Donald Bell, Poultry Specialist Cooperative Extension - Highlander Hall-C University of Caliiornia, Riverside, CA USA

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1 - COOPERATIVE EXTENSION UNIVERSITY OF CALIFORNIA NUMBER 209 November 18, 1998 Donald Bell, Poultry Specialist Cooperative Extension - Highlander Hall-C University of Caliiornia, Riverside, CA USA Il@sr.edu Lower Feed Prices - Their Effect on the Cost of Replacement Pullets and the Cost of Production I -. Las? month s Egg Eccno~mics Update focused on the effects of reduced feed prices on the cost of feed per dozen and egg costs in general. With feed estimated at $8.06 per 100 pounds in January and $6.3 1 in mid-october, we saw a reduction in feed cost per dozen of 8.1 cents (from 30.4 cents to 22.3 cents). This resulted in a lowering of total costs Corn cents to 43.3 cents per dozen. Lower feed costs also affect the costs of producing replacement pullets. Though not as dramatic, there is still a substantial effect. Table 1 compares the estimated costs for 16, 18 and 20 week pullets using feed prices ranging from $6 to $9 per 100 pounds. These costs were based upon the following feed consumption levels: 16 weeks lbs. per survivor 18 weeks weeks Mortality rates were assumed to be equal for each week with a total of 4% to 20 weeks of age. The reduced feed prices in 1998 would decrease the price of a pullet from January to mid-october by: 16 weeks $16 18 weeks % weeks %.24 Table 1. EtXects of diierent feed orices P v. =+nlacement.-,, nullet ccsts %2.28 Feed Pf6;;rW ( 16 wy=;, age 18 weeks %2.08of age 20 weeks of age %1.95 $2.15 $2.36 $2.00 $2.21 $2.44 $2.06 $2.28 $ TheUntvenfydcaWtxnbh.- $9.00 II $2.22 I $2.48 I $2.75 ~IOX&WW vdh.ypbxbb Federal and Slate bw and Unrverdty po&y. does nol dlscrmmte on the basis of race. color, natkmal origh. ml&m, W. m. age, rnedkal condltbn (cancer-reinted) ancestty. marilal status. cillzenshp, sexual ofbnlauon. or slalus as a Vbtnam-wa v&ran of special dkmbbad velann. The univw also prohsns sexual haraamefl L Inqulrbs regardhg the UnivemNy s nond~tlon pokies may be dkected IO the ARkmaUve Action Director. Untvuslly of Callbmb. Agficullun and NatureI Resoufuo. 300 LakeaUe Crtvo. 5th Fbor. Oakhnd. CA (SlO)Oe74096.

2 ? I Table 2. Effects of different feed prices on replacement pullet costs per dozen eggs. Feed Price ($/loo) 20 week cost Cents/dozen Pullet flock (26.5 dozen eggs) $6.00 $ $6.50 $ $7.00 $ $7.50 $2.52 Cents/dozen Molted flock (34.5 dozen) Table 2 (above) illustrates the changes in replacement costs per dozen as the result of changes in feed prices for 80 week pullet flocks compared to 105 week two-cycle flocks. Since the first of 1998, changes in feed prices have reduced production costs per dozen by.9 cents per dozen for pullet flocks and.7 cents per dozen for two-cycle flocks. Table 3 (below) lists the components of cost associated with the data in Table 1. Mist

3 Y The data on the previous pages were calculated with A more detailed description and a sample copy of the - the use of a Lotus l-2-3 spreadsheet designed to generated report can be obtained from the author (Don produce a weekly cash flow of expected costs Bell). A copy of the software (template) is also associated with raising a flock of replacement pullets available with 9 other programs. Call for more to various ages. This spreadsheet summarizes information. mortality, feed consumption, and 18 items of cost by week number (and dates). Copies of cost sheets using 7 different feed costs are also available from the author. Major U.S. Egg Production States - Surplus/Deficit Layer Counts Through, the years, the concentration of the table egg industry has moved from one region to another. At the turn of the century until the 1940 s, Iowa. Missouri, Illinois, and Ohio were all in the top four states in the production of eggs (hatching plus table). Iowa remained in the number one position until 1959 when California zoomed to the top. By 1990, Iowa had dropped to the number 10 position and Indiana, Pennsylvania, and Ohio became numbers 2,3, and 4 respectively. Today (1998), we see a new ranking: Ohio 27.3 million * California 24.6 Iowa 22.4 Indiana 21.3 Pennsylvania 20.4 * September 1998 (table egg layers in 30,000+ hen flocks) The surplus or deficit status of individual states can not be calculated with high precision because of the unknown per capita consumption rates on a state-bystate basis. Obviously, the market for an individual state s eggs are not wholly within the state and in several cases, more than 75% is shipped across state lines to neighboring or more distant states. The map below illustrates the concentration of major egg surplus states in the states surrounding the Great Lakes region. Six states in this region - Iowa, Indiana, Ohio, Pennsylvania, Nebraska, and Minnesota - have 72 million layers in excess of their own state needs. The major populated states of New York and Illinois are deficit 14 and 8 million hens respectively. Other major deficit states include California and Texas, each with about 5 million hens short of their needs. The map below and the figure on the next page illustrate these surplus/deficit state relationships. Major Surplus/Deficit Table Eqq Production States jmillions of hens)

4 Major U.S. Eqq Production States State Surplus/Deficit Laver Counts Surplus/Deficit in Millions of Layers Projected U.S. Table Egg Layer Population Current (November) projections of layer numbers for 1999 are shown in the table below. This represents the estimates for United Egg Producers (UEP) and for the author (UC). These estimates are compared to 1998 layer counts with estimates for November and December of Average layer number estimates for 1999 (beginning month counts) are currently: UEP UC 262 million 260 million million Table 4. Projections of monthly beginning layer counts for 1999 compared to United Egg Producers (UEP) and University Universitv of California (UC) II * est. Prepared by Don Bell, Poultry Specialist, November 16,

5 How Should Medium Eggs Be Priced? - In 1998, we ve seen medium prices vary from 50% of the value of large eggs ( September ) to as much as 87% (November). On the basis of value (weight), a 2 1!A ounce dozen of medium eggs should be worth about 88% of a 24 /z ounce dozen of large eggs. Large/medium spreads in price have ranged from 8 cents (currently) to 31 cents in September. Does (or should) the value of medium eggs really vary this much or is this just overreaction to historical trends? What purpose is served by making this spread so great? Does a change in the relationship really move more eggs? In practice, small eggs have priced at a fixed relationship to medium eggs for many years. Most buyers of nest run eggs price small eggs at 20 cents per dozen less than medium eggs. Would such a fixed relationship be feasible in pricing medium eggs as well? In terms we can all understand, the following prices would be equivalent on a weight basis: /I Equivalent values based on a common price per unit of weight * Large egg price?,,l Ill Medium egg price 1.r * Medium eggs at 87% of the large price The figure at the bottom of the page illustrates the steady erosion in medium values. Medium eggs have lost.34 cents/dozen value per year for the twenty years - with differences ranging from about 6 cents/dozen in 1978 to 15 cents per dozen in Producer Price Ranges - Large vs Medium Eees Cents 16 i per dozen California to Years -5-

6 The changes in the large/medium egg price relationships have had a marked effect on blend egg prices as well - (average price for all eggs). Even though mediums represent only 10 to 15% of all eggs produced, higher percentages occur in the summer simultaneous to very large spreads in price compounding the problem. Young flocks at this time of the year make the problem even more serious with blend prices oftentimes more than 10 cents per dozen below the prices received for large eggs. The figure below illustrates the changing blend price to large price relationship. In most of the 1978 to 1988 period, a 4 to 4 % cent spread was common. By the early to mid 1990 s, the spread, increased to 4!A to 5 cents. During the 1996 to 1998 period, a 6?A to 7 cent spread appears to exist. This failure to price medium eggs at their true value has cost the industry between 2 and 3 cents per dozen for all eggs produced. Producer Price Ranges - Large vs Blend Egg Prices California to 1998 (10 months) 8 Cents per dozen Years Donald Bell, Poultry Specialist Cooperative Extension Highlander Hall-C University of California Riverside, CA Phone (909) Fax (909) don.bell@ucr.edu -6-