Why consumers should see eggs prices 'come down' after 38% spike in July: Vital Farms

·Senior Reporter
·3-min read

Egg prices soared 38% year-over-year in July as consumers continue to battle increased prices at the grocery store.

Although costs seem unlikely to waver in the near-term, one egg producer executive says otherwise.

"A lot of the big changes you're seeing at the shelf today are driven by both a shortage of eggs due to the avian influenza outbreak earlier this year, as well as the inflation we've seen in commodity costs, including corn, soybeans, and diesel fuel," Vital Farms (VITL) CEO Russell Diez-Canseco explained to Yahoo Finance.

Still, "the predictions on those things are starting to come down, and I would certainly expect you'd see commodity egg prices come down as a result as well," he surmised.

While the price spikes in eggs might seem incredibly high for consumers to bear, Steve Reed, an economist at the U.S. Bureau of Labor Statistics (BLS), told Yahoo Finance that the increase is "not unusual" as eggs are a category that "has always been a volatile index even prior to the pandemic."

Vital Farms, which sells organic and ethically-sourced eggs at a premium compared to most brands, recently raised prices for the first time in five years. Due to inflation, however, "there has been a price compression where the cheapest eggs are priced a lot closer to the price of our eggs," Diez-Canseco said.

Still, the executive noted that the company "hasn't seen that much interaction between a consumer who's looking for the very cheapest eggs and the consumer who's buying our [products.]"

He added: "What we're seeing more broadly, though...the cheapest eggs are seeing tremendous sales growth, partly due to inflation and partly because consumers are trading down. You're also seeing outsize growth at the high-end, which is where we play."

"It's the brands and price points in the middle where we're starting to see some weakness, as the underlying trend of bifurcation in the economy accelerates in this environment," the CEO continued.

HOUSTON, TEXAS - AUGUST 15: Cartons of eggs are seen for sale in a Kroger grocery store on August 15, 2022 in Houston, Texas. Egg prices steadily climb in the U.S. as inflation continues impacting grocery stores nationwide. (Photo by Brandon Bell/Getty Images)
HOUSTON, TEXAS - AUGUST 15: Cartons of eggs are seen for sale in a Kroger grocery store on August 15, 2022 in Houston, Texas. Egg prices steadily climb in the U.S. as inflation continues impacting grocery stores nationwide. (Photo by Brandon Bell/Getty Images)

As Vital Farms looks to safeguard its business from various external factors like inflation, Diez-Canseco doubled down that the company's "resilient" supply chain has been an integral part of its success.

"We only buy eggs from farms with whom we have a direct relationship. Those purchases are governed by a contract [and] we set pricing in advance," he explained, adding that that process allows the brand to avoid short-term price shocks based on supply issues.

He added that another benefit lies in Vital Farm's partnership with over 300 small family farms, which helps further protect the company against unexpected occurrences like the avian influenza outbreak.

Morgan Stanley recently upgraded Vital Farms to Overweight. The big bank cited the company's solid position in the higher growth speciality egg category, pointing to various tailwinds that include shifting consumer preferences and more retail/state commitments to cage-free egg production.

The stock is down about 22% year-to-date, but up 57% on a month-over-month basis.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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