Oversupply of milk and eggs
Increased production in both categories has outpaced demand.

The U.S. Department of Agriculture in its August Livestock, Dairy and Poultry Outlook forecast higher production and lower prices for cattle, beef, hogs, pork, turkey and eggs in the second half of 2016 compared with the second half of 2015. Broiler and milk production also were expected to increase, but prices were forecast slightly higher. The egg situation is by far the most acute, with production similarities to dairy despite expected different price outcomes.

The egg industry has experienced extreme tumult over the past year and a half, from highly pathogenic avian influenza wiping out more than 10% of the processing egg laying flock in 2015, resulting in tight egg and egg product supplies and record high prices a year ago, to the current oversupply of eggs and historically low prices. The oversupply is attributed to a combination of factors, including rapid repopulation of flocks after the H.P.A.I. outbreak, a loss in domestic demand to egg replacers as the result of H.P.A.I. and high prices, a drop in egg and egg product exports, and building of new housing to meet increased demand for cage-free eggs.

The latter point is especially interesting. Recent reports indicate egg producers jumped on the cage-free egg “bandwagon” as food processors, restaurants and retailers announced plans to switch to cage-free eggs from those produced in traditional and widely-used “battery” cages, even though the switch was targeted 5 or even 10 years in the future in most cases. An estimated 190 million cage-free hens will be needed to meet demand in 2025, but not now.

Rather than replace battery cage production with cage-free production (in part due to unclear regulations about cage-free production), egg producers appear to have added cage-free facilities while maintaining traditional production levels. The number of cage-free hens has nearly doubled from 8.7 million in 2014 to 16.6 million in April 2016, according to U.S.D.A. data. The ramp-up far outpaced demand for higher-price cage-free eggs, at the same time as egg and egg product demand overall was waning, resulting in an egg price disaster for producers.

Egg producers lost an average of 35c per dozen in the January-July period of 2016, with July production costs above 60c a dozen and the average price of all eggs (breakers and graded) just above 30c a dozen, according to data from the U.S.D.A. and the Egg Industry Center at Iowa State University. Egg and egg product exports, meanwhile, in June were down 27% from the January-April 2015 average prior to the H.P.A.I. outbreak.

Egg prices have turned higher the past couple of weeks, indicating producers finally may be trimming production, but some sources doubt how long the cuts may last to sustain higher prices.

Ironically, the egg industry has the greatest ability to adjust production levels (weeks) relative to other “protein” producers such as hogs (months) and cattle (years). So egg producers remain in a dilemma, somewhat self-inflicted.

While the egg industry works to dig itself out of over-production, dairy processors turned to the government.

In August several industry groups asked the U.S.D.A. for emergency assistance for struggling dairy farmers who have seen 18 months of depressed milk prices. The groups in part asked the U.S.D.A. to buy up to $150 million worth of cheese for distribution to domestic food programs.

The U.S.D.A. said it paid $11.2 million in August to dairy producers enrolled in the 2016 Margin Protection Program for Dairy, the most paid out since the program began in 2014. Payments are based on the margin between milk prices and feed costs. The sign-up deadline for the 2017 program was extended to Dec. 16, 2016.

In late August the U.S.D.A. said it would buy about 11 million lbs of cheese valued at about $20 million “to assist food banks and pantries across the nation, while reducing a cheese surplus that is at its highest level in 30 years.”

But milk output continues to grow. In its August Milk Production report, the U.S.D.A. said production in the 23 major states totaled 16,828 million lbs in July, up 1.4% from a year earlier, while milk production per cow averaged 1,946 lbs for the month, up 24 lbs from a year ago and the highest production per cow for July in records back to 2003. In July there were 8,649,000 milk cows on farms, up 19,000 from July 2015 and up 2,000 from June 2016, indicating producers continued to expand amid months of low prices and while seeking government assistance.

Livestock and poultry producers traditionally have been slow to adjust production when feed prices are low, as they are now. Whether producers can make those changes soon largely will determine egg and milk supplies and prices in coming months.