Humpty Dumpty had a great fall

Unless you happen to be relatively low income or one of the few commercial growers, a big change in the grocery store might have gone unnoticed.  Humpty Dumpty didn't exactly fall, but the price of eggs has plunged in recent months.  Here is a recent graph of national retail egg prices (grade A, $/dozen) from the Bureau of Labor Statistics (November 2016 is the last data they report). 

After hovering around $2/dozen for nearly two years, in mid 2015, prices began to rise dramatically, reaching almost $3/dozen in August and September 2015 (a 50% increase).  Then, around the first of 2016, prices began falling.  The fall was even more dramatic than the price increase.  As of November 2016, egg prices were sitting at $1.32/dozen, less than half of what they were a year earlier.

For more perspective, here's the same price data going all the way back to 1980 (this time prices have been adjusted for inflation and are in current dollars).

The above graph illustrates how dramatic the recent swing in egg prices has been in a historical context.  The last time egg prices were as high as the were in September 2015 was 30 years ago in the early 1980s.  And, the last time egg prices were as low as the are today was about 16 years ago in the early 2000s.  

Aside from thinking now  might be a good time to eat an omelet, one might wonder about the causes of recent volatility in egg prices.  While there are no doubt a variety of contributing factors, the main cause has a fairly simple explanation: bird flu.  Back in May 2015, I was writing about the possible impacts of having to kill off almost 40 million hens because of avian influenza.  In fact, looking back on it now, the data show the dramatic impact of the epidemic on the number of table egg laying hens in this country.  

According to USDA data, there were over 313 million hens laying table eggs in December 2014.  Just six months later, there 38.8 million fewer hens, down to 274 million.  Fast forward to today (or at least November 2016, which is the  last reported data), and we're now back up to 309 million hens.  

The change in laying hen inventory over the past couple of years roughly mirrors the changes in egg prices over the same time period, and it is a great example of the economic forces at play.  The bird flu caused a shift in supply (the supply curve shifted up and to the left).  Demand was relatively unchanged, so consumers were left to scramble (sorry I couldn't help myself) over the fewer eggs that remained, bidding up prices.  Because research suggests egg demand is relatively inelastic (i.e., consumers are not very price sensitive when it comes to eggs), a small change in supply can induce much larger proportional change in price.  When the outbreak subsided and producers were able to add back inventory, the same story played out, but this time in reverse.  

It's too soon to tell whether the roller-coaster ride for egg buyers and sellers is over.