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Egg Industry's Profits Get Lean

Demand is down in part because the high-protein diet craze has been losing steam, experts say.

November 05, 2005|From Reuters

The fading of high-protein diets such as Atkins and South Beach is trimming the bottom line of egg producers after years of the craze feeding revenue, economists and industry experts say.

Egg prices have fallen an average 27% over the first three quarters this year, affecting the financial performance of egg suppliers such as Land O'Lakes. The agricultural cooperative's revenue fell to $1.7 billion in the third quarter from $1.8 billion a year earlier because of lower egg prices.

"The industry made too much money a year or two ago and they expanded too much," said John Pedersen, an industry expert and former president of consultancy Poultry and Egg Fax.

The low-carbohydrate, high-protein craze over the last few years provided egg producers with the money and the motivation to expand their businesses to capitalize on the diet.

The egg-laying flock peaked at 289 million birds in February, up from 280 million in the same month the previous year when wholesale egg prices were near all-time highs, according to U.S. Department of Agriculture data. The flock was reduced to about 284 million birds in September.

Egg consumption had been growing steadily from its low point in 1991, with the recent surge largely because of the popularity of the high-protein diets, economists said.

USDA statistics showed a nearly 9% increase in per capita egg consumption from 1994 to 2004.

"There was a considerable increase in demand for eggs for people that were on those diets," said Gene Gregory, senior vice president of United Egg Producers. "The egg industry, thinking that was always going to be the case, put in extra chickens."

But like many diet fads before, Atkins and South Beach lost their appeal and dieters in the world's heftiest nation turned to other methods to shed pounds.

Some experts said the reaction to an outbreak of exotic Newcastle disease in California in 2003, which led to the culling of 3 million chickens, was also to blame for overexpansion in the egg industry.

"Everyone was preparing, if there was more of an outbreak ... to meet market demand," said Tim Chamblee, associate professor of poultry science at Mississippi State University. "They got the disease under control and, guess what, we had more [chickens] than we needed."

Wholesale egg prices have been below the 75-cent-per-dozen cost of production for about a year, economists said.

But producers should see a return to profitability over the next few months as they scale back their flocks to bring production more in line with demand, they said.

Older hens that would typically be taken out of production for a temporary rest, called forced molting, may be sent to slaughterhouses instead of returned to egg production.

Demand for eggs usually jumps during the holiday period because so many people bake cookies and pies.

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