While scrutiny of how consumer goods are priced is beneficial, it\u2019s important to be careful when shining that light out of misguided fervor. Such may be the case with recent claims made by\u00a0politicians and activist groups\u00a0about causes for higher than typical egg prices. There is value in knowing how a specific market works and the impacts of supply and demand when considering price volatility.
\nEgg price volatility came to a head following a perfect storm on the egg industry \u2014 led by a continuing battle with highly pathogenic avian influenza that has ravaged the nation\u2019s flocks (43.2 million\u00a0egg layer birds since 2022). Compounding this issue are higher transportation and labor expenses, increased costs for egg packaging, as well as high prices for corn and soybeans, which are essential ingredients for chicken feed.
\nWhat makes the 2022 avian influenza outbreak different than 2015 is its length \u2014 avian influenza has persisted for more than a year, unlike in 2015 when the disease outbreak was devastating but only lasted through July. The effects of avian influenza, along with broad inflationary pressures, created the egg market that Americans have been experiencing.
\nCommodity markets are complex \u2014 and the egg market is no exception. Egg companies are not setting prices \u2014 they are\u00a0actually receiving a price that is established by someone else, in this case, an exchange that determines the market price via an auction-style method of offers and bids and an independent market reporting service.
\nMany eggs are traded on what\u2019s called the\u00a0\u201cspot market.\u201d Trading levels between egg producers and customers helps set the wholesale price. The more competition for a limited volume of eggs, the higher the price. Low demand for eggs or an excess egg supply will bring prices down. As these trades occur, the value of eggs is determined by buyer demand \u2014 and that leads to the wholesale price.
\nSome egg producers have\u00a0negotiated contracts\u00a0for shell eggs with their retail customers and often that contract reflects a pre-set price based on the price of grain for feed or on the wholesale market price. For some high-value egg products, a fixed-cost contract may be used, which has a preset, fixed price rather than use any prevailing market price.
\nWhen egg supplies are limited, e.g., flock losses related to avian influenza, but demand remains high, e.g., during the peak holiday egg buying season, wholesale prices are exacerbated. Put simply \u2014 egg producers are\u00a0price takers, not price makers.\u00a0Egg prices are set by the demand of those who are buying the eggs on the wholesale market.
\nIt is important to know that when there is an oversupply of eggs and\/or demand is low, many U.S. egg producers experience wholesale market losses, and these periods of loss can last for months, if not years.
\nOne last critical distinction on egg pricing observed in retail outlets: The price grocery shoppers pay at the store is ultimately set by the retailer. The grocery store prices are influenced by the wholesale price, geography, competition, and marketing strategies.
\nWhat does the future hold? While no one can predict the market, it is likely shoppers will continue to experience higher egg prices than 2021, but hopefully not to the recent highs we\u2019ve seen. A return to low egg prices may take time, but the value of eggs as a high-protein staple in the U.S. diet and as a product needed both for consumers and for the institutional and food service markets remains high.
\nAnd while farms affected by avian influenza are bouncing back as fast as possible, avian influenza still looms as a real threat to egg-laying flocks. Put another way: It\u2019s hard to stand up in the ocean when the waves keep knocking you down.
\nMarket volatility will still exist, but there is some relief coming in egg price pressures. The commodity market is signaling that feed prices may be easing and similar indicators suggest the wholesale egg supply is starting to stabilize.
\nAt the same time, however, retailers across the country are stocking up to replenish their supplies and drive consumers back to the egg case. They know consumers expect to see stocked shelves, especially during the fast-approaching Easter demand period. And while wholesale egg prices have been falling steadily since late December, increasing retail demand ahead of Easter may cause this drop to moderate.
\nIn 2022, unprecedented market disruptions all culminated in high egg prices and led to price scrutiny \u2014 but understanding the price-taking nature of the egg industry and its effect on price discovery is critical. Ultimately, eggs continue to be an invaluable product that drives competition and leads to competitive prices for those able to market their products.<\/p>\n