Sorry, but this guy doesn't understand how markets work.
Egg supply is down. You either raise prices to lower demand, or you sell at the lower price until the shelves are empty. The latter means the product goes to the connected or the insiders rather than to those who really need it. It also causes black markets in the product by those connected individuals--and such secondary markets are a bad thing when you're dealing with a product with safety implications. (Say, any perishable food.)
Egg production fell 6.6% [1]. Egg prices rose 60%.
The author knows exactly how markets work: Prices are high because there is not enough competition. Cal-Maine is tricking people into tolerating higher prices by loudly complaining about every small problem they face. They're literally bragging about it on investor calls.
> Egg production fell 6.6% [1]. Egg prices rose 60%.
It seems plausible to me that the price elasticity of demand[1] for eggs is small - that is to say, even if the price of eggs doubles, people will only reduce their egg consumption by a small amount.
If the prices jumped by 60%, and now the shelves were full of an abundance of expensive eggs, that would be suggestive that the reason for the spike in price is pure profiteering.
But I have seen no evidence that a large number of eggs are going unused because prices have spiked. So I think it's plausible that the increased prices now really do reflect an increase in demand.
Eggs are a scarce resource. When the supply of eggs falls faster than the demand for eggs, the amount of resources required to obtain eggs will go up. Those resources can be money, or they can be time spent going from store to store searching for eggs, or they can be social connections in terms of knowing who can get you eggs and leaning on those connections. And those who have the ability to procure more eggs will now be able to demand more resources for those eggs.
You can say that it's unfair that Cal-Maine is getting a windfall here, instead of letting the grocery stores have a windfall, or instead of requiring people to burn time and gas looking for eggs while the price of the eggs they find remains the same. But I don't think you can say that Cal-Maine is the reason there is an egg shortage.
>It seems plausible to me that the price elasticity of demand[1] for eggs is small
Agreed.
>If the prices jumped by 60%, and now the shelves were full of an abundance of expensive eggs, that would be suggestive that the reason for the spike in price is pure profiteering.
Price gouging, one form of profiteering [1], “is the practice of increasing the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair.” [2]. The ability to sell product has nothing to do with price gouging.
Cal-Maine’s profit margin is up 7,890% year-to-year [3]. This is textbook profiteering.
>And those who have the ability to procure more eggs will now be able to demand more resources for those eggs.
What one can do is rarely what one should do. The people who can’t afford eggs could resort to violence. But where would society be then?
>or instead of requiring people to burn time and gas looking for eggs while the price of the eggs they find remains the same.
Or, like with toilet paper, meat, or several other essential items during the pandemic, groceries limit the amount of eggs customers can purchase to keep them stocked.
The majority of egg production goes to commercial production/food service/etc, the consumer gets what ever is left over so a small drop in production can be very noticeable at the grocery store.
The percentages are irrelevant. The smaller the elasticity of demand the greater the price change needed to bring supply and demand back in line. Most egg use is commercial and not easily changed, they simply pay the higher price and use the same number of eggs. Thus we see a sharp reaction in the area where egg demand is more flexible--consumers. The high egg prices drive some consumers to eat something else, bringing down the demand.
There isn't an oversupply of eggs--since egg prices went nuts I have seen many an empty shelf, never have I seen eggs on clearance.
Seems he understands markets perfectly clearly. If the market is dominated by one player then there's no competition, consumers are offered a false choice, and prices are dictated rather than discovered.
> Because not all inflation is caused by price-gouging. Some is caused by too little capacity
The thesis, restated, seems to be that an egg monopolist buys up all viable competitors, and then keeps production artificially low. As you note, this causes the market price to increase. In a healthy market, this causes new production to come online. But in this case, allegedly, that is all bought up by the incumbents.
They’re producing less with higher profits. That’s just a textbook example of there not being enough competition in the market or there’s be competitors trying to enter and steal that market share.
If they were producing less and maintained profit margins or saw them drop, that might be an indication that the costs in general have risen enough that the price increases are just because the sellers can
This is about the egg industry in the US being mostly owned by one company. A monopoly position allows them to opaquely dictate prices.
We've raised our own birds for eggs since we bought a place. Ducks, chickens and quail. It's not something that most people can do but I'd recommend it if you have a bit of space - chooks are great for eating scraps and ducks are just cool as.
Citation needed. Explain how calmain “mostly owns” the US egg industry. According to the usda there are on the order of 325m laying hens in the us. calmain says they had about 45m laying hens last year. Please explain how that is the majority. Looking at egg producer stats calmain is the largest, but there are MANY commercial producers in the millions of hens range.
Furthermore usda says “As a result of recurrent outbreaks, U.S. egg inventories were 29 percent lower in the final week of December 2022 than at the beginning of the year. By the end of December, more than 43 million egg-laying hens were lost to the disease itself or to depopulation since the outbreak began in February 2022.”
So there’s a ~15% reduction capacity and shell egg stocks are down 30%. And egg profits have also been down the last few years. But no, it’s OBVIOUSLY that monopolist who controls an entire 15% of production that’s driving prices up. Or maybe the source blog post fails to provide citations, makes inaccurate and emotional arguments, and just kind of hopes that prices are set at COGS.
When there is a shortage of something, buyers will start offering more money to get that limited supply, which means that those who have the supply will make more per unit than before.
The thing to understand is that at some level, almost all prices are set by an auction. And this is especially true for commodities.
Edit: have been looking around, and the few numbers I’ve found show that Cal Maine has about a 20% share of the US egg market. So not a hugely competitive market but certainly not a monopoly.
The author is economically illiterate, and fails to consider the cost of diesel fuel on distribution networks. Doesn't even mention the word 'fuel' or 'diesel' once, despite fuel being an integral part of the supply chain and a huge influence on prices.
If you boost the money supply without increasing production, prices will rise. If they don't, there will be shortages as people buy more at the old prices than there are goods available.
The stimulus checks were only a fraction of the monetary stimulus. The PPP loans and DPA mandates along with subsidies on care and prevention (e.g. vaccines) also constitute expansionary monetary policy.
I assume that if questioners kept at it for a few more rounds, we might finally get to the point where you include the trillions handed to Wall Street via corporate bailouts, QE, and artificially low interest rates - continuing the policy that's been going on for decades? It's appalling how economic critiques always tend to be aimed at the smallest actors on the realpolitik checkers board, while the big grift carries on generally unimpeded. I'm a firm believer in Austrian economics, but with no political representation beyond "fiscal responsibility" kayfabe from the Rethuglicans, Modern Monetary Theory is looking like the best path forward. If we're going to insist on overwhelming monetary creation to wipe out the strong deflationary force of technology, it might as well get purposefully spent on productive endeavors rather than continually dumped into Potemkin financial markets.
>we might finally get to the point where you include
I typed that comment out in the roughly 20 seconds between moving plastic blocks around while assessing the performance of some equipment. In so doing, I named the first things that came to mind. Among those things, PPP loans infamously went to many employers who used them for things other than actually making payroll, becoming a target of populist criticism. Hardly a case of blaming the little guy. It's appalling how quickly HN assumes bad faith these days.
Anyway, QE was mostly pre-Covid, so while we might blame it for broad inflationary trends, it's incongruous when looking at short-term trends in egg prices.
Sure, the general problem I'm bemoaning is that the "first things that come to mind" always seem to be the tangible actions aimed at mitigating the distributed fallout from economic central planning, rather than ever putting the brakes on the overwhelming corporate welfare causing most of the damage to begin with.
The Fed engaged in additional QE as a direct response to Covid. Fraudulent PPP "loans", while despicable, are much closer to the little guy than QE, artifically low interest rates, and even open pondering of the central bank buying stocks.
As for bad faith - the dynamic is like saying one wants small government, and then attacking the Postal Service or the National Parks. Invoking the general argument to draw ire, and then directing that attention at things besides the overwhelming systemic problems burns up the energy of the original critique and is at the very least echoing people who are arguing in bad faith.
I did not invoke the general argument. What I was intending to do was to point out that the stimulus checks were only a small fraction of expansionary monetary policy during COVID.
>and then directing that attention at things besides the overwhelming systemic problems
The examples I gave were intended to demonstrate the general point referenced above, and not to be exhaustive.
>very least echoing people who are arguing in bad faith.
I was refuting a bad-faith argument from the people you are complaining about. The conventional line is that the stimulus checks were a primary driver of inflation. I explained why that is not true. You accuse me of "echoing" that argument. This is ridiculous.
>Fraudulent PPP "loans", while despicable, are much closer to the little guy than QE
If I'm going to entertain this line of reasoning, shouldn't we at least consider that the Fed bought distressed loans at the same time that many landlords may have been pushed towards default, and foreclosure sales prevented, due to the eviction moratorium? That may be closer to the little guy than it seems at first.
Egg supply is down. You either raise prices to lower demand, or you sell at the lower price until the shelves are empty. The latter means the product goes to the connected or the insiders rather than to those who really need it. It also causes black markets in the product by those connected individuals--and such secondary markets are a bad thing when you're dealing with a product with safety implications. (Say, any perishable food.)
I'd prefer the price go up.