Edward Lotterman
The Centers for Disease Control has announced an outbreak of highly pathogenic avian influenza, or HPAI, of the H5N1 variety in Texas and Kansas.
The outbreak is unusual in that beyond being detected at very large egg farms, it has also shown up in a few Texas dairy herds plus one Michigan dairy that had recently received cows from Texas.
In Asia, hogs often get it. Hog herds can function as stewing pots in which flu viruses mutate into more virulent forms before passing back to birds or other species. People may remember the 2009-10 “swine flu epidemic.” But transmission to cattle has been very rare.
Even more unusually, a worker at a Texas dairy also tested positive for the virus, only the second animal-to-human case ever detected in the United States. His case is very mild, with conjunctivitis the only symptom. But, given the remarkable ability of flu viruses to periodically mutate repeatedly into more transmissible or virulent varieties, public health agencies are on high alert.
So should the average U.S. household be worried? Terrified? And about what? And where should those worries be channeled? It’s possible the economic impact could supersede any real health threat.
On human health, H5N1 is not a blood-born pathogen. The FDA says there is no evidence it has ever been transmitted by eating eggs. It has been detected in milk from infected cows in Texas as well as by nasal swabs of dairy cattle. But pasteurization kills the virus and there is no recorded case of transmission by milk. Furthermore, nothing has been detected in any of the millions of beef cattle nearby on the high plains or elsewhere.
Also, the much-maligned public health bureaucracy is on top of this at the national and state levels. The CDC and USDA are monitoring developments closely. The first cases were reported by the state of Texas’s animal health agency that is checking animals, milk and other factors. That state’s Department of Health Services is flooding clinics and other human health facilities with alerts and instructions on detecting and reporting any possible human cases.
Now for the economics: Based on recent decades, consumers should understand that egg prices are likely to rise, perhaps substantially. Simply stating that obvious supply-crunch fact may motivate some to rush to their supermarket to buy dozens — making the inflationary news a self-fulfilling prophecy regardless of changes to the supply chain.
But in addition to families and their budgets at the micro level, should Federal Reserve Chair Jerome Powell or Treasury Secretary Janet Yellen be concerned about any macro-level contribution to inflation or hits to the value of output or incomes for the country as a whole? And politically, in a bitter election year when inflation already is an issue, does this news threaten Joe Biden or help Donald Trump?
Unless there is a major change in terms of cases in dairy cattle, don’t fret about changes in dairy product prices. However, since milk from infected cattle has to be destroyed or at least diverted from human consumption, the issue is not moot. On news of epidemic transmission in cattle, all bets are off.
So far, affected poultry flocks have been egg producers. Nothing is yet reported in broilers raised for meat nor in turkeys. These would be of particular concern to Minnesota. So for now, egg availability and pricing are the primary issues in play. They may become major ones.
USDA has voluminous historic data on all aspects of poultry production and recent decades of output and price numbers are easily downloadable from the FRED on-line database at the St. Louis Federal Reserve. Enter “FRED Average Price: Eggs, Grade A, Large” into your search engine and you will get a graph of monthly prices from January 1980, through February 2024. A quick click will allow you to download the date in a variety of different formats.
Also, a search for “USDA Poultry Production and Value” will get you detailed annual summaries of how many, where and for what price various poultry products were produced.
The general price trend over 40 years is mostly flat, which means that egg prices generally have fallen relative to the general price level. There are episodic spikes, however. Comparing these to CDC epidemics shows that nearly all these spikes were associated with HPAI epidemics.
One was in 2007-08 when the price of a dozen eggs broke $2 for the first time. The severe 2015 outbreak, which required the “depopulation” of millions of birds in Minnesota, made the price of a dozen kiss the $3 mark in September of that year. But these fell into the $1.30-$1.40 range by the fall of 2016.
The very high prices of late 2022 and early 2023, for which many voters blame Biden, came from a double whammy. In March 2022, they were at $2.05, about 25 cents above the average for the preceding 15 years. Yet only 10 months later they hit $4.82, the highest level ever before adjustment for inflation. They then fell to the $2.05 level again last August and September.
The problem was that the war in Ukraine, starting in February 2022, had quickly doubled corn and soybean prices. Feed is the most important variable cost in all poultry production, whether eggs or meat. Physical facilities are the largest fixed costs that must be paid, whether used at full capacity or not at all.
In general, industries with high fixed costs keep producing as long as the price of the product sold exceeds the variable costs of production. But chicken buildings vary in age. Many are fully-depreciated, for which the sensible reaction to rapidly-rising feed prices is to simply not refill barns as aged laying hens are gotten rid of.
Since laying flocks turn over every two to three years, total output can drop much faster than for dairy or beef cattle or hogs. Yet since a young hen can hit her peak egg production at seven months of age, output can also rebound quickly. So production dropped with 2022’s HPAI outbreak and with high feed prices, but then surged back again in 2023.
So if news of bird flu burgeons, expect egg prices to rise. Corn and soy prices are less than half the historic levels hit in 2022, even though the war continues. Crop farmers are crying in their beer and having earnest discussions with lenders. But livestock producers, including all poultry, have cheap feed. So we should not have a repeat of 2022.
What about national inflation? Eggs are an interesting product in that while they are a small fraction of total household expenditures, one-eighth of 1%, they are a very visible and easily-remembered price marker. Nearly every household buys them, and often on a weekly basis. Few people can tell you what the prices of radishes or Braunschweiger or potatoes are relative to six months or two years ago, but myriad can tell you about egg, milk and ground beef prices
So an epidemic-driven egg price spike is not a problem for economists at the Federal Reserve or anywhere else, but it is a political one for Powell. When it comes to inflation, the Fed is everyone’s punching bag. Rising egg prices will invite volleys of verbal rotten tomatoes.
For Biden, the news is more serious. Powell’s job appears safe. Regardless of what economists see as causing inflation in his term or the importance of that relative to other indicators of output, employment and incomes, the general public blames Biden for inflation and outcrying will rise with the price of a dozen eggs, whether regular or jumbo.
Related Articles
Real World Economics: Ripple effects of a falling bridge
Real World Economics: How Haiti now reflects age-old economic teachings
Real World Economics: Why a coup at the Fed is highly unlikely
Real World Economics: Trump’s stated trade policy would have bad tradeoffs
Real World Economics: Why drug monopolies are bad medicine
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
