The resurgence of avian influenza has significantly impacted egg production, leading to a surge in prices and creating a challenging market for consumers and producers alike. According to a recent USDA report, US egg production has decreased by 4% year-over-year, coupled with a 3% reduction in egg-laying hens. This scarcity has driven egg prices to their highest point since January 2023, as reported by Datasembly.
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Egg Prices Soar Amidst Production Challenges
Experts predict this trend of elevated egg prices will persist until producers can replenish their flocks. Kevin Bergquist of Wells Fargo anticipates a “continuation of higher-than-usual egg prices,” potentially extending into the latter half of 2025 or beyond, according to Texas A&M professor David Anderson. The severity of the bird flu outbreak has not only decimated current laying hens but also impacted future generations, hindering flock rebuilding efforts.
California, a state particularly hard hit by the avian influenza outbreak, is experiencing egg prices nearing $9 per dozen. While holiday demand typically drives price increases, Bergquist suggests a potential decline from the December 2024 peak. However, a resurgence in demand is anticipated around Easter. National average prices for a dozen large Grade A eggs reached $3.65 in November, a notable increase from $3.37 in October and $2.52 at the start of 2024.
Lower Feed Costs Offer a Silver Lining for Some Producers
Despite the challenges, declining feed costs for corn and soybean meal offer a margin boost for some egg producers. Professor Anderson highlights the profitability potential for producers who haven’t experienced significant flock losses, citing record-high egg prices combined with low feed costs. He also notes a growing underlying demand for eggs as prices for alternative protein sources like beef continue to rise.
Cal-Maine Capitalizes on Market Conditions
This unique market dynamic presents a significant opportunity for Cal-Maine, the largest egg producer in the US, supplying major retailers like Walmart and numerous private-label brands. David Trainer of New Constructs observes Cal-Maine’s strong performance, attributing it to the company’s ability to capitalize on rising commodity prices. Stephens analyst Pooran Sharma estimates Cal-Maine holds approximately 20% of the US shell egg market.
Cal-Maine’s second-quarter results reflect this favorable market environment, with an 82% year-over-year revenue increase to $954.7 million, exceeding Wall Street’s $751.5 million projection. Net income also surpassed expectations, reaching $219.1 million compared to the anticipated $208 million. CEO Sherman Miller attributes these positive results to higher market prices stemming from restricted egg supply due to the HPAI outbreaks. Sharma likens the current egg market to a “seller’s market,” with consumers actively seeking egg cartons while Cal-Maine ramps up production amidst industry-wide supply reductions.
Analyzing Cal-Maine’s Stock Performance
Despite Cal-Maine’s success, Sharma cautions against investing in the stock at its current price of nearly $105 per share, citing a high price-to-book ratio of $2.51. He points to the 2023 scenario where egg prices and Cal-Maine’s stock declined after the bird flu subsided, suggesting a potential repeat in 2025. However, Trainer views the stock as “very attractive,” anticipating continued outperformance and a potential 10-20% upside before a cyclical peak signals a time for profit-taking. Cal-Maine’s stock has surged nearly 90% in the past year, significantly outperforming the S&P 500’s 24% gain.
Cal-Maine’s impressive performance underscores the complex interplay between supply chain disruptions, consumer demand, and market dynamics in the food industry. The ongoing impact of avian influenza continues to shape the egg market, creating both challenges and opportunities for producers and investors. The future trajectory of egg prices and Cal-Maine’s stock remains subject to the evolving landscape of the bird flu outbreak and its impact on egg production.
