Slump in profits for US egg packer Cal-Maine Foods

High feed costs are hitting not only United Kingdom egg producers. Huge rises in the price of feed have contributed to substantial losses for free range egg producers here in the UK, but high commodity prices are also impacting on producers elsewhere. In the United States the country’s largest producer and distributor of eggs has reported a slump in profits as a result of the hike in feed costs.

Cal-Maine Foods’ fourth quarter profits were down by as much as 65 per cent on the same period last year, and president and chief executive, Dolph Baker, seems to suggest that the results could have been even worse. "Our results for the fourth quarter of fiscal 2011 reflect a more challenging environment compared with the previous year period. The higher retail demand associated with a late Easter holiday and a slightly smaller national flock helped boost egg prices by an average of five cents per dozen for the quarter. However, feed costs have continued to escalate and were up 12 cents per dozen compared with the same period a year ago, which affected our profitability for the fourth quarter," he said.

The huge fall in profits comes despite increased sales. For the fourth quarter of this financial year net sales were $242.4 million compared with net sales of $222.1 million for the fourth quarter 12 months ago. Net earnings this time were $7.3 million (or $0.30 per basic share). Last year fourth quarter net earnings were $21.0 million (or $0.88 per basic share). Figures for the full year showed that net income was down to $60.8m against $67.8m in the previous year. This was despite a 3.5 per cent increase in sales to $942m.

Dolph Baker said that although he was pleased with retail trends, he expected the cost of feed to remain high.

"For fiscal 2011, we were pleased with our overall higher sales compared with fiscal 2010. Specialty egg sales, which carry a higher selling price, have continued to grow and accounted for approximately 24 percent of shell egg revenue and 16 percent of total dozens sold for the year. We are encouraged with the strong retail demand trends; however, we anticipate feed costs will remain very high and volatile."

AgriMoney says that Cal-Maines’ results are the latest in a series of signs that the US poultry industry is feeling the pinch from elevated feed bills. It says that, starting in May, the level of eggs placed in incubators fell by six per cent year on year, according to the latest US Department of Agriculture data.

Egg farmers in California say soaring feed, fuel and other production costs are quickly eroding farm income. Jill Benson, who is vice president of JS West in Modesto, said in a release by the California Farm Bureau Federation that about 65 percent of the total cost of producing an egg was in feed and this year she had seen a 35 percent rise in that cost. At the same time she was also earning about 14 cents less for a dozen eggs than she did a year ago.

Others who contributed to the California Farm Bureau Federation analysis included Richard Jenkins, owner and CEO of DenDulk Poultry Farms in San Joaquin County. He said that while feed was a huge part of his production costs, skyrocketing fuel prices had also put a squeeze on another significant part of his operation, which also packs the eggs and delivers them to stores such as Safeway and Costco. He was able to pass some of that cost on in the form of fuel surcharges, but not to those customers whose contracts were already locked.

Peter Schue, another San Joaquin County egg farmer, said he was currently absorbing the higher delivery costs and was very concerned with where fuel prices were heading. At the same time, he was concerned about egg prices. "I have no idea where the market is going to bottom out, but I’m pretty sure it’s going to be somewhere around where our feed cost is, so that doesn’t leave us anything to pay for labour or anything else."

Arnie Riebli, a Sonoma County egg farmer who has seen his feed costs go up by more than 50 percent and his eggs sell for about 20 cents per dozen less this year, said fluctuating production costs and commodity prices were nothing new to farmers, and everyone was trying to deal with that by tightening their belts.

In its forecast for farm income and costs, which was updated in February this year, the United States Department of Agriculture (USDA) pointed to a substantial increase in feed costs in 2011. It said that after rising by $18.9 billion (67 percent) from 2006 to 2008, feed expenses had fallen by almost $2 billion in 2009 and were expected to have been nearly flat in 2010. However, it said that in 2011 feed expenses were forecast to again make a sizeable jump, going up $4.6 billion (10.2 percent).

"The two factors contributing to the forecast are a 9.7 per cent increase in the feed prices-paid index and a modest projected rise in livestock output. The reason for the upward movement in the feed prices-paid index is the jump in feed grain and oilseed prices. The calendar-year price for corn, which constitutes over 90 per cent of feed grains used, will be up 26 per cent in 2011. The calendar-year price for soybeans, the primary ingredient in soymeal, the principal oilseed feedstock, is expected to be up around 15 percent."

Whilst companies in some sectors have been able to offset costs by increasing prices, egg producers in the United States have, it seems, been unable to do the same. Like their colleagues here in the United Kingdom, American egg producers appear to be finding themselves squeezed between increasing input costs and depressed prices.