Editorial

 

Conversion to Cage-Free in Australia Has Lesson for the U.S.

Feb 17, 2017

    

In recent weeks, commentators have questioned the extent and rate at which the U.S. egg industry will convert from conventional cages to alternative housing systems, presumably with aviary units predominating. Reference to conversion in other egg industries can provide perspective relevant to our own situation.

In an article which appeared in an Australian publication The Weekly Times on January 5th, the Australian Egg Corporation indicated that the proportion of caged and non-caged eggs is now at parity representing a change from 75 percent caged-eggs marketed in 2007.   

  

Virtually all the supermarket chains in Australia (Aldi, Coles and Woolworths) have committed to sourcing cage-free eggs, paralleling commitments from QSRs (Subway and McDonald’s) and food service providers. The rate of conversion is expected to accelerate through the remainder of the decade. It is estimated that the Australian population of 23 million annually consume 270 eggs per capita representing a potential hen population of 22 million.

This will require re-housing of 11 million hens to either barns or range this decade. Given previous exposure to LPAI H7N2 avian influenza, carried by migratory birds affecting a NSW free range farm in 2013, (See EGG-CITE October 18th 2013), the popularity of non-confined flocks may evaporate in the event of introduction of HPAI H7N6 or other Eurasian strains.

he second issue of concern relates to confusion in labeling of eggs in Australia with conflicts over the definition of “free-range” (See EGG-CITE December 23rd 2016) with the Federal government imposing a national standard of 11 foot2 per hen. (See EGG-CITE April 8th 2016). The CEO of the RSPCA of Australia, Heather Neil stated “international experience shows it’s only a matter of time before battery cages are relegated to the past.”

It is clear that standard nomenclature will have to be applied to U.S. eggs derived from flocks housed under a variety of systems.  This question of labeling should not be delayed as egg producers transition to alternatives from cages. The industry should take the lead in defining specific terms including “free-range”; “aviary”; “pastured”; “barn-housed” and other appelations. 

Not only the descriptive terms but the artwork on cartons will require regulation.  A number of years ago a broker in New England, sourcing eggs from conventional barns, labeled product as “free roaming” When combined with label graphics depicting hens on pasture, any reasonable consumer would assume that eggs were from a “free-range” flock. The intent was to deceive purchasers at the expense of competitors.  In Australia there is currently a six to ten fold difference in actual space requirements for hens, all legally described as “free-range” with the lowest outside space allowance of eleven foot2 per hen.

We can guide our trajectory on conversion from conventional cages by observing the rate of adoption of alternative systems in other industries. We need to analyze and understand the capital and operating costs of production, market demand, price differentials at the shelf, and price elasticity and relative volumes associated with different systems of housing and equipment.

   

Egg Industry News

 

JANUARY 2017 USDA EX-FARM BENCHMARK PRICE DECLINES 34 PERCENT FROM DECEMBER, RESULTING IN A NEGATIVE MARGIN.

Feb 17, 2017

    

Introduction

Comments supplementing the production summary tables for the latest series reflecting USDA January 2017 statistics and prices made available by the EIC on February 15th 2017, are tabulated together with comparison values from the previous January 12th 2017 posting.

EGG-CITE summarizes weekly USDA data on egg production and prices in each edition.

  

January 2017 Cost and Revenue Data

The USDA reports data for six regions, respectively comprising the Northeast, South East (Mid-Atlantic), South Central, Midwest, Northwest and California (NW and California combined in some tables)

  • The USDA ex farm benchmark blended egg price in January 2017 fell 34 percent to 48.2 cents per dozen, compared to December yielding a negative margin of 12.1 cents per dozen as delivered from the laying house. The January 2017 value should be compared to 91.7 cents per dozen for the corresponding month in 2016 and 88.2 cents per dozen in January 2015. It is noted that from November 2014 through March 2015, prices were inflated in anticipation of implementation of California Proposition #2 effective January 1st 2015 and then at the end of this period by the seasonal pre-Easter rise. Thereafter prices responded positively to shortages caused by HPAI in the upper Midwest with a peak in August 2015.
  • During January 2017 feed price averaged 32.4 cents per dozen. Feed cost during 2015 averaged 34.9 cents per dozen. The average feed cost in 2014 was 43.2 cents per dozen in contrast to 2013 which was considerably higher at 50.12 cents per dozen, reflecting the drought-affected crop of 2012.
  • Combining data from the USDA and the EIC (formerly data from the University of California), producers recorded a negative margin of 12.1 cents per dozen at farm level for flocks in January compared to a positive margin of 12.1 cents per dozen in December. The algebraic average margin for 2016 was -9.6 cents per dozen with losses experienced for eight consecutive months.  Ex-farm margin for 2015 amounted to a monthly average of 74.5 cents per dozen. For 2014, average ex-farm contribution margin was 33.9 cents per dozen with all months positive. During 2013, a monthly algebraic positive average margin of 15.3 cents per dozen was earned.
  • The simple average price of feed for January 2017 over 5-regions was $206.30, 1.7 percent higher than in December. The Southeast recorded the highest cost among five regions at $238.44 compared to the lowest region, the Midwest at $175.77 per ton. The average figure includes ingredients plus milling and delivery at approximately $10 per ton. The price of corn was $151 per ton in January. An increase of 3.8 percent in the price of soybean meal from $338 per ton in December to $351 per ton in January contributed to the rise.in the cost of feed There was a $71 per ton differential in corn price between the Midwest and the Southeast in January 2016. Feed price will continue to be the major factor driving production cost and hence margin. Each $10 per ton difference in feed cost represents 1.75 cents per dozen.
  • The EIC-calculated the 6-Region total nest-run production cost in January to be 60.33 cents per dozen, 1.0 percent higher than 59.73 cents per dozen recorded in December. Production costs during January ranged from 54.88 cents per dozen in the Midwest up to 76.26 cents per dozen in California which was higher than the Midwest region by 21.4 cents per dozen. The differential in feed cost between the extremes, the Southeast and the Midwest regions was 9.8 cents per dozen in January.
  • Retail egg prices as determined by the Department of Commerce for December 2016 averaged 138.3 cents per dozen, down by 4.7 percent or 6.2 cents per dozen compared to November. During December 2015 and 2014 retail prices were 275.1 cents per dozen (post HPAI) and 221.0 cents per dozen respectively in the run-up to implementation of California Proposition #2. During 2016 retail prices did not decline in proportion to ex-farm prices allowing higher margins at retail depressing demand.
   
 

Aspen Hills Closes as a Result of Listeria Contamination

Feb 17, 2017

    

Previously CHICK-CITE and EGG-CITE reported on outbreaks of listeriosis involving Blue Bell ice cream contaminated with dough supplied by Aspen Hills Inc. and the previous 2015 outbreaks of listeriosis associated with multiple plants operated by Blue Bell, a national brand.

The September 2016 determination that Listeria monocytogenes was present in cookie dough supplied by Aspen Hills to be added to Blue Bell ice cream, resulted from enhanced quality control by the ice cream producer acting in compliance with the FSMA. 

  

The finding resulted in an investigation revealing problems in the Aspen Hills’ Iowa plant during a late September FDA inspection. This resulted in the Agency issuing a Form-483.  The FDA carried out a subsequent inspection at the plant and on January 10th 2017 issued a further warning letter documenting continuation of serious violations.

The owners of the plant failed to correct deficiencies and to respond adequately to the September warning letter. The January communication stated, “The frequency of these environmental findings in conjunction with your finished product finding indicates that your firm is not taking aggressive action to identify harborage sites for L. monocytogenes, to deep clean your facility effectively, and to prevent finished product contamination.”

The FDA applied whole genome sequencing (WGS) to 15 isolates to demonstrate that they were genetically identical.  Based on deficiencies in the plant and an apparent inability to rectify the problems relating to equipment, procedures and training as detailed by the FDA, the owners elected to cease production and wind up the company.

Listeria can become a persistent infection in food plants and requires diligent hygiene and decontamination of equipment and work surfaces at regular intervals coupled with effective quality control as part of a HACCP program.

   
 

Whole Genome Sequencing Reviewed at IPPE

Feb 17, 2017

    

USPOULTRY in conjunction with the North American Meat Institute organized a symposium “Whole genome Sequencing – Food Safety Implications” during the 2017 IPPE.  Dr. Haley Oliver, Associate Professor of Food Science at Purdue University provided a description of the process and how it can be used to alert public health officials regarding the presence of a common-source infection.  Dr. Oliver also noted the value of public-access databases reviewable by researchers and public health officials in their investigations.

  

Dr. Matthew Wise, director of the Outbreak Response Team lead-investigator at the Centers for Disease Control and Prevention, noted that food production and distribution have undergone substantial change over twenty years and that ready-to-eat food is now consumed more frequently.  Whole Genome Sequencing can be applied to definitively determine if bacteria isolated from patients and an implicated food are identical.  Wise considers that sequenced-based surveillance will result in the detection of new outbreaks allowing quicker control and reducing the incidence rate for outbreaks.

It is evident that the food industry will have to become acquainted with WGS, how it can be applied and the implications in terms of liability.  Dr. Rafael River, Manager of Food Safety and Production at USPOULTRY noted, “We need industry concerns addressed before we can proceed with any activity related to WGS. Most importantly, we need the time and space to learn how to use WGS to improve public health and protect our industries.”

   
 

Webinar on HPAI Outbreak Response

Feb 17, 2017

    

The Livestock and Poultry Environmental Learning Center at the University of Nebraska arranged a webinar on response to avian influenza. 

The program was aired on February 17, 2017.

An archived version will be available subsequent to the webinar at www.extension.org/54317

  

   
 

Aldi Embarks on Store Upgrades

Feb 17, 2017

    

Aldi announced on Wednesday January 8th that it will spend $1.6 billion remodeling U.S. stores.  The program will increase selling space by 20 percent to 12,000 square foot for an average store.  The upgrades will include 1,300 stores to provide extended displays for perishable products, with the program completed by 2020.  In addition the Company will invest $3 billion for 615 new locations over a five-year period.

  

The changes are believed to be a preemptive measure to compete effectively with Lidl also a deep discounter operating in the EU although according to analysts, the upgrade will affect existing supermarket operators rather than a direct confrontation with Lidl.

In a related matter, the Schwarz Group, the parent company of Lidl has named Dane Hojer as the CEO following the resignation of Sven Scidel previous incumbent.

   
 

CAL-MAINE FOODS, INC. TO ACQUIRE ASSETS OF HAPPY HEN EGG FARMS, INC.

Feb 17, 2017

    

In a February 9th announcement, Cal-Maine Foods, Inc confirmed a definitive agreement to acquire substantially all of the assets of Happy Hen Egg Farms, Inc., relating to their commercial production, processing, distribution and sale of shell eggs business.

Established in the U.S. during October 2012, the Happy Egg Co. is a fully owned subsidiary of Noble Foods of the UK. The parent company was established by William Dean in 1920 and is now a major UK producer with 7 million free range hens in addition to birds held in enriched colony cages consistent with UK and EU regulations. 

  

 

The company subscribes to the Freedom Food Program administered by the Royal Society for the Prevention of Cruelty to Animals. The growth of the enterprise in the U.S. was reviewed by EGG-CITE in an interview with David Wagstaff, President and COO, posted on June 3rd 2016. (Access through  SEARCH feature)

The assets to be acquired, subject to the completion of this transaction, include commercial egg production and processing facilities with current capacity for approximately 350,000 laying hens and related distribution facilities located near Harwood and Wharton, Texas. The Company expects to close the transaction in the next few weeks.

Commenting on the announcement, Dolph Baker, chairman, president and CEO of Cal-Maine Foods, Inc., said, “We are pleased to announce the acquisition of Happy Hen Egg Farms. Located near our other Texas locations, Happy Hen Egg Farms’ current site is designed for capacity of up to 1.2 million laying hens, and we intend to capitalize on specific market opportunities created by this additional production capacity.

This proposed transaction is commensurate with our strategy to expand our business through selective acquisitions. We look forward to the opportunity to extend our market reach and deliver greater value to both our customers and shareholders.”

   
 

Whole Foods Market Reports on Q1 of FY 2017

Feb 17, 2017

    

In a press release dated February 8th after the market closed, Whole Foods Market (WFM) announced results for the 1st Quarter of Fiscal 2017 ending January 15th.

The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as $ x 1,000 except EPS)

   
   
 

Eating a Breakfast Meal Lowers Risk of Cardiovascular Disease

Feb 17, 2017

    

According to dietary guidelines prepared by Columbia University Medical Center, consuming a breakfast meal rather than snacking during the day leads to a reduction in the risk of cardiovascular disease. 

The report was endorsed by the American Heart Association. The study demonstrated that 30 percent of U.S. adults skipped breakfast. 

Those that do eat breakfast each day usually have lower serum cholesterol and lower blood pressure compared to subjects deferring the first meal of the day.

Subjects who did not eat a breakfast meal were found to be overweight and prone to diabetes and other metabolic complications associated with over- consumption of calories and poor food choices.

  

The American Egg Board through the Egg Nutrition Center has demonstrated the benefits of consuming an egg at breakfast.  It is now up to the industry to engage with consumers and produce convenience foods that suit the lifestyles of the 30 percent that cannot accommodate a conventional breakfast into their routines and lifestyles.

   
 

National Restaurant Association Releases December Performance Index

Feb 17, 2017

    

The Restaurant Performance Index declined slightly in December to 100.5 from the November value of 100.7.

The Current Situation Index which measures same-store sales, traffic, labor and capital expenditure declined slightly to 99.5 in December mainly as a result of depressed same-store sales and traffic.

  

The Expectations Index was unchanged in December at 101.6.  This parameter was associated with a “cautiously optimistic outlook for the economy.”

Approximately one-third of restaurant operators expect an improvement in the economy within the coming six months which is an improvement from 2016 with eleven straight months of negative expectations.  More than half of the restaurant operators plan to make a capital expenditure in equipment, expansion or remodeling within the next six month.  This may be due to increasing labor rates predicating modern equipment to achieve efficiency in food preparation and serving.

   
 

Supermarket and Restaurant Industries Support Common Sense Nutrition Disclosure Act

Feb 17, 2017

    

According to a press release from the Food Marketing Institute on February 3rd, the Association will strongly support the Common Sense Nutrition Disclosure Act (H.R. 772/S. 261). 

The legislation would allow the use of a menu or menu board in prepared foods areas, declassifies advertisements and marketing materials as “menus” and allows the use of a website to comply with the FDA nutritional labeling requirements which would be onerous for both restaurants and supermarkets.

  

The Food and Drug Administration was inflexible in establishing a Final Rule on nutritional labeling and the proposed legislation would clarify many aspects neglected and deferred by the Agency to the benefit of both retailers and consumers.

   
 

Sysco Reports on Q2 of FY 2017

Feb 17, 2017

    

In a press release dated February 6th Sysco (SYY) announced results for the 2nd Quarter of Fiscal 2017 ending December 31st 2016.

The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as $ x 1,000 except EPS).

  

   
 

USDA- WASDE FORECAST #562, February 9th 2016

Feb 15, 2017

    

Overview

The February 9th 2017 USDA WASDE projections for the 2016/7 corn and soybean crops reflected actual harvest data. Areas for corn and soybeans were unchanged at 86.7 million and 82.7 million acres respectively.

The USDA retained corn and soybean yields as 174.6 bushels per acre and 52.1 bushels per acre. Ending stocks for corn and soybeans were projected at 2,320 million bushels and 420 million bushels respectively.

  

Corn

The corn harvest attained a near record of 15,148 million bushels. None of the major categories of use were appreciably changed as is normal for a post-harvest WASDE report. The projected USDA range in farm price incorporated a 40 cent per bushel spread and price was raised by 10 cents per bushel on the low end and down 10 cents per bushel on the high end compared to the January 2016 WASDE Report, attaining 320 to 360 cents per bushel. At the close of trading on February 12th, CME quotations for March and May 2017 corn were 374 cents and 382 cents per bushel respectively.

The RFS for 2016 was belatedly determined to be 18.11 billion gallons by the EPA on November 30th 2015 (See Editorial in CHICK-CITE). The value was four percent higher than the May 2015 proposal of 17.4 billion gallons. It is doubtful that the incoming Administration will alter existing RFS levels given support of the Midwest agricultural sector to the election outcome and reinforced by assurances to corn-state legislators in early January 2017.

A wild card will be the influence of the nominees for the EPA-Director and Secretary of Energy, both of whom favor the oil and refining industries of their home states and both have opposed the RFS. Business associates of the President-elect have recently commented adversely on the system of Renewable Identification Numbers (RINs) which affect the profitability of many domestic refineries. The coming year should emerge as an interesting exercise in power shifts with very little precedent to indicate future policy, giving rise to a potential soap opera to be called As the Swamp Drains.

The prevailing but stable historically low oil price reflects a slowing of World economic activity and increased oil and gas production in North America. Supply is a function of now restricted output from Saudi Arabia, lower production from Nigeria and Venezuela, resumption of supply from Iraq and Iran, and interference by Russia in Mideast affairs. Reduced output according to an OPEC “agreement” in early December are all contributory factors, determining the balance between supply and demand which is important to the livestock industry as oil price is correlated to grain prices. The WTI fluctuated between $50 and $54 per barrel during the past month.

   
 

SCHNUCKS TO INITIATE HOME DELIVERY

Feb 15, 2017

    

Schnuck’s, a major food retailer in the St. Louis metro area will partner with InstaCart for delivery services in their area of operation.

They join Shop’n Save, Whole Foods Market and Costco in using InstaCart.

   
   

Shane Commentary

 

U.S. Children Derive Calories from Sugar-Sweetened Beverages

Feb 17, 2017

    

Data derived from a National Health and Nutrition Examination Survey published in NCHS Data Brief #271, released in January 2017 disclosed that almost two-thirds of boys and girls in the U.S. consumed at least one sugar-sweetened beverage each day.

They obtained on average 7.3 percent of total daily caloric intake from these drinks.  Non-Hispanic Asian boys and girls consumed the least calories and the lowest percentage of total calories from sugar-sweetened beverages compared to non-Hispanic white, non-Hispanic black and Hispanic boys and girls.

Numerous studies have demonstrated a link between consumption of sugar-sweetened beverages and dental decay, obesity, Type-2 diabetes, dyslipidemia, and fatty liver disease.

In a related nutrition and health topic, The Union of Concerned Scientists petitioned the Food and Drug Administration to establish “disqualifying levels” of added sugars that would prohibit the use of “healthy” in labeling.  Generally, “healthy” foods should contain 3 grams or less of total fat per serving and 1 gram or less of saturated fat per serving.

  

FDA has received citizen petitions requesting that the definition of “healthy” should be reevaluated in the light of current knowledge. The term “healthy” as applied in labeling of food  has not been changed since 1994 when funded research and lobbying by the sugar industry distorted public policy on consumption of fats. This directly impacted the egg-production industry.

The FDA has now been requested to set disqualifying level” for added sugars.  The topic will be reviewed by the FDA at a March 9, 2017 public meeting on the term “healthy” in food labeling.

   
 

FDA Negligent in Inspecting Foreign Drug Plants

Feb 17, 2017

    

It would appear that the FDA is ignoring “Drugs” in their Agency title.

A report in the January 30th edition of Chemical & Engineering News cites a Government Accountability Office report which documents that the Agency has failed to inspect 1,300 drug-manufacturing facilities in foreign nations exporting to the U.S.  A total of 243 of  535 pharmaceutical facilities in China have yet to be inspected. 

  

Approximately one-third of 600 pharmaceutical plants in India have not been evaluated by FDA personnel.  The report noted that 90 percent of 171 facilities in South Korea have not been reviewed in on-site visits.

Apparently, the FDA uses a risk-based system to prioritize visits but the agency is chronically under-staffed.

Peter Saxon, president of a consulting group with extensive ties to foreign manufacturers indicated that most of the uninspected plants produce over-the-counter (OTC) products.

If the FDA can expend time and energy in inspecting egg-producing farms following the implementation of the Salmonella Prevention Final Rule and finding virtually no SE even in 2011. The Agency should have the resources to audit manufacturing facilities manufacturing both generic and OTC drugs.

EGG-CITE has frequently noted the deficiencies in establishing priorities and execution of responsibilities for protection of consumers. The FDA as presently staffed and structured cannot do justice to both food and drugs. The U.S. would be better served by separate Food Safety and Drug Agencies with concentration on their specific areas of concern.

   

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Dr. Simon M. Shane
Simon M. Shane
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Industry Prices: Fri Feb 17
 Corn3.94 $/bu
 Soybeans10.18 $/bu
 Soybean Meal336.70 $/ton
 Eggs, Producer40  ¢/doz
 Eggs, Warehouse 58-61  ¢/doz