The rise in grocery prices has been a topic of conversation for much of the past year. The Bureau of Labor Statistics (BLS) consumer price index report highlighted this. In 2022, the average year-over-year increase in the food-at-home index was 11.4 percent. More recently, however, heightened attention has been drawn to the price of eggs at retail—a situation that has left many consumers scratching their heads, asking why eggs are so costly nowadays.

For many consumers, egg prices were of little thought – a relatively inexpensive source of protein that could deliver a delicious breakfast or baked dish. For weeks now, numerous multi-media news outlets have continued to highlight the price of eggs, something we have covered in depth over the last year due to the resurgence of High Pathogenic Avian Influenza (HPAI). The most recent headline comes from the January 12th CPI report, which concluded that egg prices increased 11.1 percent from November 2022 to December 2022.

The reason for such an increase is far more complex than one would think.First, egg producers (like other protein producers) have continuously experienced rising input costs since 2021. Energy, a significant business component, reached record levels in 2022. Diesel and gasoline prices averaged $4.99 per gallon and $3.95 per gallon, increasing 51.8 percent and 31.4 percent from 2021, respectively. The highest average weekly price was achieved in June when diesel reached $5.81 per gallon and gasoline reached $5.01 per gallon.

Meanwhile, feed costs also increased. Prices began increasing from late 2020 into 2021 and remain historically high. In 2022, the average price of corn and soybeans increased 18.9 percent and 13 percent, respectively, from approximately $5.97 and $13.92 in 2021 to $7.09/cwt and $15.72/cwt.

Furthermore, labor costs increased significantly in the form of higher wages. As the economy reopened from the pandemic, wages increased across the income ladder, but more so for those in the bottom quartile. The average 12-month moving average of monthly median wage growth for the bottom quartile during 2022 was 6.8 percent, well above the average for the top quartile at 3.9 percent.

In addition to the increased input costs, we must address what is likely the most significant reason behind the increase in egg prices: the re-emergence of High Pathogenic Avian Influenza (HPAI).  Since the inception of the HPAI outbreak this past year, approximately 42.5 million layers, or about 13 percent, have been affected. Therefore, prices have been supported from a fundamental perspective, increasing through historical thresholds affecting both shell eggs and egg products. When we compare the latest data for December 2022 to year-ago levels, the layer population is about 5.8 percent smaller. The market remains in “shock” mode with spurious outbreaks, mirrored by sudden price spikes. From January 2022 to December 2022, the benchmark wholesale average price for a dozen large white eggs increased 247 percent from $1.47 to $5.09.

According to the USDA, the previous 2014-2015 outbreak removed 12 percent of egg layers. During this outbreak, we have concluded that on average, for every 1 percent decrease or increase in egg layers, prices moved nearly 6 to 8 percent in the opposite direction. In 2015 the highest monthly price was achieved in August, averaging $2.71 per dozen. At that moment, layers were nearly 10 percent below the same month the year prior.

On a more speculative level, prices could settle at historically higher thresholds due to “animal spirits,” a term coined by the famous economist John Maynard Keynes. This concept essentially insinuates that as HPAI fears grow, market participants will increase their “normal” purchase levels to secure more supply, thus pressuring prices further upward. Although the claim can be challenging to confirm, on a purely theoretical basis, it may be an additional factor to the increase in prices.

Given the current market conditions, when we break this down even further on a regional basis, California* has seen a more significant increase compared to Urner Barry’s benchmark Midwest price. In 2022, the average price in the California market was $3.45 per dozen, increasing approximately 122 percent from 2021. The most considerable monthly price was recorded in December, averaging $6.35 per dozen. We have seen increased volatility between Midwest and California shell egg prices in recent months. From the week beginning December 12th to the week of January 9th, the average spread between these two regional benchmarks has hovered well above the $1.00 per dozen mark, ranging from $1.14 to $1.93 per dozen. The monthly spread from 2020 until now has averaged $0.48 per dozen.

The reason for the widening gap is something we are still researching. Some could argue that cage-free layers have been more affected by HPAI, yet the USDA data does not specify the type of commercial table egg farms affected by the outbreak to confirm this claim. However, we had witnessed this widening spread behavior before, more recently, at the end of 2021, when the market was preparing to transition to the Prop 12 mandate. The spread also surpassed the $2.00 mark in the previous HPAI 2014-2015 outbreak (the year Prop 2 went into effect).

The more important question remains when the market will see a price correction. Like any business, any additional cost incurred by producers typically gets passed on to the consumer. Holding all else equal, on average, for every 10 percent change in wholesale prices, retail prices move approximately 2 percent in the same direction. Retail prices tend to react within 4 to 5 weeks of changes in the wholesale market. Currently, we project a downward correction for shell egg prices. However, it may be a while before wholesale trade reverts to historical norms. Given the seasonality of shell egg prices and the increase in demand going into the Easter holiday, we may not witness a more aggressive correction until after the holiday wholesale buying. Of course, these projections do not consider additional shocks to the market, including additional HPAI outbreaks. If more outbreaks occur, prices could increase even further.

The Urner Barry Consulting team publishes a bi-weekly egg market forecast, providing data and market intelligence allowing subscribers to identify trends before they happen. Insights help market players negotiate with confidence and create sound business strategies. For additional information, please contact us at (732) 240-5330 or email us at consulting@urnerbarry.com.   

*It is important to note that with Proposition 12 going into effect in 2021, all shell eggs sold in California must come from cage-free layers.

Photo Credit: New Africa / Shutterstock.com

Andrei Rjedkin
Urner Barry
1-732-240-5330 ext 293
arjedkin@urnerbarry.com 

Angel Rubio
Urner Barry
1-732-240-5330
arubio@urnerbarry.com