Better find those eggs, kids

The massive henhouses plopped into a cornfield here resonate with the clucking of hundreds of thousands of birds. Across the U.S., cash registers beep, ringing up eggs for more than $2 a dozen.

To Robert Krouse, president of the firm that owns the veritable chicken city, those hens are part of the soundtrack to a golden era of record profit for the egg industry.

For consumers, well, let’s just say the Easter Bunny shelled out a lot more green this year: Retail egg prices have been increasing at rates not seen in at least 30 years.

Egg eaters are feeling the pain of soaring chicken feed prices, which are being passed down to the grocery aisle. What’s more, the egg industry’s normal response to good times, which is to feverishly add capacity until prices drop like a rock, hasn’t materialized. That could keep supplies tight and prices high well into 2009.

Producers are wary of adding hens for myriad reasons. They fear overexpanding, an expensive mistake they’ve made before; besides, the costs of expansion are rising and credit is tight. Even the tricky issue of animal welfare is in play: Californians will vote this year on banning cages that are standard in the industry, spooking some egg producers.

“It’s a perfect storm that’s going on, no doubt about it,” said Scott Beyer, a poultry expert at Kansas State University.

Food prices generally have been rising at annual rate of nearly 5% in recent months, a pace not seen since the early 1990s. Milk prices jumped 11% last year, chicken prices 6%, according to the Bureau of Labor Statistics.

But neither can match eggs: Prices soared 29% in 2007, a pace that has continued this year. Consumers don’t like it, but eggs are such a basic item that they don’t appear to be changing their habits.

Take Kathy Hayes of Itasca, Ill. Yes, she recently made a special trip to the supermarket to take advantage of an egg deal: Buy $10 worth of groceries, and a dozen eggs that normally cost $1.89 could be had for 99 cents. But Hayes said she hasn’t cut down on buying eggs. “Eggs are just a staple,” she said.

A key reason for the egg price escalation is a surge in commodity prices. Corn has shot to record highs as more of the U.S. crop is used for ethanol, not food, economists say. And corn is the main ingredient in chicken feed, which constitutes about 60% of an egg maker’s costs.

At Midwest Poultry Services in Mentone, Ind., Krouse’s firm, feed costs are about 70% higher than they were a year earlier. Krouse said he’d never seen feed cost so much, and he’s been in the egg trade since 1982, when he went to work for Midwest Poultry.

Indiana ranks third in U.S. egg production, after Iowa and Ohio. Midwest Poultry, which also has a big facility in Loda, Ill., is the nation’s 12th-largest egg producer, according to Egg Industry, a trade publication.

For the last few weeks, Midwest’s North Manchester facility, the Hi-Grade Egg Producers plant, was buzzing with the Easter rush. The two to three weeks before the holiday are the most intense, volumewise, of the year.

“It’s like a fire drill,” Krouse said. “It’s a massive amount of eggs we have to get out.”

Even on an ordinary day, the North Manchester plant is no slouch: Its 2.5 million chickens churn out more than 2 million eggs. Though the plant has some cage-free production, most of its eggs originate in nine cavernous henhouses filled with “battery” cages. Krouse describes the state-of-the-art house as “a giant machine with chickens in it.”

Indeed, cages stacked 10 high create a giant wall of White Leghorn hens. Their pink-crowned heads poke out from their pens, as they peck at feed in a trough. Eggs drop from their cages to a conveyor. Manure drops to another conveyor belt. The place is a din of clucking and clicking -- the sound of wings beating against steel wire.

This Easter, business is about as good as it can get for egg producers like Midwest.

“We’ve never seen profits like this,” Krouse said, echoing sentiments in the egg industry’s trade press.

It’s a welcome departure from the grim times of a couple of years ago, when the highly cyclical egg industry was deep in the red. The problem then was a common one: Producers overexpanded in 2004 and a glut of eggs hit the market.

But that’s not happening this time around.

Expanding production is increasingly more costly and difficult, said Kansas State’s Beyer. Permits for new facilities are harder to get as regulators have increased environmental scrutiny. Credit markets are tight, making financing more difficult. And most expansions these days mean adopting a newer production method that costs twice as much as the old one.

The industry’s trade association, United Egg Producers, which is under fire from animal rights groups, adopted a set of animal welfare guidelines in 2002 and has been phasing them in.

One of the code’s key provisions is to give birds more room, gradually increasing a hen’s cage space from about 50 square inches, an industry norm in 2002, to 67 square inches by next month.