New Equilibrium Price of Egg in the US
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Case Code: ECON081 Case Length: 12 Pages Period: 2017-2019 Pub Date: 2020 Teaching Note: Available |
Price: Rs.300 Organization : The US Egg Industry Industry : Poultry Countries : United States Themes: Micro Economics, Pricing |
Abstract Case Intro 1 Excerpts
Introduction
In October 2019, the average retail price for a dozen “regular” eggs in the US was US$1.12, down 11.6% from a year earlier, when it was US$1.25. The demand for eggs in the US had grown over a number of years except in 2015, when there was an outbreak of the highly pathogenic avian influenza 1 (HPAI) that took the lives of about 12% of the US table-egg 2 laying birds due to disease and culling. 3 With the huge disruption in the market caused by the HPAI outbreak, the prices of eggs in the market soared. After that, the US egg industry started increasing production, leading to egg prices stabilizing in the country. However, the egg prices saw some recovery in 2018 along with high demand and sale of table-eggs due to the changing retail scenario in the country. Supermarket retailers started selling eggs in their stores to increase foot traffic. Higher demand also increased egg production in the country. With the steady expansion of egg production, the supply of eggs outpaced demand and this impacted the egg prices. This trend continued in 2019. Egg prices dropped to below the cost of production around April 2019.
The US egg industry was faced with oversupply. With production and supply of eggs in the country exceeding demand, there was a steep fall in prices. To take advantage of the market demand for cage-free eggs, 5 many farmers went in for rearing cage-free birds in 2019. This resulted in the production of cage-free eggs exceeding demand, leading to the eggs having to be sold at a loss. At the same time, conventional eggs were also selling at a low price, leading to a situation where the market was flooded with eggs. Some analysts said the absence of a trade agreement between the US and its global partners had impacted the export of eggs, which in turn had resulted in the price of eggs falling further.
The lower egg prices affected producers, who lost money, forcing farms to shrink their output. Due to oversupply, the price and profitability of several egg producers was severely affected. Cal-Maine, the biggest US egg producer, reported a 29% reduction in sales compared to the prior year period 6 and a wider-than-expected fiscal first-quarter 2020 loss (41% vs. analyst estimate of 31% 7), for the quarter ending August 31, citing a drastic fall in egg prices. Analysts pointed out that egg prices in the country would fall further if the egg suppliers continued to maintain their production. However, the low price trend could not go on for long and the market had to fix the problem, they said.
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