The financial toll of the worst U.S. bird-flu outbreak in
history is soaring, forcing some poultry companies to suspend
operations and boosting prices for eggs and turkeys as supplies
tighten.
Egg companies—the sector hit hardest by the
virus—and turkey producers are spending millions of
dollars to try to contain the disease. With eggs in particular, the
problem is greatly complicated by the way the American industry is
concentrated in the hands of relatively few producers.
The U.S. government has earmarked nearly $400 million to help
compensate poultry farmers for culled birds, cleanup and disease
testing.
Avian influenza has resulted in the deaths or extermination of
at least 38.9 million birds, more than double the previous major
U.S. outbreak in the 1980s. Of that total, more than 32 million are
egg-laying hens, accounting for about 10% of the U.S. egg-laying
flock.
The wholesale price of "breaker" eggs—the kind sold in
liquid form to restaurants like McDonald's Corp., food-service
supplier Sysco Corp. and packaged-food producers—nearly
tripled in the past month to a record $2.03 a dozen on Thursday,
according to market-research firm Urner Barry. Meanwhile, U.S.
prices for wholesale large shell eggs, those sold at the grocery
store, have jumped about 85% to $2.20 a dozen in the Midwest.
Wholesale turkeys cost $1.14 a pound for a frozen 16-pound bird,
4.5% higher than the price a year ago, according to Urner
Barry.
Prices at grocery stores are expected to rise as retailers pass
along the higher costs.
"This is completely unprecedented," said Brian Moscogiuri, who
tracks the egg market for Urner Barry, which has quoted industry
prices for 150 years.
The egg-supply squeeze is pinching profits for some food makers.
Post Holdings Inc. warned last week that avian flu has affected
about 25% of its egg supplies, forcing it to discontinue some
product lines under its Michael Foods business, which makes liquid
egg whites and egg product ingredients. Earlier this month, it
estimated that fiscal 2015 operating earnings would be reduced by
$20 million due to the bird-flu outbreak. A Post spokesman didn't
respond to requests for comment.
The highly infectious H5N2 strain of avian influenza is a mix of
a deadly virus that originated in Asia that later combined with
North American versions, according to scientists. Researchers think
it is spreading through the droppings of wild ducks and geese as
they migrate to the upper Midwest. The human-health risk of the
virus is considered low, and no human infections have been
identified so far, according to federal agencies.
The outbreak has wiped out about one-third of the egg-laying
flock in Iowa, the biggest U.S. egg producer. Some egg companies
are unlikely to survive because of the costs of culling animals and
having to go months without revenue while facilities are cleaned
and repopulated with hens, according to Chad Gregory, president of
the United Egg Producers, a trade group.
"Virtually every egg layer in [Iowa's] Sioux County is either
dead or dying," said Jim Dean, chief executive of Centrum Valley
Farms and Center Fresh Group, a collection of four egg-producing
companies in Iowa. He said three of the four Center Fresh
companies, which together rank among the biggest U.S. egg
producers, have been "completely shut down," but he hopes they can
resume production.
The outbreak has had an especially pronounced impact because the
industry is highly concentrated, with farms on average containing
around 1.5 million birds, according to the trade group's Mr.
Gregory. When the virus is confirmed in one hen house, birds in all
of the other nearby houses typically have to be killed to prevent
further spread.
The U.S. has fewer than 200 commercial-egg companies, down from
about 10,000 in the 1970s, Mr. Gregory said.
"One of the problems we've had through this outbreak stems from
the massive population of chickens on these farms today," said
Marcus Rust, chief executive of Indiana-based Rose Acre Farms, one
of the largest U.S. egg producers. "Our customer base is demanding
the lowest cost possible and that causes us to put six million
chickens on one farm. When something like this happens, just that
one farm going out [of production] can cause the entire market for
eggs to go up five cents a dozen."
Mr. Rust said 8% of Rose Acres' hens have been wiped out because
the virus has hit one of its Iowa facilities, leading the company
to clear nearby houses too.
Egg producers not touched by the virus stand to benefit. The
stock price of Cal-Maine Foods Inc., the biggest U.S. egg producer,
has surged 30% in the past two weeks and hit record highs amid
expectations the Jackson, Miss., company will get a boost from
rising prices. Cal-Maine's operations mainly are in the South,
which has had fewer cases of avian influenza so far than the
Midwest. The majority of broiler farms—where chickens
raised for meat are grown—are also concentrated in states
like Georgia, Alabama, and Arkansas.
Producers will be reeling for years, egg-industry officials
said. One of the major challenges will be the cost to repopulate
egg-laying facilities that together house millions of birds on some
farms.
The U.S. Department of Agriculture, meanwhile, has allocated
just under $400 million to cover claims from poultry farmers that
have culled flocks to stem the spread of the disease.
"We understand this is a painful event for [producers] and want
to support them to the greatest extent that we can," said T.J.
Myers, USDA's associate deputy administrator for veterinary
services.
As of Wednesday, the agency said it has committed $149 million
to be paid to producers that have indemnity claims on their
flocks.
Turkey production, meanwhile, is also expected to take a hit,
with about 2.5% of the nation's flock affected, according to
calculations based on federal data.
Hormel Foods Corp., one of the largest turkey producers in the
U.S., said earlier this month that the company was temporarily
moving to one shift from two at a Jennie-O Turkey Store plant in
Minnesota, resulting in about 230 job furloughs. Jeffrey Ettinger,
Hormel's chief executive, said on a conference call with analysts
on Wednesday that 55 farms that supply his company had been
affected by bird flu, and that many of the supplier barns remain
empty under quarantine, leading the company to project that Jennie
O's fiscal second-quarter sales volume could fall by 15%. The
company also warned it expects full-year earnings to come in at the
low end of its previous guidance of $2.50 to $2.60 a share due to
bird flu.
Write to Kelsey Gee at kelsey.gee@wsj.com
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