Is The Price Of Eggs Rising Because Of Inflation? Not Exactly.

Key Takeaways

• Egg prices have more than doubled since the start of 2021.
• These increases are primarily due to inflation and avian flu outbreaks.
• The end of bird flu outbreaks has historically resulted in egg prices returning to previous levels.

2022 was a year marked by economic uncertainty. High inflation, the war in Ukraine, changing interest rates, and fears of a recession have left many people uncomfortable about their financial situation.

Inflation has been among the most significant issues facing many consumers as everyday items like eggs have become vastly more expensive. Here’s what you should know.

What’s Happening?

Inflation in the United States has spiked to levels not seen in decades. Over the past twelve months, prices have risen 7.1%, though some categories have seen higher increases. This includes food at 10.6% and energy at 13.1%.

One food item that is a staple for many Americans: eggs. Typically a cheap source of protein, egg prices have skyrocketed. In January 2021, a dozen eggs sold for around $1.47. Today, those same eggs cost almost $3.60, more than double the price.

The rising cost of eggs and the increasing costs of other food items has left many American families feeling the squeeze in their weekly or monthly grocery budget.

Why Is the Cost of Eggs Going Up?

There isn’t an isolated reason why the price of eggs is rising. Many different factors are contributing to the increase in prices.

Inflation

As described above, a substantial factor impacting egg prices is inflation. When inflation rises, the price of all goods and services tends to increase. With inflation passing 7% annually, it’s not surprising that there has been a noticeable increase in the price of eggs.

However, 7% inflation doesn’t come close to accounting for the price increase that eggs have experienced in the past year. While costs for egg farmers have risen, those increases aren’t the only factor.

Avian Flu

Another major reason eggs have ballooned in price is avian flu. Farms across the west and midwest have seen outbreaks of a new strain of the bird flu impacting their chicken flocks.

The U.S. government tightly regulates avian flu. In most cases, if a farm is infected, it must cull its entire flock of chickens. When a farm culls its flock, it can’t produce eggs, and it takes time to rebuild its chicken population to a point where it can once again begin production, or money to purchase a new flock altogether.

Since the start of the outbreaks, more than 40 million egg-producing hens have been culled.

One hen can produce as many as 250 eggs per year. Even underestimating it at 200, a cull of 40 million hens means production capacity has fallen by 8 billion eggs per year. That massive number explains much of the price increase in eggs.

Demand

Beyond drastically diminished supply, increased demand is a factor. Beyond their use in breakfast items, eggs are essential in baked goods like cookies and cakes.

The holiday season is a popular time for many people to bake, so demand has been high.

Companies Seeking Better Profit Margins

Another consideration is that some companies have used inflation as a reason to raise prices and boost their profits.

The U.S. House Subcommittee on Economic and Consumer Policy recently published an analysis showing that some corporations have used inflation as an excuse to hike prices at rates higher than their costs have increased. This has allowed companies to increase their profit margins to some of the highest levels since the 1950s.

It is plausible that the search for higher profit margins is a component of higher egg prices.

Will Egg Costs Drop?

Predicting the future regarding egg prices requires nothing less than a crystal ball. However, to make some educated guesses about the future of egg prices, let’s review the history.

This isn’t the first time avian flu has impacted flocks across the United States. Egg farmers saw similar outbreaks in 2015, which caused prices to increase from around $1.96 in May 2015 to a high of approximately $2.97 in September.

Recall that a dozen eggs cost roughly $1.47 in January 2021. Between 2015 and 2022, egg prices dropped overall, fluctuating from $1.20 to $2 per dozen.

It’s reasonable to believe that, as this avian flu outbreak ends and flocks recover, prices will return to more stable levels as supply returns to normal.

On the other hand, the avian flu may get worse before it gets better, driving prices upward still. Companies might also be slow to lower their prices as supply returns to normal, hoping to earn greater profits or at least recoup outsized losses and expenses from consumers who have already acclimated to higher egg prices.

We must also consider whether the Fed’s efforts to fight inflation will succeed. Lower inflation will help stop the rise in egg prices.

Overall, it’s likely that prices will fall eventually. However, it is uncertain whether they will return to previous levels or hit a plateau above the historical range of about $1 to $2 per dozen that has existed since the mid-1990s.

What It Means for Investors

Keeping an eye on the prices of staples like eggs is essential for investors.

If you plan to invest in companies that are heavily involved in the egg business, such as restaurants, grocers, or egg farms, you want to keep a close eye on prices to see how they could impact those investments.

Another consideration is how staple prices influence other businesses. Certain things like food, shelter, and energy are essential costs. These are products that people need to buy before non-essentials like entertainment.

If the prices of these essential items go up without a commensurate increase in average earnings, people have to spend a more significant portion of their income on essentials, leaving less for discretionary purchases.

When you’re invested in companies that focus on entertainment and non-essentials, monitoring price increases on things like eggs or energy can indicate that the companies you’ve invested in may see revenues fall.

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Sunny Side Up

Egg prices have been rising recently, mainly because of inflation and an outbreak of avian flu. While the increase in prices creates an opportunity for investors, shoppers will continue to feel the strain at the grocery store.

We will most likely see egg prices come back down, omelet you decide when, but stay hopeful that our farmers can egg-celerate their comeback. In the meantime, we’ll all have to take these yolks in stride.

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