Tight U.S. supply boosts sales of specialty eggs


Issue Date: September 9, 2015
By Ching Lee

A sharp drop in U.S. egg production due to impacts from an outbreak of avian influenza this year has increased sales of specialty eggs such as cage-free and organic because the price between conventional eggs and specialty eggs has narrowed.

David Will, general manager of Chino Valley Ranchers, which sells 95 percent of its eggs as cage-free and organic, said he's seeing "much higher demand" for those products as the nation's egg supply continues to be tight.

"We are definitely selling as many (eggs) as we can produce right now," he said, noting there has also been increased demand for the company's other specialty eggs, including organic enriched, pastured, soy-free organic and fertile.

Will said his sales also spiked during the state's 2002-2003 outbreak of exotic Newcastle disease, when the price of specialty eggs was less than or comparable to their conventional counterparts.

"There's definitely a point where consumers will trade up to cage-free or organic based on price point, and I think we're there in this marketplace," he said. "I think that's what's accounted for a majority of our growth."

Richard Jenkins, an egg producer in San Joaquin County who markets conventional and specialty eggs, said while he is earning a higher price for his product, consumer demand for eggs has actually dropped due to higher retail prices. Lower demand, he added, has kept eggs on store shelves amid the shorter supply.

"Prices are so high that people are not using as many eggs, which helps keep those eggs in supply," he said.

Some end users such as bakeries that typically buy shell eggs have also switched to less-expensive liquid eggs, he said, noting that liquid eggs sold in the state do not have to be compliant with Proposition 2, which took effect in January and requires more housing space for birds than what's used in conventional housing systems.

While some reports have blamed Proposition 2 for reducing the state's egg production and raising egg prices, Debbie Murdock, executive director of Pacific Egg and Poultry Association, said the current surge in egg prices has more to do with avian influenza, which has resulted in a loss of 35 million U.S. hens and some 5 million to 6 million pullets. Total bird losses from the disease has reached more than 48 million, with the last reported case in June, according to the U.S. Department of Agriculture.

"Until production gets back to normal, you're going to see fluctuations in the market," Murdock said.

U.S. supplies of conventional eggs were so tight during the height of the outbreak, said Paul Cahill, president of Farm Fresh Foods, an egg supplier in Santa Ana, that he found himself scrambling to find enough Proposition 2-compliant eggs for his California customers. He noted one of his major suppliers in Iowa, the nation's top egg-producing state and the one hardest hit by the outbreak, closed its distribution center, forcing him to look to several brokers to source his eggs.

"I actually bought some from people I usually sell to," he said. "I said, 'I don't care what you charge me; I just need the eggs. I need to keep my customers going so that when I finally find a solution to my problems, I still have customers.'"

Will said unlike the conventional egg market that is subject to price swings, he sets prices for his specialty eggs quarterly based on his production costs. That has helped the price of his specialty eggs remain steady while the conventional egg price shot up. Fewer birds in production has also eased pressure on the nation's feed supply, he added.

Steve Gemperle, a Stanislaus County producer who raises both conventional and organic eggs, said implementation of Proposition 2 has contributed to a rise in the state's egg prices, leading to higher demand for organic eggs, which can fluctuate depending on the price of conventional eggs at the retail level.

But he noted that sales of his organic eggs have grown an average of 10 percent each year since he starting producing organic in 1999, and he has expanded his production to meet the demand.

"Typically retailers want what they can sell," he said. "They push to have increased production if they have increased sales."

San Diego County egg farmer Frank Hilliker, whose production is largely cage-free but who still raises some conventional eggs, said he has seen increased traffic at this farm store because egg prices there are a bit lower than at some grocery stores. He is also selling more cage-free eggs this year, he said, but noted his overall egg sales were actually higher this time last year.

Hilliker is in the process of converting all of his housing to cage-free. He said the higher price he's earning for his cage-free eggs is helping him pay off some of his debt, but it is still not enough to make much of a dent.

"It's not like I'm rolling in it," he said. "It's going to take me a long time to pay off all this investment."

He also noted that in recent weeks, the wholesale price of conventional eggs has started to come down, which should eventually drive up sales at the retail level.

"I think by the time these (avian influenza-affected farms) get back online, there are going to be more eggs in the United States than you can shake a stick at," he said.

But Will said Midwestern egg farms affected by the outbreak will not be able to repopulate their barns before next year, so there will likely still be a supply shortage moving into the holiday season, when demand for eggs is at its highest.

There is also concern that avian influenza will return this fall as wild birds suspected of spreading the disease migrate south. Organic producers, who are required under the National Organic Program to give their birds outdoor access, were advised by California State Veterinarian Annette Jones earlier this year to keep their flocks indoors for protection until further notice.

Will said he kept his birds indoors during the outbreak, but has since returned them outside. With fall approaching, he said he has started to discuss with his organic certifier whether to bring them back indoors.

Jenkins said he has kept his organic birds indoors since the start of the outbreak and does not plan to let them out "until this whole thing settles down."

"If we make it through this fall without any new cases, then we'll start letting them out again next spring, as long as we don't have any new AI cases here in California," he said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.