Podcast Summary
Real Estate Manager's Multifaceted Approach to Investing in Egg Prices: Real estate manager Principal Asset uses a comprehensive view to invest in various sectors, including egg prices which have risen due to avian flu and feed price hikes, gaining public attention
Principal Asset Management, as a real estate manager, leverages a 360-degree perspective to deliver local insights and global expertise across various investment sectors, including public and private equity and debt. Egg prices have been rising significantly due to factors such as avian flu outbreaks and increasing feed prices, leading to a substantial increase in the benchmark egg price and the Egg CPI. Eggs, being a highly salient price that people notice and buy regularly, have recently gained significant attention in the public consciousness. As a fun aside, Joe and Tracy discussed the possibility of raising chickens for personal egg production.
The Egg Industry: Large Corporations vs. Small Farms: Large corporations control 80% of the egg market, but smaller farms have seen growth in recent years. Prices are influenced by factors like diseases and the size of producers.
The egg industry is dominated by large industrial agricultural corporations, with the top 20 firms producing around 80% of the eggs in the country. However, there has been a growth in smaller, backyard and semi-commercial farms in the last decade. The price of eggs, which has recently increased, is influenced by various factors including the impact of diseases like bird flu on larger producers. Glenn Hickman, the president of Hickman's Family Farms, a large-scale egg producer, shared insights about the industry's history, size, and distribution. Hickman's Family Farms, which started as a backyard operation in 1944, has grown into a multistate operation with about 10 million laying hens and produces various types of eggs. Understanding the dynamics of the egg industry, including the role of large corporations and smaller farms, can provide context for the current price increases.
Egg Industry: Family-owned Operations and Market Prices: The egg industry is influenced by market prices and family-owned operations. Significant losses and bird flu outbreaks have caused a shortage of eggs and price increases. Producers are price takers and take immediate corrective measures during outbreaks. Family-owned operations continue to dominate the industry.
The egg industry, particularly in the United States, is heavily influenced by market prices and family-owned operations. The industry experienced significant losses in the past few years, leading some producers to exit or downsize their businesses. The recent bird flu outbreak has caused a significant loss of birds, leading to a shortage of eggs and a subsequent increase in prices. Egg producers are price takers in the market and are constantly monitoring their bird populations for any signs of avian flu. When an outbreak is identified, immediate corrective measures are taken to contain the spread. The largest egg producer in the country, Calming Foods, has approximately 44 million birds. Despite the challenges, family-owned operations continue to dominate the industry.
Avian flu decimates poultry farms, causing egg price spikes: Avian flu led to the euthanization of 15% of the nation's egg-laying flock, causing historic highs in egg prices during the holiday season. The industry is exploring a vaccine but it's years away. Other egg futures may provide a hedge against future price volatility.
Avian flu is a rapidly spreading and deadly disease that can decimate entire poultry farms in a matter of days. The federal government responds by mandating the euthanization of infected flocks, leading to significant supply constraints and price spikes in the egg industry. Avian flu is not easily eradicated as it is carried by wild birds and mutates over time. The industry is currently exploring the possibility of a vaccine, but it is likely years away from implementation. The recent outbreak has led to a loss of approximately 15% of the nation's egg-laying flock, causing historic highs in egg prices during the holiday season when demand is highest. The market has since corrected as demand has decreased, but the long-term impact on the industry remains to be seen. Other egg futures, such as those traded on the Chicago Mercantile Exchange, may provide a hedge against future price volatility.
Egg industry price surge caused by pandemic, input costs, and previous industry downturns: The egg industry is experiencing a price surge due to the COVID-19 pandemic, higher input costs, and previous years of negative returns, leading to a lack of expansion capital. Consumers ultimately bear the brunt of inflationary surges.
The egg industry, like many others, experiences price surges due to various factors, including inflation, supply constraints, and production downturns. In the case of the current egg price surge, it's a combination of the COVID-19 pandemic, higher input costs like corn, and previous years of negative returns leading to a lack of expansion capital. The industry is facing constraints in expanding due to cage-free laws and customer demands, which require significant capital investments. The delisting of agricultural futures in the 1970s was due to high concentration and lack of liquidity, but there's a possibility for an egg futures market today. The industry's history shows that consumers ultimately bear the brunt of inflationary surges, which are often the result of previous downturns and supply constraints.
Price increase in grain and Ukrainian war impacted egg industry: Price increase in grain and Ukrainian war led to higher feed costs, affecting the entire livestock industry, including egg production. Despite efficiency gains, the industry still faces challenges such as government mandates and market volatility.
The price increase of grain three years ago, exacerbated by the Ukrainian war, significantly impacted the egg industry by increasing the cost of feed. This led to a ripple effect throughout the food chain, affecting the livestock industry as a whole. Additionally, when disasters such as avian flu outbreaks occur, farmers do receive some compensation for depopulation and cleaning costs, but not for the loss of eggs or the cost of purchasing new chickens. Over the past few decades, the egg industry has seen significant efficiency gains, with the production of corn now yielding four times as many eggs as it did in 1960. These gains have largely been reflected in the marketplace. However, despite these advancements, the industry still faces challenges such as government mandates and market volatility. As a leading real estate manager, Principal Asset Management is uniquely positioned to help businesses navigate these challenges and uncover opportunities in today's market.
Egg Market: Consumers and Retailers Adjust to Price Increases: Despite price increases, consumers continue buying eggs, but in smaller quantities. Retailers use various strategies to manage price fluctuations, including long-term contracts and spot market purchases.
The egg market is highly competitive, and producers constantly seek ways to cut costs to gain a market advantage. Consumers have seen stable egg prices for decades due to these efficiencies. However, recent price increases have led to some consumer pullback and adjustments in industrial uses. Egg demand is inelastic, meaning consumers may reduce their quantity but not stop buying eggs entirely. Retailers employ various strategies, from reflecting price increases to not, and some large egg consumers may enter into long-term contracts or buy on the spot market. The setting of wholesale prices at retail outlets involves a combination of long-term relationships, annual bids, and spot market purchases.
Egg producers adapt to market conditions through strategic expansion: Producers explore vertical integration, feed production, and job creation to meet demand and reduce costs amidst higher egg prices and market fluctuations
Egg producers are carefully considering their expansion strategies in response to higher egg prices, balancing the need to meet demand with the potential for future market fluctuations. Some producers, like Glenn's company, are exploring vertical integration and self-sufficiency to reduce costs and increase efficiency. Additionally, there is a trend towards expanding into feed production to mitigate the impact of higher grain prices. Another notable area is the creation of job opportunities for the formerly incarcerated, which has been a focus for some egg producers since the 1990s. This not only helps address labor shortages but also contributes to social responsibility and community development. Overall, the egg industry is adapting to current market conditions through strategic expansion and innovative practices.
Helping Former Inmates Re-enter Society through Agriculture: The company addresses labor shortages in agriculture by employing former inmates and provides them transitional housing, while also giving them a chance at a stable life post-release.
The company has implemented a successful re-entry program for former inmates, employing them in agriculture and providing transitional housing. This not only helps address the labor shortage in agriculture but also gives former inmates a chance at a stable life post-release. Water is a significant issue in Arizona, and the company has ensured a secure water supply for its farm through owning water rights and drilling wells. As for egg farming, the most productive chicken breeds are typically white or brown leghorns. The company has seen a correction in wholesale egg prices and expects them to level out at a higher price than previous years but lower than the recent highs.
From Grains to Eggs: The Fascinating Process: Efficient breeding and technology have increased egg production per acre, with White Leghorns preferred for high output. Consider priorities and responsibilities when choosing backyard chickens, and be aware of industry challenges impacting prices.
The efficiency of chickens in egg production has significantly increased over the decades due to breeding and technology, leading to a higher output per acre of feed consumed. For those primarily interested in egg production, White Leghorns are the preferred choice. However, if plumage and eggshell color are priorities, the options are more diverse. It's essential to consider the responsibilities that come with owning backyard chickens and ensuring their well-being, especially when it comes to providing consistent care. The egg industry has faced challenges in recent years, including lower production and the impact of avian flu, leading to increased egg prices during the holidays. Overall, the process of turning grains into eggs involves intriguing math, and the industry's focus on breeding efficient chickens can be considered agricultural technology.
New Bloomberg Podcast: Money Stuff by Matt Levine and Katie Greifeld: Bloomberg launches a new podcast, Money Stuff, hosted by Matt Levine and Katie Greifeld, covering Wall Street finance and related topics. Listeners can subscribe on major platforms and sign up for the weekly newsletter.
Tracy Alloway and Joe Weisenthal, the co-hosts of the Odd Lots podcast at Bloomberg, announced a new podcast called Money Stuff. This podcast will be hosted by Matt Levine and Katie Greifeld, who currently write the popular Money Stuff newsletter. Each episode will air every Friday and will cover Wall Street finance and other related topics. Listeners can subscribe to Money Stuff on Apple Podcasts, Spotify, or wherever they get their podcasts. The Odd Lots team encouraged listeners to sign up for the weekly newsletter and visit bloomberg.com/oddlots for more content. Additionally, they reminded listeners to follow them and the producers on Twitter, and to check out all of Bloomberg's podcasts. The team also promoted the American Express Business Gold Card, which offers benefits for business purchases.
