Eggs Are Still Expensive. Is This Company to Blame?

0:05Americans eat a lot of eggs. And that includes our colleague Patrick Thomas, who likes them scrambled. A go-to on the weekend, you know, bagel and scrambled eggs, right? Patrick covers agriculture. People eat about an egg a day, roughly, and a hen produces roughly an egg a day. So the easiest math to think of the egg industry is that everyone has their own hen. Personal chicken? Everyone's got a personal chicken. But over the past few years, a lot of those chickens have died. More than 150 million of them, as waves of bird flu have swept the country. That's helped catapult egg prices to historic highs, angering consumers.

0:46And some are pointing the finger at more than just bird flu. They're blaming a company called CalMain. CalMain Foods, the biggest egg producer in America, just posted a massive profit. $509 million. That is three times their quarterly profit for the same quarter last year. Here they are at the end of the year recording record profit. So they raised all the prices for no reason at all. CalMain is the largest egg producer in the country. It supplies one out of every five eggs that Americans eat. Despite that, it's not well known. Partly because CalMain's name isn't on the egg carton. Its eggs sell under local brand names.

1:29But it's also because the company's pretty secretive. It doesn't do investor calls and rarely gives media interviews. Lately, though, it's been attracting attention because of those massive profits. So Patrick set out to learn what he could about this little-known company at the center of America's egg crisis. I wanted to set out to just understand them and get to the root of, you know, what they make of this criticism levied against them. what is kind of their side of the story and understanding them a bit to see if there is anything to the accusations or not. Welcome to The Journal, our show about money, business, and power.

2:12I'm Annie Minoff. It's Thursday, May 22nd.

2:21Coming up on the show, eggs are egg-spensive. Is Cal Maine to blame?

2:41Cal Maine is headquartered in rural Mississippi. Patrick went out there, and he got a tour of one of the company's egg-producing facilities. You're pulling up, and there's some cattle are in the pasture nearby, and you can see there's a line of these big metal barns or chicken houses, as they're called. And, you know, it's got kind of these big fans on the side and there's 14 of them in a row. They hold about 750 ,000 hens. Whoa. Yes. Can you hear them? You cannot. I'm just imagining, bop, bop, bop, bop. You cannot. Like, these are metal barns that are, like, enclosed to keep everything out. You know, you want to make sure there's no vermin or anything that's going to be able to get in.

3:22So you don't hear anything coming out of them. They're pretty secure. Tens of thousands of eggs from those 14 barns are funneled into a processing facility on a conveyor belt. They come out and they're, you know, maybe like dirty or something or have like a feather on them or something like that. So they come through and then they go through basically a wash. So they get bathed and come out clean and sparkling white on the other side. They get sorted and plopped in six at a time into these cartons. CalMain has dozens of facilities like this one across the country. At one point, they stretched from California to Maine, thus the name.

4:03Those facilities produce about a billion dozen eggs a year. So that would be 12 billion eggs. So we're talking that's 12 billion is a lot. A little boggles the mind, that scale. 12 billion is a lot of eggs. The person overseeing this giant operation is CalMain's CEO, Sherman Miller. Introduce us to Sherman Miller. So Sherman Miller is a CalMain lifer. This man, he jokes that his wife said he married CalMain before he married her. He started as an intern at CalMain. He was one of two interns, you know, and he says, good thing the other guy didn't make it. He's always been at CalMain and lives and breathes this company.

4:46Patrick got a rare interview with Miller at the company's main office. His desk there is dotted with egg statues, and an American flag hangs above his computer. Patrick says that Miller seemed eager to explain why Cal Maine wasn't the villain in this saga. And I tried to name that villain for you right out of the gate. The villain is a very nasty, high-path avian influenza virus. It was at the beginning of the most recent bird flu outbreak, in 2022, that Miller became CEO. So the company at the time, they had seen that bird flu was going to happen. They had been planning for it since August, around August of 2021 is what they said.

5:27And the reasoning is because it was spreading in Europe. And so they were expecting... Only a matter of time. It's only a matter of time before this comes into the U.S. again. They spent about$70 million on various biosecurity measures. Patrick saw some of those biosecurity measures firsthand when he was touring Cal Maine's egg facility. Vehicles were sprayed down with disinfectant before they drove in. And those fully enclosed barns keep hens away from the wild birds that carry bird flu. Measures like this seem to work. Some of their competitors had more cases or lost more facilities. Cal Maine hasn't had the same level of damage.

6:05And what that's meant for them is they've been able to really reap the benefits of the high egg prices. Cal Maine didn't lose as many chickens and eggs as its competitors. And that put them in an enviable position. Because of the low egg supply, prices were soaring. And unlike some of the competition, CalMain still had plenty of eggs to sell. The result was a windfall for the company. What came first, the chicken or the egg? Well, the egg came first in this story. CalMain Foods, the egg company, shares are soaring this year up 64%. So they've made a lot of money and are on track to make about a billion dollars in their fiscal year in profit.

6:44In their latest quarter, they had a profit of more than$500 million, which is their biggest ever. And their stock has been one of the best performers on Wall Street. It's, you know, their market value has doubled in two years. High prices haven't just benefited CalMain. It's benefited the family who originally founded the company and still hold a lot of its stock. Basically, family members are cashing out their shares for at least$100 million per member, which tallies up to about$500 million. So they're cashing out at a pretty good time. Family members declined to comment. It's pretty paradoxical.

7:22Here they are like at the center of a crisis for their industry. And it's a bonanza. Yeah. And that's where the critics come in. That's why you have some groups scratching their heads saying, how is that possible? The critics who say that Cal Maine is a bad egg They're next.

7:54As CalMain's profits soared during a national egg shortage, the company found itself cast as the egg villain. TikTokers were accusing it of price gouging. And politicians have also been critical, like Congressman Ro Khanna. Cal Maine had over$350 million that they made just last quarter. Let's hold the big producers accountable so that we can lower egg prices for Americans. Consumer advocacy groups have also accused Cal Maine of making a bad situation worse. There's this group called Farm Action, which has been pretty critical of large agriculture companies in the past. We know that the farmers at the bottom of that chain, they're on the front lines of the avian flu.

8:37Meanwhile, these large companies like CalMain that are controlling the egg industry, they're raking in just unbelievable, record-breaking profits. So those are the critics. What did they accuse CalMain of doing? They say that this company has used its scale to influence the price of eggs or production, or they're not doing enough to put more hens in production and alleviate the national egg crisis. or that they could be producing more eggs to help, and they're not doing it. They're saying you could produce more eggs. You could, you know, produce more egg-laying hens. But you're not, or not as many as we would like.

9:20Correct. So that's their criticism, and it's a criticism against basically a large company saying it has too much power to influence supply and demand of the egg market. It's their central criticism, and they've called for investigation. In March, the Department of Justice opened an investigation into CalMain and other egg producers, asking those companies to preserve documents about their pricing conversations. CalMain says it's cooperating with the DOJ. So some of CalMain's critics are saying, hey, you should be using your size to produce more eggs. You could kind of help our pricing situation here.

10:00What is Miller's response and what is CalMain's response to the criticism? So the company's response is really that people do not understand commodities and that this is simple supply and demand economics 101, if you will. Here's Miller again. That eggs are a commodity. They're not widgets that we can just go out there and turn up the machine or run an extra shift and produce more. It's a long planning process where we're planning our business to meet our customer needs. Calmein says that adding hens takes time. It's about six months before a chick is mature enough to lay eggs. Hens aren't just a sink that you can turn on and off, basically.

10:45You can't just call them up off a bench and put a jersey on them and put them into the game. You can't quite do that. Once you get them on board and in production, you can't turn them off. They're laying eggs. So we might have a shortage in a high demand period during a holiday stretch, for example. Okay, but what about right now? like here in May, there's a bit of a lull in egg demand, we would have an oversupply. Because we just built so many egg production, we brought in more hens online, you would be producing more eggs than Americans could actually consume. And so their point is, you would have eggs going into landfills.

11:23It's interesting. I hadn't thought about how, you know, I think I understand that it's hard to ramp up production of eggs. You need hens, but you also can't turn them off when you want to. That's right. Cal Maine has increased egg production somewhat. In the past year, it's added 14 % more hens, and upped the number of chicks it can hatch by 24%. But if Cal Maine increases production too much, it could find itself in a tough spot if demand eventually falls. The company could find itself sitting on too many eggs. Analysts say that that would tank the price of eggs. So you would be going below the cost of production, and they would be losing a ton of money.

12:00So it's a careful balance, is what they're trying to say. Miller says that CalMain has done everything it could to supply eggs under circumstances that it can't control. Another criticism levied against CalMain is that the company is price gouging. But Miller says CalMain doesn't set the price of eggs. When it negotiates with a grocer, say Kroger, it does that based on something called the benchmark price for eggs. The benchmark price is kind of like a market price. A research firm sets the benchmark based on supply and demand for eggs across the country. CalMain uses that price to determine what it'll charge for its eggs.

12:39As Miller told Patrick, We are price takers, not price makers. So they say when it goes way up, it goes way up, so be it. When it goes way down, it goes down, so be it. So that's kind of why they deal with the price of eggs. It kind of follows the twists and turns of the egg market, if you will.

13:02So, Calman is kind of saying, look, we don't unilaterally determine the price of eggs, but on a very literal level, don't they? Couldn't they decide, you know what? Eggs are really expensive. It's really hurting people right now. Let's lower the price of a carton by a buck. Could they do that? Well, it's a good question. I mean, so you're right in the sense that they would say that they don't control the price of eggs because they don't price it at retail. Consumers, you know, ultimately it's up to the grocery store to determine what consumers will see. So in theory, they could decide, hey, I'm going to give a massive price break to Kroger, but that doesn't mean Kroger, for example, hypothetically speaking, has to do that.

13:47They're still the ultimate arbiter of how much the consumer will pay for it, right? So couldn't they lower the price? They could, but what they would say too is they don't want to set that precedent because, as I mentioned earlier, the egg market is a very volatile place and they could easily tank and lose money. So as they would say, it's important to reap the rewards when prices are high and keep that money in case the egg market tanks and they can use it again. So they want to take the benefits of when things are good to survive when things are bad. As Miller put it to Patrick, at the end of the day, we have been as good of stewards as we possibly could with everything entrusted us.

14:32We know that to be the case. It's very unimportant. CalMain argues it's just taking prudent steps to protect its business, but it has found itself in legal hot water in the past. In 2023, a federal jury decided that CalMain and other big egg producers had restricted supply in the early 2000s to raise prices. The egg companies denied wrongdoing. And in 2020, the Texas Attorney General sued CalMain for price gouging during the COVID-19 pandemic. CalMain says that panic buying drove up prices. That case is ongoing. Having dug into this now, what would you tell someone who is steamed about high egg prices and wondering, who do I blame?

15:21I don't know if I'd tell them who to blame, but I would say, I mean, look, at the end of the day, the bird flu is the culprit of all of this. I also think it's important to keep in mind that egg prices are on their way down and will probably come down, but they might spike back up again. The virus is still happening. So we're seeing seasonal swings, basically, every year in and year out now. And I think we're going to see that for the foreseeable future. So it sounds like this might be our new normal for a little while. It could be our new normal. And I think people will probably have to understand that it is the new normal for at least the time being.

16:06That's all for today, Thursday, May 22nd. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.