Be it scrambled, poached or sunny side up, the cost of egg breakfasts may jump by billions of dollars during the U.S.’s worst outbreak of bird flu, Goldman Sachs Group Inc. said.
U.S. consumers will probably pay $7.5 billion to $8 billion more to buy eggs, an increase of at least 75 percent from last year, Goldman Sachs analysts including Jason English wrote in a report Wednesday. Packaged foods companies could find the ingredient in short supply, and McDonald’s Corp. will be most affected among major restaurant chains because it can’t easily pass on higher costs from its popular breakfast business.
Highly pathogenic avian influenza has devastated U.S. flocks of egg-laying hens across the Midwest for two months, with Iowa losing about 23 million hens. Post Holdings Inc. has warned that bird flu will hurt fiscal 2015 earnings at its food-service unit while countries in the Middle East and Asia have restricted shipments.
“The situation could deteriorate further before it ultimately gets better,” the analysts wrote.
The outbreak has affected at least 38.9 million chickens, turkeys and other birds since December, U.S. Department of Agriculture data show. With some unaffected farms within miles of hens with the virus, the disease will likely keep spreading, Goldman Sachs said. About 33 percent of American egg industry hens live in the affected upper Midwest, the bank said.
The packaged food industry, such as baking businesses and mayonnaise makers, is focusing on securing egg supplies regardless of price, according to Goldman Sachs. More expensive eggs will be manageable because the ingredient is a small part of overall costs, the bank said.
McDonald’s gets about 25 percent of sales from breakfast, almost twice as much as competitors, Goldman Sachs said. The bank has a neutral rating on the stock.
The turkey industry is concentrated in the areas affected by the disease and will suffer from higher costs and lost birds, according to Goldman Sachs. About 3 percent of turkeys have been culled, the bank said.
Post shares could be a “compelling buying opportunity” if the supply disruption doesn’t worsen significantly, according to the Goldman Sachs report. Shares of the breakfast-food maker have tumbled. Last week, the company declared force majeure for its Michael Foods egg business, a clause invoked when a company can’t meet obligations due to circumstances beyond its control.
U.S. consumers on average ate almost 260 eggs per person last year, according to the American Egg Board. Prices for wholesale breaker eggs reached $1.23 a dozen last week, the highest ever, according to commodity researcher Urner Barry.
The H52N strain of avian flu moving through the Midwest was probably introduced through migrating wild birds, according to the World Organisation for Animal Health. While warmer summer temperatures may limit the spread, there’s still concern it will hurt the broader poultry industry if the disease moves east, Goldman Sachs said.