggs available to consumers. According to USDA's Egg Market News Report for the week of April 20, prices were down across the country. And except in the New York metro area, most prices to retailers for different sizes of eggs were well under $2 a dozen. Another weekly USDA report shows prices were down the week of April 24 by as much as 32% when delivered to warehouses.
But will the lawsuit be successful in Texas? It's hard to say. The state's lawsuit paints Cal-Maine as a big agricultural provider — with no drop in supply or problems with production — taking advantage of consumers. Texas Attorney General Ken Paxton has been active in speaking out against companies that may be violating the state's consumer protection laws during the pandemic. His office received 6,000 complaints about consumer protection issues in March alone, local news reported.
However, if other states think this case has merit, Cal-Maine may find itself fighting this battle throughout the United States.