The United Egg Producers (UEP) issued updated guidelines in 2006 directing producers to provide egg laying chickens with 10% more space. In states that were likely to pass legislation based on these guidelines, many farmers had to make a choice; cull their flock or build additional chicken coops. Reducing the size of their flock was expeditious and less capital intensive. This created a change in the supply and demand curve in the US egg market and an investment opportunity for Verbatim’s client. Verbatim’s sample covered 15% of U.S. egg production through interviews with independent egg farmers with an average of 1 million layers. The goal was to understand changes in flock sizes, shifts to Organic and Free-Range production, and wholesale pricing. Our data set correctly identified the 3% decline in US egg production from 2006 in 2007, which in conjunction with a bull run on commodities drove record egg prices from 2007 into 2008. By early 2008, as reductions in flock sizes abated and record egg prices had offset the concern of high costs in construction and feed, farmers started to pull permits for additional chicken coops. The share price of Cal-Maine Foods Inc. (CALM), one of the nation’s largest producers, doubled between July 2007 and 2008. As additional production came online toward the end of 2008, reduced egg prices drove down shares 50%.
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