Patrick Thomas
Appearances
The Journal.
An Eggspensive Dilemma
Eggs are just so ubiquitous. That's what's for breakfast, right? Like, Americans generally have about 279 eggs a year, so about six a week.
The Journal.
An Eggspensive Dilemma
Steak is always the most expensive, followed by pork, which has always kind of had its weird middle ground between chicken and beef. Chicken is always the cheaper of those meats. And then you have eggs, which loves to fancy itself as the cheapest protein. When we're in a depression, a recession, people tend to go buy eggs because it was even cheaper than chicken when times were really hard.
The Journal.
An Eggspensive Dilemma
Once it is confirmed in a flock, you just kill the whole flock. So when one barn gets infected, you might be putting down four million hens at a time.
The Journal.
An Eggspensive Dilemma
Yeah, it's a lot. It has just been absolutely devastating for egg farmers, producers, the whole supply chain over really since the start of 2022 is when we first started hearing about it pop up again. But it just, it has not gone away. There's little signs that it is going to go anywhere.
The Journal.
An Eggspensive Dilemma
It's about 160 million commercial chickens and turkeys. Just chickens, it's over 120 million egg-laying hens.
The Journal.
An Eggspensive Dilemma
The funny thing is, not really. Consumers have always just kept buying eggs. It's just, think about it. There's not that many things you can just substitute for eggs. There's not another ingredient that comes to mind. There's some other products or fake egg products, but they tend to be a little bit pricier. There's just no good substitute for eggs.
The Journal.
An Eggspensive Dilemma
Well, especially if you're a cage-free operation or a pasture-raised egg operation, you're going to literally have to chase the chicken in some of those barns. So, you know, it's more complicated than I think some people think we can flip a switch and just vaccinate.
The Journal.
An Eggspensive Dilemma
The reasoning is a bit complex, but it boils down to this, and that's that all of the other countries that import poultry products from the U.S. would have to sign off on our vaccination strategy. So they would have to approve the vaccine we're using, how we are surveilling the birds after it is administered, all of those different types of nuances of vaccinating an animal.
The Journal.
An Eggspensive Dilemma
And essentially, we'd individually have to go to the more than 150 trading partners of the United States to do such a thing.
The Journal.
An Eggspensive Dilemma
The general fear is that vaccines do not completely prevent infection and could mask the disease's presence. So it's always a safety concern of whether we're bringing the virus into their country.
The Journal.
An Eggspensive Dilemma
The egg industry has really changed their tune. It has been a breaking point for them. They say it would basically be more worth it to vaccinate the flocks and not have to worry about infection than lose out on their exports. So the egg industry is willing to bite the bullet on that. But the broiler chicken industry, the Tyson Foods, Purdue Farms, Pilgrim's Pride, those guys...
The Journal.
An Eggspensive Dilemma
are not willing to lose out on exports because that is a huge deal to their bottom line to have that market.
The Journal.
An Eggspensive Dilemma
There's a split in the poultry industry, yes, over vaccinations.
The Journal.
An Eggspensive Dilemma
So Kevin Hassett said that essentially that the administration wanted to find new ways to address the bird flu outbreak.
The Journal.
An Eggspensive Dilemma
So by Medicaid, I think everybody assumed he meant vaccination. Like, there's no Tamiflu for birds here in this situation. But we don't really know what they're talking about yet.
The Journal.
An Eggspensive Dilemma
I will be perfectly frank. I did not think we were going to get here two years ago. So the fact that we are talking about it is pretty remarkable. Two years ago, at least when I was talking to people, they're like, you know, people toss it out. It was really talked about as like unfathomable that we would actually reach the point of vaccinating layer hens. And now it's like, nope, we got to do it.
The Journal.
An Eggspensive Dilemma
There's a lot of nuance to it, but we are closer than ever to vaccination.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Welcome to The Journal, our show about money, business, and power. I'm Annie Minoff. It's Thursday, May 22nd. Coming up on the show, eggs are eggspensive. Is CalMaine to blame? CalMaine is headquartered in rural Mississippi. Patrick went out there, and he got a tour of one of the company's egg-producing facilities.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
I'm just imagining, bawk, bawk, bawk, bawk.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Tens of thousands of eggs from those 14 barns are funneled into a processing facility on a conveyor belt.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
CalMaine has dozens of facilities like this one across the country. At one point, they stretched from California to Maine, thus the name. Those facilities produce about a billion dozen eggs a year.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
It a little boggles the mind, that scale.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
The person overseeing this giant operation is CalMaine's CEO, Sherman Miller. Introduce us to Sherman Miller.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Patrick got a rare interview with Miller at the company's main office. His desk there is dotted with egg statues, and an American flag hangs above his computer. Patrick says that Miller seemed eager to explain why Cal Maine wasn't the villain in this saga.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
It was at the beginning of the most recent bird flu outbreak, in 2022, that Miller became CEO.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
But over the past few years, a lot of those chickens have died, more than 150 million of them, as waves of bird flu have swept the country. That's helped catapult egg prices to historic highs, angering consumers. And some are pointing the finger at more than just bird flu. They're blaming a company called CalMaine.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Patrick saw some of those biosecurity measures firsthand when he was touring Cal Main's egg facility. Vehicles were sprayed down with disinfectant before they drove in, and those fully enclosed barns keep hens away from the wild birds that carry bird flu. Measures like this seem to work.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
CalMain didn't lose as many chickens and eggs as its competitors, and that put them in an enviable position. Because of the low egg supply, prices were soaring. And unlike some of the competition, CalMain still had plenty of eggs to sell. The result was a windfall for the company.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
High prices haven't just benefited CalMain. It's benefited the family who originally founded the company and still hold a lot of its stock.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Family members declined to comment. It's pretty paradoxical. Here they are, like, at the center of a crisis for their industry. And it's a bonanza.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
The critics who say that Cal Maine is a bad egg, they're next. As CalMain's profits soared during a national egg shortage, the company found itself cast as the egg villain. TikTokers were accusing it of price gouging. And politicians have also been critical, like Congressman Ro Khanna.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Americans eat a lot of eggs. And that includes our colleague Patrick Thomas, who likes them scrambled.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Consumer advocacy groups have also accused CalMain of making a bad situation worse.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
CalMaine Foods, the biggest egg producer in America, just posted a massive profit.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
So those are the critics. What did they accuse CalMaine of doing?
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
They're saying you could produce more eggs, you could, you know, produce more egg-laying hens, but you're not, or not as many as we would like.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
In March, the Department of Justice opened an investigation into CalMain and other egg producers, asking those companies to preserve documents about their pricing conversations. CalMain says it's cooperating with the DOJ. So some of CalMain's critics are saying, hey, you should be using your size to produce more eggs. You could kind of help our pricing situation here.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
What is Miller's response and what is CalMain's response to the criticism?
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Calmain says that adding hens takes time. It's about six months before a chick is mature enough to lay eggs.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
It's interesting. I hadn't thought about how, you know, I think I understand that it's hard to ramp up production of eggs. You need hens, but you also can't turn them off when you want to. That's right. CalMain has increased egg production somewhat. In the past year, it's added 14% more hens and upped the number of chicks it can hatch by 24%.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
But if CalMain increases production too much, it could find itself in a tough spot if demand eventually falls. The company could find itself sitting on too many eggs.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Miller says that CalMain has done everything it could to supply eggs under circumstances that it can't control. Another criticism levied against CalMain is that the company is price gouging. But Miller says CalMain doesn't set the price of eggs. When it negotiates with a grocer, say Kroger, it does that based on something called the benchmark price for eggs.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Cal Maine is the largest egg producer in the country. It supplies one out of every five eggs that Americans eat. Despite that, it's not well-known, partly because CalMaine's name isn't on the egg carton. Its eggs sell under local brand names. But it's also because the company's pretty secretive. It doesn't do investor calls and rarely gives media interviews.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
The benchmark price is kind of like a market price. A research firm sets the benchmark based on supply and demand for eggs across the country. CalMain uses that price to determine what it'll charge for its eggs. As Miller told Patrick,
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
So CalMANE is kind of saying, look, we don't unilaterally determine the price of eggs, but on a very literal level, don't they? Couldn't they decide, you know what? Eggs are really expensive. It's really hurting people right now. Let's lower the price of a carton by a buck. Could they do that?
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
CalMain argues it's just taking prudent steps to protect its business, but it has found itself in legal hot water in the past. In 2023, a federal jury decided that CalMain and other big egg producers had restricted supply in the early 2000s to raise prices. The egg companies denied wrongdoing. And in 2020, the Texas Attorney General sued CalMain for price gouging during the COVID-19 pandemic.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
CalMain says that panic buying drove up prices. That case is ongoing. Having dug into this now, what would you tell someone who is steamed about high egg prices and wondering, who do I blame?
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
So it sounds like this might be our new normal for a little while.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
Lately, though, it's been attracting attention because of those massive profits. So Patrick set out to learn what he could about this little-known company at the center of America's egg crisis.
The Journal.
Eggs Are Still Expensive. Is This Company to Blame?
That's all for today, Thursday, May 22nd. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.
The Journal.
The Biggest Supermarket Merger That Wasn’t
And you know, it's a smaller, a little bit of a smaller courtroom, not accustomed to these kind of high-profile antitrust trials. And it got really hot in that courtroom. I mean, it was, everybody's got to pack together in the back benches. And it was, yeah, it would get pretty toasty.
The Journal.
The Biggest Supermarket Merger That Wasn’t
And then on the other side of this, you have the second biggest supermarket operator, Albertson's, which is a little bit more known on the West Coast. The name is a little bit less known, but, you know, think of Safeway. a storied name like that, that falls under the Albertsons company.
The Journal.
The Biggest Supermarket Merger That Wasn’t
So the FTC's case essentially is you can't take the number one and the number two biggest supermarket, put them together and not expect there to be a loss in competition in the market and not expect consumers to feel that. And it would give Kroger enough dominance where they could raise prices unchecked.
The Journal.
The Biggest Supermarket Merger That Wasn’t
The company's central case is that they're in trouble because Walmart is actually the biggest seller of groceries in the United States by a lot.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Well over 20% of the grocery market share goes to Walmart, and Kroger's only 9%. So people really go to Walmart for groceries. And their argument is we have to be on the same level as Walmart when it comes to scale and buying power. Kroger says if you want lower grocery prices, we need to be on that level.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Mr. McMullen references a store in Dixon, Tennessee in the 1990s. And when he saw a Walmart open near that particular town, and the sales of the Kroger in that town just plummeted after the fact. And he referenced that in court as being kind of a seminal moment for him seeing like, wow, look at these stores like a Walmart, these discount kind of stores that can undercut a supermarket's
The Journal.
The Biggest Supermarket Merger That Wasn’t
One of the scenes he brought everybody through was in 2017... Amazon's purchase of Whole Foods was, as he called it, a watershed moment for the industry. Them doing this big deal and Amazon putting their buying power together with Whole Foods to basically making Amazon a competitor to Kroger, which scared him.
The Journal.
The Biggest Supermarket Merger That Wasn’t
He keeps a copy of the local business journal in his office to just remind him of that deal and that Amazon is out there.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Albertson sees a little bit more of an existential threat. Albertson's testified in court shortly after Mr. McMullen did saying, look, we kind of need this deal because we see bigger threats on the horizon to our business that we're financially sound right now.
The Journal.
The Biggest Supermarket Merger That Wasn’t
But two to three years from now, we don't think we can even compete to the level Kroger is in terms of lowering prices and getting market share and competing against these Walmart's
The Journal.
The Biggest Supermarket Merger That Wasn’t
So she came down on the side of the FTC with a pretty emphatic no to this merger, saying this was something that would erode competition and ultimately lead to higher prices for consumers and that this merger was not going to happen under her watch.
The Journal.
The Biggest Supermarket Merger That Wasn’t
At a high level, it was about the largest grocery store deal of all time. And if these two companies combining, we're going to mean higher food prices for consumers.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Now it looks like Albertsons is going to sue Kroger.
The Journal.
The Biggest Supermarket Merger That Wasn’t
I mean, this legal fight is, it's, Albertsons is suing them for, I mean, billions of dollars. And that is a significant chunk of money for a company like Kroger that sells a lot of people's foods as well as Albertsons and the livelihood of Albertsons.
The Journal.
The Biggest Supermarket Merger That Wasn’t
So Albertsons, they have two kind of main things they're alleging here. Number one, they're saying Kroger decided not to give them the termination fee. Basically, when these two companies decided we're going to merge as part of their merger agreement, Kroger said that if this doesn't happen, we're going to pay Albertsons $600 million. Albertsons is alleging that Kroger...
The Journal.
The Biggest Supermarket Merger That Wasn’t
tried to stiff them, more or less, and not pay the fee, and they're suing for that, and that Kroger breached the merger agreement by not doing everything in their power to make this go through with regulators.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Well, Kroger has said that there's not someone as big or transformational as an Albertsons out there. So they may do some other wonkier things like share repurchases or put money back towards their stores or supply chains, try and go in on their own. And analysts generally feel that Kroger is in healthy enough shape where they will be okay
The Journal.
The Biggest Supermarket Merger That Wasn’t
they're not going to get the same earnings potential or the same transformation they would have had buying Albertsons. They won't get that. That's more or less where it leaves Kroger.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Albertsons, it's far more uncertain, given that in court, their CEO on the stand painted a much more doom and gloom picture about their future as a company. But he said in two to three years, they might have to consider layoffs and store closures and that they really needed this deal to happen. So it's more uncertain what's going to happen to them.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Certainly, that could limit consumer choices. You could have a situation where Albertsons decides to start shedding stores and you do have fewer options. And instead of being owned by a Kroger, which promised to invest a billion dollars annually in lower prices, you don't get that and you just lose your option.
The Journal.
The Biggest Supermarket Merger That Wasn’t
They certainly could. Walmart's got a lot of power in the industry, and they've got a balance sheet deep enough to experiment in other ways in grocery that Albertsons can't. Walmart can do that. Amazon, could they do more deals in grocery in addition to Whole Foods that they did in 2017 that Mr. McMullen told us was a watershed moment? They certainly could. That's speculation.
The Journal.
The Biggest Supermarket Merger That Wasn’t
But there are some in the industry who have told me that they do expect Amazon... to be a buyer if they wanted to be. We don't know that for certain, but they wouldn't be shocked if Amazon did more grocery deals to try and establish more of a brick-and-mortar presence. And that would be essentially what Mr. McMullen on the witness stand warned us about.
The Journal.
The Biggest Supermarket Merger That Wasn’t
You know, that's a great question. I had plenty of conversations with folks who did kind of wonder out loud if it would have been better to wait two years and see if they could have waited this out. We'll never know the answer to that.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Yeah, the supermarket industry, it's a low margin business. They operate on really, really tight margins because they're always trying to make up even just a cent here, a cent here on different items. Their pricing strategies have to be so precise in order to make a profit. I think over the course of this, we've learned a lot about how our food is priced and how supermarkets actually function.
The Journal.
The Biggest Supermarket Merger That Wasn’t
I think Albertson's called it a zero-sum game in grocery markets. If you are the high-priced guy in town and they can get a deal somewhere, they will leave you very quickly. And these companies have to figure out how to formulate against each other. And it's an example of how quickly things can change if you take your eye off the ball.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Yeah, I would definitely say so. They're fierce competitors that spy on one another and try to get the best deal on certain products and sue each other after $20 billion mergers don't happen. You know, they're going to try and get their money back. Ultimately, it might take some time, but consumers will be the judge on how this ultimately impacted their food prices over the next couple of years.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Of course not. Shortly after the judge made this decision, Albertsons decided they were going to sue Kroger for billions of dollars.
The Journal.
The Biggest Supermarket Merger That Wasn’t
Maybe we'll remember this being a situation where our prices never went up and a win for the people, or maybe what the companies had predicted will come to pass.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
It's just a tough math for these guys. And some of them took losses last week on this. And trying to figure out what to do with it has been really complicated for a lot of people in the supply chain.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
So the biggest item that you're going to see, fruits and vegetables. The first thing in the supply chain that you would see affected, the tariffs are constantly changing, but we import quite a bit of fruits and vegetables from both Mexico and Canada. So depending how the tariffs work out, that would be an area really affected, especially if you think about produce.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
Perishable goods, you can't put it on ice like you could even in meats. So you're going to see that cost pass down the supply chain significantly. a lot faster than you would, say, something else like the ingredient in a cereal that used maybe wheat imported from Canada.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
It's a tricky equation for them. If you think about the supermarket right now, they're balancing a lot of costs increases on certain commodities. One of the grocers that I talked to for the story talked about his 80-20 rule. For example, you price 80% of the wholesale increase and then eat the other 20%. So basically he's been doing this with eggs. And what that does for him is
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
Is his eggs look cheaper than store down the street? Maybe it's a big Kroger, Albertson store, Whole Foods and might gain market share from them because the consumer is going to see that. Maybe they'll think, wow, this is the low priced retailer. I'm going to keep coming back here.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
Well, that's one of the things that companies are starting to talk about. Kroger, about a week ago, talked about their willingness to start looking at their supply chain and shifting around to some trading partners that maybe aren't immediately of concern to the president about which country he's going to slap tariffs on.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
One of the produce companies quoted in the story, he talked about the uncertainty that the last two weeks has brought, and he has had to cancel orders, bring them back. He paid two days worth of tariffs. And instead of passing that along to the customer, ate the cost. It's just a tough math for these guys.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
And some of them took losses last week on this and trying to figure out what to do with it has been really complicated for a lot of people in the supply chain.
WSJ What’s News
Grocers Try to Hold Prices Steady as Tariffs Threaten Produce
Thank you for having me.