Title: Price Discovery Now and in the Future: Alternative Pricing Models
1 Price Discovery Now and in the Future Alternative Pricing Models Current Market Analysis
Urner Barry Executive Conference
April 23, 2002
Caesars Palace, Las Vegas
Randy Pesciotta
Richard A. Brown
2 FOCUS
Why is the shell egg price where it is?
Shell egg production trends and their affect on regional trade.
Alternative pricing models.
Egg Products Have they met their saturation point?
Enhanced shell egg markets.
Conclusion
3 UB Northeast Large vs. Egg Type Layers 1992 - 2001 4 UB Northeast Large vs. Egg Type Layers 2000 - 2002 5 2001 Cases Broken vs. Dried Egg Inventory 6 UB Northeast Large vs. Egg Type Layers 2000 - 2002 7 Egg Type Layer DistributionSource USDA 8 2001 Top 25 US ProducersSource Watt Publications
Cal Maine Foods 20.4
Rose Acre Farms 16.0 -0.2
Michaels Foods 14.0 .5
DeCoster Egg 12.8 .2
Buckeye Egg 10.5
Sparboe Comp 8.0 1.0
Dutchland Farms 7.3 3.0
Moark LLC 6.4 -0.1
Fort Recovery 6.3 -1.7
Midwest Poultry 5.9
ISE America 5.5
Hillandale Farms 5.4 0.1
Daybreak Foods 5.0 0.7
Mahard Egg 4.8
Golden Oval 4.7 2.1
Fremont Farms 4.2 2.2
Wabash Valley 3.7 -0.5
National Foods 3.3 0.3
Sonstegard Foods 3.0 0.5
Valley Fresh 3.0 -0.2
Maxim Egg 2.9 -0.3
Crystal Farms 2.8
Creighten Brothers 2.5
Daylay Egg 2.5
Kofkoff Egg 2.5 -0.3
9 Production Trends
Largest increase in production for breakers located in the Midwest
Breaker increases displaced other suppliers
Midwest will continue to be surplus
Competitive pressure will continue
10 Goal of Urner Barry in Price Discovery
To report timely, accurate, unbiased price quotations and market conditions.
11 Goal of Producer in Price Discovery
To maximize returns on
egg marketing and production.
12 Advantages DisadvantagesOf Current System
Advantages
Established
Trusted
Accurate
Traders Know How to Work With it
Disadvantages
Growing Discounts
Trading Relationships
/ Back-of-the-Market
13 Alternatives to the Benchmark
Index Quotations
Benchmark Reformulation or Restructuring
Costs Plus
Fixed Price
Percentage Discount vs. Fixed
Moving Average (5 day)
14 Alternatives to the Benchmark Index Quotations
Extra large index (Class1s loose extra large)/ 2
Large index (Class1s loose large)/ 2
Medium index (Class3s loose mediums)/ 2
Small index (Class4s loose smalls)/ 2
Given average retail movement
15 2001 UB Northeast Index 16 2002 UB Northeast Index 17 Advantages Disadvantagesof Index System
Advantages
No Discounts
May Take Some Controversy Out of the Market
Completely Responsible to Pass on Costs
Disadvantages
Not Established
No Track Record
Have to Sell to Buyers
Completely Responsible to Pass on Costs
18 Alternatives to the Benchmark Reformulation or Restructure
Effective on date X take 15 cents out of our Benchmark quotation.
19 Advantages Disadvantages of Reformulation or Restructure
Advantages
Get Closer to the Actual Selling Price of Cartoned Eggs
Complicated
Re-negotiation Avoided / Minimized
Removes Discounts from PCT
Disadvantages
Will Not Eliminate Discounting
No Track Record
Have to Sell to Buyers
20 Alternatives to the Benchmark Cost Plus
As described by others Take all production costs, add a profit and sell cartoned product to retail or loose to food service.
21 Advantages Disadvantages of Cost Plus
Advantages
Guaranteed a Profit
No Discounts
Disadvantages
Buyers May Not Honor Agreement During Low Shell Egg Markets
May Not Make as Much Money When Markets are High
Hard To Sell To Buyers
22 Alternatives to the Benchmark Fixed Price
Sell for a period of time at a fixed price.
1. Monthly
2. Quarterly
3. Yearly
23 Advantages Disadvantages of Fixed Price
Disadvantages
May Not Make You More Money
May be More Competitive Such as On-Line Auctions
Buyers May Not Honor Agreement During Low Shell Egg Markets
May Not Make as Much Money When Markets are High
Hard To Sell To Buyers
Advantages
Less Volatile
May Guarantee a Profit
24 Alternatives to the Benchmark Percentage Discount
Selling price based on a percentage back of Urner Barry
25 Advantages Disadvantages of Percentage Discount
Disadvantages
May not return producer as much when market is at its high
Trading partners may not honor when disadvantaged
Advantages
Producer captures more return during lowest markets
Buyer captures lower price when market is at its highest
26 Alternatives to the Benchmark Moving Average
5-Day moving average
4-Thursday moving average
27 Advantages Disadvantages of Moving Averages
Advantages
Removes volatility
Limits inventory manipulation
Retailer may be able to feature at higher market
Disadvantages
Limits retailers ability to feature at lowest market
May not allow producer ability to capture highest market
28 Alternative to the BenchmarkConclusion
Current price discovery model complicated but proven
No other model would have significantly changed current market values
UB is exploring alternative methods
There are significant advantages disadvantages to each idea
Index will continue to be developed in house
Further discussion is warranted, particularly given enhanced eggs
29 Egg Products Have they met their saturation point?
2001 breaking even with last year
Dried inventory increased to 21.1mil pounds -- up 25 from last year
Egg product export up 5 percent
Liquid whole egg margins at times challenged
30 Enhanced Shell Egg Markets
Enhanced shell eggs could become a significant part of the market in a very short time.
Our job is to report the market.
What form will it take?
When will it begin?
31 Conclusion
The Current Price Discovery Model Can be Complicated
No Other Model Would Have Resulted in Significantly Different Market Values
Tendency of the Market Place Question Price Discovery When Markets are Low
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