Dive Brief:
-
The U.S. Department of Agriculture reported that the cost of a dozen wholesale eggs in the Midwest more than doubled to $2.71 in the five weeks through March 23, according to Bloomberg. The previous record of $2.77 was set in August 2015 during the avian flu outbreak.
-
Knox Jones, an analyst for Advanced Economic Solutions in Omaha, told Bloomberg that while egg demand always goes up before Easter, winter storms in the Northeast may have also caused people to buy extra eggs and other staples.
-
"Easter is propelling demand, and it is earlier than last year," Vertical Group analysts said in a report quoted by Bloomberg. "Despite the surge in egg prices, retailers are still using eggs as a loss leader to drive traffic in an aggressively competitive retail environment."
Dive Insight:
After the 2015 avian influenza outbreak, egg prices were hitting record lows because of an oversupply. But with the current price surge, the industry appears to have rebounded and is benefiting both from an effective loss-leader strategy and adverse weather events.
Slashing egg prices to get customers in the door seems like a smart strategy in a competitive retail environment. Like milk and some other staples, eggs are often sold at prices that will cost grocery outlets but attract customers who are likely to buy other more expensive items to help the bottom line.
California also has seen higher prices since voters overwhelmingly passed Proposition 2 mandating stricter animal welfare laws. The law became effective in January 2015, and a recent study revealed that consumers initially paid 33% more for eggs, although the price hike has moderated closer to about 9% since then.
It's not clear exactly where the tipping point may be for consumers regarding egg prices. Some may be willing to pay up to 33% more for a dozen eggs if they know there's a shortage. They could balk and cut back on egg purchases if they suspect supplies are being manipulated just to keep prices high. Or, in the face of a shortage, they could seek out other alternatives. Popularity of powder-based egg substitutes used by manufacturers further exacerbated the oversupply after the avian influenza outbreak, driving down egg prices nationwide.
U.S. milk producers have seen the same problems with oversupply and alternatives infringing on their markets. The oversupply has been driving down milk prices, milk exports have increased, and some retail chains such as Kroger are pricing milk at loss-leader levels to attract consumers and compete with other grocers. But milk producers can't rely on Easter or adverse weather events to help them out, plus they're facing continuing challenges from plant-based dairy alternatives.
For egg producers, it's likely that prices will remain high for a while longer as the industry adjusts by exporting eggs and keeping production flat. According to the American Farm Bureau Federation, U.S. egg exports jumped almost 50% last year — in part due to an avian flu outbreak in South Korea. It's also possible that producers will continue to see higher profits even as supplies decline if exports continue at the current pace — though considering potential turmoil in U.S. trade relations, growth may quickly taper off.
In the meantime, egg producers should take the lessons they learned from the avian flu outbreak and prepare for the day when prices are not so high. And perhaps dairy producers should take a page out of their playbook and get ready for the day when their commodity is in great demand.