The Great Eggflation

CRITICAL CONTEXT: HOW TO MAKE AN EGG

To understand the dynamics driving the egg market, it’s essential to grasp the basics of egg production, which hinges on two key factors: hen productivity and the cost-efficiency of inputs, particularly feed.

The Production of Laying Hens

To produce an egg, you must start with a laying hen. Dynamics relating to laying hens include:

• Time-to-Egg: Hens mature to the point of laying eggs in 18-22 weeks, requiring 6kg of feed before their first lay—an upfront cost repaid through their lifetime egg production.

• Productivity: Modern hybrids can lay 300–327 eggs per year, with some management practices enabling extended cycles that reach 500+ eggs over 100 weeks, increasing the revenue generated by each hen.

• Biological Variability: Genetics contribute to hens’ laying rate, feed efficiency, and shell quality.

Producer Inputs:

• Feed: By far the largest cost to egg producers is their feed, which accounts for 60-70% of variable expenses. For the average hen, one can expect:

  • Daily intake: 100–105g of feed results in a lay rate of one egg per day.

  • Yearly consumption: 35kg of feed per hen.

• Other Costs: Labor, depreciation, and overhead account for 30-40%.

Ultimately, production-side profitability is shaped by the price of feed, how effectively it’s converted into eggs, and how efficiently producers maximize the productive lifespan of their hens. 

CRITICAL CONTEXT: THE UNITED STATES EGG MARKET

The table egg market is expected to generate $12.7 billion in 2025 in revenue primarily serving a domestic market with approximately 2.3% of total egg production exported over the first ten months of 2024.

Producer Concentration

The top 20 producers collectively account for 70% of U.S. egg output, creating an oligopolistic structure that allows the largest players power over the price of eggs. The top 5 producers include:

1. Cal-Maine Foods: 44.51 million hens (20% market share)

2. Rose Acre Farms: 25.50 million hens 

3. Daybreak Foods: 20.5 million hens 

4. Hillandale Farms: 18.75 million hens

5. Versova Holdings: 18.45 million hens

In 2023, a jury found several egg producers guilty of limiting egg production to drive up egg prices and increase profitability.

A Bifurcated Market:

The egg market is split into two differentiated segments with distinct economic behaviors:

1. Conventional Eggs (72.6% of share)

• Conventional eggs function as a perfect commodity, with products viewed as undifferentiated and purchase decisions driven solely by price.

• The majority of conventional eggs are sold through wholesale contracts tied to market prices.

2. Specialty Eggs (Organic, Free-Range, etc.)

• Specialty eggs are brand-differentiated and command a price premium over conventional eggs.

• These eggs exhibit greater price sensitivity where higher prices lead to purchase of conventional eggs as a substitution. 

Consumer Demand Price Sensitivity

On the consumer side, conventional egg demand is inelastic, meaning price increases don't significantly reduce consumption due to limited substitutes. For example:

• EU Transition to Cage-Free (2012-present): Higher production costs led to higher egg prices, but consumption remained steady.

• Current Bird Flu (2022-present): The outbreak killed 150 million hens, causing prices to jump, but sales have only slightly declined.

Meanwhile, specialty eggs exhibit greater price sensitivity, as consumers often opt for the conventional alternative.

THE SHOCK: H5N1 OUTBREAK

H5N1, or avian influenza (bird flu), is a highly pathogenic strain of the influenza A virus that primarily affects birds, with the potential to infect humans and other mammals. The ongoing outbreak, which began in 2020, has spread globally, impacting poultry in the U.S. since February 2022.

Emergence, Severity, & Spread: The H5N1 virus, first identified in domestic waterfowl in Southern China in 1996, has evolved into a global threat. As of February 2025, it has reached every continent except Australia. In the U.S., the virus caused severe damage to the poultry industry, with mortality rates in infected chickens reaching 90% to 100%, often within 48 hours.

Transmission Mechanisms: H5N1 is highly contagious, making it difficult to manage. Some of the ways it is spreading include:

• Wild Bird Contact: Migratory birds, especially waterfowl, play a significant role in spreading the virus to farm chickens.

• Environmental Contamination: The virus spreads through contaminated feed, water, and other environmental factors.

• Human-Mediated Transmission: Biosecurity lapses, such as contaminated equipment or clothing, can introduce the virus to farms.

• Airborne Transmission: Recent studies show that H5N1 can spread via airborne routes, potentially over long distances, infecting chickens placed far from infected birds.

THE CURRENT SOLUTION: MASS CULLING

The primary method of controlling the outbreak has been mass culling (i.e. euthanization), which has led to a 3.7% reduction in national poultry flock size as of January 2025. Since 2022, over 150 million poultry birds have been culled in the U.S. This measure eliminates the potential for herd immunity by not allowing birds to survive and produce antibodies. 

The United States Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) has been pursuing a ‘stamping out’ policy which  has disbursed $1.138 billion to compensate for culling birds that have been infected and the associated lost egg production, along with an additional $326 million for preventive measures.

PUTTING IT ALL TOGETHER: PRICE SURGE

The reduction in laying hens has caused a drop in egg production. Coupled with inelastic consumer demand, this has driven prices to their highest levels in 45 years. Key factors influencing the price surge include:

• High Transmission Rates: Infections spread rapidly within farms, often leading to total flock loss, putting both production and financial stress on operators.

• Unexpected Early Deaths: Premature hen deaths lower lifetime egg yield, reducing the profitability of each bird.

• Replacement Lags: Replacing hens takes time; raising a new flock requires at least 18–22 weeks, creating gaps in production.

• Specialty Eggs, Wildlife, and Substitutions: The outbreak has hit specialty eggs especially hard. Consumers are shifting from premium eggs to conventional ones, while free-range hens—more exposed to wild birds—face a higher infection rate.

• Feed Costs and Grain Prices: Feed costs, which make up 60–70% of production expenses, initially surged in early 2023, further burdening producers. However, grain prices have since declined, meaning they are not responsible for the recent spike in egg prices.

So why are the industry's largest players seeing record profits?

TOO BIG TO FAIL?
Large egg producers have largely benefited from the H5N1 outbreak, using their scale to gain key advantages. To illustrate this, we examine the largest producer, Cal-Maine Foods, as a case study.

Cal-Maine has seen an 82% revenue increase, with profits soaring 456%, driven by improved margins from higher egg prices.

The Case of Cal-Maine Foods:

✅ Diversified Production: With operations across 14 states, Cal-Maine offsets losses from outbreaks in one region with production from unaffected facilities. Recent outbreaks in Texas and Kansas have had limited impact on overall output.

✅ Superior Biosecurity: Larger producers can invest in more advanced biosecurity protocols, reducing disease spread. While smaller farms struggle with infrastructure costs ($38,000–$41,000 on average for small operations), Cal-Maine benefits from:

• Lower-than-average outbreak rates

• 99.8% FDA compliance, backed by 24 comprehensive food safety audits annually

✅ Strategic Growth & Consolidation: Market crises like the H5N1 outbreak weaken smaller farms, making them prime acquisition targets for larger players with strong cash reserves. Cal-Maine has capitalized on this by:

• Acquiring ISE America for $110M, expanding its production capacity and market reach (Completed: June 28, 2024)

• Acquiring Tyson Foods' Dexter Facility, which will be converted into an egg-producing site (Completed: March 14, 2024)

• Acquiring Deal-Rite Feeds' assets, strengthening its supply chain with feed mills, storage, and transport infrastructure (Completed: February 3, 2025)

✅ Government Funding Access: A significant share ($301 million) of federal indemnity payments has gone to the top four producers, as larger companies are better equipped to navigate bureaucratic processes. Cal-Maine alone received $44M for culling infected birds.

✅ Pricing Power:As a dominant player, Cal-Maine can strategically adjust prices in response to supply shortages. With inelastic demand, consumers continue purchasing despite rising costs, boosting profit margins.

The H5N1 outbreak and resulting price surge have been a major windfall for Cal-Maine Foods. However, despite record profits, its stock remains relatively undervalued, trading at just 6.86 times earnings—far below the S&P 500 average of 26.4. This suggests investors anticipate a decline in future earnings, even as H5N1 continues to disrupt production and Cal-Maine continues to capitalize on the crisis.

SOLUTIONS TO THE H5N1 CRISIS

Since culling does not enable herd immunity, scientific and technological interventions will likely be required to control the H5N1 outbreak, which has worsened annually—though it improves during the summer months. Three key areas of innovation have emerged:

1. Vaccination

Vaccination is a critical tool for protecting poultry from H5N1, but widespread adoption faces challenges. Broiler (meat bird) producers fear trade disruptions and potential annual losses of $10 billion due to foreign buyers rejecting vaccinated birds. Some countries ban poultry imports from vaccinated flocks, fearing that vaccination could mask the presence of the virus.

Despite these hurdles, several companies are making progress:

• Zoetis (NYSE: ZTS): Received conditional approval for its H5N1 vaccine on February 14, 2025. On the same day, Cal-Maine’s stock dropped from $108.60 to $95.10, reflecting the market’s sensitivity to vaccine developments.

• Moderna (NASDAQ: MRNA): Conducted a pre-clinical trial on ferrets, demonstrating the effectiveness of mRNA vaccines for H5N1. However, Moderna is currently focused on human applications.

• Europe: The Netherlands is testing the VAXXITEK HVT+IBD+H5 vaccine in field trials on 1,800 layer hens, showing reduced mortality and lower virus shedding.

2. AI-Driven Early Detection

Artificial intelligence is being deployed to enhance early detection, allowing for more efficient culling and better outbreak management.

• Chicken Checker (Phytobiotics, private): A newly launched mobile app that analyzes farm feces for early infection signs, helping farmers detect and respond to outbreaks sooner.

3. CRISPR & Genetic Engineering

CRISPR gene-editing technology offers a long-term prevention strategy by modifying poultry genetics to enhance resistance to infection.

• CSIRO (Australia): Developing protein-targeting strategies to inhibit HPAIV replication in poultry cells, potentially preventing outbreaks at the genetic level.

• University of Edinburgh (Roslin Institute): Used CRISPR to edit the ANP32A gene in chickens. 9 out of 10 edited birds resisted infection, with no transmission to unedited chickens.

• Cellecta Inc.: Created a CRISPR Chicken Genome-Wide Knockout Library, unlocking new possibilities for agricultural disease resistance.

Each of these solutions presents both opportunities and challenges for controlling H5N1, shaping the future of poultry production in the U.S. and beyond.

RECENT GOVERNMENT ANNOUNCEMENTS:

In the past 48 hours, the Trump Administration has unveiled a $1 billion plan to address the H5N1 crisis and soaring egg prices. Despite this initiative, the USDA's current "stamping-out" policy remains unchanged, according to Rosemary Sifford of the USDA's Animal and Plant Health Inspection Service.

Key components of the plan include:

• $500 million allocated for enhanced biosecurity measures

• $400 million for financial relief to affected farmers, including indemnity claims for culled animals

• $100 million dedicated to vaccine research and development

The administration is also exploring ways to increase egg imports and reduce regulatory burdens to boost supply, which may alleviate prices but could disrupt domestic producers.

Despite these policies, the USDA projects a 41.1% increase in egg prices for 2025. This projection has been revised upward from an earlier estimate of 20% in January.

As the H5N1 outbreak persists, the U.S. finds itself at a critical crossroads. One path emphasizes the current strategy of culling infected flocks and bolstering biosecurity measures, while the other offers the transformative potential of vaccines and technology. Yet, whether vaccines are ultimately pursued or enhanced biosecurity measures prevail, effective solutions will require several months—if not years—to be implemented.

Historical trends indicate that the epidemic will likely persist in the near term, with the seasonal respite of summer providing only temporary relief. Moreover, if recent patterns continue, the largest industry players are poised to sustain their robust profitability, further cementing their market dominance through ongoing consolidation. In this pivotal moment, balancing immediate crisis management with strategic, forward-thinking investments is essential to mitigate the burden of high egg prices in both the short and long term.


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