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Last week was quite a rollercoaster, wasn’t it? The fun part was watching leading economists lose their collective sanity and sense of propriety. I promised an avid reader that I wouldn’t wade into politics on this blog in the future, hence, I will limit my take on the current situation to two nonpolitical posts on BlueSky.

Then, there was this clear-cut post.

While people were grappling with their tariff models, egg prices also became a hot topic of discussion. Some version of the following graph started making the rounds after BLS released the March CPI numbers.

Root Cause of Eggflation

The primary cause of eggflation or soaring egg prices is H5N1, a highly transmissible and fatal strain of bird flu or avian influenza. When an outbreak of bird flu occurs, the only option for egg producers is to cull their free-range egg-laying flocks as per USDA policy. Thus, with a smaller flock of egg-laying hens, there is a lower supply of eggs, and prices go up.

The largest outbreak of H5N1 among the egg-laying flock started in early 2022, which explains the spike in egg prices you see in the graph above till January of 2023.

Since February 2022, over 166 million egg-laying hens have been culled due to the outbreak of H5N1. To put that number in context, there were 245.3 million egg-laying hens at the end of February 2025, as per United Egg Producers. One can only imagine the disruption this inability to maintain a consistent flock caused, and it is right there for everybody to see.

Egg price dynamics are pretty interesting. Historically, demand has remained pretty much consistent, irrespective of price changes. However, prices are much more a function of supply constraints or the lack of one.

Another interesting dynamic has emerged since 2022—I didn’t know this—apparently, before 2022, grocers and retailers used to sell eggs at cost or a loss. Their rationale was to use eggs as a loss leader to entice shoppers, hoping shoppers would walk out with a cart full of higher-margin groceries and other items.

This whole dynamic changed with the shortages induced by the H5N1 outbreak beginning in 2022. Limits were imposed on how many cartons one shopper could buy at a time, and grocers and retailers started putting a markup on top of wholesale egg prices. The graph highlighted above shows these retail prices. BLS uses these prices in the CPI calculation.

Government Measures

After the public uproar at the end of 2022, the Biden administration started importing more eggs from Turkey, South Korea, and Brazil. The higher imports and the H5N1 outbreak subsiding in 2023 brought egg prices down to a reasonable level by Q3 2023.

Unfortunately, as luck would have it, there was another H5N1 outbreak in October 2024 during the fall fowl migration season. This led to the culling of hens, and now we are dealing with higher prices again.

Per the USDA, imports of shelled eggs rose in February. Approximately 4 million cartons were imported from Turkey and Mexico, a 480% increase over January. There was also a marked increase in imports of liquid and dried eggs from Thailand, Vietnam, Taiwan, China, Canada, and Taiwan. However, the increased imports have not helped alleviate the problem, as is evident from the March CPI data.

With the new 10% baseline tariffs, it is uncertain how it would impact egg imports. Agriculture Secretary Brooke Rollins said in an interview in early April that negotiations are ongoing with countries.

The USDA will be investing $1 billion to address the ongoing issues and help bring down egg prices. The focus is on the following items:

• Provide additional relief to farmers.

• Expand existing biosecurity programs.

• Improve safety measures at egg-laying facilities.

• Cut state regulations that cause different prices across the country.

• Increase imports.

• $100 million is earmarked for vaccine research. Apparently, there were disagreements within the administration on this, however, it seems Secretary Rollins has been able to secure funding for this research.

DOJ Investigation

On March 7, WSJ reported that the DOJ opened a probe into the sharp surge in egg prices. According to the WSJ, the DOJ was looking specifically into collusion between large egg producers to raise prices or to hold back supply.

In an 8-K filing on April 8, Cal-Maine Foods (CALM), the largest egg producer in the US—with approximately 20% market share—confirmed that it had received a notice of the investigation into egg price increases. The stock fell over 4% in after-hours trading. This would have been big news if the ongoing tariff uncertainty were not grabbing the headlines.

Is the investigation warranted? Can we decipher from CALM’s financial statements if there is a “there-there”? How is the market valuing CALM? Is there an opportunity here?

Let’s have some fun, shall we?

Cal-Maine Foods

Let’s address the sword of Damocles hanging over CALM’s neck: the DOJ investigation on price gouging. A picture is worth a thousand words. Let’s start with a graph first, then I will get to the commentary.

When I saw the DOJ investigation headline, I said to myself, “Interesting. Let’s look at the data.” Here is what I was looking for:

• If

  • CALM is selling at or higher than the national average; there could be some price gouging happening, and an anti-trust case would make sense. OR;

  • Retailers and grocers could be taking advantage of the situation and adding markups, which—as stated earlier—is not the norm for eggs.

As we can see from the graph, retailers did add a markup in 2024 due to shortages, maybe to dissuade people from hoarding, and the retailers and grocers also limited the number of cartons a single person could purchase. However, that has now stopped nationally.

As for CALM, its selling price is consistently below the national average wholesale price. The DOJ is barking up the wrong tree. If I were the DOJ, I would shut down the investigation and let Secretary Rollins do her job. She is on the right path.

However, one might wonder: if CALM is selling below the national average wholesale price, and retailers are back to using eggs as the loss leader, what is distorting the average retail price of eggs as reported by the BLS? Well, a few outliers and averages can get distorted. Don’t wanna get too wonky here, but that is why there is mean, mode, and all the other fancy statistics stuff. Consider this:

Greedflation? A little may be. It has more to do with California’s state laws. Secretary Rollins is going after burdensome state regulations distorting prices and the public’s view of who is at fault. Don’t forget, she got vaccine research funding for H5N1 even though it was opposed by RFK Jr. As I said earlier, she is on the right path.

Coming back to the national averages, the insane prices in CA and some other states are distorting the national average price reported by the BLS. Unless there is another H5N1 outbreak during the ongoing spring fowl migration, retail egg prices are set to fall sharply in the coming months.

CALM Valuations

CALM’s business is as simple as it can get. Raise egg-laying hens, have a steady, consistent flock, grow via acquisitions, keep COGS down by buying feed during the offseason, and keep SG&A steady. No wonder the distortions caused by the H5N1 outbreak propelled CALM’s revenue and profits to record levels in Q3 FY2025.

Revenue nearly doubled year-over-year for Q3 FY2025 to $1.42 billion due to higher selling prices and a 10% increase in dozen eggs sold. Net Income tripled year-over-year to $508.5 million. Operating leverage for you. I can appreciate all the hubbub in the media and social media; however, as we saw earlier, CALM is not price gouging. It is the reality of the market dynamics.

TTM P/E of 4.89 and P/B of 2.0, plus a 6.81% dividend may look juicy, but don’t fall for it. There are reasons why I say that.

• The H5N1 outbreak has distorted the market.

• It is a commodity business, and the only way prices will stay here or go higher is if there is another avian flu outbreak. Who wants to play the weatherman?

• The dividend is not sacrosanct; it is variable.

When valuing commodities companies, I have seen people fall into the recency bias trap. Are CALM’s profits and revenues sustainable? Are the margins sustainable? The answer would be an unequivocal NO. Probablistically, how many times will bird flu hit the US egg-laying flock? This year? Next year? Or, if preventive measures work, maybe something new will come along in a decade that will distort egg prices.

Given this backdrop, I will use the Normalized Earnings valuation methodology for CALM. One may use other valuation methodologies such as Adaptive Growth or Normalized Commodity Price. As with any valuation exercise, there is no exact answer, it acts as a guideline. All that said, let’s get down to the numbers.

1. Value of Operating Assets = [Normalized Operating Income(1+g)(1-t)(1-r)]/(c-g)
   = [185.9 (1 + 0.02) (1 - 0.21) (1 - 0.3374)] / (0.053 - 0.02) = $99.3 million

2. Value per Share = (Operating Assets + Cash - Debt) / s
   = (99.3 + 1240.4 - 0) / 48.8 = $27.45 per share

CALM is currently trading at $98.99 per share. Also, CALM’s current ratio is 3.2. While on the surface, it may look healthy, it surely is not deploying capital effectively.

CALM has been a serial acquirer, and if it can’t find newer targets to acquire, my growth rate assumption of 2% would need to be lowered further. CALM is way too overvalued. I expect CALM to underperform the market over the next 24 months unless there is another avian flu outbreak.

Parting Thoughts

As I mentioned above, in my notification seven days ago to Premium Subscribers, I let my frustration boil over with all that is happening on the tariffs front. However, an avid reader was nice and candid enough to bring me back in line. That said, I was so right about the overall message!!!

I highlighted the high probability of President Trump pulling a President Obama from March 6, 2009. Boy, did he? The world knows about the “buy stocks now” post on Truth Social. Then that stick save of the bond market on Friday? Check this one out from late Friday:

As I said in my notification, the President’s Working Group on Financial Markets, aka Plunge Protection Team, would need to be called in to help. That one notification would have paid for a lifetime subscription to The Orca Fin. So,

• If you are on a complimentary plan, Login → Click on Profile Icon → Manage Subscriptions → Billing to update your card information.

• If you are a free subscriber or have not subscribed, you may upgrade to become a paying member here.

Still on the fence? Over the weekend, I updated The Orca Fin’s track record with the recent market data and better chart annotations. Check it out.

Apple's New Smart Display Confirms What This Startup Knew All Along

Apple has entered the smart home race with its new Smart Display, firing a $158B signal that connected homes are the future.

When Apple moves in, it doesn’t just join the market — it transforms it.

One company has been quietly preparing for this moment.

Their smart shade technology already works across every major platform, perfectly positioned to capture the wave of new consumers Apple will bring.

While others scramble to catch up, this startup is already shifting production from China to its new facility in the Philippines — built for speed and ready to meet surging demand as Apple’s marketing machine drives mass adoption.

With 200% year-over-year growth and distribution in over 120 Best Buy locations, this company isn’t just ready for Apple’s push — they’re set to thrive from it.

Shares in this tech company are open at just $1.90.

Apple’s move is accelerating the entire sector. Don’t miss this window.

Act Fast- Apple’s Halo effect is coming

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