Egg market disrupted in U.S. by bigger bird cages

Eggs are about to get more expensive, as California moves to make sure hen houses are roomy enough to allow the birds to lay down, stand up, extend their wings and dance around.

Farmers nationwide who want to continue selling to the most populous U.S. state are moving to comply with a new law, taking effect next month, that requires the larger cages. They either must build more hen houses, or house fewer birds in the ones they have, raising their costs.

Wholesale egg prices already average a record $2.27 a dozen nationally, up 34 percent from a year earlier. With the new law, the price Californians pay may jump as much as 20 percent for shell eggs in three to six months, according to Dermot J. Hayes, an agribusiness professor at Iowa State University in Ames. The rest of the country will probably follow suit, he said.

"You're going to see some really large spikes in the price of eggs in January," said Scott Ramsdell, who owns Dakota Layers LLP in Flandreau, South Dakota.

California imports more than 30 percent of its eggs from other states. A California Department of Food and Agriculture rule says that an enclosure containing nine or more hens that produce eggs sold in the state needs at least 116 square inches (748 square centimeters) of floor space for each bird, a 73 percent boost over the current standard.

Voters in California approved Proposition 2 in 2008 calling for egg-laying hens to have space to move. Subsequently, Assembly Bill 1437 was signed into law, applying to all eggs sold in the shell in the state. These rules all go into effect Jan. 1 and don't apply to liquid eggs or chickens sold for meat.

Culling Flocks

In October, there were 302.6 million egg-supplying hens in the U.S., according to the most recent government data. To comply with the California rules, some farmers are choosing to make their flocks smaller rather than invest in larger cages, according to Ramsdell. He estimates that at least 10 million hens could be culled by the end of the year.

"I think we're going to have a shortage starting January 1, and it's going to get worse until production meets the needs of demand," he said.

Ramsdell has 1.3 million birds living in seven hen houses, he said. He's building two more that will be complete by February, and is planning another two soon after that. He estimates the expense of meeting California's standard will boost the industry's production costs by about 25 cents a dozen.

"We've been watching this coming on for the last five years, and most people have been in denial," he said.

Rising Consumption

The price disruptions have arrived just as consumption is increasing. Rising prices for beef, pork and chicken have made eggs a more popular source of protein. The average American will eat 266 eggs next year, up from 261 this year and the most since 1980, according the the Egg Industry Center in Ames, Iowa.

Farmers in Europe went through the same experience after similar laws took effect in 2012. Egg prices there jumped 41 percent that year. However, the prices in Europe declined 21 percent the following year as the industry eventually adapted to the new requirements.

That may also happen in the U.S. because there are a lot of variables in play. High prices may eventually slow consumer purchases. Additionally, farmers that don't meet California's standards might avoid the state altogether, potentially creating a surplus in the rest of the country.

"It's really uncertain what the impact is going to be," said David Harvey, an agricultural economist with the U.S. Department of Agriculture.

'Ill-Prepared'

The industry may be "ill-prepared" to properly respond, according to Francesco Pellegrino, a New York-based analyst for Sidoti & Co., who sees California prices spiking higher next month. That could mean the situation would "get really ugly," he said in a telephone interview.

The effects of the California legislation are being seen even before it takes effect. Retail prices in California have jumped more than a quarter to as much as $4.49 a dozen at major retailers in the past 30 days, said John Brunnquell, president of the specialty egg producer Egg Innovations, which has operations in four Midwest states. While that's due partly to typically strong demand going into the holiday season, it is exacerbated by farmers preparing for the California law, he said.