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September 23, 2015The Most Expensive Way to Make a Chicken Sandwich
September 25, 2015We can look forward to all day breakfast at McDonald’s starting on October 6th. I guess that means Egg McMuffins any time we want them.
That could be a problem.
Where are we going? To why the egg market is scrambled.
Avian Flu
Denny’s is encouraging us to get a burger rather than an omelet, Dunkin’ Donuts wants us to get smoothies and Panda is using corn, not eggs in its fried rice.
The avian flu is the reason. Here since the end of 2014, the virus has killed more than 48 million birds in the West and Midwest. During the summer, avian flu disappears. But it could flare up again, this time extending its reach to the Mid-Atlantic and Southeast. There is talk of a vaccine but it has not been approved yet.
And there is more.
Regulation
California’s Prop. 2 mandated larger poultry cages that cost producers (all who sell eggs in California) close to $40 a hen or $2 million extra for a farm with 50,000 chickens. Add to that the flu and the drought’s impact on feed costs and you get a drop in the egg and chicken population.
And now it appears that Massachusetts will move beyond the California mandate. They have launched a 2016 ballot initiative that would require cage-free eggs starting in 2022.
Our Bottom Line: Egg prices
The result? Although egg prices are up the most in California, everywhere changes in supply and demand have made a dozen large eggs more expensive:
From: BLS
On the supply side, we have the flu and new cage rules increasing production costs. McDonald’s said that by 2025 all of its North American locations would have cage-free eggs. Meanwhile Burger King’s cage-free target date is 2017, Unilever says the 350 million eggs it uses in Hellmann’s mayonnaise will be cage-free, and Wal-Mart and Costco have already made the switch.
On the demand side, 14,350 McDonald’s locations need eggs for all day breakfast.
Using a supply and demand graph, we can see why egg prices have risen. Below, the upward sloping brown supply curve shifts to the left; the downward sloping brown demand curve moves upward to the right. The new equilibrium is shown by the intersecting blue lines.
In many ways, Egg McMuffins are about more than McDonald’s.
