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Cal-Maine Foods warns of fading protection against high grain prices

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Cal-Maine Foods cautioned of the end to a shield against soaring grain prices which limited damage to the group’s earnings over the winter, and helped the egg giant unveil better-than-expected earnings.

 

The Mississippi-based group, the world’s biggest egg producer, said that while corn futures were 30% higher in the December-to-February period than a year before, and soymeal prices up 42%, its feed costs per dozen eggs rose by 15.0% to $0.467 per dozen.

 

“As feed ingredient prices rose… we benefited from our normal operating practices of filling our storage bins at harvest and locking in the basis portion of our grain purchases several months in advance to help ensure availability of feed ingredients,” said Dolph Baker, the Cal-Maine Foods chairman and chief executive.

 

However, “most of this benefit has been realised”, he said, adding that in the current quarter, the fourth one of the group’s fiscal year, “we will be exposed more directly to price movements in the feed ingredient market”.

 

Mr Baker said the company foresaw “continued [feed ingredient] price volatility for the remainder of fiscal 2021 as increased export demand for both soybeans and corn is placing pressure on domestic supplies and carryout inventories are projected to be lower”.

 

Foodservice uncertainty

Egg prices, meanwhile, “have increased since the end of [February], although they are not expected to approach the high prices realised” in the March-to-May quarter of 2020, when values were boosted by a surge in home baking spurred by Covid-19, as well as enjoying a seasonal Easter boost.

 

In fact, the group forecast that retail consumer demand for eggs “will remain strong.

 

“However, it is difficult to predict when restaurants and foodservice operators will return to pre-pandemic business schedules,” having been particularly affected by official restrictions imposed to counter the spread of Covid-19.

 

Although egg orders from the foodservice sector had shown “modest improvement” in the December-to-February quarter, “this market segment has not returned to pre-pandemic demand levels”.

 

Supply vs demand

Meanwhile, egg output may be poised to increase, Mr Baker said, noting US Department of Agriculture data showing that the number of eggs in incubators last month was 20% above the February 2020 level.

 

This “may indicate an increased supply of hens in the future”, and prove an important determinant of pricing ahead.

 

“As we emerge from the Covid-19 pandemic with an anticipated return in food service demand, these growing supply indicators could affect the overall balance of supply and demand for shell eggs and have an impact on market prices.”

 

USDA forecasts

The group’s assessment of current price strength tallies with that of the USDA, which two weeks ago said that egg prices at the start of March “began trending upward as expected, consistent with seasonal patterns associated with Easter demand.

 

“Unlike last year, however - when the onset of the Covid-19 pandemic coincided with Easter demand, inciting a surge in demand for eggs at retail - egg prices appear to be increasing at a stable pace, on par with the five-year average.”

 

The USDA also raised by 20m dozen, to 8,140m dozen, its forecast for US egg output this year, taking it 82m dozen above the 2020 total.

 

Shares rise

Cal-Maine Foods reported earnings for the December-to-February quarter down 1.5% at $13.55m, on sales up 3.9% at $359.1m.

 

Profits were helped by, besides the limited exposure to soaring feed grain markets, a $1.72m tax benefit.

 

Earnings per share, at $0.28, were flat year on year, but ahead of the $0.06-per-share result investors had expected, according to Refinitiv.

 

Cal-Maine Foods shares, after a bright start to Monday’s trading, closed 1.4% lower at $39.96 in New York.

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