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Egg-spensive Business: Exploring the Spike in Egg Prices and the Impact of Imports

In 2022, U.S. consumers faced persistently high egg prices, where egg prices increased significantly more than food prices overall. According to the Bureau of Labor Statistics, the average retail price of eggs (grade A, not seasonally adjusted) reached a record high of $4.25/dozen in December 2022, up 138% from December 2021 ($1.79/dozen). The reasons given for this surge included supply-chain disruptions due to the COVID-19 pandemic, increased egg demand during the holiday season, and overall inflation, but most articles cited highly pathogenic avian influenza (i.e., bird flu) outbreaks and resulting bird loss as the primary cause. In a recent article in Choices (Muhammad et al., 2023), I proposed that higher production costs along with the negative consequences of bird flu sufficiently explained the rise in egg prices. The reason why I was not completely sold on bird flu as the sole or even primary cause is that the U.S. experienced similar and even larger losses in the egg laying population due to bird flu in 2015, yet egg prices did not increase as much as they did in 2022. To be certain, egg prices did increase in 2015, peaking at $2.97/dozen, but this increase was still significantly less than what was experienced last year.

What many failed to discuss—including me—is the role that imports might have played in mitigating the effects of negative production shocks due to substantial declines in the U.S. egg-laying population. Figure 1 shows relative bird loss, expressed as a percent of the total table-egg laying population, and the quantity of in-shell egg imports (million dozen) from January 2010 to December 2022. The U.S. table egg laying population ranged from 283 million birds in 2010 to a high of 337 million birds in 2019, and monthly bird losses between 2% and 4% appear to be the price of doing business. In 2015, however, bird losses peaked at 11% due to bird flu. In the months that immediately followed, in-shell egg imports reached record levels, increasing to nearly 14 million dozen in October 2015, which is more than a 2,000% increase when compared to average monthly imports prior and in the months that followed (less than one million dozen on average). Imports did not significantly increase again until 2022 when bird losses peaked at around 9% in 2022 and exceeded 4% in the months that followed. Unlike 2015, however, the response in in-shelled egg imports was marginal by comparison, increasing to only 2 million dozen in late 2022. The reasons for the significantly larger import response in 2015 versus 2022 is a subject for another time. But what is clear is that the surge in imports in 2015 and the relatively modest import increase in 2020 could be a reason why egg prices increased more so in 2022.

Figure 1. Relative Bird Loss and In-Shelled Egg Imports in the United States: January 2010 – December 2022

Note: Relative bird loss is a measure of monthly losses expressed as a percent of the total table-egg laying population (total flock) in the U.S.
Sources: Livestock Marketing Information Center (LMIC) (2023) https://lmic.info/; USDA Quick Stats (2023) https://quickstats.nass.usda.gov; and USDA Foreign Agricultural Service (2013) https://apps.fas.usda.gov/gats/default.aspx.

For More Information:

Muhammad, Andrew, Charles Martinez, and Abdelaziz Lawani. 2023. “Why Are Eggs so Expensive? Understanding the Recent Spike in Egg Prices” Choices Quarter 2. https://www.choicesmagazine.org/choices-magazine/submitted-articles/the-impacts-of-futures-markets-on-commodity-prices-instability/why-are-eggs-so-expensive-understanding-the-recent-spike-in-egg-prices

Muhammad, Andrew. “Egg-spensive Business: Exploring the Spike in Egg Prices and the Impact of Imports.” Southern Ag Today 3(22.4). June 1, 2023. Permalink

June 1, 2023
Up-Side-Down Yields?

No… not crop yields, we are talking about bond yields and rising interest rates.  As the Federal Reserve began battling inflation a little more than a year ago with interest rate hikes, Dr. Anderson and I discussed the progression of inflation, interest rates, and the nature of yield curves in a series of articles here on Southern Ag Today.   Over the course of the last 14 months, the Fed has incrementally pushed the Federal Discount Rate to 5.25% as of late May 2023, up from 0.25% in March 2022.

In “Careful on the Curves” from July 13, 2022, we described yield curves for Treasury bills/notes.  Without repeating too much of that discussion, the yield curve is simply the structure of market interest rates or yields for instruments (treasury bills or corporate bonds) with varying maturity dates.  The shape of the yield curve can reveal a sense of what the market expects with regard to inflation and future economic conditions.

Typically, yields increase as the maturity length of a financial instrument increases creating an upward sloping yield curve.  This fairly normal yield relationship reflects the expectation that investors require a higher yield to commit to longer-maturing investments but also suggests relative stability in other factors, such as inflation, economic growth, and market volatility.

Figure 1 shows the progression of the yield curve at the end of each quarter from September 2021 through May 2023.  In today’s market, we find the unusual (up-side-down) inverted yield curve where long-term yields are below short-term yields.  By September 2022, the curve between 3Yr and 10Yr maturities was inverted.  In December 2022, the inversion progressed to cover 6Mo to 10Yr maturities.  In the first quarter of 2023, longer-term rates declined relative to Q3 & Q4 of 2022.  Combined with continued upward pressure from the Fed on short-term rates, today we see the strongest downward sloping curve spanning 1Mo to 10Yr maturities.

There is a well-known quip that economists have predicted 10 of the last 5 recessions.  That line is particularly apt in a discussion of the yield curve.  An inverted yield curve has frequently been a precursor to recession – that’s why people take notice when it happens.  Unfortunately, there is no such thing as a sure thing when it comes to economic indicators; which is too bad because that would make economic forecasting a whole lot easier.  What the inverted yield curve tells us for certain is that the current economic situation is particularly uncertain.  As we write this, the market is trying to figure out how the government is going to navigate the imminent approach of the debt ceiling limit, whether the Fed will continue on their path of raising interest rates, and what OPEC plans to do with oil production.  And those are just a handful of the big-ticket items in play.  These significant market events will be taking place within – and being influenced by – a domestic and international political situation that is tense, to say the least.  So what is a decision maker to do with the inverted yield curve?  The old adage ‘hope for the best, prepare for the worst, comes to mind.  More concretely, that means preparing for two or three quarters of recession (e.g., by minimizing exposure to short-run interest rate risk and protecting equity).  While a recession is not a foregone conclusion, the probability is too high to prudently ignore.

Figure 1.  Treasury Yield by Maturity: Selected Daily Yields, 2021 to 2023

Data Source: U.S. Department of the Treasury.

May 31, 2023
Grass Fed Beef Prices

Cattle ranchers continue to have a significant interest in direct-to-consumer marketing of their own beef. These ranchers are typically aiming to build their own brand and integrated business from the land: from their cattle, to the beef, and on to the consumer.  Some of this beef might be grain finished in a feedlot or grass fed and finished.  Those looking to start selling to consumers often struggle for a bit to figure out pricing their product.  USDA’s Agricultural Marketing Service (AMS) publishes some price data on wholesale, direct-to-consumer retail, and carcass prices for grass fed beef.

Grass fed, direct to consumer retail prices for whole, half, and quarter carcasses were $8.08, $8.28, and $9.30 per pound in April.  All were higher than April 2022 but, whole and halves were lower priced than in March of 2023.  Ribeye steaks were quoted at $31.12 per pound, the highest price in the data which goes back to 2013.  Almost all the reported cuts were higher in price than a year ago ranging from $17.28 per pound more for filet mignon to $0.95 higher for skirt steaks.

There is also some carcass price data through the Small and Very Small (SVS) Producer verified program. The weighted average grass fed carcass price reported under this program was $4.31 per pound in April.  As you might suspect, the weighted average price was the highest, $4.99 per pound in 2020 during the pandemic.  A range of prices are reported and the range at the peak of the pandemic was from $3.20 to $6.75 per pound.  In recent months the range was $3.15 to $5.45 per pound.

The last report we’ll mention here is the National Monthly Negotiated Grass Fed Beef Report.  These prices represent negotiated grass fed wholesale beef prices for a variety of cuts.  Ribeye steaks in April were reported to be $28.65 per pound slightly higher than the $27.79 per pound last April.  Ninety percent lean bulk ground beef was $16.20 per pound, a $6.24 increase over a year ago.

This data, while perhaps not well known, should be a good resource for folks moving into the direct-to-consumer area.  The data allows you check your prices compared to some national average pricing trends and plan for pricing future products.

Anderson, David. “Grass Fed Beef Prices.” Southern Ag Today 3(22.2). May 30, 2023. Permalink

May 30, 2023
Sorghum Exports and Production Expectations for the 2023/24 Season

Current expectations indicate an increase in global and U.S. sorghum production and U.S. exports during the 2023/24 marketing year. Projections indicate 62.18 million metric tons of production globally, surpassing last year’s production of 57.34 million tons. According to USDA forecasts, the United States is anticipated to contribute significantly to the growth in sorghum production as the country rebounds from last year’s drought.

USDA’s May 2023 World Agricultural Supply and Demand Estimates (WASDE) report projects a substantial increase in U.S. sorghum production for the 2023/24 growing season, estimating a 91.5% increase from the previous year, which moves production from 188 to 360 million bushels (Table 1).

Table 1: U.S. Grain Sorghum Supply and Demand

Source: USDA/NASS/ERS/WASDE

The U.S. is currently projected to regain its position as the leading global sorghum producer and exporter. Projections indicate that the U.S. will export approximately 6.00 million metric tons of  the 9.75 million metric tons exported globally.

While domestic consumption is projected to remain the same as last year, export projections suggest an increase in sorghum exports (Figure 1). The U.S. 2023/24 marketing year exports are expected to reach 235 million bushels, a substantial increase to the 90 million bushels exported last year. According to USDA data, China will continue to be a significant importer of U.S. sorghum.  Chinese demand is driven largely by the country’s livestock industry and has made up the largest share of U.S. grain sorghum exports since 2013/14, with the exception of 2018/19.

Figure 1. US Grain Sorghum Exports

Note: 2022/23 marketing season includes export data up to March 2023.
Source: USDA WASDE

Ending stocks are also expected to increase from 25 to 30 million bushels, a 20% increase from the previous year. The average farm price of sorghum is projected to mirror the corn price in the upcoming 2023/24 marketing year, with current estimates indicating an average price of $4.80/bu, a sharp decline from the $6.90/bu estimated for 2022/23 (Table 1). Although a lower price is expected compared to the last three marketing seasons, prices are expected to be above pre-pandemic values. The last season with prices lower than the expected 2023/24 price was in 2019/20, when the average price was $3.34/bu.

In summary, the 2023/24 season presents opportunities for sorghum production and exports, with the U.S. expected to regain its position as the top global producer and exporter.  However, this comes at lower expected prices.

Abello, Francisco Pancho, and Samuel Zapata. “Sorghum Exports and Production Expectations for the 2023/24 Season.” Southern Ag Today 3(22.1). May 29, 2023. Permalink

May 29, 2023
How Much Can I Sell This For? Part II

As a continuation of part 1 of our “How Much Can I Sell This For?” series, we dive deeper to determine how to set our price targets.

It is important to know how much has been invested in order to recoup the cost. Next is to generate revenue greater than the investment in order to be profitable. Capture ALL costs of carrying out a particular activity, often referred to as production or variable costs. This varies according to how much is produced of a certain item. Think of inputs like fertilizer, seeds, irrigation, labor, etc. that will go up as you produce more. Not all crops will have the same inputs or amount of inputs so it is specific to what you are growing. Generally, total cost will go up but the cost per unit produced will go down as you produce more.

Second, there are various costs of operating a business such as insurance, rent, property taxes, utilities, and depreciation. They are not specific to a particular crop but an overall cost to the business. It is important to know these too and then allocate them in a reasonable method. This is where it can be part art and part science. How much of the electricity bill do you charge to the tomato crop for instance? One method would be segmenting the production of your farm, and if tomatoes are roughly 20% of your farm production, you will allocate total general overhead expenses at 20%. Perhaps some costs are allocated completely if it only applies to one enterprise. Another method would be charging a percentage, 10% for example, on top the direct production expenses, as an estimate of overhead costs for the crop. With the second method, a way to check for accuracy is totaling the estimates charged from all crops and seeing if it is close to the actual overhead for the year. If so, the estimate is suitable. Otherwise, you may need to change your percentage or use a different method.

We have done a quick calculation on 1 acre of tomatoes to demonstrate both the art and the science needed to set price targets. The examples and numbers have been simplified and do not reflect actual production costs (Table 1).

Table 1. Example: Total Costs (Allocated and Estimated) for Field-grown Tomatoes (one acre)

To be conservative, we’ll use the allocated method which estimates a greater cost, $11,500. This starts to give targets for marketing the product. The $10,000 of direct cost is the first revenue goal. But ultimately $11,500 or greater needs to be generated for long term profitability. Meaning we are covering the production costs and a portion of the operating expenses for the business.

For further analysis, this can be broken down by yield or expected yield (Table 2). The price per lb. and price per box end up being the same number in the end, but it is a different way to evaluate the information depending on how you plan to sell.

An additional piece of the puzzle is the cost associated with participating in a specific market. If you know there is a market fee, there is mileage, and labor hours, that must be factored in as well. In Part III of “How Much Can I Sell This For?”, we will discuss how to evaluate your marketing expenses.

Burkett, Kevin. “How Much Can I Sell This For? (Part II).” Southern Ag Today 3(21.5). May 26, 2023. Permalink

May 26, 2023