ST. LOUIS, Mo. — Consumer prices for livestock and poultry products in the United States are impacted by many factors, from consumer willingness to pay to the supply/demand impacts of export market changes.
The highly pathogenic avian influenza (HPAI) situation is the latest example of how disease outbreaks impact retail price changes in various, often unpredictable, ways. Retail egg prices saw upward pressure in May as laying flock decolonization continued in Iowa. One egg market forecaster simply suspended price forecasts in light of HPAI.
"The Egg Industry Center Model is not designed to make projections under these extreme conditions," said Maro Ibarburu, business analyst at the center, at Iowa State University. "Therefore, we decided to suspend the price projections until the model can provide a reasonable representation of the market expectations."
One factor complicating egg price predictions: U.S. regional differences. Year-on-year Midwest prices for large white table eggs, at both the warehouse and delivered store door levels, were 20 cents higher per dozen in May. But according to a USDA forecast in May, the New York market wholesale egg price prediction for 2015 is 7 percent lower than last year’s average.
"Favorable returns from low feed costs and moderate prices should lessen the impact of birds lost to HPAI, as producers have strong incentives to continue expanding production into 2016," reported the USDA.
Meanwhile, egg prices in California already ticked up this year, from impacts of legislation mandating production in "enriched colony" houses for eggs sold in California. Consequently, some producers exited production; California is now the fifth-largest egg producer, behind Texas.
Disease outbreaks may be effectively managed; poultry producers are bumping up production, helped by short gestation times and quick hatchery turnaround for repopulating. But supply is not the only part of price – market predictions in light of disease outbreaks, can quickly change, especially if consumers change their willingness to pay.
"Demand impacts depend on the disease," said Matt Stockton, University of Nebraska extension specialist and agricultural economist.
He said the HPAI outbreak in the United States has not posed any human health risks, which are more likely to affect purchasing behavior. "Whether or not a disease is zoonotic – whether it can jump between species – is a big deal in consumer minds," says Stockton, who has looked at the ways bovine spongiform encephalopathy, or BSE, impacted cattle markets and information flows between the U.S. and Canada in 2003.
"Basically what happened was (BSE) shut our exports down. And all of a sudden, this fresh beef was not going anywhere, and there was a whole lot more product in the U.S."
Rather than the BSE issue creating scarcity and raising market prices, beef prices went south in a hurry as beef intended for export glutted the U.S. market, creating more domestic supply. There were some domestic demand impacts, too, from impacts on the consumer mind. "We saw people more hesitant to demand beef," said Stockton.
Today’s egg market situation is different. Egg exports make up a far smaller percentage of U.S. production than do exports for pork and beef. "In this (poultry) situation, we’re diminishing supply by decolonization," he said. "It’s hard to tell what’s going to happen in the long run."
Another factor is egg production is vertically integrated, meaning major producers exercise control through the entire supply chain.
"That’s very different from cattle markets, where price and supply information is coming from many different players," said Stockton.
While egg prices will be up this summer as producers repopulate and ramp up production, consumers seem willing to pay those higher prices. Could that change? Again, it depends on the disease.
Texas A&M researchers have looked at past avian influenza outbreaks in Asia and compared them to BSE. They found consumer behavior is very much influenced by whether a disease is zoonotic – whether it can spread between animal and human species.
Media reports of avian influenza deaths in Asia resulted in more cautious U.S. poultry consumers, according to a 2010 paper by Jianhong Mu and Bruce A. McCarl at Texas A&M. They found other meat consumption showed no decline. This points to another effect of the HPAI situation: Potential impacts on other animal products.
Broiler export volumes have been impacted, both from HPAI concerns and a strong U.S. dollar. That could result in chicken meat being a more attractive buy, compared to pork and beef, for U.S. consumers this summer.
A more recent disease situation in the pork industry, porcine epidemic diarrhea virus, or PEDv, could also inform the current chicken and egg situation. As the supply impacts of PEDv settled through the industry, processors slaughtered heavier hogs and pork producers ramped up production at a rapid rate. That expansion came as grain prices declined.
In other words, producers were attracted to expand based on higher potential profits due to relatively lower production costs, not just the price effect of a lower quantity supplied.
And pork producers appeared to overestimate the actual effects of PEDv, according to the June market update from Chris Hurt, Purdue University ag economist.
"Looking back, it seems that prices overshot on the high side due to PED, and then undershot early this year as market supplies were restored," said Hurt. "The third phase of this cycle now seems to be the recent recovery in (pork) prices from their undershooting."
That could be informative to the egg industry, where producers, retailers and consumers navigate actual supply and demand impacts of HPAI. Less certain is whether recent media coverage of so-called egg "rationing" by some retailers could impact consumer willingness to purchase.
But one thing is for sure – even with the retail egg price increases of the past month, consumers are still buying. "Consumers do like their eggs," Ibarburu told Farm World earlier this year. "That makes retail price changes very hard to predict."
