August 11, 2003

While our accuracy of projecting egg prices in 2002 (based only upon 24 months of hatch) was acceptable, several factors affecting supplies of a short- and long-term nature have caused our projections to fall behind the actual market prices experienced by the industry. Flock hatch is associated with flock size and eggs produced and, therefore egg price.

Any factor, though, which causes an interruption in these relationships, can cause egg price projections to be less accurate. For example, egg export increases above the “normal” level can cause short-term supply changes and therefore prices may increase for several months during the export period and then return to their normal relationship to supply. In early 2003, the END problem in California resulted in the unexpected depopulation of 1.3% of the nation’s laying flock - a major effect on the expected production from the 24 month hatch pool of layers. This effect, though, would extend for a longer period of time until all flocks were re-stocked with laying hens.

The United Egg Producer’s animal welfare initiative is a third example of factors which affect the predictability of egg prices. The real effect is rather immediate for any houses stocked at lower densities, but the effect of the lower hatch takes a longer period to affect the formulas used in egg price projection. The transition period involved in reducing densities will continue to the year 2008 and traditional supply/price relationships will undoubtedly change during this period.

As we entered 2003, we immediately saw the discrepancies between recent projections and recent real prices. For the first 7 months, real prices averaged 8.5 ¢/dozen more than our projections - even though our projections have increased by another 6¢/dozen as a result of the reduced 24 month hatch total.

Gene Gregory brought this to our attention recently that egg producers can see no value in projections that are so obviously off-the-mark. My concern was “how to make the necessary corrections?” and “how long should the corrections last? We decided to continue to use the proven format (24 month hatch + monthly adjustments of seasonal effects) and to add monthly adjustments equal to the discrepancy between the most recent UB MW monthly quotation and the original projection. This is to be applied for the current 12-month projection. A new adjustment will be made monthly.

In January, for example, our original projection was for 77.3¢. The actual price was 83.4¢ - a discrepancy of 6.1¢. The adjusted price was taken to 83.4¢ and the subsequent 11 months were adjusted at the same rate (+6.1¢/dozen). In February, the adjustment was +6.2¢; March was +3.8¢, and so on.

The table below lists the monthly adjustment factors and the resulting price projections for 2003/04.

Table 1 Adjusted price projection for each month projected during the first 7 months of 2003.

Adjustments (¢/doz)

6.1

6.2

3.8

9.9

9.6

12.2

11.6

Month/year to project	Month projection was made (2003)
	Jan	Feb	Mar	Apr	May	June	July
Jan/2003	83.4
Feb/2003	77.7	78.4
Mar/2003	84.2	84.9	84.1
Apr/2003	74.6	75.2	74.2	81.2
May/2003	65.7	66.3	65.1	72.0	72.5
June/2003	71.5	72.1	71.0	77.9	78.5	81.9
July/2003	74.6	75.2	74.2	81.2	81.9	85.3	85.4
Aug/2003	77.8	78.5	77.5	84.6	85.3	88.7	88.9
Sept/2003	73.9	74.5	73.5	80.5	81.1	84.5	84.6
Oct/2003	77.5	78.1	77.2	84.2	84.9	88.3	88.5
Nov/2003	86.5	87.3	86.5	93.6	94.5	98.0	98.3
Dec/2003	85.8	86.5	85.7	92.8	93.6	97.2	97.4
Jan/2004		84.1	83.3	90.4	91.1	94.6	94.9
Feb/2004			77.5	84.5	85.2	88.6	88.8
Mar/2004				91.2	92.0	95.5	95.7
Apr/2004					81.9	85.3	85.4
May/2004						75.8	75.8
June/2004							82.0

The first entry in each column (main body of the table) is equal to the UB MW price for large white eggs. This is comprised of the 24 month hatch effect, the seasonal effect and the adjustment. Subsequent projections down each column are calculated the same way - with the same adjustment. Each column uses a different adjustment (listed at the top of the table) based upon the current discrepancy between projected (old method) and real prices.

Example: If we look at the row titled “July/2003", we can see the history of price projections for that month. Back in January, they were 74.6¢, by April they increased to 81.2¢, and by June they reached 85.3¢/dozen. The real price turned out to be 85.4¢/dozen.

A study of adjustment factors at the top of the table illustrates the changing conditions in the industry which necessitate such adjustments. In March, the adjustment was only 3.8¢, by April, the required adjustment rose to 9.9¢, and by June, it had risen to 12.2¢/dozen.

The new system recognizes the existence of change and corrects for it, but it doesn’t predict change and, therefore, adjustments will continue to be required for the foreseeable future.