Egg Pricing 101

One important characteristic of the egg industry is that many egg farmers market their eggs directly to the grocery stores, food service or food manufacturers companies. Most eggs in the U.S. are marketed using contracts that are based on the spot market or based on the prices of inputs such as corn and soybean meal. While many grain and livestock markets use a “futures market” to make business decisions, the egg industry doesn’t have one.

Generally, individual eggs farmers are responsible for marketing their own eggs. As a result, most eggs are sold directly from the farm to: a food manufacturer, a food service company such as restaurants, or to an organization that in turn sells them to consumers, such as a grocery store. Marketing agreements between the egg farmers and their clients are negotiated and often take the form of long-term contracts to ensure a consistent supply. There are many categories of egg sales based on the: shell color (white or brown), egg size (jumbo extra-large, large, medium and small), nutrient enhanced (for example: omega-3 or vitamin D enriched), production systems (for example: conventional, cage-free, free-range, organic, etc.), and participation in different certification programs.

Most contracts take one of three forms:

• Fixed priced contract: the price paid to the farmer for eggs is set at the same level for the duration of the contract. These contracts are mostly used for high-value specialty eggs.
• Cost-plus contract: the price paid to the farmer for eggs is estimated as an index that includes the prices of corn, soybean meal and other main inputs of egg production. These contracts are mostly used for egg products and for specialty eggs such as cage-free. Some conventional shell eggs are sold under these contracts as well.
• Spot market price-based contract: the price paid to the farmer for eggs is based on the spot market and then it might be adjusted up or down from the market depending on the nature of the contract. These contracts are the most common for shell eggs and they are also used for some egg products. Most of the spot market contracts are based on the Urner Barry quotations.

The marketplaces where sellers and buyers of eggs make their business transactions for immediate delivery are collectively called “the spot market.” The spot market is not necessarily a physical location but a place with the necessary infrastructure to negotiate prices, volumes and delivery conditions. The most widely known spot market venue for eggs uses a method where buyers and sellers negotiate through an auctionstyle format. The spot market is a place for price discovery, even though it represents a smaller proportion of the eggs sold on a single day. Egg buyers purchasing eggs from the spot market understand it is an inconsistent supply that varies widely in customer requirements.

Urner Barry provides its food industry subscribers daily market pricing information and written analysis on markets trends, etc. Their reporters collect market information daily from throughout the egg industry value chain. Reporters use various methods to contact processors, retailers, wholesalers, distributors, exporters, importers, traders, and brokers to gain confidential market information such as transactions initiated, products being traded, bids for products, buyers of products, ship dates and packaging requirements.

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Urner Barry quotations are for eggs already cartoned and delivered to the store door. Many of the spot market transactions are not for cartoned eggs (i.e. gradeable nest run or graded loose eggs). So, for example, nest run eggs are not washed, graded, packaged or transported for delivery, and the price will be adjusted to reflect these additional costs (including the grading losses/gains).

A flock of egg laying hens produces a variety of egg types each day. Not all eggs are Grade A Large or fit the retail store shelf needs. Each egg farmer has to decide the best way for their operation to deal with these eggs. This is generally dealt with in one of the following ways:

• Establish a customer contract for these specific eggs
• List these eggs on the spot market
• Send these eggs to an onsite breaker facility
• Transport these eggs to an off-site breaker facility (may or may not be owned by the same farmer)

A “breaker” is the term for a facility that includes equipment and the subsequent handling infrastructure to break shell eggs into liquid egg, store and ship liquid or further processed liquid egg, which has been dried. The industry calls this egg products. Some farms break all their eggs. A farm that is only a breaking facility will not have the equipment, staff or inspections necessary to carton and package eggs for a retail grocery store.

The breaker market is referred to as the liquid egg market. This market is very different from the shell egg market. Shell eggs are most often sold to grocery stores or establishments that wish to crack a whole egg into the dish of choice. On the other hand, liquid eggs are used by food manufacturers or restaurants that need large volumes of eggs and don’t wish to go through the process of cracking the actual egg.

Additionally, some liquid egg customers like to purchase all egg whites, or all egg yolks, or blends of different proportions of whites and yolks for their recipes. The liquid egg market allows customers to purchase these already cracked and separated types of egg products. Buying the already broken/separated and pasteurized egg provides added value to the customers and it also provides value to the egg farmers because this value-added process many times is done by the farmer and often times these eggs are not fit for the grocery store (e.g. they have defects or are not the desired size). Liquid egg buyers tend to offer more cost-plus types of contracts to their suppliers vs. grocery stores that prefer to buy through spot market price-based contracts.

Yes. In some cases, an egg farmer is not able to produce enough eggs of the right class and size that is needed to fill their customer contracts. As a result, the farmer needs to buy eggs in the spot market to fill those orders. In the opposite situation, when the farmer produces more eggs than needed, they can sell these eggs in the spot market. The same happens if the egg farmer doesn’t have a customer for eggs of a certain class and size.

No. The causes of these market disruptions were different and so was the length of time the markets were affected.

The avian influenza outbreak in 2015 caused a reduced supply of eggs available because the number of hens laying eggs decreased. Because the disease affected a lot of egg farms that had breaker contracts, shell eggs were diverted to help cover those contracts, but ultimately there just weren’t enough hens laying eggs to supply both the shell egg and liquid egg markets. This reduction in supply lasted many months and caused an increase in prices.

COVID-19 created a big shift in the demand of eggs by people moving from consuming liquid egg to consuming shell eggs. As a result of COVID-19 many people had to stay at home and most schools were closed. Hotel and restaurant activity were drastically reduced resulting in a very significant drop in the demand for liquid egg. More people cooking at home and wanting to stock up on eggs resulted in a sharp increase in the demand for shell eggs and a sharp increase in prices that lasted a short period of time. Because of the difference in equipment and customer requirements, and federal food safety rules, most eggs laid for what would have been the liquid market could not be used in the shell market. This loss of demand for liquid egg caused liquid egg prices to hit a historical low and eventually caused a reduction in the laying hen flock that produces eggs for the liquid egg market.

Yes. Proposition 2 required more space per hen thereby increasing the cost of production. Therefore, egg farmers supplying that market needed a higher price to cover their higher production costs. When comparing the prices in California with the Northwest region, the Egg Industry Center estimated that after an adjustment period the price of eggs delivered to the store door in California was 19 cents/dozen (16%) higher. The lack of retail price information for California doesn’t allow EIC to estimate the change in price to consumers.

The spot market is governed by the rules of supply and demand. When the demand increases (by increased consumer purchases or by increased grocery retailers purchases) and supply doesn’t change, then the price increases. For example, egg warehouse prices increase at times when grocery stores decide to feature eggs or when consumers rush to buy essential items in preparation for a weather related event.

Alternatively, when the demand decreases (lack of purchases) and supply doesn’t change then the price decreases. An example of this would be when egg prices are normally lower during the summer because people aren’t baking as much and the demand is lower, even though the volume of eggs produced during the summer is normally lower as well. It normally takes a lot more time for the farmer to adjust production levels than the speed at which the demand fluctuates.