Egg prices up as corn feeds ethanol boom

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PITTSFIELD – As the price of eggs in the supermarket continues to rise this summer – 26 percent to 30 percent in Maine since last December – Maine’s three major egg producers say sales are holding steady. But all admitted they are worried about the future.

“Eggs were the highest they ever were for the month of June,” Bill Bell, consultant for Radlo Foods, which produces eggs in Turner and Leeds, said Friday.

The national consumer price for a dozen large eggs last month averaged $1.51, according to the American Farm Bureau Association, 33 cents or approximately 20 percent higher than at the end of 2006.

In Maine, egg producers are cutting back on production, opting not to make new investments and watching as 15 to 18 cents of every dozen goes into feed, a situation producers are blaming on the diversion of corn into ethanol production.

“Wow! I didn’t know it was quite that dramatic,” Chris Grimbilas said this week after comparing corn costs for June 2007 with those a year ago and finding a 26 percent increase.

Grimbilas is office manager for Quality Egg of New England LLC of Turner, which produces 650,000 dozen eggs per week with 31/2 million hens.

Grimbilas said Quality Egg imports 10 railroad cars a day of bulk ingredients, including corn, and mills them at its own feed mill in Leeds.

Several reasons account for the egg price rise, but Bell lays most of the blame on the diversion of corn to ethanol fuel markets. Ethanol, a fuel made from corn, has seen a 30 percent hike in production from January 2006 to January 2007, according to the U.S. Energy Department.

“The high price of eggs is definitely a reflection of the high price of corn,” Bell said. “Twenty-seven percent of the corn crop is going into ethanol production.”

Bell said acreage that once was planted with soybeans – another key ingredient in feed for hens – has also been planted with corn for ethanol.

This isn’t a one-time event either, those in the industry predict. The rise in prices is here to stay, and an even bigger shortage of both corn and eggs is predicted for next summer.

Maine’s egg industry pumps $61 million a year into the state’s economy, producing 100 million eggs annually between the three major producers: Quality; Radlo, with facilities in Turner and Leeds; and Dorothy Egg Farms of Winthrop.

Eggs are a commodity, and as such are traded on the open feed market.

“We do our best to maintain our pricing structure, but clearly we have to react to the egg market,” Grimbilas said. “Sales are still good, however.”

Charles Wallace is a consultant with Dorothy Egg Farms in Winthrop and has been in the egg business for 53 years.

“I’ve seen prices higher,” he said Friday. “But that was due to drought and weather conditions. This particular period is not going to correct itself. It will be ongoing.”

As more and more corn is diverted into ethanol production, corn prices have surged by an estimated 63 percent. Farmers who can realize greater profits by selling corn to ethanol facilities are bypassing feed mills, causing animal feed costs to spiral out of control.

The massive diversion is not only impacting the costs in the dairy, egg, beef and poultry industries, but as it ripples through the food marketplace, it will push the prices up for everything from tortillas to mayonnaise.

And, as more and more corn is required, farmland begins to look more valuable. The Federal Reserve Bank of Chicago reports that the value of prime farmland in the Midwest has shot up 16 percent.

Bell said that usually egg producers will expand when the market goes high, but that is not happening this year.

Producers are worried about legislative proposals in some states, pushed by the Humane Society of the U.S., to ban laying cages.

“In New England, there have been three different bills proposed,” Bell said, in Vermont, New Hampshire and Connecticut, and a referendum is set in Colorado.

“This movement makes egg operators reluctant to put a lot of money into cages if they might be outlawed in five years. Along with predictions that corn may get even shorter in supply next year, this has triggered a slowdown in expansion,” Bell said. “Right now, there are 280 million hens in the country – the lowest since 2003. Fewer hens means fewer eggs.”

Dr. Robert Wisner, an Iowa State University grain market analyst who is highly respected in the egg industry, recently predicted that a huge corn shortage will occur by August and that there may not be enough corn to get livestock and poultry producers through September. He has also said that the shortage could be worse in 2008 and 2009.

According to the USDA’s Egg Market Report, producers were paid between 46 cents and 48 cents in July 2006 for large Grade A eggs. This July, they were getting between $1.02 and $1.05.

In the supermarket, consumers were paying up to 30 percent more.

Wallace said, “People want eggs. People need eggs. They are still buying eggs at a healthy rate.”

The “designer eggs” – organic, cage-free, omega-free, free range, vegetarian-fed – are commanding even higher prices. “Just look at the egg case,” Bell said. “These are not your grandmother’s eggs, but this is what a segment of the population demands.”

“Eggs are still a good buy,” Bell asserted. “Eggs were 49 cents a dozen in 1967 and now, 40 years later, a dozen is $1.19.”

He compared that with milk, which was $1.15 a gallon in 1967 and is $3.80 now; oranges, which were 82 cents a dozen in 1967 and now are $6; and bacon, which sold for 90 cents a pound 40 years ago and is $5.25 today.