High Corn Prices Drive Up Eggs

US - Never mind whether it's the chicken or the egg that comes first.
calendar icon 11 July 2007
clock icon 3 minute read

In the egg business these days, the question is about the ties between ethanol and feed stock.

The relationship is turning out to be a good one for U.S. egg producers, who are clucking all the way to the bank.

"We're having fun in the egg business right now," said Fred Adams, chief executive of Cal-Maine Foods (NASDAQ:CALM) CALM, the largest of them all.

Corn is the common factor. It's a key ingredient in both ethanol and feed stock. Surging demand for the fuel since last fall has caused corn prices to soar about 60%.

That in turn has driven up the cost of feed stock. Why is that a good thing for egg farmers?

The business is all about supply and demand. Reduced supply without a comparable drop in demand translates into higher egg prices.

Since feed stock costs are so high, egg farmers have cut back on production.

Egg Supply

With 280 million egg-laying hens left, there are enough eggs for everybody.

But the national flock size of egg-laying hens is now six million less than this time last year, says Gene Gregory, president of United Egg Producers.

Per-capita consumption has remained steady since 2000 at around 250 to 255 eggs a year, or about five eggs per person per week.

As the largest supplier of fresh shell eggs in the U.S., Cal-Maine has a 16% share of the shell egg market.

It also is the only U.S. egg company out of 250 that is publicly traded.

Cal-Maine sells eggs in 28 states, mainly in the Sun Belt and lower Midwest and mid-Atlantic.

Customers include top supermarket chains and food service distributors, such as Wal-Mart (NYSE:WMT) WMT, H.E. Butt Grocery, Kroger (NYSE:KR) KR, Safeway (NYSE:SWY) , Sysco SYY and U.S. Foodservice.

Cal-Maine has cut back its own egg supply 1% to 2%. That's more than one might think.

"One or two percent on the supply side affects prices 20% or 30%," Adams said.

"Feed costs are up 10 cents a dozen and egg prices are up 20 cents a dozen. So that leaves us with a good, profitable story," he said.

Cal-Maine's earnings have come back strong in the last two quarters, with the last up 118% over the earlier year to 74 cents a share. Sales in the quarter were up 35% to $175.2million.

That's a stark turnaround from the prior two years.

Source: CNNMoney.com
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