WASHINGTON, April 29, 2015 – The poultry industry's conversion toward more space for each laying hen is another California-hatched trend spreading its wings and settling in for the long term across the country. The reformatting of egg farms found its footing in the 2008 passage of a California ballot measure, Proposition 2, requiring the phase-out of industry-standard 67-square-inch hen cages – begetting years of legislative and regulatory fights and lawsuits over laying and roosting space for hens.

Meanwhile, with California finally moving this year to implement its standards, look for the egg market to continue unsettled for a while, especially in California, along with an enlarged stream of California-bound eggs from other states.

Why? A supply shortfall in the Golden State. Though California is sixth among states in producing table eggs (for eating rather than hatching), its net egg deficit is deepening. Some egg farms, reeling from water supply problems linked to the long drought there and still hurt by high feed costs in recent years, have closed rather than comply with new regulations including the hen-spacing rules.

So the flock of layers has plunged while per capita egg consumption and exports continue to climb. California's layer flocks have shrunk by nearly 7 million since 2012, and their share of U.S. table egg output this year will likely be down to 3.9 percent, from 5.9 percent in 2012.

In the U.S. egg production arena, market anxiety about the California regulation’s arrival and the dropoff in layer flocks caused wholesale prices to shoot up nationally last fall and into February: USDA's composite of regional prices jumped from the usual range of $1 to $1.30 a dozen to more than $2, and it continues to run above the three-year average.

In California, wholesale extra-large eggs, typically more pricey than in the rest of the country anyway, topped $3.50 a dozen at times. Maro Ibarburu, an analyst with the Egg Industry Center at Iowa State University, says the monthly spread between Midwest and California wholesale prices jumped to $1.66 a dozen for January. That spike has receded as producers in some leading egg-farm states – Iowa, Minnesota, Ohio and Washington – have responded to a favorable market and expanded, and the U.S. flock is now a bit larger than a year ago. Ibarburu says egg prices, now moderately strong, are volatile and hard to predict, but he expects the U.S layer flock  to expand about 1.5 percent this year, which is near the five-year average pace.

USDA's Economic Research Service projects an even slower expansion of about 0.5 percent in table egg production this year. But that forecast was before the emergence of a highly contagious strain of avian influenza that is killing millions of chickens and turkeys in the Upper Midwest and may preclude any growth in the U.S. laying hen flock this year. In the past several days, the disease was confirmed on five chicken operations in Iowa where more about 6 million laying hens will be depopulated.

While California egg farms shrink, others across the country are picking up the slack. The states of Michigan, Oregon and Washington, for example, have also legislated more space for layers, so producers in other states have been making similar henhouse conversions.

More significantly, in recent years many national food companies and restaurant chains (Nestle, Marriott, Unilever, Burger King, Chipotle, and, this month, Dunkin' Donuts) – prompted by the Humane Society of the U.S. and others – have begun imposing their own hen-friendly rules on farms where they source eggs. In fact, HSUS, after failing in a joint effort with the United Egg Producers (UEP) to legislate national standards for hen houses, has refocused from its past campaigns to mandate state-level anti-cage regulations and, instead, is busy recruiting more converts among companies that buy eggs.

It's becoming clear that the commercial U.S. egg sector's switch from using only tiny cages to an array of husbandry styles – roomier cages, open coops (called colonies) and various pasture and free-range systems – is going to continue for the long term. Egg farmers aren't fighting the trend. Chad Gregory, president of UEP, which represents farmers owning 95 percent of the U.S. laying flock, says his members want the freedom to choose whatever style of hen housing works for them...”modern cage, cage-free and organic production systems.” UEP says its members in California and nationwide are committed to complying with that state's new standards, too.

But while farms and food companies are moving a big slice of the U.S. laying industry away from tiny hen cages, regulations governing the switch will likely remain unsettled for a while. California's state courts have upheld its law, but its Department of Food and Agriculture found the mandate too vague to enforce. So it wrote an alternative rule requiring 116 square inches minimum per bird. That standard is apparently to be enforced only if someone complains to local law enforcement about a violation.

Also, a joint challenge by attorneys general in Missouri and other states to the California law, saying it's unconstitutional for that state to mandate hen space in other states, has been rejected by a federal judge and is now sitting at the U.S. Ninth District Court of Appeals.


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