Volatility of Egg Prices
Cal-Maine's operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside of our control. Small increases in production or small decreases in demand can have a large adverse effect on shell egg prices. Shell egg prices trended upward from 2002 until late 2003 and early 2004 when they rose to historical highs.
In the early fall of 2004, the demand trend related to the popular diets faded dramatically and prices fell. During the time of increased demand, the egg industry had geared up to produce more eggs, resulting in an oversupply of eggs. Since 2006, supplies appear to be more closely balanced with demand and egg prices again reached record levels during 2007 and 2008. Egg prices had subsequently retreated from those levels due to increases in industry supply before reaching new highs in 2014. In 2015, egg prices rose again due in part to a decrease in supply caused by the avian influenza outbreak in the upper Midwestern United States beginning in April 2015. Throughout fiscal 2016, our industry continued to deal with the aftermath of the Avian Influenza (AI) outbreaks that occurred in the spring of 2015. While there have been no positive tests for AI at any of Cal-Maine Foods’ locations, the reduced national hen supply and other market disruptions related to the outbreak had a significant impact on egg supplies and prices. We experienced extreme price volatility as market prices for shell eggs reached historically high levels in early fiscal 2016. For the year, average selling prices were up 21.4 percent over fiscal 2015. However, prices dropped considerably through the year as the Urner Barry price index hit a decade-low level during our fourth quarter.
Retail sales of shell eggs are greatest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production during the spring and early summer. Shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods, particularly Thanksgiving, Christmas and Easter. Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters ending in August and May, respectively. As a result of these seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.