Worst Avian Flu Outbreak In U.S. History

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Includes: CALM, MCD, POST, SYY, UN
by: Wall Street Daily

By Tim Maverick

The country is experiencing the worst outbreak of avian flu in its history.

More than 200 separate cases of bird flu (mainly H5N2) in 16 states have been identified by the U.S. Department of Agriculture (USDA) since December.

To date, more than 45 million chickens, turkeys, and other birds have been culled to try to control the spread of the virus.

The flu's effects have hit egg-laying hens particularly hard. It's estimated that 15% of our country's egg-producing birds have been killed. Another 10% are "offline," meaning they aren't producing.

The President and CEO of the American Bakers Association, Rob MacKie, said, "Due to the avian influenza, egg supplies are decreasing at an alarming rate."

This means egg prices are skyrocketing for both businesses and consumers.

Infecting the Industry

Major buyers and industries are already seeing a change in price. The cost of "breaker" eggs, which are liquid eggs sold to food makers like Unilever (NYSE:UN), food distributors such as Sysco (NYSE:SYY), and fast food firms including McDonald's (NYSE:MCD), have soared. The price for these eggs is up 238% since the flu outbreak, from $0.63 per dozen to $2.13 per dozen.

That's a record high.

The price for wholesale large shell eggs, what you would buy at your local supermarket, has jumped about 120% in the past six weeks, according to Urner Barry. In the Midwest, prices are now at $2.62 per dozen.

That's another record high.

Urner Barry has been tracking egg prices since 1858. The company's market reporter Brian Moscogiuri told The Wall Street Journal that the current prices are "completely unprecedented."

In fact, the situation is so dire that the USDA says it will now allow imports of pasteurized eggs from the Netherlands into the country.

This rapid spread of avian flu is partially due to the structure of modern farming.

You see, there are less than 200 commercial egg companies in existence today. Forty years ago, there were over 10,000.

Fewer farms means there are many more chickens at one operation - with literally millions of chickens on one farm. An outbreak of bird flu in one hen house means you have to cull the chickens in the neighboring hen houses, too.

But, the modern hen house is huge, meaning a greater portion of the country's chicken population is affected by an outbreak at one farm.

The First to Crack

The spread of the avian flu also means there will be some losers in the food industry, but also some winners.

Some of the egg users mentioned above will feel the hit of higher prices, but can accommodate the change until the outbreak is over.

The egg producer not affected by the flu will benefit from higher prices and higher demand.

For instance, most of Cal-Maine Foods' (NASDAQ:CALM) chicken flocks are located in the southern part of the country, which has been largely unaffected by the avian flu thus far.

Its stock soared about 50% in the past three months, spurred by woes of its competitors.

Of course, if the flu spreads to that region of the country, the results will be disastrous.

Just take a look at Post Holdings (NYSE:POST). Bird flu wiped out 35% of the egg supply it had contracted out through its division, Michael Foods. Thus, the stock is down more than 15% in the past month.

But, the real bottom line here is what will come out of our pockets. Americans will likely shell out an additional $8 billion more this year on food, thanks solely to the avian flu.

And it may not end there…

A spokesperson for the American Bakers Association, Cory Martin, predicts that the effects of the avian flu will be "a multi-year problem, unfortunately."

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