They’re at it again. Egg prices are on the rise and we’re not hearing anything about it in the news, but it’s a problem. We’ll get to the solution and opportunity in a minute, first some details.
According to the Federal Reserve Bank of St Louis (FRED), the average price for a dozen Grade A eggs in the U.S. is $3.37. A year ago, in November 2023, the average price was $2.07. This represents an increase of approximately 62% over the past year.
That’s right, egg prices have been going back through the roof even though inflation has slowed to 2.58% per year according to the most recent Bureau of Statistics data.
The reason, a return of the Bird Flu.
The increase in egg prices over the last six months is primarily attributed to outbreaks of bird flu (Highly Pathogenic Avian Influenza, HPAI) affecting large numbers of egg-laying hens.
The outbreaks have led to the culling of millions of birds to prevent further spread of the disease, significantly reducing the egg supply.
In addition, other factors like increased costs for feed, fuel, and packaging, along with general inflationary pressures, have contributed to the rise in egg prices.
From the consumer’s perspective, demand for eggs remains high. Consumers are buying more in the stories and restaurants again. That increase in demand also has a role in driving up prices.
The Bond market's indicators suggest that inflation targets for 2025 remain elevated.
As of last week, the 20+ year treasury bond ETF (TLT) had been trading in a long-term bear market trend. The last time investors saw that was just ahead of an historic rise in inflation, followed by higher interest rates.
This morning, the Fed’s favorite inflation gauge was released.
The Personal Consumption Expenditures (PCE) index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services.
Today’s reading came in as expected, showing an increase in the trend of prices from September.
The combination of jitters in the bond market, stubborn inflation and Bird Flu equal higher egg prices as we move in and through 2025.
Sorry for the Pun, I couldn’t help it.
Cal-Maine Foods, Inc. is the largest producer and marketer of shell eggs in the United States.
Incorporated in 1957, the company has grown through a series of acquisitions and expansions to become a major player in the egg industry.
Cal-Maine's operations span several states, primarily in the southern and southeastern U.S., and the company is known for its commitment to quality and innovation in egg production.
he company's bottom line is influenced by fluctuations in feed costs. That said, Cal-Maine's scale and operational efficiency have helped it to manage these challenges effectively, maintaining its position as a leader in the U.S. egg market.
Cal-Maine stock increased 70% during the previous spike in egg prices from inflation. Shares have already traded 78% higher for 2024 as investors are already anticipating a return to the high inflation pricing in 2025.
Shares of Cal-Maine have performed as one of the best consumer durable companies in the market over the last year.
The stock is trading in a strong technical trend as they approach the $100 price level.
Cal-Maine will announce its current quarter’s results on December 17.
Last quarter’s revenue showed a 70% increase compared to the same quarter last year (remember the 68% increase in egg prices?). That revenue did not offset the losses incurred from the increase in Bird Flu as the company missed the analyst’s earnings per shares target by -$0.30.
Analysts have been revising their earnings expectations lower, which will help Cal-Maine shares deal with continue volatility from Bird Flu, but it’s the future that should interest investors.
Looking forward to 2025, higher egg prices and inflation should offer a strong tailwind for Cal-Maine.
The break above $100 should attract even more buyers of the stock with a long-term target of $125.
As always with a stock like this, the simplest way to invest in the trend is a buy-and-hold strategy.
This long-term approach allows you to benefit from the long-term trend with the opportunity to "buy the dip" when shares make a heavy decline. That simple strategy often benefits over the long-term.
More aggressive investors may chose to leverage the move in a bullish trend like Cal-Maine's using long-term options.
The May 16, 2025 $110 call options are available with a price of $400 per contract.
That option would trade with a theoretical value of $1,300 if Cal-Maine stock move to a price of $120 on or before February 20, 2025.
As always, investors need to make sure that they have the education and understanding of options trading basics before utilizing them in a portfolio.
