Egg sticker shock could soon be declining, but it may be a good time to get in on the shares of their producers.
For the last three weeks, wholesale prices have been falling from above $8 for a dozen white, large eggs to roughly $4, per the latest USDA report on March 14. Over the past week, prices fell 39% from $6.85 to $4.15, though it'll take time for retail prices to catch up.
The drop reflects the "highly volatile" nature of eggs and that consumers are "responding to high prices by buying fewer eggs," Texas A&M University professor David Anderson told Yahoo Finance. According to the USDA, the inventory of shell eggs increased 1.7% compared to the prior week.
While inventory is improving, it'll take time for producers to rebuild their flocks and get back to previous production, per Anderson. This Friday, the USDA will share how many eggs were produced in February, which was the month hardest hit by the bird flu. In January, production was down 4%.
Despite losing hens to the bird flu, commercial egg producers have benefitted from skyrocketing prices. Shares of America's largest egg producer, Cal-Maine Foods ( CALM ), and Vital Farms ( VITL ) are up 45% and 32%, respectively, in the past year.
In early January, Cal-Maine posted a quarterly revenue increase of more than 80% year over year to $954.7 million. Net income soared nearly 1200% to $219.1 million.
New Constructs' David Trainer said the stock, which has fallen 17% year to date, is even more attractive than before.
"This is one of our most attractive stocks," he told Yahoo Finance over the phone. As the "dust clears" in a "rocky market" that has investors weighing tariffs, negative consumer sentiments, and other headwinds, the company is going to be a "great performer."
"This is one of the best producers. Eggs still aren't that expensive; they're still one of the cheapest proteins you can find," he added.
Per Stephens analyst Pooran Sharma, Cal-Maine supplies about 20% of the overall US shell eggs market.
Telsey Advisory analyst Sarang Vora has an Outperform rating on shares of Vital Farms.
"We believe near-term demand trends are strong and the long-term runway is solid, given market share gains of pasture-raised eggs via favorable macro trends and initiatives, including higher household penetration, new distribution, greater shelf space, and new products," he wrote in a client note.
In its latest quarter, Vital Farms' revenue jumped 22.2% to $166.0 million, while net income grew 46.8% to $10.6 million.
But Trainer prefers Cal-Maine to Vital Farms, especially if egg prices decline. He said Cal-Maine's valuation has priced in a decline in profit by 50%, while Vital Farms is "pricing in a doubling of profits," making it more sensitive to bad news.
It'll be a balancing act for egg producers moving forward, per Anderson. While they're making higher profits, they're constrained to produce more due to replacement time for the birds lost. On the flip side, increasing supply would lead to lower prices.
Now with Easter about a month away, experts are trying to take a crack at where prices could be going.
"Higher egg prices during the Easter season are likely," Kevin Bergquist of Wells Fargo told Yahoo Finance, but "people are likely to buy eggs no matter the cost because it’s an Easter tradition."
Egg demand typically increases in the two or three weeks before the holiday, he said.
Anderson said though Easter may cause prices to spike, egg prices will generally "ebb and flow" in the near term — as long as cases of the bird flu don't pick up again.
"For consistently lower prices ... [there need to be] a lot more eggs being produced," Anderson said.
In late February, United States Agriculture Secretary Brooke Rollins introduced a five-part strategy to combat avian flu outbreaks in a Wall Street Journal op-ed , alongside a $1 billion plan to tackle the crisis.
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BrookeDiPalma
