An Egg Economics Update

Profits and Losses - 1966 to 1999

Egg production companies in business over the last 30 or more years have seen almost as many negative income years as positive ones. Analyses of costs and income for Southern California between 1966 and 1999 (34 years) indicate we have had 18 positive income years versus 16 loss years. Overall, our estimates show a 2 cent per dozen profit which amounts to about $.40 per hen per year. Table 1 lists these results.

Table 1. Southern California Egg Industry Profitability - 1966 to 1999

We recognize that this does not represent all regions of the country nor all egg production firms, but it does illustrate the relatively low profit level of our industry and documents why so many producers have gone out of business during this time period. If our estimates of costs and egg income are reflective of a sizable portion of our industry, we would assume profitability levels of most producers would be + or - 4 cents per dozen from the average. In other words: Between minus 2 cents/dozen and plus 6 cents/dozen.

Interestingly, periods of profits or losses seem to come in groups from 2 to 4 years in a row. Only during 5 years of this period have we seen a single year of either losses or profits stand alone. In other words, most of the time, a given situation is repeated the following year. This probably reflects the amount of time required to correct surplus problems and the time for profits to translate into extra chickens. As noted by Table 2, loss years commonly come two years at a time. On the other hand, profitable years come mostly in single years or in 3 year groups.

Table 2. The Frequency of Profitable and Loss Years - 1966 to 1999.

Current correction (from a loss year in 1999) to a profitable year in ?? would appear to be at least a year away if we consider national flock size as one of our more reliable indicators. UEP is currently projecting the year 2000 flock at 10 million more than the 1999 flock. We are projecting 8 million more. This is in light of the fact that 3 million more hens are required for the increase in population and a modest increase in per capita consumption. The projections indicate a layer population increase of 3 times the requirement.

Table 3. Projected US Layer Numbers - 1999 vs 2000.

The industry is caught up in a game of "whats best for me is the most important thing even though it's not the best for my industry". Another game the industry is playing is " how many chickens can I crowd into my new cages "? What was a sound decision relative to cage density 5 years ago, is all of a sudden an unsound one as additional birds are placed into already full cages. Cages that were at one time acceptable as 6 or 9 bird cages are now considered to be 7 or 10 bird cages. I suppose someone's now placing 8 and 11 birds in this same cage under the presumption that "this makes some kind of economic sense"!

During the 1960 to 1994 period, the University of California ran some 52 carefully conducted experiments comparing a given colony size with an additional hen. These experiments were conducted both on commercial egg farms and in University facilities. The result of these 52 comparisons with all sizes of cages is listed in Table 4.

Table 4. University of California Cage Density Experiments - 1960 to 1994.  The Effects of Adding One Bird per Cage.   (a) equals the smaller colony size, (b) equals one additional hen.

In general, hen-housed egg production was 18-19 fewer eggs when an extra hen was placed in a variety of different cages. This represented a lowering of space from 79 square inches per bird to 57 square inches. Egg production appeared to suffer its greatest loss with the two smaller cage sizes. This would be expected because of the greater change in space and colony size for the smaller units.

Mortality increased from an average of 9.9% in the average 49 week test to 15.6% when one hen was added per cage. The larger the cage, the lower the increase in mortality as a result of adding an extra bird.

Daily feed consumption per bird decreased slightly with the addition of an extra bird. This amounted to about one half pound per 100 hens per day or slightly less than 2 pounds per hen per year. Feed conversion averaged 4.03 pounds/dozen for the less crowded birds compared to 4.14 pounds/dozen for the crowded birds.

Case weights favored the more crowded cages by .2 pounds per case. Larger eggs were seen in 3 of the 4 cage size groupings.

Economic Interpretation

Producers who place extra hens per cage do so to reduce housing costs per bird and per dozen. They believe "total earnings" will be higher to have more hens than to worry about possible production problems from adding the extra hen per cage. The question can be answered for a specific set of conditions, but unfortunately, one policy will not be the correct one for changing economic conditions from year to year. One must first decide whether or not the company is a low, moderate or high margin company and then select the program which best fits. Low margin companies (or periods) cannot afford to crowd if performance suffers too much. If margins are only a few cents per dozen, losses in production can easily off-set the increases in production by having the extra bird densities.

Remember, the 7^th bird in a 6 bird cage requires the purchase of 16% more pullets and almost 16% more feed and has the potential of decreasing the annual egg production of all 7 birds by 15-20 eggs per year.

Dr Bill Roush of Pennsylvania State University developed a spread-sheet program many years ago to calculate net profits from different density situations using various economic factors. We have used this program to calculate expected profits for two of the more common cage sizes:

        Average egg prices were assumed to be: $.40, $.45 and $.50 cents/dozen

        Feed prices were set at $5.00, $6.00 and $7.00 per 100 pounds.

        Pullet prices were: $2.50 each.

The results are expressed as "egg income minus feed and pullet costs - per cage".  The emphasis, therefore, is dollars available to pay for housing, equipment, labor, etc. The goal should be to have the maximum residual income per cage (or house) after paying for pullets and feed.

Based upon the studies listed in Table 4, we've used a common conservative estimate for the egg production and feed intake depression associated with more birds per cage and a similar approach to the expected increase in mortality. This represents the period from 20 to 72 weeks.

Effects of adding an extra hen per cage:

    Fewer eggs:                                   15 eggs per hen housed

    Decrease in daily feed intake:    0.5 lbs per 100 hens per day

Smaller cage sizes (less than 5 bird cages) would be expected to have a greater loss in egg numbers than we used for these two examples (see Table 4).

At $.40 per dozen egg prices (blend) and the lowest feed prices, the 7-bird cage had the highest residual income after paying for the pullets and feed. As feed price increased, the advantage first shifted to the 6-bird cage and then to the 5-bird cage at the highest feed price.

At $.45 and $.50 per dozen egg prices the optimum colony size remained with the 7-bird cage for 5 of the 6 combinations of egg and feed prices.

This emphasizes the need for lower densities when margins are low.

Telephone: (909) 787-4555, Fax: (909) 787-7251, E-mail: don.bell@ucr.edu