Determining Actual COVID-19 Incidence Rates Requires a Sensitive Screening Procedure


It is axiomatic that decisions relating to operation of plants in the current COVID-19 era and assessing the effectiveness of preventive measures should be based on real-time evaluation of the incidence rate of the infection. By definition incidence is the number of new cases in a population identified within a specific time period. 


Questions have arisen as to the sensitivity and specificity of the Abbott ID NOW® system approved by the FDA under an emergency use authorization. The kit relies on immuno-based technology to detect nucleic acids from SARS-CoV-2 virus responsible for COVID-19.  The intended use of the Abbott ID Now® assay is to rapidly screen large numbers of individuals either in the community or working in plants for the presence of virus in their upper respiratory tract.  Effective suppression of COVID-19 requires that infected individuals should be quarantined, and contacts should be traced. 



During the first few months of the COVID-19 outbreak, antigen tests were in short supply. Healthcare providers restricted their use to those presenting with symptoms consistent with the infection especially in patients not demonstrating positive influenza assays.  With the realization that asymptomatic carriers are responsible for dissemination of virus, possibly with an R0 of 2 or more, infections can spread quickly when susceptible individuals are in close proximity to either symptomatic or asymptomatic carriers.  The “super spreader” situation is evidenced by cruise ships, mass gathering, nursing homes, prisons and more recently in packing plants where infection rates of 25 to 50 percent have been recorded.


Any diagnostic test has two major characteristics that define whether it is suitable for a given application:- 

  • Sensitivity is the ability to detect the pathogen of interest


Test with low sensitivity provide false negative results.  Test with high sensitivity should detect most if not all infected individuals.

  • Specificity is the ability of a test to distinguish between related pathogens.


A test with low specificity may not be able to distinguish between the SARS-CoV-2 virus and an unrelated coronavirus such as that causing the common cold. Assays procedures with low specificity will yield a high number of false positives.  In contrast high specificity presumes that the test can successfully identify the pathogen of interest to the exclusion of related or even unrelated disease-causing organisms.


Abbott has indicated that under controlled testing conditions the ID Now® test kit correctly identified 30 out of 30 viral samples indicating 100 percent sensitivity. The test identified as negative, 30 out of 30 known negative samples confirming 100 percent specificity.  Generally, a test is inclined either to sensitivity or specificity and only very rarely is it both highly sensitive and specific.


In contrast to the data generated by Abbott, a study on one hundred patients at New York University, Langone-Trisch Hospital determined that in practice the tests demonstrated low sensitivity generating an unacceptable level of false negative results. Similar lack of sensitivity was recorded in other centers using the Abbott procedure, which has the decided advantage of providing a diagnosis within five to twenty-minutes.


The Abbott assay is used extensively in screening programs despite numerous respected health care organizations abandoning deployment.  Both CVS and Walgreens are however using the test for mass screening and in some cases, hospitals are verifying negative results in patients with clinical symptoms using more specific secondary assays including the Abbott RealTIME® rt-PCR assay that detects RdRp and N-genes.


Patient literature provided with the Abbott tests note "that in the event of a positive test result it is very likely that you have COVID-19.  The literature also states that a negative test means that the virus that causes COVID-19 was not found in the sample".  Abbot acknowledges the possibility of false negatives in the statement "this means that you could possibly still have COVID-19 even though the test is negative".


Extensive deployment of the Abbott test may be underestimating the true prevalence of COVID-19 in specific populations.  This is important when making decisions as to whether plants should be closed and whether preventive procedures should be intensified.  Perhaps the highest-visibility application of the test is in the White House.  Although two Administration officials have been diagnosed with COVID-19, there have been questions as to why positive and negative results were obtained on consecutive days.  Evidently even with the most meticulous and professional sampling of individuals, the test will generate inconsistent results.  The Abbott test has the advantages of speed, compactness with respect to equipment and is deployable at any site obviating the need to submit specimens to a remote diagnostic laboratory.


Accepting the low sensitivity of the test, it has an important role to play in screening among confined populations such as in prisons, nursing homes and packing plants.  Obviously, clinicians in hospitals must be guided by clinical presentation in patients and submit questionable results to their diagnostic laboratories for validation using more sensitive and specific PCR assays to accurately determine a diagnosis to guide in the selection of treatment options.


We Take Issue with Fareed Over Reference to “Factory Farming” and his Implications


Generally, I look forward to the Sunday edition of GPS hosted by commentator Fareed Zakaria.  His incisive comments and world perspective are reinforced by the quality and prestige of his guests.  On Sunday, May 10th these included ex-Prime Minister of the UK, Tony Blair and ex-Secretary of the Treasury and Harvard University, President Emeritus, Larry Summers, among others discussing the world and the U.S. in a post-COVID-19 era. 

The jarring portion came at the end of the program with his individual perspective on emerging potential pandemics and their causation.  He is right in implicating global warming in the extension of vector-borne diseases including Zika, Malaria, Dengue and Chikungunya.  Warmer weather in northern latitudes has facilitated propagation of mosquitos and other insects that transmit viral and protozoal diseases.  As a veterinary student in the Republic of South Africa in 1963, Bluetongue was the most common seasonal infection among sheep, although suppressed by vaccination.  Today a variant of this disease occurs in Scandinavia and Northern Germany as warmer weather has allowed breeding and dissemination of viruses by Culicoides midges that now range from the Mediterranian region northwards to previously colder climes.

Fareed Zakaria


Where Zakaria and most observers differ is his implication based on biased and distorted information regarding domestic livestock as a factor in the emergence of new zoonotic infections.  SARS, MERS, and COVID-19 are caused by coronaviruses derived from bats as reservoirs of diverse species.  Trade and consumption of exotic animals held, slaughtered and sold in wet markets in Asia, is believed to be the source of emerging infections.  There is no evidence that domestic livestock in China or any other nation was responsible for COVID-19.  Quoting authors with an obvious bias against intensive livestock production, Zakaria maintained that “crowding” of animals contributes to human disease.  This is totally wrong.  Mortality rates due to diseases in poultry, hogs, and cattle are effectively controlled using vaccination and biosecurity under intensive management.  It is noted that the current Eastern European and Asian panzootic of African swine fever mostly involves small family-operated units. Large integrated hog operations mount effective prevention programs applying biosecurity, even in the absence of a vaccine.  The 1918 H1N1 influenza pandemic was caused by a virus which incorporated genetic contributions from birds, hogs, and humans.  The disease affected 500 million, approximately a third of the world’s population at the time, and was responsible for as many as 50 million fatalities.  This infection emerged and spread half a century before the development of an intensive livestock industry.


The second canard in the May 10th GPS program involved the role of intensive livestock production in the emergence of antibiotic resistance.  It is a matter of record that the EU and the U.S have effectively banned antibiotics for routine administration to stimulate growth or improve feed conversion efficiency.  In most industrialized countries, antibiotics are restricted to prescription by Veterinarians using Prudent Use Principles.  Even China will ban the routine use of antibiotics in livestock production in 2021, although given the history of this nation, enforcement will be questionable.  The problem of emerging antibiotic resistance is a complex issue involving misuse of compounds by the medical profession and indiscriminate availability in both industrialized and almost all developing nations, over and above the possible origin in livestock.  An exception may well be the emergence in Asia, possibly from numerous small hog farms of the mcr-1 gene. This imparts resistance to antibiotics and is disseminated on plasmids among a number of bacterial pathogens.  The major conditions associated with drug-resistant infections in human populations include tuberculosis, gonorrhea, and nosocomial (hospital related), Staphylococcus, and Klebsiella infections.  None of these infections have any relation to livestock.


It is indeed unfortunate that credible and informed commentators, such as Fareed Zakaria, continue to reinforce negative perceptions of intensive livestock production with misstatements accompanied by inappropriate visual images without recognizing that zoonoses and antibiotic resistance are multifactorial in origin. While condemning intensive livestock production detractors fail to consider the contribution to protein requirements for a burgeoning world population.


How Much Testing is Enough?


Governments around the world are criticized for their apparent slow introduction of testing and achieving inadequate volume to control the COVID-19 outbreak.  The World Health Organization maintains that if less than ten percent of those randomly tested yield SARS-CoV-2 the virus responsible for COVID-19 on sampling, then a country is adequately served. In contrast, epidemiologists experienced in influenza outbreaks maintain that a three percent positive level indicates adequacy of testing.  Currently assays to demonstrate the presence of SARS-CoV-2 in the U.S., yield positives in the region of 20 percent for selected individuals, either in contact with patients or demonstrating clinical signs. These results are therefore from a biased symptomatic sample and do not reflect the prevalence of the infection in the population.


Testing for antibody


According to a column authored by Teresa Hanafin in The Boston Globe on Thursday, April 30th, Dr. Antony Fauci considers that three million tests are required each week for the U.S., approximately twice the 1.6 million conducted at present.  Researchers at Harvard University recommend five million tests per week distributed at random among various states, depending on the prevalence rate.  The Harvard Global Health estimate was based on the WHO 10 percent level and indicated that many states are deficient with respect to numbers of tests performed.


The Boston Globe, Fast Forward column pointed to the fact that some states, including Florida and Georgia, are relaxing social distancing and home confinement restrictions with a totally inadequate capacity to conduct tests.  It is estimated that Georgia, home state of the CDC requires 10,000 tests daily but has been averaging only 4,000.


The CVS Health Corporation announced on April 27th that it would commence a comprehensive testing program at approximately 1,000 sites to conduct 1.5 million tests each month depending on availability of supplies.  Between CVS, Rite Aid, Walgreens, and Walmart, seventy testing sites have been established in parking lots for drive-through sampling.  This initiative is supported by the CDC that will soon release new guidelines to identify asymptomatic individuals in high-risk occupations.  It is now recognized that infection with COVID-19 virus can occur with people transmitting the pathogen without necessarily being aware of their condition.


As we ease social restrictions adequate testing is required to identify those infected in order to quarantine them and to investigate and evaluate their contacts. This approach applied in South Korea was effective in “flattening the curve” and reducing the incidence rate compared to other nations in Asia and the EU. Fortunately the Roche rapid test has now received provisional FDA approval and will add to testing capacity.


The quicker that COVID-19 can be suppressed the safer will be policies designed to restore the economy. Resumption of activities in the food service sector is of specific and immediate concern for the egg-production industry. As restaurants re-open, shell eggs will move back from the retail to the food service sector reversing the trend of the past six weeks. It will only be with re-opening of schools and universities and with more travel that the food service sector will be resuccitated removing the output of 10 to 20 million shell eggs from the retail market with obvious implications for price.


Establishing the prevalence of antibody in the populations of specific areas and the incidence rate through antigen detection will be critical to guiding policy until an effective vaccine becomes available. Relaxing COVID-19 restrictions without adequate epidemiologic data will result in resurgence in infection and more misery for our industry. The basic question of “how much testing do we need” is not an absolute number but is determined by incidence rates and will change over time and circumstances. Our epidemiologists can prepare recommendations based on science to guide politicians to devise and implement policies that will be effecively a compromise between public health and our economy. Intrusion of armed protesters into legislative buildings to intimidate lawmakers and governors are not a realistic counterpoint to science and established facts relating to the progress of the pandemic.


The State of our Industry, influenced by COVID-19


Three items in this edition of EGG-NEWS when taken together depict the state of the U.S. egg industry as affected by COVID-19. There are obvious indicators predicting the future when consolidating the data and reports relevant to the present situation.


The first item concerns weekly report on egg prices and inventory. The USDA data confirms that wholesale prices have fallen back to their February levels.  The unprecedented spike in price was due to panic COVID buying, but the transitory nature of the event did not compensate for the many months of losses in 2019 extending into the beginning of this year.  The weekly egg report in this edition confirms a 1.7 million increase in the number of hens in production. True to form the industry is not demonstrating the requisite restraint that should dictate depletion of older flocks until market stability returns. A ray of hope is that the level of stock declined 1.8 percent over the past week. This suggests that demand for home cooking persists but obviously not reflected in the panic levels displayed from late March through early April.  Before the price spike, a number of producers had exhausted their working capital. With institutions disinclined to extend financial support, based on doubtful capacity to service and repay the principal, the future for some producers appears bleak.  This is especially the case with small to medium sized family-owned farms selling generic eggs and operating with obsolete cage housing.


The second posting relates to the action initiated by the Attorney General of the state of Texas against Cal-Maine Foods, the nation's largest producer with a dominant position in that state. The justification for the rise in price both at the wholesale and retail levels was eloquently stated by Cal-Maine.  Their response raises the question of the undue influence on pricing by Urner Barry and whether their price discovery system is distorting market prices to the disadvantage of the industry. Some new impartial system of establishing an equitable relationship between producers and chains is required such as a CBT future quotation for eggs.


The third concern is raised by the posting on the Zimmerman family farm in Pennsylvania that illustrates the plight of small contractors.  The margins generated by independent family-owned farms producing specialty cage-free and organic eggs are subject to the vagaries of the market and packers.  The black-swan emergence of COVID-19 has effectively suspended the food service component of the shell-egg market. The effect of COVID-19 on the chain extending from small contract producer through to patrons of restaurants, school and university dining facilities was evident within days of the adoption of home confinement.  As with musical chairs, all players enjoy the game until the music stops. Our hope is that restaurants will re-open and will be patronized, creating demand for shell eggs and egg liquid. This will reestablish the pipeline from small-scale producers and contractors and in-line breakers through processors to the food service market.


The advent of COVID-19 has clearly indicated the interdependence of segments of our industry and demonstrates the inability to respond to sharp changes in the operating environment.       Overproduction creates an added level of vulnerability that is amplified with changes in supply or demand and is reflected in pricing. 


Hopefully the U.S. egg industry will emerge from our current travails stronger but possibly with fewer independents and more consolidation to face future challenges. These include conversion to cage-free housing, possible emergence of disease, both in flocks and now in workers and our Nation’s recovery from a severe recession.


Hope for the Oxford University Vaccine


The COVID-19 vaccine under development by the Edward Jenner Institute for Vaccine Research at Oxford University has been tested by the U.S. National Institute of Health in rhesus monkeys.  Six vaccinated animals were unaffected after SARS-CoV-2 challenge over a twenty-eight day period compared to obvious clinical infection in non-vaccinated controls.  The Oxford University vaccine is based on an adenovirus isolated from chimpanzees as the vector, modified to express SARS-CoV-2 antigen. The next stage is to progress to evaluation in humans, first for safety and then efficacy.


Based on the need for an effective vaccine, manufacturing facilities for the product have been identified and are being equipped to produce the vaccine in large quantities following regulatory approval.  Given the world distribution of a vaccine, it is evident that the U.S. will have to have independent in production capacity to be able to vaccinate the entire population at least twice while making available vaccine for nations including Mexico that do not have production capability.


It is axiomatic that restoring the lifestyle and the economy as we knew it will be dependent on durable immunity from a vaccine.  As the approved product or analogues will be in short supply during the initial months of production there will be profound ethical considerations in relation to selection of early recipients. It will be critical to ascertain whether an adequate proportion of the population will actually be immunized by the vaccine the duration of protection and to determine the dose of antigen and frequency of administration. A second complication is whether adequate numbers of people will be willing to submit to vaccination given concerns and the influence of “anti-vaxers”.  Annual influenza vaccinations have a low compliance rate although the fear of a new disease may encourage vaccination against both influenza and COVID-19. Herd immunity stimulated by either natural exposure or vaccination will be critical to maintaining a viable economy and our supply of food.


Facing the Inevitability of COVID-19 impacts on Egg Production


COVID-19 is now extending from urban areas to rural counties where intensive livestock operations including egg-production complexes are located.  One large enterprise in Michigan has reported a diagnosis in a member of a work crew and it is inevitable that infection will impact egg producers.  It is hoped that the incidence rate in egg packing and breaking facilities will be less than in red meat and chicken plants, some of which have been closed temporarily due to severe absenteeism and to carry out reconfiguration and decontamination.

Based on experience to date, it would appear that personnel in egg packing plants would be at greater risk than then their colleagues in barns where there is greater opportunity for social distancing. 

Protection of the workforce on a complex can be accomplished with the following measures:-

  • Workers should be screened each day and questioned as to their health and body temperature should be measured.
  • Effective masks must be made available and their use enforced
  • Frequent hand-washing with soap should be encouraged. In many plants, hand-washing facilities are limited to an area near the entrance in accordance with AMS requirements so additional stations are required.
  • A program of daily decontamination of both work areas and break rooms should be introduced concurrent with the third-shift cleaning.
  • To reduce the number of employees in break-rooms, during breakfast and lunch, schedules should be staggered as far as possible with workers encouraged to maintain social distancing
  • It is considered essential to maintain straightforward and honest communication with workers regarding the health status of the community and personnel in the company
  • Special attention should be directed to drivers of feed trucks and personnel involved in delivery of product to DCs and stores. Close contact with receiving workers at these destinations should be avoided. Drivers should not have direct contact with production and packing personnel.
  • Workers should be encouraged to maintain social distancing and to avoid gatherings outside of their work even if lockdown is not implemented in the county or state of operation.
  • All employees should be encouraged to seek medical treatment early if any symptoms of COVID-19 are experienced. Companies should provide sick benefits to discourage reporting to work while affected.
  • Experience in Quebec demonstrated that workers at a hog plant were actually infected with COVID-19 virus during commuting. Employees should be cautioned to as far as possible maintain social distancing if sharing vehicles and wear masks and gloves. Company shuttle buses should not be used to transport employees.
  • Producers should encourage workers to adopt healthy lifestyles including cessation of smoking, moderation in alcohol intake and to initiate weight reduction and exercise programs.
  • Installation of UV modules to generate and dispese vaporised hydrogen peroxide serving to destroy viruses and bacteria suspended in the air of  offices, changing-areas and break rooms. 


It is obvious that effective control of COVID-19 will only be achieved with wide application of a safe and effective vaccine that may only be available in early 2021.

Measures enforced through March and April of 2020 have only "flattened the curve" to avoid overwhelming medical resources in the short term. Since a significant proportion of the rural population is completely susceptible to SARS-CoV-2 the virus responsible for COVID-19 as of April, an increase in the incidence rate should be expected following relaxation of current methods to suppress infection. Most epidemiologists and public health scientists predict the high possibility of an upsurge in cases during the fall and winter months.  Accordingly, all employees should receive an influenza vaccine in September since co-infection will create additional complications for those exposed to the coronavirus. 

Hopefully antigen and antibody testing will become more readily available to identify both asymptomatic and affected individuals and those with immunity in the workforce and the community.  Identifying contacts of COVID-19 patients will be necessary resulting in quarantine and testing.

It is now evident that the world will have to live with COVID-19 or subsequent variations of SARS-COV-2 virus for the foreseeable future.  Accordingly, mechanization should be considered to reduce dependency on manual labor. Robotic de-stackers for off-line plants, case packers and pallet stackers operate at the turn of a switch.  With increasing labor rates and uncertainty as to availability of workers in some areas, the capital investment in robotics and mechanization will provide a higher return on investment then during pre-COVID operation

The indirect effect of COVID-19 on the market for shell eggs has impacted the industry with a disproportionate effect on the liquid and food service segments, creating financial pressure on both breakers and shell egg producers.  The initial response and adaptation in the market will soon be followed by the reality that the disease will affect workers and reduce production rates in plants.  Accordingly, managers should develop contingency plans and apply appropriate preventive measures.


Now is The Summer of Our Discontent


The title paraphrase from Richard III encapsulates the concern and anxiety we all share regarding the immediate future of the shell-egg segment of our industry.  Clearly, we are on the downside of the wholesale-price roller coaster due to the effects of COVID-19.  In March, panic buying cleared supermarket shelves of eggs and other perishables, driving up price to levels not seen since the 2015 HPAI epornitic.  As noted in commentaries and weekly reports in EGG-NEWS documenting sharp declines in national stock level over three consecutive weeks, the surge in demand was transitory. Now we are facing the realization that the supply pipeline is completely filled and retail demand has returned to a normal level resulting in an equally sharp decline in price, dropping this week at a daily rate of almost twenty cents per dozen. 


The supply situation is complicated by diversion of shell eggs to retail from for the food service sector following a waiver regarding labeling by FDA* This action apparently resulting from a petition forwarded by the UEP effectively adding approximately 20 million hens to the retail shell market.  This has resulted in a profound depression of current and short-term prices even if there is a carryover in the demand surge from eating at home. The justification of the FDA action is questionable given that any reasonable person could have predicted that the surge would be of short duration. Now the established shell industry will endure artificially depressed prices until COVID-19 restrictions are lifted and the equilibrium between the supply of shell eggs is correlated with the combined demand from retail and food service sectors.


In retrospect April 2020 is the reverse of April 2015 when the majority of HPAI losses were among a few large in-line breakers resulting in migration of eggs from the retail market to breaking to supply manufacturers and food service.


The impact of COVID-19 is evidenced by the warnings issued by major dining and QSR chains all of whom have withdrawn guidance. Market research company NPD CREST recorded a drop of 42 percent in transactions for the last week of March with sector reports of a 79 percent decline for traditional and casual dining restaurants and 40 percent for QSRs. McDonald's announced on April 9th that U.S. same-store sales fell by 13 percent compared to March 2019. Most McDonald’s stores are open and 90 percent have drive-through installations with many locations offering home delivery.  Closing universities, corporate dining and schools has further reduced egg sales through the food service pipeline to a trickle.


The egg industry moved into 2020 with little in the way of working capital reserves, having endured eight continuous months of prices below cost of production.  Financial institutions are now disinclined to extend facilities to the egg industry and support including the USDA Market Facilitation Program, benefiting other sectors of agriculture, is unavailable to egg producers.


There is no immediate prospect for restoration of what we regarded as  "normality".  Unless COVID-19 can be controlled, the economy cannot be opened up without sacrificing hundreds of thousands of lives. There is hope that the sacrifices to date in the form of social distancing and home confinement are “flattening the curve” Not even the most eminent of public health authorities or epidemiologists can provide a clear timeline for resolution.  Even when restrictions are lifted we will still be faced with a susceptible population vulnerable to a re-emergence of infection possibly in the fall.


The impact of COVID-19 on the shell egg industry will be expressed in a number of ways:-

  • Independent small-scale producers reliant on the sale of eggs to either breakers or packers will be deprived of their markets and will either be acquired by packers, which is unlikely, or will cease production as they exhaust their working capital. Contracts will be cancelled as flocks are depleted.
  • Large producers may acquire smaller but efficient competitors but only if synergy can be achieved
  • Rationalization will clearly result in a reassessment of the size of the national flock which may shrink by as many as 30 million hens across the breaking and shell segments of the industry
  • Expenditure on capital development of new cage-free complexes and conversion of existing units will be deferred. Financial institutions will not be receptive to applications for funding complexes holding two million hens costing upwards of $100 million. The collateral value of egg production facilities is now heavily discounted and the capacity to service loans is highly questionable unless prices advance to a level consistent with an acceptable return on investment.
  • In the immediate term, producers will deplete older flocks and consider molting mid- cycle flocks to conserve finances and have flocks commencing production when market demand returns.
  • Chick producers will probably reduce their parent multiplier flocks as anticipated pullet orders are deferred.
  • Reduction in production volume and the need to conserve resources will have an effect on the allied industry with equipment manufacturers impacted followed by suppliers of packaging material and even biologics
  • Producers will attempt to restrict costs. Curtailing biosecurity or reducing the intensity of flock vaccination and monitoring would be counterproductive


Supermarket chains may realize their myopia in nickeling and diming egg producers. For decades the egg industry has been forced to lose money for many months each year, making it up at Christmas and Easter. This cycle must be replaced by independent and rational decisions on supply.  There is little to be done on the demand side of the profit equation. It is clear that the activities of The American Egg Board cannot motivate significant increases in consumption although their endeavors have produced incremental annual improvements. Without the efforts of the AEB and the ENC erosion in both the shell and liquid sectors would have occurred.  We cannot look to the export market for salvation.  The volume represented by Hong Kong and our USMCA partners along with minor importers represents at best 10 million hens in production.


COVID-19 will not simply miraculously disappear in May.  The direct and indirect effects will persist through 2020 and will change our industry in many ways. Hopefully new attitudes towards restraint in production will emerge. We can no longer function on the basis of “Don’t cut him and don’t cut me---cut the guy behind the tree” The Industry is obviously legally restricted from colluding on hen numbers but independent interpretation of volume and price data published by the USDA is possible.  Decision makers in the industry would have benefitted from the results of a comprehensive economic analysis of the 2015 HPAI outbreak quantifying the interaction among the breaking and shell-egg sectors and determining the price elasticity of eggs.

It is hard to be optimistic as of mid-April, but the U.S. egg industry has endured many challenges and there is hope that the health of our nation and its economy will soon be restored.  We must above all not make a mistake of previous years by injudicious expansion after recovery.


*FDA Guidance Document, Temporary Policy Regarding Packaging and Labeling of Shell Eggs Sold by Retail Food Establishments During the COVID-19 Public Health Emergency.



The Department of Justice Defers on Appeal over Refinery Waivers- An economic case for Abandoning the RFS


EGG-NEWS previously reported on the ruling by the U.S. Court of Appeals for the 10th circuit in Denver setting aside EPA waivers that were awarded contrary to established policy. Since the DOJ did not appeal, the January 24th decision of the Court will be implemented restricting the ability of the EPA to continue to grant the number of exemptions as in recent years.  Since 2016 twenty-eight exemptions have been granted with twenty-five pending requests for 2019.  In practice the EPA has deferred on rescinding waivers pending the outcome of an appeal by affected fuel refiners.


The original lawsuit opposing waivers by the EPA was filed in May 2018 by the Renewable Fuels Association, the National Corn Growers Association, the American Coalition for Ethanol and the National Farmers Union.  In a joint statement the groups noted, “Abiding by the court’s ruling is the right thing to do at a time when our industries and rural America are already suffering from the effects of COVID-19, the Saudi-Russia oil price war and ongoing trade disputes, actually a self-inflicted wound. The groups also called on the EPA to restore 500 million gallons of ethanol waived in 2016 as ordered by the U.S. Court of Appeals for the District of Columbia in 2017.


In the January 24th ruling the court ruled that EPA had “abused its discretion” by not explaining its conclusions as to how a small refinery with a waiver could suffer disproportionate economic hardship while also passing on RFS compliance costs onto consumers at the pump.  At issue was the legal requirement that RFS waivers, in most cases, should represent an extension of a previous waiver.  In three case reviewed, all waivers were original and therefore not in compliance with established regulations.


The entire ethanol industry exists by virtue of government mandates established before the U.S. was a major oil producer. The program was intended to reduce dependence on imports from foreign and frequently unfriendly suppliers, including Venezuela, Russia and even Middle Eastern States.  Since this time shale oil and abundant gas has rendered corn-based ethanol superfluous. Notwithstanding reality the program has become a government supported “right” by farmers, ethanol refiners and corn-state legislators on both sides of the aisles of Congress.   


Forcing ethanol into gasoline at a nominal level of 10 percent artificially supports the price of corn by up to a $1 per bushel, reduces fuel mileage by 3 percent using E-10 and has a negative effect on the environment.  The true value of ethanol is denoted by both the prevailing U.S. price and failure of the ethanol industry to export surplus production. Restrictions imposed to control COVID-19 have further reduced gasoline consumption by the nation and ethanol has been degraded in value by the precipitous fall in the price of crude.


Ethanol has declined 30 percent in value to $0.94 year to date, compared to WTI crude that has fallen 68 percent to $19.48 per barrel. Each barrel of crude yields 19 gallons of gasoline and 11 gallons of diesel fuel. Crude represents 54 percent of retail price that has declined year to date by 17 percent from $2.65 to $2.21 per gallon, including 54 cents of tax. At a current estimated wholesale price of 90 cents per gallon, gasoline is four cents below spot price even with support by the RFS mandate. The cost differential is even greater when the relative BTU content of gasoline is compared to ethanol. Since there is a 29 percent inferiority for ethanol against gasoline, corn-based ethanol is only worth 67 cents per gallon into the tank of an automobile.  


 The recent highly publicized directive by the Secretary of Agriculture to use the highest inclusion rate of ethanol in official USDA vehicles is political in motivation, contrary to science and economics and ultimately passes the cost to U.S. taxpayers.


COVID-19 Now and After


As of April 2nd the U.S. had exceeded 225,000 confirmed diagnoses of COVID-19 and 5,300 fatalities with as many as 20,000 incident cases reported the previous day.  The number of cases is effectively a function of the availability of test kits with rationing to those with clinical symptoms. Effectively we have no idea of the prevalence of the infection in either urban or rural communities without structured sampling for virus and serologic surveys for antibody status.  The duration of the epidemic will depend on the success of preventive measures to "flatten the curve" mainly by limiting social contact. This is necessary to prevent swamping of medical facilities with the anticipated surge in incident cases.  Epidemiologists’ models predict that the incidence rate will peak in mid- to late April based on realistic assumptions and experience gained from Asia and Europe.

Currently social distancing, quarantine for known infected individuals and contacts, avoiding travel and personal hygiene are the only applicable preventive measures.  Scientist are working on therapeutic agents and evaluating existing drugs while developing new candidates.  Scientific evaluation of the efficacy of antiviral compounds in addition to hyperimmune serum will require at least three months.  Candidate vaccines have been developed, but again proving safety and efficiency against SARS-CoV-2 and then producing vaccines in adequate quantities will require at least a year.

Since there is only recent experience with the SARS-CoV-2 virus responsible for COVID-19 infection and given that the World's population is completely susceptible, it is possible that even if the infection is controlled by mid-summer, resurgence may occur in the fall as with seasonal influenza.  On the other hand, both SARS and MERS, both caused by related coronaviruses apparently disappeared within months of emergence as clinical entities.

The current measures to lower infection rate will have profound changes in society irrespective of the availability of therapy and vaccines.  Some of the effects of COVID-19 will include:

  • Greater emphasis on planning at the federal, state and local levels to detect and control future epidemics
  • Increased expenditure on medical disciplines including virology, immunology, epidemiology and emergency response
  • A long-term initiative to reduce the impact of predisposing factors such as obesity, diabetes and other lifestyle factors that exacerbate exposure to respiratory and systemic viruses
  • A shift in consumption of meals at home at the expense of family-casual and fine-dining restaurants. QSRs will survive providing they offer drive-through service
  • Home delivery of meals will increase in popularity. This in turn will change menu offerings since not all foods travel well, even other short distances
  • Eggs were shown to be absolute necessities as evidenced by a surge in demand from early March onwards. Hopefully this trend will continue as consumers recognize the nutritional value and competitive cost and versatility of eggs compared to other proteins.
  • With restoration of the supply-to-demand equilibrium, prices will fall sharply after the current transitory windfall
  • Enforced stay-at-home has placed greater dependence on electronic communication, for education, meetings, entertainment and completion of administrative work.  This trend will continue changing the nature of the workforce.
  • Consumers will place greater reliance on E-commerce at the expense of malls and stores.


The prolonged period of suboptimal margins experienced by the egg-production industry in 2019 has generated reluctance on the part of financial institutions to continue to extend working capital to inefficient producers. Banks have been hard pressed by COVID-19 as the economy has virtually shut down. Despite the transitory surge in demand for shell eggs, the business plans of applicants for loans will be carefully scrutinized before extending long-term capital for expansion and conversion to aviary systems. 

The sharp transition from restaurant dining to consuming meals at home will alter the relative volumes of shell eggs and liquid marketed.  To compensate for loss in food service, egg liquid processors will have to devise new presentations and menu items for home-meal preparation. This has implications through the entire chain of food production and distribution

Given cooperation, the application of medical science and rational decisions at the federal, state and municipal level we will prevail over COVID-19. The current year marks a transition in our society to a post epidemic era.  Nothing will ever be the same again.


Impact of Covid-19 - Now and in the Future


Momentous events have a way of changing perceptions and altering personal and business routines and activities. The unprecedented demand for eggs is a case in point. Over the past three weeks, national egg inventory has declined successively over a range of 9.7 to 12.6 percent, reducing stock in some cases to the bare floors of coolers. Demand has risen by 40 percent and Midwest wholesale prices have vaulted by over 150 percent.


Consumers are depleting supermarkets shelves with their transition to an “eat-at-home” lifestyle. Supermarkets are pressured to replenish tray-pack chicken, eggs, shelf-stable milk substitutes, paper goods, and toiletries. Demand for eggs has transcended all categories, although some price sensitivity is evidenced by the fact that “pasture reared” and similar products, priced upwards of $6 per dozen remain unsold. Nationally-branded specialty eggs, house brands and generics are whisked off shelves to consumers’ refrigerators throughout the nation. In accordance with the laws of supply and demand, price has risen in response to availability with an average national price now exceeding the three year average, following a very depressed 2019.


There are a number of observations and lessons from the increased demand for eggs since the advent of COVID-19:

  • The distribution system from packing plants through to supermarket shelves cannot respond adequately to surges in demand. Out-of-stock represents a lost sale and in turn revenue to a retailer and ultimately a reduction in the potential increase in per capita consumption.
  • In visiting supermarkets over the past few weeks, it is evident that stores receiving direct delivery are more able to keep shelves stocked. In contrast, there appears to be a delay interposed by distribution centers that have not reacted to the surge.
  • As with manufacturing industries, the obvious risks and costs associated with “just-in-time” management are becoming apparent. What works under an optimal situation has proven to be inefficient when challenged by increased demand.
  • Retailers will have to maintain more stock and motivate their deli personnel to transfer eggs from coolers to shelves as necessitated by volume of sales.
  • More frequent deliveries from DCs to stores are obviously necessary with an emphasis on critical items. This may result in a deterioration in cost per ton-mile, but may well be justified in terms of enhanced store revenue and consumer satisfaction. Evidently, chains must become more flexible with regard to sourcing supplementary deliveries direct from packers, especially if they are unable to receive deliveries through company DCs.


A situation such as Covid-19, which has resulted in a profound shift in dining from QSRs and restaurants to the home, has highlighted the versatility of eggs. Not only due to the reality that most consumers can cook an egg, be it boiled, fried, or scrambled, consumers have now extended from breakfast to lunches and even dinners. A stay-at-home lifestyle mandated by COVID-19 restrictions is probably bringing more families together to eat and the industry should experience an increase in demand after the present crisis is resolved. Publicity generated by the American Egg Board emphasizing eggs as a source of protein and other nutrients and their excellent use of social media to promote diversity of meals that can be prepared with eggs should reinforce an obvious consumer trend.


Since shopping at large supermarkets may be regarded as a risk of acquiring COVID-19, smaller stores including Dollar and convenience units are now regarded as locations to buy eggs, milk, bread, and other necessities. This trend may persist when normal conditions return. Accordingly, distributors involved in restocking these stores may play an important role in maintaining an anticipated increase in egg consumption.


Pack size may well be influenced by demand, favoring 18 and 24-egg presentations. Fewer visits to supermarkets require larger packs to maintain volume of sales. More eggs in the refrigerator will probably translate to greater consumption.


The final lesson relates to willingness to pay. It is possible that this episode of high demand and concurrent escalation in price will create a greater appreciation of the value of eggs and an inclination to pay for their inherent nutrients. Not only are we retraining a cohort of consumers, but we may in fact be recalibrating chain buyers who are essentially the arbiters of price.


There are probably many lessons to be learned from the current situation, as stressful and unfortunate as it may be. Again, EGG-NEWS stresses the need for a professional study on egg pricing under unusual marketing conditions. Previously, it was suggested that the AEB fund studies by agricultural economists to examine price and supply relationships in the shell egg and liquid masrkets and their interaction during and following the 2015 avian influenza epornitic. The COVID-19 demand is yet another opportunity for the industry to take advantage of market perturbation to learn more about how demand and supply influence price in the short and intermediate term. This will allow more rational decisions on allocation of capital for expansion and cage-free transition, flock placement and marketing programs to capitalize from both normal and abnormal situations.


Court Orders USDA to Establish a Justification for Withdrawing the 2017 Organic Livestock and Poultry Practices Rule


The Organic Livestock and Poultry Practices Rule (OLPP), that was intended to establish standards for organic production, was signed into effect during the last hours of the Obama Administration in January 2017 by then Secretary of Agriculture Tom Vilsack.  The incoming Secretary of Agriculture, Dr. Sonny Perdue, successively delayed implementation of the Rule and on March 13th 2018 issued a final withdrawal notice which terminated the initiative.


The Organic Trade Association initiated litigation to reverse the USDA decision.  After considerable delays requested by USDA, the U.S. District Court for the District of Columbia has ruled that the USDA now has 180 days to rectify errors in economic models and to return to the Court with a defense.

Organic Farm with aviaries and sun porches


The Organic Trade Association stated “At the end of the day, and despite this delay, we are more confident than ever that our lawsuit will prevail and that the will of the industry will be served.  We are confident that the Organic Livestock and Poultry Practices Rule will be reinstated.”


The OLPP mandated extensive outside access for egg-production flocks. This requirement would have disqualified most in-line egg production units that use sun porches as a substitute for outside access.


From the perspective of biosecurity, hens should not have outside access to pasture as they are vulnerable to infections including avian influenza carried by migratory waterfowl and are susceptible to infection with Salmonella and parasites.


If the OLPP rule is reinstated, the contribution of organic eggs from large in-line aviary units without outside access will cease, resulting in escalation in the price of organic eggs.  The industry will predictably respond by developing a new category of ‘GMO-free’ eggs that will effectively satisfy the majority of current organic customers, but at a far lower price.


The OLPP rule may reemerge irrespective of lawsuits and court decisions in 2020, if there is a change in Administration, since the industry can expect a reversion to the previous policy favoring “family farms”. This would be unfortunate for both producers and consumers as eggs produced under the proposed OLPP Rule would retail for over $6.00 per dozen compared to certified organic eggs fron in-line units currently retailing for approximately $3.75 per dozen in club stores. Organic eggs under the strengthened OLPP Rule would have no quantifiable quality or nutritional benefit over eggs from hens held in aviaries and allowed access to protected sun porches.


Investment for In-line Complexes Dictates Professional Planning and Execution


The initial phase of conversion from conventional cages to aviary units in the 2010s involved reconstruction and modification of existing high-rise houses to accommodate aviaries or in some cases floor systems. Building restrictions, farm layout, house dimensions and design dictated decisions on equipment, ventilation and services. 


Midwest Complex Representing the ultimate in professional planning and execution

Establishing a green-field complex to accommodate two million hens is a far more complex endeavor requiring not only technical input from qualified engineers and production specialists but coordination of the various disciplines to achieve an optimal outcome. Where owners of laying operations could serve as their own general contractors in the 1990s the complexity of a project comprising nine or more multi-level aviary houses each holding more than 300,000 hens requires a competent general contractor with deep resources and experience.


The initial and critical step in a project is to prepare a comprehensive feasibility study, required in any event by financial institutions. This key planning document takes into account a realistic market forecast that should determine the size of the intended complex, production and packing parameters, capital and operating cost and a projection of return on investment.


Lenders are now disinclined to advance funds for projects in excess of $100 million without assurances that recipients have the capacity to service loans. Collateral represented by a completed in-line project can only be used for egg production. In a market depressed by prolonged overproduction, the value of capital assets to produce eggs would be heavily discounted in the event of a default.


It is a valid observation that some projects are conceived in isolation without reference to the activities of competitors.  This is partly the reason why our industry has traditionally undergone wide swings in profitability, attributed to cycles of overproduction relative to demand. To paraphrase the late Vice President Hubert Humphrey, a few million additional hens here and there soon adds up to real volume.


Conceptual planning must take into account the ultimate size of a complex including feed production, packing and further processing in addition to the facilities for pullet rearing, laying hens, biosecurity and services. In recent years, complexes have been erected without adequate biosecurity or with unbalanced capacities for rearing and laying that detract from optimal utilization of capital intensive facilities.  Neglecting biosecurity can result in complete depopulation in the event of exposure to a catastrophic disease or at best a severe impact on production and profit following introduction of an erosive infection such as coryza.  Inadequate capacity to rear pullets may require purchase of pullets or alternatively houses may stand idle while they incur fixed costs including interest and depreciation.


Professional input is required to design multi-level structures to ensure they are able to withstand floor loading, wind forces, extreme heat or snow accumulation depending on location.  Over-design is expensive but under-design can be catastrophic.  Structures and equipment are becoming more complex requiring the input of electrical engineers and suppliers experienced in installing computerized sensor and control equipment to monitor and manage flocks. Although there are many efficient component systems available to control ventilation, to ensure regular egg flow to the packing plant and to monitor flock performance it is necessary that systems be compatible and coordinated with respect to their function.  This requires consultation among management, equipment suppliers and professional consultants. 


Compliance with environmental restraints, welfare mandates, state and local regulations including building and fire codes must be incorporated into planning and permitting. Erection of a complex representing a continuum from breaking ground to completion requires coordination, applying modern project-management technology.  Delays in delivery of imported or critical components can impact progress and distort completion schedules, requiring appropriate modification.  Compromises involving the inherent biological cycle of rearing and egg production can have profound financial impacts if flocks are transferred prematurely or if older flocks are retained beyond their productive and economic life. 


Committing upwards of $100 million to a complex requires a level of professionalism commensurate with the magnitude of the investment.  Traditional approaches to building single-level, high-rise complexes of the 1990's are no longer valid. Capital cost and complexity have increased at a rate requiring a high degree of professional involvement.  We have seen too many new buildings engulfed in flames due to substandard electrical installations.  Disease outbreaks that have occurred in recent years can be contributed to defects in both structural and operational biosecurity.  The return on investment in many operations is less than optimal due to deficiencies in planning and execution. 


It is always more expensive to modify and redesign after completion of a project compared to the return from professional planning and execution - just ask Boeing.


COVID-19 Infection and Potential Impacts on the Egg Industry


The present situation

Approximately ten weeks after the first recognition of COVID-19 infection in China, the disease has been reported in sixty-one nations.  At the present time, the highest number of cases have occurred in China with approximately 80,000 infected and 3,000 fatalities.  Second is Italy with 2,500 cases and 79 fatalities and Iran with 2,300 cases and 77 fatalities.  Korea has had 5,700 cases with 35 fatalities and Japan has diagnosed 1,000 cases.  At the present time the U.S. has positively diagnosed 118 cases with nine fatalities


It is noted that the incidence rate (new cases within a specific time) in China is declining, attributed in large measure to the draconian measures enforced by the central government on affected provinces.   Approximately 50 million people were under lockdown for at least three weeks although workers are returning to factories and offices but under strict surveillance.  It remains to be seen whether an upsurge in new cases will occur following relaxation of quarantines.  It is generally acknowledged that Western nations could not impose the same restrictions that appeared effective in China.


With respect to the U.S., initial cases were acquired overseas but during the past two weeks it is apparent that community spread of the SARS-CoV-2 virus (as designated by the WHO) is clearly transmissible among people in close contact.  Preliminary information from China suggest that 80 percent of cases are extremely mild to moderate, 14 percent result in severe complications and 6% of patients with predisposing conditions experience life-threatening pneumonia.  Fatality rates in China vary from 0.7% to 5% depending on province.  It is clear that without knowing the actual number of individuals infected by applying retrospective serologic surveys, it is impossible to determine the denominator to be used to establish rates of infection and fatality.  A preliminary study conducted in Guangzhou Province indicated that the infection rate was in fact low, but the situation may be different in Hebei Province.   Realistically, authorities in the U.S. do not know the extent of infection given the slow start to antigen (virus) assay.  A more precise knowledge of the extent of infection over the past two weeks will evolve and will be necessary to guide preventive measures and policies.


Despite the predictions of pundits, economists, politicians and other amateur epidemiologists, the nation should rely on authoritative statements based on past experience with SARS and influenza outbreaks and science.  Key personnel include Dr. Anthony Fauci, Dr. Nancy Messonnier and Dr. Clifford Lane of the NIH, Dr. Scott Gottlieb, previously Commissioner of the FDA, Dr. Jerome Adams, Surgeon General and Dr. Robert Redfield of the CDC.  Statements by White House personnel, at variance with established scientific fact, aimed at downplaying the severity of the situation for political purposes represent a disservice to our nation.   


Effects on the Poultry Industry and Society

The possible impacts on the egg industry will relate to the extent of quarantines and possible restrictions on interstate transport. Although there is no indication of U.S. policy on quarantines it is accepted that we will not follow the lead of China. Despite some inconveniences farms will receive ingredient and eggs will be delivered to retail and egg liquid to manufacturing plants.  If however, the infection assumes epidemic proportions, obvious impacts on logistics and ongoing operations including the availability of workers will emerge as restraints.



Of immediate concern is a disruption in the supply chain for critical components.  The U.S. poultry industry is relatively secure with respect to vaccines for poultry diseases.  Since a high proportion of vitamins and other compounds emanate from China, delays in manufacture and supply of nutrients may cause problems.  Port delays in China during mid-January extending through February have reduced the volume of broiler feet and parts shipped although the congestion at points of entry appears to be easing.  Hong Kong is the largest importer of U.S. shell eggs but at this stage there does not appear to be any disruption in the chain of delivery.  Exports to our USMCA neighbors, Canada and Mexico should not be affected unless one of the three nations imposes border restrictions that would be deleterious to all commerce and agriculture.      


The most immediate risk facing the egg industry appears to be maintaining a productive work force at both the farm and plant levels.  Hopefully the suggestions provided by CDC and reiterated in EGG-NEWS that all personnel should have received the 2019 influenza vaccine have been followed. This is relevant since a late winter or early spring upsurge of influenza will complicate recognition and diagnosis of COVID-19.


An effective and proven safe vaccine may only be available for field deployment during the late summer of 2021, given time required for development and testing. Egg producers should advise workers to follow common sense precautions including frequent hand washing, avoiding close contact with co-workers and abstaining from attending events involving a high concentration of participants including concerts, sports and political rallies.


It is evident that if COVID-19 becomes epidemic in the U.S. consumers will shun large supermarkets and malls shifting purchases of eggs to smaller stores.  This will require more flexible delivery programs.  Sales of eggs and products in restaurants will probably fall, compensated by greater consumption of home-prepared meals or the use of drive-through lanes at QSRs.


It is still too early to predict social, political and economic effects of COVID-19.  What we will need is clear and concise direction based on sound scientific and epidemiologic principles.  This is certainly no time for the blame game or advocacy of quick-fixes and nostrums manifested by misinformation on social media.


Hopefully the U.S. will be spared an extensive outbreak and that our medical resources will be able to treat the elderly, the immunosuppressed and those predisposed to respiratory infection.



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