UNIVERSITY OF CALIFORNIA COLLEGE OF AGRICULTURE AGRICULTURAL EXPERIMENT STATION BERKELEY, CALIFORNIA EGG MARKETING IN THE LOS ANGELES AREA H. E. ERDMAN, G. B. ALCORN, and A. T. MACE BULLETIN 656 November, 1941 CONTRIBUTION FROM THE GIANNINI FOUNDATION OF AGRICULTURAL ECONOMICS UNIVERSITY OF CALIFORNIA BERKELEY, CALIFORNIA CONTENTS How the Los Angeles egg market is organized 4 Direct sale to consumer 6 Producer to retailer to consumer 6 Small distributors 7 Most common trade channel ... 7 Distributors 8 Chain stores 8 Brokers and wholesale receivers 9 Milk distributors 10 Direct and indirect marketing. 10 Price structure and price-making processes 11 Nature of the Los Angeles egg- price structure 11 The Exchange quotation 13 How the Exchange quotation is used 16 The Los Angeles "jobbing" quotation 18 Eelation of producer prices to Exchange quotations 26 "Retail prices 29 Interregional price structure .... 34 Wholesale prices — common de- nominator in interregional trade 35 Comparison of four markets ... 35 Establishing San Francisco quotations 40 Price spreads 42 Price spreads in Los Angeles and San Francisco 42 New York price spreads 44 Criticisms of the Los Angeles egg- pricing process 46 Abuses under the Exchange quotation plan 46 Criticisms of the Los Angeles jobbing quotation ..._,,-.... 48 Criticisms of farm prices in the Los Angeles area 48 PAGE Egg quality deterioration 50 Age of eggs in relation to the marketing process 51 Quality of eggs in the Los Angeles market 54 Range in quality 54 Reasons for range in quality. . 55 Seasonal variation in quality. . 57 Quality of eggs from outlying sources 57 The consumer in the market 58 Egg quality 58 Market confusion in grade des- ignation 59 Egg production, consumption, and the balancing process 60 Supply and production of eggs . . 62 The annual United States sup- ply of eggs 62 The estimated annual Califor- nia egg supply 64 Seasonal variations in produc- tion 65 The demand for eggs 67 Per-capita consumption 68 Consumption and income 69 The balancing process 70 Three sorts of balancing move- ments 72 Egg storage as part of balanc- ing process 74 What can local producers do to im- prove their position? 78 Conditions found in this study ... 78 Principles to bear in mind 79 What may be done 79 Means to be employed 81 Country egg auctions 81 Government egg grading 83 The quality-egg-club plan 85 Acknowledgments . . 87 Appendix: basic tables 88 EGG MARKETING IN THE LOS ANGELES AREA 1 " H. E. ERDMAN, 3 G. B. ALCORN, 4 and A. T. MACE E The job of marketing eggs includes not only the producer's act of mak- ing the sale, but also the performance of the many services that move eggs along the way from producers to consumers. This includes not only the tasks involved in handling the eggs, but also the establishment of prices at the various market stages and for the several qualities, so that the market is cleared from day to day. For many years, egg producers in southern California have been critical of the way the market operates. They have viewed the market organization as a conglomerate of unrelated operators, some of whom existed largely by undesirable and often deceptive practices; they have felt that prices were manipulated to the disadvantage of both producers and consumers; and during the past few years they have felt that both market practices and price-making methods were undermining the con- sumers' confidence in southern California eggs. The study discussed in this bulletin represents an attempt to ascertain just how the Los Angeles market does work. In the first place, a study was made of the way the southern California market is organized to move eggs from producer to consumer; that is, of the sorts of agencies that handle eggs, the services they perform, and the nature of the compe- tition between them. Second, a study was made of the way in which prices are determined, the nature of the price structure, and the way market prices are reported in the Los Angeles market and in certain other markets. Third, a study was made of the rate at which quality de- clined under conditions somewhat similar to those under which eggs move through the trade channels. Fourth, a study was made of the movements of eggs into and out of the Los Angeles market area and of the way the Los Angeles market is constantly adjusting itself to other markets in the United States. Fifth, several marketing methods found useful in certain other regions were carefully examined to ascer- tain their adaptability to southern California. Four different procedures have been used in the study. First, repre- 1 Received for publication March 4, 1941. 2 Paper no. 95, the Giannini Foundation of Agricultural Economics. :! Professor of Agricultural Economics, Agricultural Economist in the Experiment Station, and Agricultural Economist on the Giannini Foundation. * Assistant in Agricultural Extension, and Associate on the Giannini Foundation. 6 Research Assistant on the Giannini Foundation; resigned December 31, 1936. [3] 4 University of California — Experiment Station sentatives of a large number of firms in the egg business were inter- viewed during the past three years. Second, price and movement data compiled from market news reports of the state and federal departments of agriculture were analyzed. Third, several lots of eggs purchased from producers were candled and then broken to ascertain interior quality. Fourth, other marketing systems, as reported in published writings and in correspondence with the authors, were studied. HOW THE LOS ANGELES EGG MARKET IS ORGANIZED In any market there tends to be a degree of regularity in the flow of products through given sets of handlers as the products move from producer to consumer. The term "trade channels" has been applied to this series of steps or succession of dealers involved. These trade chan- nels are not clear-cut or fixed; instead they are indefinite and always in the process of change. Perhaps the most important reason why trade channels are not clear- cut is that every dealer must frequently go to other than his regular sources for eggs of some size or quality and must sell to other than his regular outlets because supply and demand conditions change so rapidly. Thus a distributor whose main business is in the sale of local eggs to a group of independent grocery stores, hotels, and restaurants gets the contract to supply a milk distributor with cartoned grade-AA eggs. Then comes a sudden hot spell that reduces quality. The result is that he cannot supply all the grade-AA eggs needed by his customers, in- cluding particularly the milk distributor, without lowering the quality of the next lower quality, grade A, sold to other customers. Rather than lose favor with the latter, he buys some high-quality eggs through a broker, and from these he candles out the needed eggs of grade AA. He then has to find other outlets for the rest of the eggs, and thus makes a second change from his regular trade channels. Either of the new contacts may be continued so that the change be- comes permanent. In this way each dealer is likely on any day to gain new customers and may at about the same time lose others, just as pro- ducers may change from one pickup man to another or as consumers shift from one grocery store to another. If, in this process, a given dealer gains more customers than he loses in any year, his business grows, while that of his competitors declines — assuming the market itself is not expanding. If his is a new type of busi- ness, trade channels change at the same time. That is what happened when certain chain-store companies began to sell cartoned eggs aggres- sively and when milk distributors undertook the delivery of high-quality eggs to the homes along with milk. Bul. 656] Egg Marketing in the Los Angeles Area Three factors which combined to favor the development of complex trade channels for eggs in southern California are : (1) the keen compe- tition to hold customers in the face of rapidly changing market condi- tions that differ with the several dealers in a market, (2) the necessity (i) W s Country " grocers (3) Pickup men Receiving stations Feed *| dealers Producers • associa- tions Distant shippers of all sorts (2) EI Distributors Egg and poultry Butter and egg Meat packers (5) Chain-store companies I i .* Brokers and wholesale receivers Grocers Milk dis- tributors Hotels Restaurants Institutions Peddlers Retail units Actual movement ^ Line of communication Fig. 1. — Trade channels for Los Angeles eggs. Not all eggs move through the same combination of handlers. Most commonly, three are involved, one at country points, a distributor in the market, and a retailer. No one is best for all situations. The num- bers in parentheses refer to the trade channels listed on page 6. of moving eggs rapidly in order to avoid losses from declining quality, which quickly affects the price of any given lot (see p. 56), and (3) the change in the southern California egg market from an export to an import basis. The trade relations involved in moving the Los Angeles egg supply to consumers are too complex to chart or describe without tiresome de- tail. The more important trade channels are pictured in figure 1. One way of simplifying the marketing picture is to classify the trade chan- nels on the basis of the number of handlers between producer and con- 6 University of California — Experiment Station sumer. Following are the main classes of "producer-consumer situa- tions :" 1. Producer — » consumer. 2. Producer — > retailer — » consumer. 3. Producer — > distributor — > retailer — > consumer. 4. Producer — > pickup man — » distributor — » retailer — -> consumer. < distributor, \ cooperative, — y ~ * chain store — » retail unit — ■> consumer, distant shipper / 6. Producer — > distant shipper —>£— wholesale -^ — > distributor — > retailer < broker, V wholesale -^ receiver f consumer Direct Sale to Consumer. — There are many persons at the edges of cities, in small towns, and on farms who produce eggs mainly for home consumption. These are not a part of the problem except as most such producers at times have some eggs for sale. They are mentioned in this section because such eggs are often sold direct to consumers. In addition, of course, persons whose egg sales are an important part of their income in many cases also sell all or a part of their supplies direct to consumers. Such direct sales are made in a variety of ways, of which the more common are: (1) Many producers sell to neighbors. (2) Producers who live near a highway sell to passing consumers who are attracted by roadside signs. There are literally hundreds of such signs on the highways about Los Angeles which announce "Eggs for Sale." (3) In other instances, producers make regular deliveries to consumers in some convenient part of the area. (4) A few producers maintain stands at such public markets as Grand Central Market or at one of the so-called "farmers' markets" or maintain roadside stands at which products other than eggs also are sold. Persons who sell from house to house or at market stands frequently purchase additional eggs from other producers or from dealers and hence merge into a class of retailers who sometimes pose as "producers" but who buy practically all of their eggs. Producer to Retailer to Consumer. — The second type of "producer- consumer" situation is that in which egg producers sell to grocers or to other retail outlets, such as restaurants or hotels. This practice is common not only on the outskirts of the metropolitan area but also in all of the small towns of the various farming regions of southern Cali- fornia. This type of situation is not restricted to independent retailers. Store managers of some chain-store companies are authorized to buy of their customers such eggs as they can resell to their local trade. In many Bul. 656] Egg Marketing in the Los Angeles Area 7 instances the producers who sell in this way produce mainly for home consumption and sell only the occasional surplus over family needs. Small Distributors. — There are numerous small dealers in and about Los Angeles often called "hucksters," perhaps better called "small dis- tributors," who gather eggs from producers two or three times a week, sort, candle, and pack them on their own premises, and make delivery direct to retail outlets. 6 Such small distributors more commonly, though not necessarily, operate in the outskirts of the metropolitan area or in some of the smaller suburban towns. In one instance a small cooperative association operates in this way. Most Common Trade Channel. — A fourth producer-consumer situa- tion is that in which three dealers are regularly involved. This is the most common trade channel in the Los Angeles area. Here the country buying is done in several ways. Most commonly it is done by a "pickup man," as he is called in this area, who operates like the small distributor just described as far as buying is concerned. But he may either buy for, or resell to, a dealer who is most commonly called a "distributor," and who in turn sells to independent retail outlets and to restaurants, hotels, chain stores, and milk companies. Such a pickup man ordinarily does not candle the eggs but delivers to the distributor just as they were collected. He must candle some eggs, if, as is often the case, he has some store outlets of his own. In addition to the pickup man, two other types of country buyers should be mentioned in connection with this fourth group. They are the country feed dealer and the country storekeeper. Many country feed dealers in egg-producing sections buy eggs of their customers. If they make country deliveries of feed, they commonly also pick up eggs as they go from farm to farm. These feed dealers in practically all cases resell to distributors. Operators of country grocery or general-merchan- dise stores frequently take eggs in trade or purchase them of customers, in turn reselling most of them to some distributor, perhaps retailing some to their own local town trade. Country units of some chain-store companies also follow this practice. Legal requirements that eggs be 6 In the spring of 1939 one such operator handling from ^60 to 75 cases a week had a packing-house just back of his home at the edge of a small city near Los Angeles, where he did the packing of such eggs as he bought, and those from his own flock. He gathered eggs in his neighborhood on Monday and Thursday mornings, and candled them in the afternoon. He picked up more eggs from other farmers in the late afternoon to be candled during the evening. Deliveries were ordinarily made on Tuesday and Friday in Pasadena and on Wednesday and Saturday in Los Angeles. Sales were made mostly to small restaurants and small independent stores. He did all of the picking up and delivering himself. His wife helped some with the candling, but no hired help was used, except to do a few things about the place which were not connected with the egg business. This policy was followed because it was "too much trouble" to work with hired help. 8 University of California — Experiment Station candled before sale to consumers has restricted the practice of retailing by such country buyers to those who can provide a candling service. Distributors. — Perhaps we should explain somewhat more fully what kinds of dealers are included in the group we are here calling "distribu- tors." In the Los Angeles market, this term is commonly applied to the type of dealer whose sales are included in the market reports of the United States Department of Agriculture Agricultural Marketing Serv- ice 7 as "jobbing prices, i.e., prices to retailers." This "distributor" is thus the dealer who in many markets is called a "jobber." Such a distributor typically has a packing-house in or near the business center of the city, although there are a number in suburban cities. He ordinarily receives eggs from a number of sources, the most important being one or more pickup men who operate in the country and whe bring their eggs to the plant. Some distributors buy part of their supplies direct from pro- ducers at the plants or on routes covered by their own trucks operated by their own employees. A second source of eggs comprises other dealers on the market. In the daily course of business, various operators have occasion to talk to each other over the telephone or in person, and are likely to discover who is long and who is short of eggs; hence a few telephone calls may readily locate a supply of a given size or quality needed to supply cer- tain customers. Other eggs are purchased from or through one of the half-dozen brokers who operate on the market. This is the usual way of reaching the outside sources, although frequently such distributors try to cut costs by buying direct from distant dealers, once a contact has been made. Sales are made to retail grocers of all sorts, including chain stores. Other sales outlets are hotels, restaurants, and various institutions, such as schools and hospitals. As the term "distributor" is used here, it applies not only to firms handling only eggs but also to those doing such a business as above described along with another business. For example, four of the na- tional meat packers who have branches in Los Angeles distribute eggs. In all essentials they operate their egg businesses as described above. A few dealers handle mainly butter and eggs, whereas others handle eggs along with the poultry business. Chain Stores. — The chain-store group deserves special treatment. At least one large company maintains its own candling and distributing 7 The Agricultural Marketing Service is the name of the new agency to which the market-news and inspection work of the United States Bureau of Agricultural Eco- nomics was transferred in July, 1939. Bul. 656] Egg Marketing in the Los Angeles Area 9 facilities, at which it handles all eggs purchased either from nearby or distant producers* associations or independent handlers. Most of the chain-store companies purchase from distributors eggs already candled and packed in the chain stores' own branded cartons, which are usually delivered direct to the retail units. Brokers and Wholesale Receivers. — The sixth producer-consumer sit- uation applies to eggs from points in northern California, in Utah, Idaho, Washington, Oregon, or other distant sections. Such distant sup- plies commonly reach Los Angeles distributors through one of some half-dozen brokerage firms. These brokers may simply represent the distant shipper in making sales to the Los Angeles distributors or they may purchase outright and resell on a margin which approximates the brokerage charges of about % cent a dozen. In any case, their sales are commonly made in truck lots or carlots, 8 but often also in jobbing lots of 20 to 100 cases. In this capacity the broker thus becomes what in other markets is commonly called a "wholesale receiver." In this study no firms were found which made this type of operation their principal business. In some instances, however, certain distributors act as wholesale re- ceivers when they buy eggs with the intention of reselling to other distributors at a profit. As was pointed out above, practically all dis- tributors make occasional sales to other distributors when they are "long" on some sizes or qualities of eggs. A broker commonly stands ready to sell eggs for any distant shipper. But those shippers who expect to supply large quantities commonly ar- range to have a given broker sell for them regularly, inform them of market conditions, look after adjustments of disputes, and make col- lections. In at least one case, a leading distributor receives large quanti- ties of eggs from a distant shipper without the use of a broker's services. In this case the distributor at times also acts as a broker in selling this shipper's eggs to other distributors. Several large producer cooperatives which make substantial sales in the Los Angeles market through brokers are included as "distant shippers." They are: Poultry Producers of Central California, with headquarters in San Francisco; Pacific Cooperative Poultry Producers, Portland, Oregon; Washington Cooperative Egg and Poultry Asso- ciation, Seattle, Washington; Utah Poultry Producers' Cooperative Association, Salt Lake City, Utah; and Idaho Egg Producers, Inc., Caldwell, Idaho. 9 8 A carlot in recent years is 600 cases. A truck lot may be more nearly half that amount though the size of the lot is highly variable. 9 Four local egg cooperatives are active in the Los Angeles market, each operating somewhat differently: (1) Poultrymen's Cooperative Association, concerned mainly ( with the sale of feeds to poultrymen, has been distributing its eggs through the Chal- 10 University of California — Experiment Station Milk Distributors. — A newcomer in the egg business of Los Angeles is the milk distributor. This outlet is not indicated separately in figure 1 but is included with other retail outlets. Perhaps in part because chain stores have taken from them those milk customers who are willing to save money by using the cash and carry method, the leading milk dis- tributors have in recent years expanded their own business by supply- ing their customers with eggs and butter. They are confining their egg business largely to the finest quality of cartoned fresh eggs. All of them buy of distributors the particular qualities and quantities they need already packed. Direct and Indirect Marketing. — The ideal method of marketing, according to many persons, is for producers to meet consumers face to face and complete their transactions. This ideal has become increasingly difficult with the amazing increase in variety and number of goods and services required in modern life, all produced by more and more widely scattered specialists. Specialization in the production of this great num- ber of goods and services has thus gradually separated producer and consumer by ever greater "economic distances" until it has become im- possible for any worker to deal with any considerable proportion of other workers for the purchase or exchange of desired goods and services. To persons who view direct marketing as an ideal, the indirect method described in the preceding pages must seem wasteful. We are not here in a position to measure degrees of waste. There is no standard of efficiency against which the operations of the several types of trade channels above described can be checked. This we may say : Universal direct marketing would mean barter. Long before a producer could go to the absurd extreme of universal barter he would have to spend so much time in buying that the time left for production would be reduced, and thus greatly restrict the want-satisfying power of a working day. Under a system of barter, there would be specialization in production, but not in marketing. Under the present system, there is both specializa- tion in production and specialization in the performance of marketing services. What should be considered is a streamlining of the marketing system which would give the advantages of specialization or large-scale operation in marketing, without at the same time permitting the system lenge Cream and Butter Association since early in 1939. Both associations are mem- bers of the Produce Exchange. (2) The Fontana Feed and Supply Company, which sells its eggs to a private distributor on a grade basis. (3) The San Joaquin Valley Poultry Producers' Association, which operates a feed and egg business in the region centering around Porterville and Fresno. This association sells its total supply to a large chain-store company except as it makes some sales to local retailers in the San Joaquin Valley, and sells some off-quality or small eggs elsewhere. (4) The Los Angeles Fresh Egg Producers, a small association operating in the San Fernando Valley. It does not handle feeds, and sells most of its eggs direct to retail outlets in the western section of metropolitan Los Angeles. Bul. 656] Egg Marketing in the Los Angeles Area 11 to become cumbersome or poorly responsive to supply and demand changes or affected with a monopoly element. How to go in the other direction and lessen the wastefulness of the complex competitive system is not a simple problem. We cannot in this study go into an evaluation of even the more obvious wastes which arise from duplication nor of the stimulus to greater effort which offsets such deficiencies. We shall raise some questions as to possibilities for improve- ment in the last section of this study. PRICE STRUCTURE AND PRICE-MAKING PROCESSES If a number of persons in or about Los Angeles had been asked on a day in June, 1940, "What's the price of eggs?" a variety of answers would have been received. Farmers within about 25 miles of the center of the city would commonly have said "19 cents." Distributors and other dealers would have said "21 cents," the published quotation established by the Produce Exchange of Los Angeles. Consumers would have given prices varying from 23 to 30 cents. Why such divergence of opinion ? NATURE OF THE LOS ANGELES EGG-PRICE STRUCTURE Obviously, these groups would not have been speaking of the same grade of eggs, nor of eggs at the same stage of the trip from producer to consumer. The farmers would have referred to prices which dealers were paying them for large uncandled eggs at the farm in cases furnished by the dealers. The dealers would have been speaking of the quotation established by the Produce Exchange of Los Angeles for large eggs in new or good cases, graded and candled according to Exchange standards, and delivered to dealers' plants in Los Angeles. Consumers, on the other hand, would have had in mind the various retail prices they happened to have observed. Here was a spread between producer and consumer of from 4 to 11 cents for large eggs of good quality sold in the more common trade channels. A price is established each time a lot of egg's is sold, but that price varies from sale to sale, for a number of reasons. In the first place, eggs are more valuable at any given time the nearer they are to the place and time of consumption. Furthermore, there is a refinement of grade as the point of final consumption is neared. Thus a producer is paid 19 cents a dozen for eggs at the farm which he has graded "large." The distributor who receives these eggs candles them, removes any in which interior defects are evident upon candling and any with defective shells. He then sells the eggs to a grocer as "large grade A" at, let us say, 22 cents; or, if he puts them into cartons, at 23 cents. The retailer then sells them at from 23 to 28 cents, as above indicated. Thus at a certain time, 12 University of California — Experiment Station under given market conditions, the value of a similar original quality of eggs varies according to its location in the several market stages from producer to consumer indicated in figure 1 (p. 5) . Prices of different lots at any given market stage will also vary be- cause of quality differences. A distributor may subdivide eggs above graded as "large grade A" into three lots to be sold in cartons under three different brands. The best brand would carry the quality designa- tion "grade AA;" each of the other two lots would be labeled "grade A," but the quality of one might be just below the grade AA, while the third barely passed as grade A. Under such circumstances the grade AA Prices, cents per dozen Relation to Exchange quotation, cents 17 18 19 20 21 22 23 24 25 26 27 28 29 50 31 1 -4 1 -3 1 -2 -1 1 1 ♦1 ♦2 + 3 ♦4 ♦5 I ♦6 1 ♦7 1 1 -9 1 -10 Pickup man pays San Joaquin Valley producer for "large eggs" Pickup man pays looal producer for "large eggs" Net prices to producers or producer-haulers f.o.b. Los Angeles, U.S. Dept.Agr. Quotation Ordinary Grade A, broker to distributor, cases included Best Grade A, broker to distributor, cases included Exchange quotation, "Candled Clean Extras" Grade A to retail outlets, uncartoned Grade AA to retail outlets, uncartoned Grade A to retail outlets, cartoned Grade AA to retail outlets, oartoned Grade A to consumers, cartoned Grade AA to consumers, cartoned U. S. Specials, cartoned, delivered to consumers on milk routes Fig. 2. — Los Angeles egg price structure, based on an Exchange quotation of 21 cents for large Candled Clean Extras. At a given time prices vary with the position of given lots in the trade channels, the quality, and the type of container. might well bring as much as 30 cents at retail, the best grade A as much as 28 cents, while the low-quality grade A might sell as low as 23 cents (see fig. 2). Again, prices of similar lots may also differ slightly at any time be- cause of differences in sales policy and in competitive conditions among dealers. There are many explanations for such price differences. For example, a distributor selling cartoned grade-A eggs to retailers may find that his outlets for this grade are not taking all he has of that quality. Instead of lowering the price to all his customers in order to move more eggs, he may hold to his regular prices and find a new cus- tomer to whom he makes a "trial sale" at a reduced price. He may later wish to keep this customer, and to do so may decide to continue to sell Bul. 656] Egg Marketing in the Los Angeles Area 13 to him at a lower price than that asked of other customers because the new customer is careful about returning cases in good order, because he pays promptly, and because the new customer's place is directly on the regular delivery route and has to be passed anyway. These general price relations and the variations ordinarily found con- stitute what we shall call a "price structure" for each market area. In such a price structure, the prices of given grades and sizes as sold at the several market stages between producer and consumer cluster about, but are seldom exactly at, the Exchange quotations. Figure 2 represents an attempt to illustrate in a simplified way such a price structure on a given day for large eggs of good quality, with the Exchange quotation at 21 cents for large Candled Clean Extras. 10 Prices of other grades and sizes similarly cluster about their respective Exchange quotations. We might picture the situation by constructing additional price-structure charts similar to figure 2 for medium grade A, large grade B, medium grade B, small eggs, and other grades or sizes. Thus, to say that "the price of eggs is higher" commonly means that the whole composite structure is higher. Prices do not necessarily move in unison. If large eggs of high quality are relatively scarce, as they are in late summer and fall, the price for those eggs rises faster relative to the prices of medium and small sizes. Similarly, prices at the several market stages do not always move in unison. Thus, some distributors whose supplies are accumulating may make price concessions in some outlets which are not immediately fol- lowed by all other distributors nor at once fully reflected in retail prices. The Exchange Quotation. — The basic price in Los Angeles long has been the daily quotation of the Produce Exchange of Los Angeles. 11 This is a "wholesale" quotation, established by trading on the floor of the Exchange at a session held at 4 :00 o'clock each afternoon, except Satur- days and holidays. Prices so established commonly apply to that day's receipts and to the next day's trading. 12 Any trading done on a holiday 10 See pages 15-17 for package and grade requirements for Exchange trading. Note that the terms "Extras" and "grade A" refer only to quality and are applicable to each of the several size groupings. After July 1, 1940, the term "grade A" replaced the term "Extras" under California law. 11 The Produce Exchange of Los Angeles is an organization of about sixty of the leading butter, cheese, poultry, and egg dealers in the Los Angeles area. It was incor- porated in May, 1902, under California law and reincorporated as a nonprofit organ- ization on December 1, 1924. Its operations are subject to regulation by the State Department of Agriculture under the Dairy Exchange Act. ([California] Agricul- tural Code, revised to September 19, 1939. Division VI, Chapter 3.) 12 At one time the Exchange sessions were held at 9:00 o'clock each morning to establish the prices for that day. This meant that deliverymen, who were already about town selling eggs, would have to call headquarters to ascertain what the price would be ; hence the change was made to the present plan of having prices established in the late afternoon for the following day's business. Even at the beginning of this 14 University of California — Experiment Station or on a day following a holiday is done at the quotation of the last pre- ceding session. Thus the quotation established on Friday afternoon applies to the trade of both the Saturday and the Monday following. The plan by which prices are established is that under which the last sale, the last bid, or the last offer of eggs becomes the official quotation. To illustrate how the plan works, let us take an afternoon when the previous day's quotation on large Candled Clean Extras was 21 cents. When the moment arrives for the secretary to ask for bids or offers on eggs, some member, let us say, bids 22 cents for large Extras. Another member promptly sells him 10 cases at that price and then offers 10 more. The first bidder promptly accepts the additional 10 cases and accepts any succeeding offers, or other dealers accept them, until no more eggs are offered. Since the last sale was at 22 cents, the secretary announces that figure as the official quotation on large Candled Clean Extras. This quotation is not likely to represent the opinion of one man alone because, unless the others concur, there will be additional bids or offers. Had there been no offer to sell at 22 cents, the original bid of 22 cents would have become the official figure. On the other hand, had the seller continued to offer eggs at 22 cents until finally no one purchased, and had he then lowered his offer to 21 cents without finding a buyer, his last offer would have established the quotation. It frequently happens that a price which has been in effect is still satisfactory to all groups. In such cases, the quotation remains un- changed for the following day; in fact, it may happen that a quotation thus remains unchanged for days and even weeks, and then is raised or lowered on the last bid or offer basis, without a single purchase or sale, yet such a price may be a correct price for the market at the time. To say that such a price is the correct price merely means that it brings to this market enough eggs, but not too many, to satisfy the de- mands of consumers at the prevailing price structure. If the price is too low, other markets will draw some of the egg supplies, or, in the spring of the year, the eggs may move into storage; whereas if the price is too high, consumers will curtail their purchases, and eggs will begin to accumulate while increased supplies continue to arrive. In any market the trade as a whole commonly wants to maintain a stable price, and individual dealers therefore hesitate to make a change until pressure of demand or supply forces it. Thus if a price has re- change, however, it soon came to be the practice to pay producers on the basis of the quotation of the day of pickup or delivery, the same quotation to apply to the follow- ing day's sales, which presumably would include the eggs purchased on the same quo- tation. (Los Angeles Dairy Quotation. Pacific Dairy Eev. 21:16. June 28, 1917.) As a matter of practice, most eggs are probably delivered to retailers on the second day after delivery to distributor. (See p. 53.) Bul. 65Q] Egg Marketing in the Los Angeles Area 15 mained unchanged for a few days, certain dealers may find eggs ac- cumulating on their floors. Since these dealers find they have to cut prices here and there to move eggs and thus take customers from other dealers, sentiment soon tends to favor a lowering of the quotation. There- fore very frequently after a session of the Exchange, one may hear the comment, "So-and-So wanted to lower the quotation," or "So-and-So wanted to raise the quotation." All this means is that these firms were long or short of eggs in comparison with their normal requirements and needed to use other than their regular outlets or sources. Of course any dealer who does not like such a move may call it "manipulation." Prac- tically all Exchange price movements result from some dealer's desire for change in the price structure, so that there is difficulty in drawing the line between sound moves and moves based on errors in judgment. The term "manipulation" carries the idea that the move is not desirable. It should be pointed out that only members of the Exchange may buy or sell or offer to buy or sell on the floor of the Exchange. Membership is restricted to "persons, firms, or associations engaged in the produc- tion, manufacture or distribution of butter, eggs, cheese, or poultry, or otherwise directly interested therein." 13 The only limitations on such members are ability to pay for eggs bought and to make delivery of eggs of suitable quality. Eggs sold over the board of the Exchange must be delivered by the following morning and must be in good cases. 14 The quality of the eggs represented by the Exchange quotation has varied over the years. The biggest single change became effective Feb- ruary 16, 1931. Prior to that date the quotation represented "reasonably clean" and "reasonably uniform" but uncandled eggs of specified mini- mum weights. 15 Beginning on the above date, the top quotation had represented can- dled clean large eggs. The change was made largely as a result of criti- cism by poultry producers. Several minor changes were made in the 13 Produce Exchange of Los Angeles. By-Laws, Art. Ill, Sec. 1. 14 According to Rule 15, eggs sold over the board on any afternoon must be ready for delivery by 7:30 a.m., provided that out-of-town members who deliver to the buyer's place of business may have until 9:00 a.m. If local members' eggs are not ready by 7 : 30 a.m., they must in any event be delivered by 9 : 00 a.m. As to egg cases, Rule 16 says : "all sales . . . shall include cases. Cases may be new or used, but must be clean, bright, and sound." If cases are not acceptable to the inspector, they will be charged back to the seller at the rate of 15 cents a case. 15 The trading rules of about 1927 (p. 34) define the leading grade, known as "Cali- fornia fresh extras," as follows : "Color shall be entirely white and reasonably clean ; the size reasonably uniform ; from February 1st to July 1st they shall weigh 22 ounces and over, and average 24 ounces per dozen ; from July 1st to January 31st they shall weigh 22 ounces and over, and shall average 23% ounces per dozen; quality shall be 90 per cent fresh, sound, sweet and full ; the balance, other than loss, may be defective in strength and fullness but must be sweet ; maximum total loss permitted, per case, one half dozen." 16 University of California — Experiment Station next few years, until the present rules became effective April 27, 1936. The top grade, "Candled Clean Extras," is now defined as follows : CANDLED CLEAN EXTKAS shall consist of three sizes, viz: Large, Medium, and Sinn 11. Large eggs shall weigh not less than 1% ounces each and shall average not less than 23% ounces per dozen. Medium eggs shall weigh not less than iy r2 ounces each and shall average not less than 20 ounces per dozen. Small eggs shall weigh not less than 1^4 ounces each and shall average not less than 16 ounces per dozen. Eggs shall be of current production and of the producer's natural run; color shall be commercially white. Quality shall be computed on the basis of the average in any one delivery and each case of 360 eggs, 15 per cent of which may be commercially cleaned, shall average not less than the Specials and Extras and not more than the lower grades set forth in the following table: Eggs Per cent 16 Clean Specials 126 35.00 Clean Extras 198 55.00 Slightly soiled Extras 18 5.00 Clean Standards 10 2.78 Checks 6 1.67 Loss 2 0.55 Total 360 100.00 The terms in the above table refer to the grades established by Cali- fornia state law, which in some respects are more lenient than the United States grades as represented by the wholesale quotation in the San Fran- cisco and Seattle markets. Since the Exchange quotation represents eggs containing a large pro- portion of Specials, it will ordinarily be higher than any quotation for grade A from which such Specials may have been removed. Eggs meet- ing Exchange requirements do not, however, represent a pack suitable for resale to retailers or consumers without recanclling, because of the tolerances allowed. How the Exchange Quotation Is Used. — By contract or custom, a very large part of all egg sales in the Los Angeles market are based on the Exchange quotation; thus all producers who have arrangements for regular sale of eggn to a given pickup man without individual bargaining over each delivery will have sold at an agreed number of cents below the Exchange quotation. The pickup men, in turn, have arrangements with given distributors at a stated number of cents under the Exchange quo- tation ; and the distributors, in turn, have made sales for delivery regu- larly at or above Exchange quotation to certain retailers. 16 Percentages calculated by authors. The rest of this table and the quotation from : Produce Exchange of Los Angeles. The following egg grades effective, April 27, 1936. 3 p. (Mimeo.) Bul. 656] Egg Marketing in the Los Angeles Area 17 Even where such a distributor has not sold in advance on the basis of the Exchange quotation, the common method of quoting prices is at so much under or over Exchange quotation. It is in this sense that the prices used by various dealers are related to the single quotation estab- lished by the Exchange for each of the five qualities of large eggs, five qualities of medium-sized eggs, two qualities of small eggs, and one on a case-count basis. 17 To illustrate further how the plan works, suppose that when the quo- tation on large Candled Clean Extras is 21 cents, a pickup man has a standing arrangement to pay his producers "2 cents under" for their clean large eggs as graded by the producers themselves, and that at the same time he has a standing arrangement with a distributor to take the eggs at "1% cents under." The distributor must then candle the eggs before delivery to the retail trade. 18 In performing the candling process, the distributor is apt to keep in mind the requirements of his particular outlets. Thus in the illustra- tion given on page 12, the distributor who splits into three lots the large eggs of grade A or better may resell cartoned grade- AA eggs at from 3 cents to 4 cents over Exchange quotation for Extras, his top-quality grade A at 2 cents to 3 cents over, and the lower grade A at 1 cent to 2 cents over. Some eggs of the lower qualities may be sold loose (that is, uncartoned) at from Exchange to 1 cent over Exchange quotation. Thus this distributor's entire pricing may be on the basis of Exchange quotation, with not a single sale at the exact quotation. His gross margin on any particular farmer's lot will depend upon how good the given lot of eggs is, and on what he can get for the several qualities in that par- ticular lot as he subdivides them. Most distributors attempt to develop outlets for a range of qualities approximately matching the quality of their receipts. It should be clear by now that no matter what quotation is used, most sales would not be exactly at the quotation, but somewhat above or below it, according to differing circumstances and minor variations in quality or package. 17 Following are the thirteen grades and sizes on which quotations are established daily on the Produce Exchange of Los Angeles : Large eggs: 2. Candled Light Dirty Extras 1 . Candled Clean Extras 3. Candled Clean Standards 2. Candled Light Dirty Extras 4. Candled Light Dirty Standards 3. Candled Clean Standards 5. Candled Checks 4. Candled Light Dirty Standards Small eggs: 5. Candled Checks 1. Candled Clean Extras Medium eggs: 2. Candled Light Dirty Extras 1. Candled Clean Extras Case Count (43 pounds net per case) 18 [California] Agricultural Code, revised to September 19, 1939. Chap. 8, Art. 1, Sec. 1101-1104. 18 University of California — Experiment Station A question often raised is why there is so little trading over the board of the Exchange — probably not over 1 per cent of the eggs consumed in the Los Angeles area. 19 Actually, the daily sessions of the Exchange are frankly and openly for the purpose of giving any member an opportunity of expressing a conviction by his bids or offers that prices of one or more grades or sizes are too low or too high. It is only occasionally that a member goes to an Exchange session to dispose of a surplus or to make up a shortage. The explanation lies mainly in the fact that as long as dealers can move their various grades and sizes through their regular outlets at the going differentials from the nearest comparable Exchange figures, they will, of course, do so, since that is the purpose of the business they have built up. It is only when they are short or have a surplus that they might be expected to use the Exchange, but here again they prefer to deal with other distributors directly and under such particular arrangements as may be most convenient in handling given lots. These arrangements may vary slightly from the conditions of sale set down for Exchange transac- tions as to egg quality, kinds or qualities of packages, and place, time, or condition of delivery. It is the desirability of these particular arrange- ments, which may mean an extra fraction of a cent a dozen or may make the day's work a bit easier, that constitutes the most important objection to Exchange trading as an outlet or source. The question may then be asked as to the conditions under which dealers actually do buy or sell on the Exchange. In general, if a given dealer has eggs for which he is not able to find buyers who will take them at approximately the usual relation to the quotation, he will conclude that the quotation is too high, and may therefore offer to sell them over the Exchange board, with the result that the quotation is brought into line — that is, brought down to a figure at which all eggs of that quality will move. Likewise, if he finds it difficult to get an adequate supply, he may conclude that the Exchange quotation is too low to bring the needed supply to the area and may therefore bid for eggs over the board of the Exchange. The Los Angeles "Jobbing" Quotation. — Thus far we have been dis- cussing the quotation established by the Produce Exchange of Los Angeles, commonly spoken of as a "wholesale" quotation. We shall now turn to an examination of the "jobbing price" quoted by the United 10 The number of cases of eggs sold over the board of the Exchange each year from 1934 to 1939, inclusive, is as follows: 1934 25,280 cases 1937 6,480 cases 1935 6,405 cases 1938 7,610 cases 1936 15,350 cases 1939 12,460 cases (From records of the Produce Exchange of Los Angeles, courtesy of Mr. F. M. Hud- son, secretary.) Bul. 656] Egg Marketing in the Los Angeles Area 19 States Department of Agriculture in Los Angeles since September 14, 1931. This "jobbing price" is the price which inquiry on the part of the Department's representative shows distributors are charging retailers, hotels, and restaurants for eggs of the several sizes and qualities. This price usually represents small lots delivered to the retail store, and is quoted as a range. Thus when the Exchange quotation on Candled Clean Extras is 21 cents, the jobbing price on California grade A is ordinarily from 21 to 22 cents a dozen in cases and 22 to 24 cents if the eggs are cartoned. This quotation is clearly different from the Exchange quotation dis- cussed above. The Exchange quotation is established by the dealers each afternoon, knowing that settlement for that day's receipts will be based on it, and that the next day's sales will use it either as a basis for settle- ment or as the basis for starting negotiations on new business. The De- partment's jobbing quotation of each afternoon, on the other hand, is a report of prices at which business was done during the day just closed. As pointed out on page 16, the Exchange quotation represents eggs of which at least 35 per cent are Specials, packed in new or good cases and fillers, cases and fillers to go with the eggs. The Department's job- bing quotation, on the other hand, may represent eggs which at the mini- mum will just pass as grade A, and may be packed in somewhat inferior cases and fillers, which sellers ordinarily expect buyers to return. It is difficult to determine just what price difference there should be between eggs represented by each of the two quotations. Thus the value of a dozen eggs represented by each of the two quotations will differ for three reasons : 1. The Exchange quotation should be lower than the jobbing quota- tion by an amount representing the prevailing competitive discount for handling lots of 10 cases or more as compared with lots of about 1 case. 2. The Exchange quotation should be the higher by an amount repre- senting the competitive allowance for Specials which the Exchange re- quires in each individual lot but which may have been removed from the other. 3. The Exchange quotation should be the higher by the competitive difference in the value of the case. This difference will vary seasonally on account of the variations in the supply of and demand for second- hand cases. Figures 3, 4, 5, and 6 picture these two price series daily for 1934, 1938, 1939, and 1940 for grade A or better, the Exchange quotation being moved one day forward to be directly comparable with the jobbing prices with which they are associated. 20 University of California — Experiment Station N3ZOQ H3d S1N30 < • • \r> I- < < x or cc CO CD I COtO o O O * -) -> u o ,0 bc^ .5 a ^ 2 O Cj •1—5 -M 3 be o g '"T 1 cd c3 ^ 1 s z »*..3 . 05 O ) bO c3 _ »H «H 'O w £ N3ZOQ b3d S1N30 Bul. 656 Egg Marketing in the Los Angeles Area 21 N3ZOQ W3d S1N30 _ = ! - - 1 j CO i 3 _ I o> = 3 j zz8 ( g g r = H =8 ~ ° =, 3 = ==_ — ^ — . i = _== t ~~ ^ SS 8= 8= 8= 8= | | 8= 1= 8= " B E ,i — S5 8= ^r ?E L CE-CARTONS. LARGE EXTRA CE .CASES, LARGE EXTRAS. UOTATION, LARGE EXTRAS. 1 — 8= i = n _ 1 = 1 l cc or « 0- Q- u = £= KID BBING BBING CHANG jj ~ u O O x = i ^"^ 8^ ~ • I ^=^- i I > «5 O o z 3 C7 1 bJO g t- o U -i-s O o> be «H 00 O CO S < m CD 03 be &fl 03 5 o > ^ 03 -X -4-i CO _J GG fl ) _^ o 'U -4-> O) ?h -^ c3 ■a w u P.S z rd ^ J £ S -) o3 o3 £ £ .2 2 -m o3 cS u > < 5 © 5 w o o 3 ^d o Sh m Ph Ld ►» a f 2 1 < fen 3ZOQ b3d S1N30 22 University of California — Experiment Station 3ZOQ «3d S1N30 < ~> ~i w PI O Pi cr 1 bo ri ^ o Q. Pi UJ ® CO g 03 ft CD A .+j CO TO OS -^ tH 02 ^ 03 ."£ 't> Pi ® TO TO X X N3ZOQ H3d S1N30 24 University of California — Experiment Station It is interesting to note that at times the lower range and sometimes the entire range of the jobbing prices reported on grade-A eggs in eases has been below the Exchange quotation although the quotation on car- toned eggs has been consistently above the Exchange quotation. (See figs. 3 and 4 for 1934 and 1938.) The jobbing prices reported on eggs in cases were also below the Exchange quotation during most of 1935, 1936, and 1937, not shown here. There appear to be four plausible ex- planations for such situations, but we have not found it possible to ascertain the extent to which they individually or as a group have been responsible for changes from time to time. These explanations are as follows : 1. Dealers are reluctant to spoil the market. In recent years about 80 per cent of the eggs sold to retail stores have been cartoned, and eggs which dealers cannot sell through their cartoned outlets are frequently offered in cases at cut prices to restaurants, hotels, and institutions, and to such retail stores as feature uncartoned eggs. At times dealers may be willing to take a lower price for a part of their case eggs, if, by so doing, they need not offer cartoned eggs in such quantities as to weaken the price for cartoned eggs which constitute the bulk of their sales. 2. New handlers breaking into the market and old ones making un- usual efforts to expand frequently find cutting prices in the uncartoned market a most effective way of obtaining business. In order to meet this competition other handlers likewise tend to reduce their prices. 3. In some instances, eggs represented by the jobbing quotation on uncartoned eggs are relatively low in quality; that is, they may be of a quality which will barely pass grade-A requirements upon inspection. The Exchange quotation represents only fresh eggs with a minimum of 35 per cent Specials while the jobbing prices may represent eggs which at times include such storage eggs as meet grade-A requirements or eggs from which a large part of the Specials may have been removed. 4. There is always the possibility that the reported jobbing prices may not correctly reflect the true market situation. Thus the quotation seldom includes extremely low or high figures which the reporters consider so exceptional as not to justify inclusion within the range. The reporter must exercise judgment as to the exact point at which such exceptional figures become sufficiently important to justify widening his quotation. Since September, 1938, the quotation has been consistently above the Exchange quotation, although individual dealers have at times com- plained that there were sales at lower prices. In an effort to ascertain how closely average sales to retailers cor- respond with the reported jobbing prices, we obtained data on the total sales of cartoned large fresh Extras sold to retail outlets by one dis- Bul. 656" Ear, Marketing in the Los Angeles Area 25 UJ^. | ,,|JTO4J4«M^ FEB MAR JUNE JULY AUG SEPT OCT NOV DEC u,u i , i .u i „ i .i,i..i,m jan rce MAR AUG SEPT OCT NOV DEC JULY AUO SEPT OCT NOV DEC v^> 2 | 9 1 16 [2 3^0 6 |l3 ! 2p|g7 6 ! I 3 | 2oJ27 3 1 10 1 1 7 |z4 1,8 WEIGHTED AVERAGE PRICES RECEIVED BY ONE FIRM FOR FRESH EGGS IN BRANDED CARTONS SOLD TO RETAIL OUTLETS PRODUCE EXCHANGE QUOTATION DATA FOR WEEKS ENOING ON DATES GIVEN 5 22 29 S 12 19 H Fig. 7. — Comparison of weekly averages of Exchange quotation on large Candled Clean Extras and weighted weekly averages of prices obtained in retail outlets by one firm for fresh large eggs in branded cartons from January, 1934, to June, 1937. tributor for a period of 3% years. A weighted average price was calcu- lated for each week during the period. These weekly averages are compared with the Exchange quotation in figure 7. Since a large firm could obtain these prices and hold its business, the firm was presumably meeting competition at those prices. On that assumption, the data sug- gest that jobbing prices on cartoned fresh eggs as they prevailed in the market were almost always above the Exchange quotation, which con- 26 University op California — Experiment Station forms with the reports of the Market News Service. Similar data for the same firm for 1934 only, covering total retail sales including storage and uncartoned eggs, show that during the late fall the weighted average jobbing price on such eggs was actually below the Exchange quotation on large Candled Clean Extras. Since January 3, 1939, the Department has issued a jobbing quotation on Specials, as well as on Extras and Standards (see fig. 5). Beginning on June 1, 1940, further changes were made to include quotations on prices paid to producers or producer-haulers f .o.b. Los Angeles, as well as sales to consumers. These changes were made at the urgent request of producers, who now have a better picture of current price structures than is available for any other egg market (see fig. 10, p. 32) . Relation of Producer Prices to Exchange Quotations. — As previously stated, farmers commonly sell on their own grading at stated amounts below the Exchange quotation on large, medium, and small eggs. The farm grading is largely on the basis of size, although dirty eggs and eggs with misshapen, cracked, or otherwise defective shells are supposedly sorted out and paid for separately. Dirty eggs are often washed — some- times with the buyer's knowledge and consent. In the area roughly 25 miles from the business center of Los Angeles, the prevailing producer prices while this study was being made were 2 cents under quotation, with an occasional contract at 1% cents or 2^2 cents under. Beyond the 25-mile zone was a zone of roughly 50 miles in which the prevailing prices were 2^2 cents under. At more distant points, discounts were still greater and more varied. The farm price and the Exchange quotation are not directly com- parable. In the first place, the farmer uses either an old case or a special field case, either of which the buyer furnishes; that is, the price of the eggs does not include the cases. The Exchange quotation, on the other hand, represents eggs in new or almost new cases, which the seller furnishes — a difference in the two quotations of about % cent. In the second place, since the farm price is based on uncandled eggs, there will be some loss when the distributor does the candling which California state law requires before sale to retail outlets. The Exchange quotation, it will be recalled, represents a fairly high quality, including 35 per cent Specials, but allowing some tolerance (see p. 16). In any lot collected from a group of farmers, there will ordinarily be a few Standards, a few "checks," a few "bloods," some "liners," 20 and a few "light-dirties." Table 1 shows an array of the farm value of a dozen 20 "Checks" are eggs with shells imperceptibly cracked. They are to be distinguished from eggs with cracked or broken shells, which the farmer, of course, does not deliver. "Liners" are eggs which are so near the border line of the next lower size that a little evaporation may soon throw them into the next lower size classification. Bul. 656] Egg Marketing in the Los Angeles Area 27 large eggs in one day's collection from each of 41 producers. At the time this lot was collected (March 1, 1940), the Exchange quotation on large Candled Clean Extras was 20 cents. Hence at 2 cents under quotation, a farmer would have been getting 18 cents on his own grading for his large eggs. Table 1 shows a variation of 1% cents a dozen (39.21 cents TABLE 1 Variation in Farm Value* per Dozen in Lots of Eggs Received from 41 Producers on March 1, 1940, in Southern California Producer number Farm value of large eggs as commonly- delivered Producer number Farm value of large eggs as commonly- delivered 35 cents 16.521 17.300 17.360 17.556 17.558 17.572 17.578 17.582 17.604 17.618 17.622 17.631 17.632 17.634 17.653 17.654 17.658 17.662 17.670 17.682 17.692 10 cents 17.696 30 8 17.698 22 20 17.702 1 39 17.708 32 9 17.712 12 40 17.714 2 16 17.722 25 18 17.730 23 11 17.742 6 15 17.742 41 21 17.746 26 36 17.748 24 29 17.750 27 14 17.752 3.... 37 17.762 19 13 17.764 33 38 17.764 17 28 17.772 4 7 17.780 31 5 17.828 34 * Calculated at 18 cents for Extras (including Specials which were not reported separately), 17 cents for Light-Dirty Extras, 16 cents for Clean Standards, and 16 cents for checks, no allowance being made for "bloods." a case) in the value of eggs among what the dealer considered a select group of producers. Dealers tend to pay uniform prices to all producers in spite of the fact that quality varies considerably. They hesitate to "charge back" for eggs which do not grade Extras or better because such action is almost sure to lead to argument with many of their patrons. Instead they try to hold the desirable patrons and may drop the less desirable during the flush of the season if there is too much argument or if quality de- clines too seriously. Producers have long blamed manipulation of Exchange quotations for low prices. Largely as a result of criticism by producers, the quota- tion was changed early in 1931 from an uncandled basis to a candled 28 University of California — Experiment Station basis (see p. 15). Producers, it seems, expected higher prices; what happened was that the quotation rose abruptly 2% cents, but dealers thereafter paid 2 or 2y 2 or even 3 cents below quotation when they had previously paid quotation or y 2 cent under. The net result was that producers got just about what they would have gotten had no change been made. The same may be said for producers' experience with the jobbing quotation on grade A A established in January, 1939. Such a quotation 1 1 1 1 I o BUREAU OF LABOR STATISTICS PRICE 10 • — WEI GHTED A VERAGE z 9 o < O 7 a • •• •••• •• • • • • • • • • uj 6 5 5 I o X a UJ ^ ••• ••• D •••••• ••••• ••• .... D •• •••• ••••• 9 •••••••• *2.*1° •••••••• ••••9 • s 3 to • •0* •• ••• • • ••• < 2 •• ••••••• •••• •• •••• (A 1- Z 1 •••• •••• •••• •• • • • • • • UJ o •• •• •• 9 -1 JAN 30 FEB 13 MAR 13 MAR 20 MAR 30 APR 2 APR 15 SAT SAT SAT SAT TUES FRI THURS Fig. 8. — Variations in spreads between Exchange quo- tations on large Candled Clean Extras and retail prices of large Extras or better in branded cartons in 15 Los Angeles retail stores, stated days, 1937, and Bureau of Labor Sta- tistics retail prices. can help producers only if eggs are paid for on the basis of grades. The demand for grade A A (Specials) at premium prices over grade A is at present relatively limited. During the spring months most distributors cannot use all the grade AA in their current receipts of local eggs for sale as grade A A at prevailing premiums, so they leave those not needed as grade A A in the eggs they sell as grade A. Since dealers cannot sell all their grade AA as such, they have not felt that they could pay a premium for them. 21 At certain seasons of the year, those distributors who have built up important outlets for grade AA at times buy top- 21 The new form of reporting prices in Los Angeles adopted by the United States Department of Agriculture on June 1, 1940, carries quotations on Specials at both tlie jobbing and the retail levels, but not on prices to producers. It has not been feasi- ble to quote the latter because Specials are not graded out and sold separately. Bul. 656] Egg Marketing in the Los Angeles Area 29 quality eggs from outside sources, from which they supplement their supplies of grade A A ; hence even at such times the premium for grade AA is not likely to be great. No data are available to indicate how the supply of grade AA varies, because no dealers grade out all of them. Retail Prices. — It is generally known by students of marketing that on any particular product in any given city there is at any moment no single price at retail except on highly monopolized articles. This seems to be strikingly true of eggs, for prices of supposedly similar eggs vary o BUREAU OF LABOR STATISTICS PRICE WEIGHTED AVERAGE 2 O f= 8 < *- O 7 •»• 3 a iij 6 • • O • Z . < 5 •• ••• •••• I • • ••• r. ^4 — *o ••• •• ° ¥ LU ••• • -3 • • §• • • • O • • • • 03 < H •• • on • I- 1 • • z txJ U -1 JAN 30 FEB 13 MAR 13 MAR 20 MAR 30 APR 2 APR 15 SAT SAT SAT SAT TUES FRI THURS Fig. 9. — Variations in spreads between Exchange quota- tions on large Candled Clean Extras and retail prices on uncartoned large Extras or better in 15 Los Angeles retail stores, stated days, 1937, and Bureau of Labor Statistics retail prices. widely from store to store. In order to ascertain just what sort of picture this situation presents to the consumer in Los Angeles, fifteen stores comprising all of the grocery stores in two shopping centers in the heart of Los Angeles were visited seven different times between January 30 and April 15, 1937. At each visit all prices at which eggs were offered were noted, together with their qualities as indicated by carton or placard. Figures 8 and 9 represent an attempt to picture the scatter of prices on cartoned and loose eggs, respectively, on the days these stores were visited. The heavy base line represents the previous afternoon's Ex- change quotation on large Extras. The scatter of prices pictured in the two charts is substantially similar for cartoned and for loose eggs. A 30 University of California — Experiment Station similar study conducted in Berkeley about a year later shows prac- tically the same sort of scatter for a group of ten stores, and more recent visits to some of the stores previously studied in Los Angeles indicate that the picture is still substantially correct. With the multiplicity of brands and placards, the consumer is often utterly confused. The new requirements (see p. 59) that simplified and standard grade designations be used should be helpful in guiding the consumer in his selection of good eggs, provided that the use of these labels is restricted to eggs which really do comply with the requirements. TABLE 2 Price Spreads between Exchange Quotations and Retail Egg Prices in Los Angeles Date of Exchange quotation Spread between observed prices* per dozen and Exchange quotation Difference between spread on cartoned and loose Date of U. S. Bur. Labor Statistics mid-month retail price (1937) Spread between U. S. Bur. Labor Statistics retail price per dozen and Exchange (1937) Cartoned Loose quotation t 2 8 4 5 Saturday, January 30 Saturday, February 13 cents 4.45 3.66 3.28 3.91 4.38 3 88 4.18 cents 4.45 3.00 3.11 3.78 4.06 3.12 3 93 cents 0.00 0.60 0.17 0.13 0.32 0.76 0.25 Jan. 12 Feb. 16 Mar. 16 Apr. 13 cents 3.9 5.1 4.2 Saturday, March 20 Tuesday, March 30 Friday, April 2 4 4 * Weighted average of observed prices at 15 stores on large Extras or better. The variations in spreads between the observed retail prices and the Exchange quotations on the previous afternoons are pictured in figures 8 and 9, with the weighted-average spread. 22 Table 2 compares the weighted-average spreads for cartoned and loose eggs and that between the Exchange quotation and the Bureau of Labor Statistics quotation for the nearest comparable dates. It is interesting to note that during the period of study there was no date on which the weighted average price of eggs in cartons was as much as 1 cent over the price of loose eggs (see col. 3 of table 2). Regular cartons cost slightly over 1 cent each, and the so-called "3 by 4 carton" frequently used for unbranded eggs costs approximately half that amount. The latter are used in place of bags by many dealers when they sell loose eggs. We have already mentioned the fact that beginning on June 1, 1940, additional price quotations have become available covering, on the one hand, prices to producers and producer-haulers f .o.b. Los Angeles, and, 22 See p. 42 for an explanation of the meaning of these "spreads." Bul. 656] Egg Marketing in the Los Angeles Area 31 on the other hand, prices to consumers. These quotations for the period June, 1940, to April, 1941, are pictured in figure 10. They give for the first time a picture of the degree to which prices to producers and con- sumers follow the Exchange quotation from day to day. In figure 10 the highest price, pictured by a dot, represents the car- toned grade-AA eggs as delivered to the homes by milk companies. It is pictured as a dot because there was practically no variation between companies. The long bars just below these dots represent prices of car- toned grade-A eggs, and supposedly picture the range of prices for that quality in ordinary retail channels. For simplicity in the chart, the prices of grade AA in stores were omitted because on the whole they lie between the tops of the bars representing grade-A prices and the dots represent- ing milk-route prices. The Exchange price is represented as a dot near the lower part of the chart, and just below it is a short bar representing the range in prices to producers and producer-haulers f .o.b. Los Angeles. An examination of the chart shows that during the 9% months' period all but a few retail price changes occurred on Monday or Thursday. 23 The explanation is that the Food and Grocery Bureau of Southern Cali- fornia, under authority of the California Unfair Practices Act, 24 has issued a price card twice a week. This card reports minimum retail prices which retail dealers are permitted to charge. The minimum retail prices of Monday, Tuesday, and Wednesday are based on the Exchange quotation of the previous Thursday afternoon, and the prices for Thurs- day, Friday, and Saturday are based on the Exchange quotation of Monday afternoon. Minimum retail prices, grade A, during the period June to December, 1940, moved up or down the following number of times : Up Down Monday 9 3 Tuesday 2 2 Wednesday 1 Thursday 10 5 Friday 2 One of the Tuesdays on which the quotation moved up followed Labor Day, and the other followed Armistice Day. One of the Friday moves followed Thanksgiving Day. A careful study of figure 10 shows that retail prices change on an average about the third morning after the Exchange price has changed. 23 Since no Saturday quotation is published, a blank space is left to indicate Satur- day's business. This blank following every fifth bar makes it easy to locate Mondays on the chart. 24 Edwards, Corwin. Appraisal of "fair trade" and "unfair practices" acts. Jour. Marketing 5(1) :3-15. July, 1940. 32 University of California — Experiment Station N3ZOQ Bid S1N3D N3ZO0 d3d S1N3D Bul. 656] Egg Marketing in the Los Angeles Area 33 N3Z0Q H3d S1N3D 34 University of California — Experiment Station The retail prices seem to follow Exchange price changes as closely when the move is downward as when it is upward. Although figure 10 shows very well how the whole price structure moves up or down, figure 11, studied along with figure 10, shows more clearly the extent to which price spreads vary because retail price changes lag behind changes in the Exchange quotation. In figure 11 the base line represents the Exchange quotations and the other prices are plotted above or below that line. Several things are apparent in figure 11 that were not easily seen in figure 10. First, the "prices paid producers, f.o.b. Los Angeles, for large Extras or better" is regularly 2 to 2% cents below the Exchange quotation since the Exchange quotation of a given day establishes the producer price of the same day. Second, the "retail price, retail markets, large, grade A" of a given day does not bear a regular relation to the Exchange quotation of that day. The reason is that, as already explained (p. 31), the minimum retail prices established by the Food and Grocery Bureau of Southern California are changed but twice a week regardless of how many times the Exchange quotation is changed. Third, the range in "retail price, retail markets, large, grade A" does not remain constant. This perhaps is better shown in figure 10. When egg prices are rising or falling rapidly, the range in retail prices widens, indicating a hesitancy on the part of some retailers to change egg prices quickly. Fourth, the "retail price, milk routes, large, grade AA" remains rather generally around 9 cents above the Exchange quotation. At times, however, this differential varies, which may be explained in part by (a) the fact that daily milk-route prices must be somewhat in line with daily retail market prices, which, as explained above, may be somewhat out of line with Exchange quotations for a few days; or (b) by the fact that milk com- panies, like some retailers, are slow in changing prices to correspond with Exchange quotations. A comparison of figure 10 with figure 11 shows that the times when milk-route prices are less than 9 cents above the Exchange quotation is when the Exchange quotation has risen; and, conversely, most of the times when milk-route prices are more than 9 cents above the Exchange quotation, the Exchange quotation has de- clined. Fifth, the Bureau of Labor Statistics "midmonth retail price" represents the upper range of egg prices as sold in retail markets and varies between 5 and 9 cents over the Exchange quotation. INTERREGIONAL PRICE STRUCTURE Price structures similar to those in Los Angeles are to be found in any large market. Thus in each market, farm prices, jobbing prices, and retail prices cluster about the wholesale price. Bul. 656] Egg Marketing in the Los Angeles Area 35 Wholesale Prices — Common Denominator in Interregional Trade. — The price structures of the several large markets are more or less closely related to each other through the respective wholesale prices representing bids, offers, or sales of large lots between markets. The quotations in the several markets are often not directly com- parable. Thus the Los Angeles wholesale quotation represents a some- what higher quality than is represented by the San Francisco or Seattle quotations. Such lack of comparability does not, however, seriously affect sympathetic movements between markets because members of the trade have come to know what the several quotations in other markets mean in terms of their own market quotation. It might also be noted at this point that both the San Francisco and Seattle quotations as reported daily by the United States Department of Agriculture represent the sales made during the day just closed. This is also true in New York, where the quotation is established by the com- mercial reporting company, the Urner-Barry Company. In Los Angeles, on the other hand, the quotation is established by the dealers themselves (see p. 16), as a basis for their buying and selling operations. Comparison of Four Markets. — The relation of the Los Angeles mar- ket to other Pacific Coast markets and to the New York market is pic- tured in figures 12 to 15, in which the leading quotation for each market is charted. The quotations charted are the wholesale prices on U. S. large Extras as reported by the United States Department of Agriculture for San Francisco and Seattle, the Exchange quotation on large Candled Clean Extras for Los Angeles, and the Urner-Barry Company's quota- tion on Fancy Pacific Coast Whites 25 for New York. Markets are interrelated largely on the basis of the ease of moving eggs from one market to the other or of shifting the movements from common sources, or of having a common market outlet. Price differences between such interrelated markets tend to reflect the costs of moving eggs from one to another or the relative costs of moving eggs to a com- mon larger market. Thus the Pacific Coast markets — Seattle, Portland, San Francisco, and Los Angeles — are all related to the New York mar- ket and follow major movements in that market, since eggs flow more or less regularly to New York from all but Los Angeles, which has become a competitor of New York as a buyer of Pacific Coast eggs. Los Angeles has also reached heavily into territory which has largely supplied Chi- cago and other large Middle "Western markets as well as New York, which gears the Los Angeles market still more closely to other large markets. 26 Published by the Urner-Barry Company, New York. This company or its predeces- sors have been in the business of publishing official quotations on butter, eggs, cheese, and poultry since 1858. (See: Weld, L. D. H. The marketing of farm products, p. 301-4. Macmillan Company, New York, N. Y. 1917.) 36 University of California — Experiment Station 42 - 58 34 | 30 o 26 22 18 46 42 S 38 o ■o 2.34 J 30 26 22 18 46 42 — ^™~" Los Angeles \ \ . _ 1936 j~* '■ Sun _ Sea New \ r- \ i-rancisco tie York 1 \ 1 '4 r v / in v i, i > , \ -r-* rTZ.. JZ/r J L j /"'" i J =H f t " 4.J 1937 34 - 30 26 - 22 - | 1938 > , \"^ -, ._.--- _^ . r ,----- J ..---"" ; i JLJ j j \ r—t __^-_ _, Feb Apr May Fig. 12. — Eegional price structure : daily wholesale egg prices at Los Angeles, San Francisco, Seattle, and New York, January to June, 1936, 1937, and 1938. In general, these prices move together. At times there are independent and even diverse move- ments. BUL. C56J Egg Marketing in the Los Angeles Area 37 - / / .<— ' f—J 1 r — ' . J / / Vv. 1937 W 1, J- ~\ / r V 1 7 — j—-> r ~~ Fig. 13. — Eegional price structure: daily wholesale egg prices at Los Angeles, San Francisco, Seattle, and New York, July to December, 1936, 1937, and 1938. 38 University of California — Experiment Station Minor fluctuations are frequently occurring in most markets which may not be reflected in other markets because the trade realizes that they tend to correct themselves before eggs can be moved. Even violent fluctuations sometimes occur in one market which are corrected before certain other markets can move eggs. As an example L-, Si w /^ 1940 r^ April May Fig. 14. — Eegional price structure : daily wholesale egg prices at Los Angeles, San Francisco, Seattle, and New York, January to June, 1939 and 1940. The stabilizing effect of large-scale cooperatives is suggested by a comparison of prices in San Fran- cisco and Seattle with those in Los Angeles and New York (see p. 39). of violent price movements, we may cite the case in January, 1936, when a snowstorm disrupted transportation and led to a skyrocketing of egg prices in New York at a time of the year when prices are ordinarily falling rapidly (see fig. 12). In spite of the distance, and of the likeli- hood that eggs shipped in response to the unusual price might face rapidly declining markets, shippers in Seattle, Portland, and Los An- geles at once responded by increasing eastern shipments and raising local prices. San Francisco did not follow because the leading shippers Bul. 656] Egg Marketing in the Los Angeles Area 39 decided it was too risky to move eggs east, since prices might fall before their eggs could reach New York. A similar instance occurred in December, 1940, when the Pacific Coast markets were for a time actually above the New York price. The explanation was that, at a time when storage eggs were practically 42 c 38 a> O -o 34 Q> Q_ v, 30 c V 26 Los Angeles San Francisco Seattle New York July August Sept. Dec. Fig. 15. — Eegional price structure: daily wholesale egg prices at Los Angeles, San Francisco, Seattle, and New York, July to December, 1939 and 1940. exhausted on the Coast, consumption held up very well during a "cold spell" in which production fell markedly. 26 A comparison of the prices in Seattle and San Francisco with those of Los Angeles and New York as pictured in figures 12 to 15 shows that the Los Angeles and New York prices fluctuate distinctly more than the other two. The reason for the greater price stability in San Francisco and Seattle is probably not the method of quotation, as is sometimes suggested, but rather the fact that in both of those markets the egg busi- 26 Weekly News Letter of Poultry Producers of Central California, San Francisco. December 23, 1940. 40 University of California — Experiment Station ness is dominated by large farmers' cooperatives, which are interested in stabilized markets. Since these cooperatives handle very large pro- portions of the supplies in their respective markets, they can take up any minor variations in the supply or in the demand. In Los Angeles, on the other hand, the price is established by the bidding of competing independent operators, none of whom occupies a dominant position in the market, and none of whom is in a position to take up minor variations in supply or demand. Establishing San Francisco Quotations. — Comparisons are frequently made of the Los Angeles and San Francisco egg markets since both markets draw heavily on important common sources and are therefore about equally well known by numerous persons. It may therefore be pertinent to discuss briefly at this point the nature of the San Francisco wholesale and jobbing quotations. In the San Francisco market, the Agricultural Marketing Service of the United States Department of Agriculture reports quotations on two kinds of prices, known respectively as "jobbing prices" and "wholesale prices." The jobbing quotation represents prices at which distributors sell in lots of from % to 5 cases to retailers, hotels, and restaurants. The Los Angeles jobbing quotation is based on California state grades, while in San Francisco the United States grades are used. The wholesale quo- tation represents prices at which sales of larger lots — usually 25 to 100 cases or even carlots — are made by various types of dealers to distribu- tors or other large buyers. It is said to reflect the prevailing value of goods sold at wholesale on the open market to jobbers, chain stores, and other buyers in wholesale quantities for cash or short-time credit, con- sideration being given to the price at which the larger quantities are sold. The representatives of the Agricultural Marketing Service perform the dual service of (1) grading butter, eggs, cheese, and dressed poul- try, and (2) collecting and compiling market-news data on these com- modities. In the course of their regular inspection duties, or specifically in the task of collecting market data, these men are constantly in touch with the trade. Thus incidentally or directly they accumulate price data and other items of market news. The jobbing quotation for eggs is reported each day at about 3:00 p.m. It is based on reports of trading on that day up to that time. This material is mimeographed to be mailed a little before 5:00 that after- noon. The wholesale quotation is reported at 4 :30 p.m., at the close of the call on the San Francisco Mercantile Exchange, and covers the trading up to about 4 :00 p.m. Although there has recently been no trading in eggs on the Exchange, the announcement of the quotation is withheld until Bul. 656] Egg Marketing in the Los Angeles Area 41 after the close of the session in order to permit the reporter to take account of any Exchange transactions, shonld there be any. The reporter announces on the Exchange floor and telephones to his office from the Exchange rooms the prices of butter, cheese, and eggs as just established. These wholesale prices are at once mimeographed by the office force on post cards and put in the mails that evening for the convenience of those persons who may want to use them for trading- purposes next day. This post card goes to about 650 addresses as compared with 3,200 for the mimeographed market sheet which is mailed earlier in the after- noon (about 4 :00 p.m.) but which carries the previous day's wholesale butter, cheese, and egg prices for San Francisco. Thus the mimeographed market report issued before the opening of the Exchange on, let us say, Thursday, and mailed that afternoon, carries the wholesale price estab- lished at 4:30 p.m. of Wednesday, but carries the jobbing price for Thursday. Those members of the trade who are members of the Exchange will also receive on Friday morning an Exchange report carrying the whole- sale prices established the previous afternoon. The wholesale egg prices reported by the Friday-morning news- papers, are also the prices established Thursday afternoon covering Thursday's trading. In addition, they carry a quotation established at 3:30 p.m. Thursday by the Poultry Producers of Central California, and in some cases the quotations of an independent distributor, as well. Both tif the latter are the prices to be charged retailers on Friday. In the San Francisco market, in contrast with the Los Angeles market, the trade pays little attention to the wholesale quotations on eggs as a basis for country-paying prices. The dominant figure is the price to retailers established by the Poultry Producers of Central California, since that organization is said to handle over half the egg supply of the San Francisco Bay area. This organization also sells some eggs to other distributors, usually at IV2 cents below its quoted prices to retailers — the differential ordinarily prevailing in the market between wholesale and jobbing prices. 27 This association has thus gradually come to have the responsibility of naming prices from day to day that are "right" — prices that will regularly bring to the Bay area the quantity of eggs which consumers will take at the prevailing retail prices. 27 An instance of departure from the usual occurred in the spring of 1940, when for a time the differential between the wholesale and jobbing quotation widened to 3 cents. The explanation lay mainly in the fact that the Poultry Producers of Central California had adopted the policy of storing all eggs it could not move into retail outlets at 21 cents. The smaller independent dealers who were not in position to store, thus virtually established the wholesale market by their offerings of surplus eggs. 42 University of California — Experiment Station PRICE SPREADS In connection with various marketing-improvement proposals, the price spreads in various markets are frequently compared for one com- modity or another. By "price spreads" is meant the differences between the prices of a given commodity at successive stages in a given market. Data most commonly used to calculate price spreads on eggs are monthly averages of daily wholesale prices, already discussed, and the monthly retail prices, published by the United States Bureau of Labor Statistics. Such spreads were calculated for several of the leading egg markets. An attempt to explain wide differences between markets brought out the fact that there are considerable differences between supposedly com- parable prices used in calculating the spreads. It has already been pointed out that in Los Angeles the farm price, the wholesale price, and the jobbing price as quoted represent different qualities (p. 11-12). The above-mentioned retail price represents a still different quality. To make matters worse, there is lack of comparability between markets. It has also been pointed out (p. 35) that wholesale prices in the several markets are not exactly comparable. Even in the case of the retail price as quoted monthly by the Bureau of Labor Statistics in 51 cities, there are ap- preciable differences in quality. Although every effort is made to collect prices on the same quality from month to month in all the cities, there is considerable variation in the qualities carried under the various brands, and in the type of packages used, varying from paper bags to fancy cartons. Dealers commonly quote prices on the eggs which they sell in greatest volume. Thus, although the averages obtained from this sort of reporting will tend to show changes from month to month fairly accurately since the same dealers ordinarily report prices, they may vary considerably from market to market. (Note Bureau's price on the charts picturing the retail price scatter in Los Angeles — figs. 8 and 9.) Place-to-place comparisons will be restricted to Los Angeles and San Francisco, and to New York, for which a special comparison has been made (figs. 16, 17, and 18). Price Spreads in Los Angeles and San Francisco. — On the whole, the spread between the wholesale and the retail quotations represents the combined spreads of both the distributor and the retailer. In Los An- geles, however, this combined spread includes only a part of the dis- tributor's spread because distributors buying candled eggs of about the quality represented by the Bureau of Labor Statistics prices will pay about % of a cent below the Exchange quotation (see fig. 2, p. 12). On the selling side, a distributor is pictured as selling at a range of prices. If eggs are sold loose at 1 cent over Exchange and in cartons at Bul. 656] Egg Marketing in the Los Angeles Area 43 2 cents over, the gross spread for the distributor would be 1% cents on loose and 2% cents for cartoned eggs, although by comparison with the 40 Z30 ui 8 Q ^--*^ £; /RETAIL _^— ^-^x "o.^ „.-'-' UJ °"20 «o K Z Id O 10 "\ WHOLESALE Fig. 16. — Average monthly wholesale prices (Produce Exchange, large Extras), midmonthly retail prices (Bureau of Labor Statistics), and spread between these, Los Angeles, 1939. The spread in Los Angeles does not represent exactly the com- bined margins of distributors and retailers, since the distributors pay somewhat less than Exchange quotations for eggs of the quality represented by the retail prices used. (Data from table 3) z30 id N o 0.20 -RETAIL ^WHOLESALE -PRICE SPREAD JUNE JULY Fig. 17. — Average monthly wholesale prices (United States Department of Agri- culture, large Extras), midmonthly retail prices (Bureau of Labor Statistics), and spread between these, San Francisco, 1939. (Data from table 3) Exchange quotation, the so-called "price spread" would be 1 cent on loose and 2 cents on cartoned. Actually, the prices paid by distributors vary widely, as indicated in figure 2 (p. 12), showing the price structure on large eggs. 44 University of California — Experiment Station These difficulties are entirely ignored in snch comparisons of spreads as those pictured for Los Angeles and San Francisco in figures 16 and 17 and in table 3. Allowance for these discrepancies would increase the comparability of the spreads shown in the last two columns of table 3 for Los Angeles and San Francisco. TABLE 3 Average Monthly Wholesale Prices and Midmonth Retail Prices of Large Eggs, and Spreads between These Prices in Los Angeles and San Francisco, 1939 Month Retail prices per dozen Wholesale prices per dozen Spreads Los Angeles San Franci>co Los Angeles San Francisco Los Angeles San Francisco cents 30.8 28.5 27.5 27.3 27.8 28.1 31.6 32.2 41 40.3 38.0 28.4 cents 32.2 27.8 27.9 28.2 28.3 28.0 30 3 31.0 39.4 38.6 38.2 28.2 cents 24.3 22.3 21.8 22.0 22 4 23.4 26.4 28.6 33.3 32.9 29.1 23.9 cents 23.10 20.50 21.46 21.22 20.88 21.65 24.33 25.80 30.14 31.42 29.08 22.11 cents 6.5 6.2 5.7 5.3 5.4 4.7 5.2 3.6 7.7 7.4 8.9 4.5 cents 9.10 February March 7.30 6.44 April 6.98 7.42 6.35 5.97 5.20 9.26 October November 7.18 9.12 6.09 Sources of data: Retail prices: United States Bureau of Labor Statistics. Retail food prices by cities. Monthly issues. Mimeo. Wholesale prices: United States Department of Agriculture. Federal-State Market News Service, San Francisco. Daily dairy and poultry reports. Monthly averages of daily prices. Data on price spreads on eggs in New York are particularly pertinent owing to the growing similarity of the Los Angeles market and New York markets as large outlets for Pacific Coast eggs and because of the interest among southern California poultrymen in egg auctions, which have been so successfully operated in the suburban areas about New York. New York Price Spreads. — The New York price spread pictured in figure 18, based on table 4, represents a deliberate attempt to collect and compile wholesale and retail quotations on comparable qualities of eggs on given days each week for the particular purpose of calculating price spreads. Again, this spread represents the combined spread of jobbers (called "distributors" in Los Angeles) and retailers. This spread is distinctly wider than is the most nearly comparable one for Los An- geles pictured in figure 16. Bul. 656] Egg Marketing in the Los Angeles Area 45 TABLE 4 Weekly Wholesale and Retail Prices of Best White Eggs in Cartons, and Spreads between These Prices, New York, 1939 Date Retail Wholesale Spread cents 49.6 41.6 36. 35.6 35.6 35.6 35.6 36.1 35.9 35.9 35.6 35.6 35.6 34 4 34 4 33.9 33.9 33.9 33.9 34.5 34.5 34.5 34 5 34.5 34 5 35 1 37.0 37 38.0 38.4 38.9 38.5 38.5 38.6 40.3 42.1* 46.55 48.60 45.6 43.87 43.86 47.20 49.1 48.90 48.90 48.90 48.25 46.00 41 38.60 37.60 37.78 cents 33.75 25.75 25.75 25.75 26.75 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.25 27.25 27.0 26.75 26.75 26.75 26.75 26.75 26.75 26.75 27.5 28.0 28.25 29.25 29.25 29.25 29.25 29.25 29.25 29.25 32.75 36.25* 39.0 37.5 33.75 35.50 36.25 42.25 39.25 37.25 40.00 37 75 34.50 33.25 28.75 26.00 27.75 26.75 cents 15.85 9 15.85 16 23 10.25 9.85 30 8.85 February 6 14 8.1 8.1 20 8.0 27 8.4 March 6 8.4 13 8.1 20 8.1 27 8.1 April 3 6.9 10 7.15 17 6.65 24 6.9 May 1 7.15 8 7.15 15 7.75 22 7.75 29 7.75 June 5. 7.75 12 7.75 19 7.0 26 7 1 July 3 8.75 10 7.75 17 8.75 24 9.15 31 9.65 August. 7 9.25 14 9.25 21 9.35 28 7.55 September 5 6.85* 11 7.55 18 11.1 25 11.85 8.37 9 7.61 16 4.95 23 9.85 30 11.65 November 6 8.90 13 11.15 20 13.75 27 12.75 December 4... 12.25 11 12.60 18 9.85 26 11.03 * In the data as published, there is a 1-cent error in the wholesale or retail price or the spread on Septembe- 5. Source of data: American Produce Review. Weekly issues. (Decimals given as published.) 46 University op California — Experiment Station w 20 o JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. Fig. 18. — Weekly wholesale and retail prices of eggs, and spread between them, on best white eggs in cartons, New York, 1939. The data pictured in this chart represent a deliberate attempt to collect comparable data for the purpose of calculating price spreads. (Data from table 4) CRITICISMS OF THE LOS ANGELES EGG-PRICING PROCESS The pricing process in practically every market is subject to frequent criticism and the Los Angeles egg market is no exception. We shall ex- amine here a few of the criticisms of the pricing process in the Los Angeles egg market, even though we may not have satisfactory correc- tions to offer. Abuses under the Exchange Quotation Plan. — It is generally ac- knowledged among members of the trade that from time to time there are abuses under present methods of quoting wholesale egg prices. For example, there are occasional efforts on the part of individuals to manip- ulate the quotation on a given grade or size under the last-sale-bid-or- offer plan. Raising the quotation temporarily is distinctly easier than lowering it. This is true because most dealers cannot spare large enough quantities of high-quality eggs so packed as to meet Exchange specifica- tions if they wish to "sell the market down" or keep some other dealer from raising the quotation. As already pointed out, a person making a sale over the board of the Exchange on a given afternoon must stand ready to make delivery by 9 :00 o'clock the next morning. Any dealer, Bul. 656] Egg Marketing in the Los Angeles Area 47 however, may bid for eggs, if lie is short, or if he wishes to raise the prices or keep another from lowering them. Attempts at this sort of manipulation tend to be infrequent not only because of the costs involved but also because of the risk that such action may lead to retaliation by other dealers later. In any case, if such manipulation throws the market out of line with other markets, pressure from such markets will soon force a correction. In the fall of the year, it is at times contended that the quotation of lower qualities is maintained above the point at which sales can be made. Thus several dealers cited a time in the fall of 1938 when large Standards were quoted at 27 cents, although these particular dealers could not obtain over 24 cents from other dealers. Some of them claimed that the maintenance of a higher price than the market justified made it easier to sell by the appearance of cutting the quotation on those qualities. The condition was quickly corrected because the dealers with surpluses of those qualities insisted on getting the equivalent of Exchange quotation on the open market or offering eggs on the floor of the Exchange. Another sort of manipulation that has been charged is that certain dealers try to lower quotations on the days when their receipts are heavy, since they commonly pay for eggs at the quotation on the day of receipt, and that they then try to raise the quotation a day or two after- wards to widen their margins. Available data on daily receipts and sales are not suitable for careful analysis of this point. There is a tendency for prices to change most often on Mondays, which is perhaps to be expected since there is a 3-day interval between Friday and Monday quotations. Data on the number of times prices went up or down on the different days of the week during the five-year period 1935-1939, inclu- sive, are shown in table 5 and pictured in figure 19. The complaint has been made on numerous occasions by outside ship- pers that at certain times eggs of a quality suitable for Exchange de- livery cannot be sold to Los Angeles dealers at the Exchange quotation. Several conditions may explain such a situation. Buyers may have doubt as to whether the eggs are as good as claimed; again, the eggs may be offered in larger lots than the particular buyers can handle; and finally, the Exchange quotation may be out of line with the jobbing market (outlets to retailers). Such shippers, however, always have two alterna- tives: (1) to sell eggs at less than the quotation, and (2) to offer them on the Exchange through a local broker if they are really good enough to meet Exchange specifications. In either case, the Exchange price is soon brought into line with outside prices. Most of the fluctuation on the market as observed during this study would appear to have resulted either from errors in judgment on the 48 University of California — Experiment Station part of the trade or from abrupt changes in market conditions rather than from the types of activity one would ordinarily call "manipula- tion." Criticisms of the Los Angeles Jobbing Quotation. — Attention has been called (p. 19) to the fact that the jobbing quotation on the grade- A classification represents a range of quality which changes seasonally TABLE 5 Number of Times the Los Angeles Produce Exchange Quotation on Large Extras Changed on the Various Days of the Week by Months, 1935 to 1939 Month Monday Tuesday Wednesday Thursday Friday Total Up Down Up Down Up Down Up Down Up Down Up Down 7 4 2 2 2 3 5 5 6 6 2 5 49 7 9 2 2 2 1 1 6 8 4 42 1 1 1 1 1 4 3 6 6 5 3 32 6 2 1 1 2 1 2 4 5 24 1 4 2 1 1 4 2 2 6 1 3 2 29 9 3 1 1 3 4 2 4 5 32 2 4 2 2 3 4 6 5 4 3 2 3 40 6 2 1 3 1 2 5 20 1 1 3 3 2 1 6 3 2 1 3 26 8 2 2 1 1 4 3 6 1 28 12 14 7 8 10 14 18 21 25 18 13 16 176 36 16 4 5 4 7 July 3 1 12 14 24 20 Total 146 with the dominant quality of eggs available in that grade classification. The jobbing quotation, which represents past transactions, is therefore not so satisfactory a basis for paying producers as is the Exchange quo- tation, which always represents fresh eggs and is intended for trading during the next day. One criticism of the jobbing quotation which seems to be justified is that it does not fluctuate enough to show the full amount of variation from the Exchange quotation which may exist from time to time. If the Exchange quotation is out of line, eggs may be expected to move into retail outlets at greater or smaller differentials than are usual ; hence, if the United States Department of Agriculture "jobbing price" is accurate, a comparison of the two quotations should show any manipu- lation in the Exchange quotation. It is to be hoped that any additional duties placed on the Department's representatives will not be permitted to interfere with the duties involved in accurate reporting of these sales. Criticisms of Farm Prices in the Los Angeles Area. — As was pre- viously pointed out (p. 26), at any given time and place, producers' Bul. 656] Egg Marketing in the Los Angeles Area 49 prices are relatively fixed with relation to the Exchange quotation. Dif- ferentials vaiy largely with the competitive situation prevailing in dif- ferent locations or with the seasons. Prices to producers do not reflect THUR. FRI. Fig. 19. — Number of times the Exchange quotation moved up or down, by days of the week, 1935 to 1939. During the five-year pe- riod, changes in the Exchange quotation were more frequent on Monday than on any other day. This was true for changes upward as web as for changes downward. (Data from table 5) fully variations in quality, as is evidenced in table 1 (p. 27) , which shows that the value of eggs from 41 select producers on a grade basis actually varied as much as 1% cents a dozen, although each of these producers received the same price. The good bargainer gets somewhat more for comparable eggs than the poor bargainer, partly because he does not hesitate to break away from a buyer and seek a new one when the old one begins to "charge 50 University of California — Experiment Station back" or otherwise seek to force better terms. The good bargainer if he also has good eggs may get a slightly higher price, may have no "charge-back," or may even receive a bonus at the end of the month, such a bonus being paid by separate check so as to minimize the danger of discovery by other patrons. EGG QUALITY DETERIORATION It is a matter of common observation that when eggs are held at sum- mer temperatures for several days in most parts of the country they deteriorate in quality. Yet, as eggs are commonly handled by the trade in southern California, it is only in the last year or two that any sig- nificant attempt has been made to provide cooling facilities, although commonly it takes 7 to 9 days for eggs to move from producer to con- sumer. Within the last few years, considerable numbers of producers have provided themselves with evaporative coolers, and a number of leading distributors have installed merchandising refrigerators. In order to ascertain the rate of decline in the marketing of local eggs in the Los Angeles area, 28 six lots were studied during a period of two weeks in the summer of 1937. Three lots were kept under conditions simulating the ordinary marketing of eggs. Three other lots were kept in an evaporative cooler while on the farm and in a merchandising refrig- erator later (about 45° F) . Three dozen eggs from each lot were candled and broken out every second or third day during a period of 12 days. Each egg was scored for size of air cell and yolk shadow, and was then broken out and scored for interior quality by comparing it with a Van Wagenen albumen score (see fig. 20). The average break-out score of the eggs during the 12-day period under the two sets of conditions is shown in figure 21. In this figure the two lines represent the average scores for eggs broken out at different ages. It is interesting to note that eggs which have been kept in the cooler and refrigerator showed a much slower decline in quality than the eggs not so handled. The data on air-cell and yolk-shadow scores are very similar to those shown in figure 21. Since most eggs sold in Los Angeles are over 8 days old when they reach the consumer, the average egg purchased by the consumer would look something like the egg in the Van Wagenen scale scored 3.5. The white is irregular in shape, and tends to flatten out. As shown in figure 28 For a detailed account of this survey, see: Erdman, H. E., and G. B. Alcorn. Decline in egg quality during the marketing process. Univ. California Giannini Foundation Mimeo. Kept. 63:1-16. January, 1938. Also (without charts or tables) in: California Cultivator 85(9) :284. April 23, 1938. Bul. 656 Egg Marketing in the Los Angeles Area 51 21, eggs kept under cooler conditions will appear better to the consumer than those handled under ordinary conditions. Age of Eggs in Relation to the Marketing Process. — The ordinary range in the ages of eggs at the various marketing stages as they pass Fig. 20. — The Van Wagenen albumen score. This set of pictures constitutes a rough measure of egg quality based upon the appearance of the albumen. Note that the profile of each egg is shown below the top view. Height and shape of the albumen are the major factors considered. (Chart supplied by Division of Poultry Husbandry.) from producer to consumer is presented in table 6. This represents the more favorable conditions, with the movement through the marketing channels unobstructed by carelessness, speculative withholding, or tem- porary market gluts. It was assumed that the maximum age of eggs leaving the farms was 4 days, with a twice-a-week pickup. There are some variations in the age at time of leaving the farm, however, since unfilled cases are sometimes 52 University of California — Experiment Station left to be filled and picked up at the next visit. Furthermore, in periods of rapidly advancing prices, producers may withhold some of their eggs for the following pickup, when prices are likely to be higher. Eggs are normally candled by distributors on the day after pickup, and ar? delivered to retail outlets on the second or third day after 1.8 2.2 2.6 3.0 3.4 3.8 • ■ A , \ \\ \\ \ ■ - - ^-*— ' — ^<^-COOLED LOTS ^^^^_ ^•^ " ■ NONCOOLED LOTS-^ • - s*- ■ i i i i i i i 1 1 S 6 7 8 ACE OF ECCS IN DAYS 10 Fig. 21. — Relation between age of eggs and average break-out score of cooled and noncooled lots. The cooled lots snowed a better score than the noncooled lots through- out the period. Both cooled and noncooled lots showed the greatest deterioration dur- ing the first 3 days, with the rate of decline decreasing thereafter. Eggs were between G and 12 hours old when scored on the first day, which may account for lot differences of the first day. Datii from: Erdman, H. E., and George B. Alcorn. Decline in egg quality during the marketing process. Univ. of California Giannini Foundation Mimeo. Rept, 63:1-16. January, 1938. pickup. The market is sometimes glutted, however, and stocks may pile up on dealers' floors for short periods. Trading between distributors, as one finds himself short and another long on certain qualities, may cause further delays of one to several days. In addition, when markets are lemporarily weak or when dealers anticipate seasonal price increases, eggs may be "short held" in cold storage up to as much as 30 days. Bul. 65(V Egg Marketing in the Los Angeles Area 53 The length of time eggs may remain in retail stores in Los Angeles has been the subject of two surveys, one conducted by Voorhies and Schneider 29 in 1934 and one by ourselves in the summer of 1937. Both surveys showed that most of the eggs were in the store 5 days or less, but some lots were in the stores up to 2 weeks and in one case even up to 3 weeks. The 1934 survey, based on invoice dates, 30 showed that 11 per cent of the eggs were in the store over 1 week. The 1937 survey, based on distributors' codes 31 on the cartons, showed that of the 61 lots which were TABLE 6 Time Fresh Eggs are Held by Various Operators in Three Common Market Channels Operator Producer direct to retailer Usual channel for nearby area Usual channel for outlying areas Producer days 1 to 4 1 to 4 3 to 7 days 1 to 4 1 1 to 3 1 to 4 5 to 9 days 1 to 4 1 to r 4 1 to 3 Retailers 1 to 4 5 to 10 coded, 45 were less than a week old, 16 lots were over a week old, while 4 lots were 2 weeks old or older. In other words, about 26 per cent of the coded lots were in the store more than 1 week. Both surveys clearly indicate that some eggs are held at the retail outlet for a longer time than is desirable. This is due either to carelessness in moving older stocks first or, in some cases, during periods of rising prices, to deliberate over- stocking. 29 Voorhies, Edwin C, and John B. Schneider. Egg statistics relating to the south- ern counties of California. Univ. California Giannini Foundation Mimeo. Rept. 33: 1-73. 1934. (Out of print.) 30 This method of ascertaining the length of time eggs are in the store would pre- sumably give the minimum time since the storekeeper wouM probably be reluctant to submit an invoice upon a lot of eggs which had been in the store for any length of time. Further, it is not always possible to make sure that eggs on hand are repre- sented by invoices presented. Clerks are not always careful about putting old-lot eggs where they will be taken first: they frequently put the "new" eggs on top of the older eggs. 31 The code date is supposedly the date eggs are delivered to the store ; that is, the day after they are cartoned. But slow distribution to the stores, and carelessness, might make the code date precede by several days the time of delivery. Calculations based on the code give the minimum time from the actual date of packing since the distributor is not likely to code the cartons with a date previous to the day the eggs are packed. 54 University op California — Experiment Station QUALITY OF EGGS IN THE LOS ANGELES MARKET Range in Quality. — Eggs as sold on the market have long been more or less carefully graded according to size and shell characteristics and interior quality. The good eggs of large size have commonly been sold as large Extras (now grade A), with a few particularly good ones sold as Specials (now also called grade AA). Several studies 32 in California in recent years have shown, however, that the quality sold at retail as large Extras or better actually varied rather widely. Data on the pro- / r GRADE 2 39.65 PERCENT GRADE 3 31.50 PERCENT GRADE 4\ 13.94 PERCENT GRADE 1 12.19 PERCENT GRADE 5 P.72 PFftCFNT SPECIALS EXTRAS STANDARDS Fig. 22. — Percentage of eggs labeled Extras or better as found on the Los Angeles retail market in August, 1937, grouped into five classes. Most of the eggs were of average Extra quality or better, and over half were of top Extra quality or better. Top-grade Specials made up 12.19 per cent of the total examined. portion of Specials in producers' deliveries are not available because no firm was found which graded out all the Specials. They grade out only what they can sell as Specials, and leave the rest in the eggs sold as "grade A." If all Specials are removed, the remaining grade A's must usually be sold at a discount. In August, 1937, the authors, in cooperation with the State Egg In- spector, examined the eggs in 32 Los Angeles retail stores. A few cartons were taken from each lot found in each store, and candled, the quality of each individual egg being recorded. For simplicity, five classes were 82 Two of these have been published: Voorhies, Edwin C, and John B. Schneider. Egg statistics relating to the southern counties of California. Univ. California Gian- nini Foundation Mimeo. Kept. 33:1-73. 1934. (Out of print.) Stokdyk, E. A. Cooperative marketing of poultry products in the southern San Joaquin Valley: status and possibilities of expansion. Univ. California Giannini Foundation Mimeo. Eept. 9:1-24. 1931. (Out of print.) Unpublished data collected in other instances showed the same sort of variation. Bul. 656] j] GG Marketing in the Los Angeles Area 55 used as indicated in figure 22, so that as each egg was examined, the inspector could indicate its quality by merely calling- a number, which was recorded on a tally sheet. A total of 1,657 eggs were thus scored, and the results classified. Figure 22 shows the distributions of the quali- ties found. Only eggs which were labeled either on the carton or on a placard indicating that they were supposed to be Extras were recorded. The five classes as used in this study may be compared with the estab- lished grades as follows : Grade 1 was equal to the very best Specials. Grade 2 included the lower-quality Specials and the very best Extras. This is indicated in figure 22 by having the vertical bar representing grade 2 overlap somewhat on the Extra scale. Grade 3 was equal to Extras of ordinary quality. Grade 4 was equal to Extras of low quality, that is, eggs which would barely pass as Extras. Grade 5 was applied to Standards. Reasons for Range in Quality. — Some variation in the quality of the eggs in any lot is to be expected. This is due, in part, to inaccuracies of grading caused by some of the following facts : 33 1. Certain characteristics are not definitely measurable under com- mercial conditions. Such characteristics include yolk shadow, firmness of white, and mobility of yolk. 2. With the speed needed under commercial conditions, even the measurable, but particularly the nonmeasurable, characteristics are not observed closely throughout the day by all candlers. 3. With regard to the nonmeasurable characteristics, a grader will tend to grade toward the average of the lot on which he is working. If the general quality is low, he will tend to become lenient; if good, more severe. 33 Experiments of the efficacy of the candling method have been carried on in detail under the supervision of Professor Paul F. Sharp of Cornell University, results of which have been published in : Stewart, G. F., A. R. Gans, and P. F. Sharp. Average candling grade for each dozen eggs as determined by four different candlers. Natl. Bul. and U. S. Egg and Poultry Mag. 38(5) :31-34. May, 1932. Stewart, G. F., A. R, Gans, and P. F. Sharp. Distribution of grade and grading factors obtained by different candlers on the same eggs. Natl. Bul. and U. S. Egg and Poultry Mag. 38(6) : 36-39. June, 1932. Stewart, G. F., A. R. Gans, and P. F. Sharp. A comparison of candling results on identical eggs using one candler as a standard. Natl. Bul. and U. S. Egg and Poultry Mag. 38(7) : 17-22. July, 1932. Stewart, G. F., A. R. Gans, and P. F. Sharp. The relation of the percentage of thin white to interior quality as determined by candling and from the opened egg. Natl. Bul. and U. S. Egg and Poultry Mag. 38(8) : 14-18. August, 1932. Stewart, G. F., A. R. Gans, and P. F. Sharp. The relation of the condition of thick white to the interior quality as determined by candling and from the opened egg. Natl. Bul. and U. S. Egg and Poultry Mag. 38(9) : 38-41. September, 1932. 56 University of California — Experiment Station 4. Given individuals vary in accuracy of observation according- to training, degree of alertness generally or at a given moment, speed of operation, degree of supervision, and other factors. Furthermore, some variation in the qualities of eggs in the same carton may be explained by the fact that individual eggs have different rates of deterioration. It has been reported from a number of experiment stations that some eggs decline in quality more rapidly than others. Further, it < < UJ O < O < o u Q. < %< a. O CO u o SALABLE AS SPECIALS, GRADE AA SALABLE AS SALABLE AS GRADE A GRADE B 00 00 00 00 00 00 2 00 00 00 00 00 _Q 3 00 00 00 00 00 oof" 4 00 00 00 00 00 5 00 00 00 00 00 00 6 00 00 00 00 00 _0 7 00 00 00 00 00 00 8 00 00 00 00 00 9 00 00 00 00 00 00 10 00 00 00 00 00 _0 ii 00 00 00 00 00 00 12 pa 00 00 00 00 00 13 00 00 00 00 00 00 14 00 00 00 00 00 15 00 00 00 00 00 00" 00 00 po 00 "00 |_0 17 00 00 00 00 00 00 " 00 00 00 00 00 Fig. 23. — Schematic illustration of quality distribution likely to be found in grade-A eggs as offered by a group of retail stores. Errors in candling, age of eggs, different rates of deterioration for individual eggs, and taking undue advantage of tolerances, all lead to a wide range in egg quality as found on the market. is impossible to ascertain in a lot of equally good, fresh eggs which in- dividual eggs will deteriorate most during the marketing period. Since some eggs deteriorate more rapidly than others, and since exact grading may not always be obtained, the qualities of the 12 individual eggs found in a carton labeled grade A or better may vary from carton to carton as illustrated in figure 23. Suppose one were to array a collec- tion of egg cartons picked up on the open market so that quality would be best at the left and decrease gradually toward the right. In the first carton at the left, all eggs might grade Specials (grade AA). The second carton might contain 1 egg which would be classified as grade A. The third dozen might have 2 eggs in the grade-A class, and so on. Because of the lack of precision in quality measurements, and because some in- dividual eggs may have a rapid rate of deterioration, egg laws provide Bul. 656] Egg Marketing in the Los Angeles Area 57 for a "tolerance" of so many eggs of the lower grade in each dozen. Thus, for example, the third carton, although containing 2 eggs of grade-A quality, may still be sold as Specials. Similarly, the fifteenth carton contains 2 eggs of grade-B quality, but is still salable as grade A. The sixteenth, seventeenth, rind eighteenth cartons perhaps contained only eggs of grade-A quality or better when candled, but, because 3 eggs or more have deteriorated into the lower grade, these cartons must now be classified as grade B, although most of the eggs in them are still grade A. If dealers take advantage of tolerances it is very probable that by the time consumers finally get the eggs they will be of a lower grade. Producers are doubtless right in their argument that during much of the year a large proportion of their eggs are Specials 34 as they leave the ranch. It seems equally true, however, that during most of the year a large proportion of the Specials drop below that quality before they reach consumers, as eggs are commonly handled. Seasonal Variation in Quality. — Data assembled from a number of firms in the Los Angeles area on the seasonal variation in egg quality indicate a somewhat higher average quality during winter and spring than during summer and early fall. Since eggs have not been graded strictly to established grades, and since different dealers grade eggs dif- ferently, it is not possible to assemble data to show specifically the pro- portions of eggs by established grades as found in the Los Angeles mar- ket during the various seasons of the year. Consumers, producers, candlers, and handlers rather generally agree that internal quality of eggs varies with the season. Hunter, Van Wagenen, and Hall 35 reported that eggs of the highest internal quality are produced between November and March, and eggs of lowest quality in the spring and summer. Lorenz and Almquist 36 further report, "The percentage of firm white is lowered by higher air temperature during the hours immediately after the egg is laid, resulting in an apparent seasonal variation in internal egg quality." Quality of Eggs from Outlying Sources. — Eggs shipped to Los An- geles may be classified roughly by point of origin as local eggs, San Joaquin Valley eggs, northern eggs, and midwestern eggs. 34 In this connection it should be pointed out that the United States and California grade specifications are not identical. United States specifications for Specials are more rigid than California specifications for grade AA : the California specifications allow an air cell of % 6 inch in depth, while the United States specifications permit only y s inch ; the latter are also somewhat more rigid with respect to condition of the yolk. Proposed new United States grades would allow for slightly tremulous air cells. 35 Hunter, J. A., A. Van Wagenen, and G. O. Hall. Seasonal changes in interior egg quality of Single Comb White Leghorn hens. Poultry Sci. 15(2) : 115-18. March, 1936. 3fi Lorenz, F. W., and H. J. Almquist. Seasonal variations in egg quality. Poultry Sci. 15(1) : 14-18. January, 1936. 58 University of California — Experiment Station The quality of eggs received from the midwestern states has not been measured. Data on San Joaquin Valley eggs, which are gathered fre- quently, and in many cases held in evaporative coolers, indicate that during 1938 over 90 per cent of the volume received on the Los Angeles market graded Extras or better. Data gathered from a number of firms which keep their records on different bases do not permit accurate comparisons with respect to small differences in egg quality. The quality of eggs shipped into Los Angeles during 1937 and 1938 by three northern firms on the Pacific Coast has been classified in table 7 into three groups. The first group corresponds TABLE 7 Egg Shipments to Los Angeles by Three Northern Firms 1937 1938 Grades* Amount Per cent of total Amount Per cent of total 1 and 2 cases 132,426 60,421 1,771 per cent 68.04 31.04 0.92 cases 133,804 61,348 1.462 per cent 68.05 3 and 4 31.20 5 0.75 Total 194,618 100.00 196,614 100.00 * Grades refer to those as shown in figure 22. to grades 1 and 2 as shown in figure 22, the second to grades 3 and 4, and the third to grade 5. As indicated in table 7, practically all the shipments of these three northern firms are of Extra quality or better. The survey of the quality of eggs found in the market, as shown in figure 22, cannot be directly compared with shipments of these three northern firms. The shipments by the three northern firms are for the whole year. They show that over two thirds of the shipments were of grades 1 and 2 on the basis of grading done before shipping. The retail market survey showed only slightly more than half of the eggs to be in grades 1 or 2, but grading in this connection was done only in August and was made at the retail stores. Table 7 does indicate that shipments from the northern Pacific Coast consist largely of good-quality eggs. THE CONSUMER IN THE MARKET Egg Quality. — The reason for grading eggs on both a size and a quality basis is that this practice makes it possible to fulfill consumers' requirements more exactly. Sizes of eggs are easily recognized by con- sumers, and price differentials between different sizes vary from season to season so as to "clear the market" of all sizes. Price differentials be- Bul. 656] Egg Marketing in the Los Angeles Area 59 tween various qualities of eggs also vary, so that the market is cleared of eggs of all grades of quality. But how does the consumer recognize quality in eggs ? In the course of this study we asked a number of women how they could tell a really good egg from an ordinary egg. A review of the answers indicates that most of the women interviewed had but a vague notion of egg-quality indicators. Of course, eggs which were of an inedible nature, or nearly so, were easily recognized. It cannot be concluded, however, that because consumers are unable to state readily how they judge egg quality they are unable to judge variations in quality. It seems that as long as the eggs are satisfactory, the consumer does not bother to pay further atten- tion to them. Uniformity of quality and grades in eggs is perhaps desir- able. Different-colored yolks in the same lot lead the consumer to think that something is wrong with some of them. Most women supplemented their answer by stating they obtained eggs from a specified source sup- plying a dependable quality. In the purchase of eggs, the consumer necessarily must place considerable confidence in the seller. Market Confusion in Grade Designations. — Prior to August 27, 1937, eggs sold as fresh ranch eggs, large eggs, or other similar terms had to conform in quality and size to at least large Extras. Sale terms were definitely used to confuse the buyer. On August 27, 1937, the California egg law was changed to require that carton and bulk egg displays clearly state the size and quality of the eggs. Quality designations, such as Specials, Extras, and Standards, were required to follow the size desig- nation, for example, "large Extras," not "Extras large." There is, how- ever, considerable doubt whether the consumer recognizes and knows such quality designations. The designation "U. S. large Standards" sug- gests to the consumer that those eggs are of fine quality, when, as a matter of fact, they may barely pass the requirements of eggs which can be legally sold to consumers at all. In 1939, the California Legislature further amended the quality grade designations effective July 1, 1940. 37 Specials may now be labeled either "Specials" or "grade AA." Extras must now be labeled "grade A." Standards must now be labeled "grade B." The word "fresh" may be included in designations except on storage eggs. A survey of the market indicates that trade names are usually much more conspicuous on the cartons and displays than are the required terms with respect to grade and size. Individual firms attempt to dif- ferentiate their particular eggs from those of competitors by the use of distinctive brand names and color schemes on the cartons. 37 [California] Agricultural Code, revised to September 19, 1939. Chap. 8, Art. 1, Sec. 1102. 60 University of California — Experiment Station EGG PRODUCTION, CONSUMPTION, AND THE BALANCING PROCESS California draws on the reservoir of egg supplies in the rest of the country and contributes to it as occasion may require — commonly both at the same time. California markets are therefore closely geared to TABLE 8 Estimated Production and Disposition of Eggs in the United States and California, 1925-1939 United States California Production Dispositio l Farm pro- duction Disposition Year Farm Non- farm Total Con- sumed on farms Hatched on farms Sold off farms* Con- sumed on farms Hatched on farms Sold off farms* 1 8 S 4 5 6 7 8 9 10 1925... millions of eggs 34,969 millions of eggs 3,497 millions of eggs 38,466 millions of eggs 7,086 millions of eggs 973 millions of eggs 26,910 millions of eggs 1,452 millions of eggs 140 millions of eggs 10 millions of eggs 1,302 1926... 37,248 3,725 40,973 7,378 1,025 28,845 1,701 152 12 1,537 1927... 38,627 3,863 42,490 7,612 1,057 29,958 1,791 156 14 1,621 1928... 38,659 3,866 42,525 7,413 978 30,268 2,053 166 13 1,874 1929... 37,921 3,792 41,713 7,147 995 29,779 2,038 160 14 1,864 1930... 39,067 3,907 42,974 7,519 935 30,613 2,242 169 10 2,063 1931... 38,532 3,853 42,385 7,995 909 29,628 2,187 166 16 2,005 1932... 36,298 3,630 39,928 7,992 891 27,415 1,898 164 12 1,722 1933... 35,514 3,551 39,065 7,922 855 26,737 1,736 155 13 1,568 1934... 34,429 3,443 37,872 7,638 738 26,053 1,775 156 13 1,606 1935... 33,305 3,330 36,635 7,437 695 25,173 1,719 148 13 1,558 1936... 33,996 3,400 37,396 7,648 718 25,630 1,900 154 10 1,736 1937... 37,647 3,765 41,412 8,187 564 28,896 2,075 167 6 1,902 1938... 36,998 3,700 40,698 8,432 604 27,962 1,778 169 8 1.601 1939... 38,226 3,823 42,049 8,494 555 29,177 1,659 164 13 1,482 ♦Including sales to hatcheries. Sources of data: Cols. 1, 4, 5, 6, 7, 8, 10: 1925-1938: United States Bureau of Agricultural Economics. Farm production and disposition, chickens and eggs. 1938 and 1939 issues. (Mimeo.) 1939: United States Agricultural Marketing Service. Farm production, farm disposition and in- come, chickens and eggs. 1941. (Mimeo.) Col. 2: The United States Department of Agriculture estimate of nonfarm production is placed at 10 per cent of the total farm production (United States Bureau of Agricultural Economics. Farm pro- duction and disposition, chickens and eggs. 1938:2. (Mimeo.) We have, therefore, calculated it for col. 2. Col. 3: Sum of figures in cols. 1 and 2. Col. 9: Eggs hatched on farms in California for 1925-1936 are computed by deducting eggs sold and consumed on farms from the total produced. The data for 1937-1939 from the same sources as t he data for col. 1. other markets, so that regional changes in production, consumption, and price are quickly reflected in California supplies and prices. The bal- ancing process takes place through the operations of what is popularly called the "marketing system," in which the most controversial point Bul. 656 Egg Marketing in the Los Angeles Area 61 «n lO r*- 00 0> o — rvj ro <<* «o (0 r- 00 o> 0) 0) 0> 0> 0) o> 0) o> 0) o> 0) o> 0) Fig. 24. — Estimated annual United States supply of eggs: California and other states' farm production, United States nonfarm production, and United States net imports. The United States annual egg supply of about 40 billion eggs is largely pro- duced on the farms of the United States. Domestic nonfarm production amounts to about 10 per cent of the United States farm production (not shown in any table). California furnishes about 5 per cent of the national supply. Imports are not sig- nificant. (Data from tables 8 and 21) 62 University of California — Experiment Station is the price-making process. Since California is not an isolated com- munity, it may be well to note the relation of the California egg market to that of the rest of the country. TABLE 9 Annual Shipments of Eggs from California, 1925-1939 Year Rail shipments Boat shipments* to continental United States destinations Export shipments from California portsf Total shipments from California / 2 S 4 1925 cases 613,482 760,237 911,712 1,100,990 1,023,381 1,156,557 995,682 687,192 413,689 366,950 210.335 410,255 256,304 122,245 125,351 cases 3,520 2,000 7,100 64,615 42,644 55,120 60,706 96,237 66,288 12,204 23,651 20,075 8,307 cases 15,078 13,315 9,160 60.630 61,514 84,919 59,517 41,094 34,154 43,720 47,426 47,345 54,970 31,642* 33.665J cases 632,080 1926 775,552 1927 927,972 1928 1,226,235 1929 1,127,539 1930 1,296,596 1931 1,115,905 1932 824,523 1933 514,131 1934 422,874 1935 281,412 1936 477,675 1937 319,581 1938 153,887 1939 159,016 * Shipments to Hawaii and Alaska from California ports are not reported separately by the United States Bureau of Foreign and Domestic Commerce but are reported in shipments to "noncontiguous territory." Shipments to Alaska from California are apparently insignificant— 20,105 cases for 1939, the only year for which data are available. Data for shipments to Hawaii are available only for 1932, January to June, 1933, and since July, 1939. For 1932 they totaled 50,604 cases, or about 1.1 per cent of apparent California consumption. Month-by- month comparisons indicate still smaller annual shipments since that time. (Information from L. A. Wheeler, Director, Office of Foreign Agricultural Relations, United States Department of Commerce, May 18, 1940.) t Includes "eggs in the shell" and "eggs and yolks, frozen, dried, or canned." The latter were con- verted from pounds to dozens on the basis of 1 pound frozen = 10.2 eggs, and to cases on the basis of 30 dozen per case. J Includes only exports of "eggs in the shell," and only from San Francisco customs district. Complete export data for these years not yet available. Sources of data: Cols. 1 and 2: Original records, California shipments of eggs, San Francisco office, United States Bureau of Agricultural Economics, Dairy and Poultry Division. Col. 3: United States Bureau of Foreign and Domestic Commerce, Foreign Commerce and Navi- gation of the United States, annual issues. Shipments from San Francisco, Los Angeles, and San Diego customs districts combined. Col. 4: Total of cols. 1, 2, and 3. SUPPLY AND PRODUCTION OF EGGS The Annual United States Supply of Eggs. — The estimated United States annual farm production of eggs has varied in recent years from a low of 33 billion eggs in 1935 to a high of 39 billion eggs in 1930. In California, estimated production has varied from a low of 1,452,000,000 eggs in 1925 to a high of 2,242,000,000 eggs in 1930 (see table 8 and fig. 24). Bul. 656] Egg Marketing in the Los Angeles Area 63 It is estimated that the number of chickens not on farms is equal to about 10 per cent of the number on farms, and that the quantity of eggs produced off the farm is in about the same proportion. This estimate is, of course, very rough, because no adequate statistics on such production TABLE 10 California Eeceipts, Shipments, and Apparent Consumption of Eggs Annually from 1925 to 1939 Year Receipts from other states Shipments out of state Net shipments out of state California production less eggs for farm hatching Apparent California consumption / * 8 4 5 1925 cases 178,837 147,314 96,766 75,005 123,643 98,888 65,083 78,241 151,518 149,749 205,008 124,772 225,777 282,894 265,145 cases 632,080 775,552 927,972 1,226,235 1,127,539 1,296,596 1,115,905 824,523 514,131 422,874 281,412 477,675 319,581 153,887 159,016 cases 453,243 628,238 831,206 1,151,230 1,003,896 1,197,708 1,050,822 746,282 362,613 273,125 76,404 352,903 93,804 -129,007 -106,129 cases 4,006,000 4,692,000 4,936,000 5,667,000 5,622,000 6,200,000 6,031,000 5,239,000 4,786,000 4,894,000 4,739,000 5,250,000 5,747,000 4,917,000 5,801,000 cases 3,553,000 1926 4,064,000 1927 4,105,000 1928 4,516,000 1929 4,618,000 1930 5,002,000 1931 4,980,000 1932 4,493,000 1933 4,423,000 1934 4,621,000 1935 4,663,000 1936 4,897,000 1937 5,653,000 1938 5,046,000 1939 5,907,000 Sources of data: Col. 1: 1925-1929: United States Bureau of Agricultural Economics. Federal-State Market News Service, San Francisco office. Weekly Review of the Butter Market. Annual summary sheets. 1930-1939: United States Bureau of Agricultural Economics. Dairy and Poultry Market Sta- tistics. Annual summaries. Col. 2: From table 9. Col. 3: Col. 2 minus col. 1. Col. 4: United States Bureau of Agricultural Economics. Farm production and disposition, chickens and eggs, 1925-1937. United States Department of Agriculture Agricultural Marketing Service. Farm production and income, chickens and eggs, 1938-1939. (Mimeo.) Found by adding eggs consumed on farms and eggs sold. Converted from number of eggs to cases on the basis of 360 eggs per case. Col. 5: Col. 4 minus col. 3. are available. 38 At the tops of the bars of figure 24, representing the total supply of farm production for the United States each year, have been added the estimated nonfarm production and the net egg imports. 39 The net imports have not been large at any time as compared with total pro- duction. 38 "The percentage of estimated numbers and production by non-farm flocks com- pared with farm flocks varies by regions, being estimated by major geographic areas ; roughly as follows: North Atlantic 15 per cent, East North Central 10 per cent, West North Central 6 per cent, South Atlantic 13 per cent, South Central 11 per cent and Far Western 6 per cent." (United States Bureau of Agricultural Economics. Farm production and disposition of chickens and eggs, 1925-1937. p. 2. December, 1938. Mimeo.) 39 For the basic data on which net imports were calculated, see tables 19, 20, and 21. 64 University op California — Experiment Station The Estimated Annual California Egg Supply. — The annual supply of eggs available in California was ascertained roughly for the period from 1925 to 1939. Table 9 presents California shipments of eggs ; table 10 presents receipts from other states, total shipments, net shipments, an- nual production less eggs used for hatching, and "apparent consump- tion" (see fig. 25). The year 1938 was the first in the fifteen-year period studied in which California consumption of eggs was greater than her production. This CALIFORNIA PRODUCTION LESS ECCS FOR HATCHING ON FARMS APPARENT CALIFORNIA CONSUMPTION SHIPMENTS OUT OF STATE RECEIPTS FROM OTHER STATES 1925 1927 1929 1931 1933 1935 1937 1939 Fig. 25. — California egg production, shipments out of state, receipts from other states, and apparent consumption, 1925-1939. Most of the eggs produced in Cali- fornia are also consumed here. California shipments and receipts are small as com- pared with production. (Data from table 10) was true in spite of the fact that 1938 consumption dropped distinctly from the record "high" of 1937, and was again true in 1939, with a new "high" for consumption. The figures are admittedly in error on a number of points. Some of these errors offset each other in part. It is likely that the net results, after allowing for errors, leave the estimate for California several per cent below actual consumption. The more important errors are in the follow- ing points: 1. No separate estimates for nonfarm production are available for California, and no such estimate is included in the "apparent consump- tion" figures. On the basis of footnote 38 (p. 63), this may mean that the figures on "apparent consumption" are short by 6 per cent of Cali- fornia production. Bul. 656] Egg Marketing in the Los Angeles Area 65 2. No data are available for eggs sold to commercial hatcheries. This item is estimated at about 1.8 per cent of total production in California"' and California consumption data are high by that amount. 3. No allowance was made for variations in the year-to-year storage holdings on January 1 in California. This item is not large, since the total quantity in storage at that time is always small as compared with total supplies. 4. The data on receipts are known to be inaccurate to varying degrees. They represent largely truck movements, on which it has been difficult to get full reports, particularly on shipments to smaller cities about Los Angeles. How large this error is, is not known. But even if reported re- ceipts from other states were only half the correct figure, the omissions would reduce the apparent consumption figure by less than 6 per cent. 5. There are some truck shipments of eggs from California points which have not always been fully reported. It is known that there have been such shipments from Sacramento to Reno, a few from Susan ville to Reno, and a few from San Francisco and Los Angeles to Arizona and Texas. These would amount to a very small fraction of 1 per cent of the consumption. 6. No data are available on the movements of canned, frozen, or dried eggs, yolks, or albumen. This applies not only to such of the United States imports as may be used in this state, but also to receipts by Cali- fornia firms of such products from other states and of occasional Cali- fornia shipments to other states. 7. Incomplete data are available on California shipments to noncon- tiguous parts of the United States — Hawaii, Philippine Islands, Canal Zone, Alaska, and Puerto Rico. This item is probably not over 1.25 per cent of California estimated consumption. 41 Seasonal Variations in Production. — In addition to the year-to-year variations in egg production, there are wide seasonal variations. These are not uniform from region to region. Figure 26 shows the seasonal variation for 1938 in number of eggs laid by the flocks of some 20,000 crop reporters scattered over the country, as compared with that of 22 Fresno County flocks and 36 Los Angeles County flocks. 40 In 1938, eggs reported as used for farm hatching in California amounted to 8 million out of an estimated total farm production of 1,778 million, or 0.45 per cent, as compared with 1.63 in the United States. At 1.8 eggs used for hatching per chicken raised, California would have used in 1938, 40 million eggs to hatch the 22,280,000 chickens raised. Hence about 32 million were probably used by hatcheries, or about 1.8 per cent of the total farm production of 1,778 million, not including any eggs for hatching chicks sent to other states, and with no allowance for nonfarm production. (See footnote 42, p. 67.) 41 See footnote to table 9, p. 62. 66 University of California — Experiment Station FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. Fig. 26. — Daily average number of eggs laid during each month by selected Los Angeles and Fresno County flocks compared with number of eggs laid per flock for about 20,000 farms in the United States on the first of each month, expressed as percentages of the respective yearly averages, 1938. The seasonal variation in egg pro- duction is greater for the United States than for Los Angeles or Fresno County farm groups, where production is more commercialized. Computed from : United States Department of Agriculture Agricultural Mar- keting Service, Poultry and Egg Production, monthly mimeograph ; and Cali- fornia Agricultural Extension Service records. The most striking difference between the three is that the seasonal rise and fall is much greater for the farm flocks represented in the United States group than in the two groups of California commercial flocks. Commercial flocks in many other sections would probably also show a narrower seasonal variation than is shown for the entire country. Bul. 656] Egg Marketing in the Los Angeles Area 67 THE DEMAND - FOR EGGS Of the total United States farm egg production in 1938, 22.8 per cent was estimated to have been consumed on the farm, and 75.6 per cent sold, including sales to commercial hatcheries. Eggs used for farm hatching, TABLE 11 Index of Nonagricultural Income Payments, United States Estimated Per-Capita Egg Consumption, and United States Annual Retail and Farm Egg Prices, 1925-1939 Year Index of non- agricultural income payments (1924-29 = 100) Estimated United States per-capita consumption* United States retail price of eggs United States farm price of eggs / 2 S 4 1925 per cent 96.2 100.3 101.7 104.0 107.4 99.2 86.3 67.7 62.6 71.3 77.0 89.0 94.0 87.5 92.8 number of eggs 318.4 340.0 344.8 339.2 332.0 329.6 330.4 312.0 295.2 287.2 274.4 280.0 304.0 306.0 321.0 cents per dozen 55.4 51.9 48.7 50.3 52.7 44.5 35.0 30.2 28.8 32.5 38.3 37.8 36.9 36.0 32.6 cents per dozen 30.4 1926 28.9 1927 25 1 1928 28.1 1929 29.8 1930 23.7 1931 17.6 1932 14.2 1933 13.8 1934 17.1 1935 23.4 1936 21.8 1937 21.3 1938 20.3 1939 17.4 * Converted from pounds to number of eggs by multiplying by 8, except in 1938 and 1939, when data were reported in numbers of eggs. Sources of data: Col. 1 : United States Bureau of Agricultural Economics. Nonagricultural income payments. Sep- tember 3, 1940. (Mimeo.) Cols. 2 and 4: 1925-1938: United States Bureau of Agricultural Economics. Farm production and disposition, chickens and eggs. December. 1938, and May, 1940. (Mimeo.) 1939: United States Agricultural Marketing Service. Farm production, farm disposition and income, chickens and eggs. April, 1941. (Mimeo.) Col. 3: 1925-1936: United States Bureau of Labor Statistics. Retail prices of food, 1923-1936. U. S. Bur. Labor Stat. Bul. 635:84-87. 1937-1939: United States Bureau of Labor Statistics. Retail prices, monthly issues. which are reported separately, amounted to 1.6 per cent of farm produc- tion in 1938. The proportion used for hatching on farms and in hatch- eries combined is estimated to equal about 3.4 per cent of the total United States egg supply. 42 ^Letter from William F. Callander, United States Department of Agriculture, Division of Crop and Livestock Estimates, May 11, 1939, reports that available data indicate that about 2 eggs are required for each chicken raised: "Such scanty data as we have suggest in the neighborhood of 2.2 eggs per chicken raised in the earlier G8 University of California — Experiment Station The proportion of "farm production" which is reported as "eggs sold" varies widely between geographic sections. Thus in 1938, farmers in the south central states sold but 61 per cent of their products as compared with 82 per cent in Hie western states. In California the figure was 90 per cent. (See table 8 for United States and California figures.) Per-Capita Consumption. — The United States Bureau of Agricultural Economics has estimated annual consumption per capita at from 345 340 320 o o fe 300 o 5 I 280 260 ^^ / / / / / ^UNITED STATES * f \ \ \ \ / / / . / ^/-CALIFORNIA \ \ \ \ \ \ \ \ V x '^ St ^=^=^^5=^,-^==;=^==:;==^=^==^===^=^== 1925 1927 1929 1931 1933 1935 1937 1939 Fig. 27. — Per-capita consumption of eggs in California and in the United States, annually, 1925 to 1939. (Data from table 12) eggs in 1927 to 274 in 1935 (see table 11 and fig. 27) . This estimate makes allowance for variations in storage holdings at the beginning and end of each year and for consumption of nonfarm production, estimated at 10 per cent of farm production, but makes no allowance for net imports. California population grew from 4.6 million in 1925 to 6.94 million in 1939 ; hence the per-capita consumption figures shown in table 12 and figure 27 are of particular interest. The peak of per-capita consumption is 1930, with 1938 distinctly lower than the period 1931 to 1938. Cali- fornia and United States per-capita-consumption data are compared in figure 27. years, with a tendency to increase up to about 2.4 in 1920 and to decrease since then to perhaps 1.8 eggs per chicken raised in 1938." Our estimate that 3.4 per cent of the total egg supply was used for hatching is based on the calculation that with 1.8 eggs per chicken hatched, about 1.25 billion eggs were used to raise the 716 million chickens which the Department reports as "raised" in 1938. (United States Bureau of Agricultural Economics. Farm production and disposition of chickens and eggs. March, 1939. Mimeo.) Rut,. 650] Ego Marketing tn the Los Angeles Area 69 Consumption and Income. — The rate of egg consumption varies widely, not only from year to year, from one week to another, and seasonally, but also between regions and income groups. Adequate sta- tistics are, of course, lacking on most of these points, except as certain TABLE 12 Apparent Annual Egg Consumption in California and the United States, 1925-1939 Year Apparent California consumption Estimated California population July 1 Apparent California per-capita consumption Estimated United States per-capita consumption 1 2 3 4 1925 1926 1927 cases 3,553,000 4,064,000 4,105,000 4,516,000 4,618,000 5.002,000 4.980,000 4,493,000 4,423,000 4,621,000 4,663,000 4,897,000 5,653,000 5,046,000 5,907,000* numbers 4,862,885 5,047,550 5,218,665 5,376.950 5.540,090 5,720.474 5,859,625 5,948,490 6,067,965 6,169,790 6,252,900 6.374,600 6,620,850 6,875,500 7,020,500* eggs 263 289.9 283.2 302.4 300 1 314.8 306 271.9 262.4 269.6 268.5 276.6 307.4 264.2 302.9* eggs 318 4 340.0 344.8 1928 1929 1930 1931 1932 1933 1934 1935 1936 339.2 332.0 329.6 330.4 312.0 295.2 287.2 274 4 280.0 1937 1938 1939 304.0 306.0 314.0 * Preliminary. Sources of data: Col. 1 : From table 10, col. 5. Col. 2: California Taxpayers' Association. Tax Digest 12(2;:61-62, February. 1934; 14(3) : back cover. March, 1936; December, 1937; December, 1938. Population estimates of January 1, averaged to estimate July 1 population except 1930. Census figure of April 1, 1930, is the only figure available for that year. July 1, 1929, estimate is January 1, 1929, population plus two fifths of increase between January 1, 1929, and April 1, 1930. July 1, 1930, estimate is April 1, 1930, population plus one third of increase between April 1, 1930, and January 1, 1931. Col. 3: Col. 1 (converted on the basis of 30 dozen eggs per case) divided by col. 2. Col. 4: From table 11, col. 2. studies supply scraps of information which are indicative of the general situation. A recent study shows the per-capita consumption of eggs among em- ployed wage earners' families in Pacific Coast states to have varied by income groups from 12.9 dozen a year in the low-income group to 46.5 dozen a year in the high-income group 43 (see fig. 28 and table 13). The lower quantity represents 0.4 egg per day per person, and the higher figure 1.8 eggs per day per person. Apparently changes in egg consump- tion are closely related to changes in workers' incomes. 43 Stiebeling, Hazel K., and Esther F. Phipard. Diets of families of employed wage earners and clerical workers in cities. U. S. Dept. Agr. Cir. 507:18. 1939. 70 University of California— Experiment Station A comparison of egg consumption by regions, all at the $2.50-$3.12 weekly food expenditure level, as quoted in table 13 from the above- mentioned study, shows wide regional differences, consumption varying from 30.6 dozens per capita in the east south central states to 23.2 dozens in the north Atlantic states. THE BALANCING PROCESS The processes by which the balancing of supply and demand take place are not simple. They include adjustments by producers, adjust- ments between dealers in any market, interregional shipments, storage TABLE 13 Estimated Annual Consumption or Eggs per Capita by White Population by Level of Food Expenditure and Eegion, December, 1934, to February, 1937 Region Weekly per-capita expenditure for food North Atlantic East north central East south central Pacific dollars 0.63 - 1 .24 dozen 13.3 18.6 23.2 27.9 35.5 42.0 dozen 17.8 22.8 25.0 31.8 43.7 dozen 15.7 17.8 26.2 30.6 dozen 1.25 - 1.87 12.9 1.88-2.49 23.2 2.50-3.12 27.6 3.13-3.74 30.0 3.75-4.37 35.6 46.5 Source of data: Stiebeling, Hazel K., and Esther F. Phipard. Diets of families of employed wage earners and clerical workers in cities. U. S. Dept. Agr. Cir. 507:18. 1939. operations, and changes in consumer purchases. The market organiza- tion through which these changes take place has been discussed on pages 4-10. The individual persons or firms are guided by the price structure discussed on pages 11-13, and it is the sum of their actions which in turn makes the price structure what it is. A given egg market is spoken of as being "in balance" when eggs are moving through the channels of trade at prevailing prices, without com- plaints among dealers about shortages or fears of price cutting because of accumulating supplies. The egg industry is spoken of as being "in balance" when producers have so adjusted their farming to prices and costs that they expect to continue producing about as they are and that consumers are taking all eggs offered at prevailing retail prices. Producers can increase or reduce their production but slowly. They increase egg production gradually if egg prices rise, if prices of feeds Bul. 656] Egg Marketing in the Los Angeles Area 71 go down, or if other lines of farming become less profitable. If the re- verse happens, they decrease egg supplies, as by less feed and some sell- ing of hens. Consumers respond more promptly to new conditions. With increased income, they can buy at once. With increased unemployment, they have REGION N6RTH EAST EAST PACIFI ATLANTIC SOUTH CENTRAL NORTH CENTRAL / / i i i / / / / / / . /// // / / / / / / / J r / / / ■^ / - 1 __i ._. ... — i 2.00 DOLLARS Fig. 28. — Annual per-capita consumption of eggs by white families by level of weekly food expenditure and region, December, 1934, to February, 1937. (Data from table 13) less to spend. One way they economize is to buy foods less desirable and cheaper than eggs. But since eggs continue to flow to market for a time, the reduced income can soon buy whatever eggs are offered — for once they are produced they must be sold, even at lower prices. Thus, production of eggs in any given year is practically equal to consumption because eggs cannot be carried over from year to year except those frozen or dried. The extent to which such changes take place in the egg industry is shown in figure 29. Here we have plotted the United States per-capita 72 University of California — Experiment Station consumption of eggs, an index of nonagricultural income, United States average retail prices of eggs, and United States average farm prices of eggs, each on a yearly basis, from 1925 to 1939, inclusive. It is interesting to note on the chart that (1) the index of nonagricul- tural income fell in 1930, but that (2) per-capita consumption held up Fig. 29. — Annual United States per-capita consumption of eggs, United States farm prices and United States retail prices of eggs, and index of nonagricultural in- comes, 1925 to 1939. (Data from table 11) (because egg supplies kept coming), while (3) retail prices fell, and (4) farm prices fell by roughly the same amount, since marketing margins to a large extent are relatively fixed; hence (5) beginning with 1932 per-capita consumption was less because egg supplies fell off. But (6) when incomes rose in 1934, (7) retail prices also rose, and (8) farm prices rose; whereupon (9), with increased production in 1936, per- capita consumption increased. Three Sorts of Balancing Movements. — The process of bringing about a balance between supply on the one hand and consumption on the other in a given market takes place through three sorts of market movements, all prompted by price changes or expected price changes. In the first Bul. 656 j Egg Marketing in the Los Angeles Area 73 TABLE 14 Carlot Shipments of Eggs from California , 1927 to 1939, by Reported Destinations Destination 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 Alabama 7 4 4 6 2 1 2 31 1 45 26 51 43 23 22 6 22 1 3 2 3 1 Connecticut Delaware 1 1 District of Columbia 8 18 1 3 1 3 4 2 4 Florida 31 22 11 10 3 3 1 2 3 2 Georgia 6 6 2 4 2 2 1 Illinois 89 160 95 41 107 40 12 8 10 5 12 5 1 Indiana 1 Iowa 3 7 1 Kansas 2 1 Kentucky 11 21 2 1 3 2 2 2 Louisiana 12 2 3 4 1 2 2 3 1 1 5 Maine 1 1 1 1 1 Maryland 3 8 20 8 5 1 4 1 1 4 3 1 Massachusetts . . 28 34 27 38 24 58 32 23 4 7 8 Michigan 13 42 7 12 29 3 2 4 4 1 Minnesota 1 9 Mississippi 2 Missouri 4 18 11 5 6 2 2 5 16 3 1 Montana 4 4 3 Nebraska 35 24 16 12 4 3 2 Nevada 1 3 1 4 2 New Jersey 271 255 217 187 229 158 85 58 44 108 64 42 9 New Mexico 1 New York 1,107 1,338 1,346 1,476 1,180 908 619 453 307 532 246 145 199 North Carolina . . 2 1 Ohio 3 5 6 14 4 10 3 6 1 6 1 Oklahoma Pennsylvania. . . . 101 194 135 158 168 128 87 99 38 48 52 8 8 Rhode Island ... 2 1 1 Tennessee 2 1 2 1 Texas 16 7 5 3 1 1 1 1 6 2 Utah 3 1 1 Virginia 1 1 Wisconsin 1 Washington 1 1 2 2 West Virginia.. . 1 1 — Total 1,785 2,239 2,000 2,046 1,796 1,330 854 673 413 732 451 211 219 Source of data: Federal-State Market News Service, San Francisco office. Monthly reports of carlot shipments. place, there is a movement between dealers who are ordinarily competi- tors — a so-called "sidewise" movement. For example, in April, 1939, one Los Angeles dealer was selling to other dealers about 400 cases a week, whereas he was reasonably certain, a little later in the year, to be buying not less than 100 cases a week — all because the particular producers who were supplying him could not supply at the right seasonal volume to meet the needs of the customers whom he was serving. Another dealer 74 University of California — Experiment Station was selling a trucklc-ad of one particular quality to a small competitor, from whom at the same time he was buying eggs of another quality which he needed to supply his trade. A second sort of movement is that of interregional trade. The large egg handlers in various parts of the country are always watching the chang- ing supply-and-demand situation in the various market centers of the country ; they always are ready to seize an opportunity to sell a carlot of eggs at any moment when the price situation permits a sale, regard- less of where that may be. Note, for example, table 14, showing yearly carlot shipments from California from 1927 to 1939, by destination. This table represents a remarkable example of the way marketing agencies found outlets for the various qualities and sizes, selling carlots now here, now there, at prices which at the moment netted higher returns than they could get elsewhere. Many of the sales made in markets east of the Mississippi were doubtless made by the eastern sales agency, operated by a group of five Pacific Coast cooperatives. Others were probably made through brokerage connections, or through those occasional contacts dealers have opportunity of making with dealers in distant markets. Although shipments of eggs from California were made earlier, they became important by 1921. The peak was reached in 1928, when 2,238 cars were shipped out of the state. Since that time, shipments have de- clined, until in the last two years they were only a little over 200 cars a year. (See table 15 for points of origin by years, 1921 to 1939.) In the meantime, California receipts from other states have increased. The southern part of California has been on a deficit basis since 1933, and perhaps earlier. Prices in that area have been good enough as compared with those in other areas to attract various grades and sizes of eggs from other producing areas. Thus the Los Angeles market has drawn on more and more distant points in the San Joaquin Valley and points in western and middle-western states. Receipts from the western states have varied from about 53,000 cases in 1932 to over 225,000 cases in 1937. Receipts from the middle-western states have been less regular than those from the other western states, and have been made in volume at those times when prices were sufficiently attractive (see table 16) . Egg Storage as Part of Balancing Process. — The third class of move- ment in the balancing process is the storage movement. Beginning about March, and ending about July of each year, there is a net movement of eggs into storage. From August to February, the net movement is out of storage. During the period of heaviest production, the storage movement amounts to about a third of current production (see fig. 30). In the period of light production, nearly a third of the quantity currently con- sumed is from storage stocks. During the entire year, of course, some Bul. 656] Egg Marketing in the Los Angeles Area 75 o < o « w o o H ft o Eh & W rH Ph H W PQ 6) & « o> CO OS o {N © © CC c © r. (N © © © © © © ^ 00 rH CM o s CO ONHOtONNlflOO © © © © © © © ^ OS •H CN CM ,- ' CO OS *OCqW!DTllOtlO(N CM © eo © © © CO 1H rH rt CO CO rH CM CO "* «« CM Hf ■«* c© CO os NNNh01*MN01 ^H rH l<5 ■<* ^ CO N © «« © t^ © © © p. CM CM CO ■* t^ t^ " H CO OS C0©O©CMrH©e0O3 CM « © rH © © © ^^ «* os co >c cm CM •^ CO OS CMrHrH©lOOOt~©CO ^ rH rH © O © CM CO rH CO » H * tD t~ ««* cc CO CO OS©OS©OSOOCO©CC uo © CO © © © CO "* rH lO OS r- H*< O «; «5 IC —c OQ OO ~ i CM CO OS O^HrHCMCMt^CMOCO >o CC OS CO © © © CM © CO CO CO CO rH CO CO o- CM CO CO CO rH ,-1 CM eo ~ lOH^OMi'NMlO ,_, CC ■* CD O ih N CO eo CO N N « OS Tt< CO OS CM rH rH «o OS t^ rH ~ ~ ^ o CO T-lrHOSCOCOCOrHi-ICO © «: 00 rH CM rH OO rt CO CM CO CO CO a © '-' ~ CM OS CM CO-rf<©CMCOCOlOCO© t^ OS 00 t~ rH rH CO © OSCOCO O N H N 00 CO rH oc oc rH CO "0 1 1-1 ** CM CO CM CD CO>OtNtN'*'*TtiC<)(N ,_, rH t^ © CO Tj< ^ OO OS rH CM OCOCOrHOO m N 00 "5 H OO CO O rH rH © rH CM -* CM cm" CM OS H-*OHO>^H010 IO rH «5 «0 r^ 0O t» M it) M c CO t^. t~ O rH HH *"' "* ^* «3 CM OS o«oocoos»ocooco ■* © »C0 rH U0 © ,_, Ui OO CO CO t^ OS CC CM CO OS CO ~* cm os ©OOCOOSrHCOt^CN © «t © OS © OO © t^ CM M IN N H to CM CO >o CO ce OO CO CM OS ©©©©**l©COCOCO © cc © 0O © O0 © co OS OS © rH lO cc CO os CO rH CC OO CM CM OS ©o©oioo-- o os Ox d 5 f »5 ! a i T, c a C c i 3 r g c s E c 8 .2 *. fa « d c ! .2 c d t-l 03 ,d u o d & J3 c -a .£ '3 O a 11 8 8 eg 3 t 'l J § a c IT d y CD -a »1 o 00 (-. a> -d -r> a : 11 H T3 c u SW^ZOfaWCOOJtX 6 g G -a O* 09 aa -*3 Ml o o c d of iC' 3 fe 2 ft 13 fa_§ to -is o d 3t o o o n d-r> 03 1! u ■p d ■r» S 03 ^►2 yj a p > 3 ^02 d fa2 E 03 iisfa OB | .. CO -rJCM rH "S22 a H 3 76 University of California — Experiment Station H n Xfl Eh <0 p. g M co w < w o Hi o to < 8 co s to < m H g 8 o o CT> © oo co C CM* O lO CO* 02 ^ M N ■* rn ■* CM CM CM CO l— I t*i O I- i-~ i— i CMCO-^iOOOOCO co cm — < OOOOOOOOOOOOOOOO I t— c io o co 02 r^ u e>) n o oo CM —l O lO OS o CO— lOiOOOOOOOcOOOOOO I re cm u Ol M H N M rt CO o m n n n N OO OO Ol U3 i-H OO CM ^H t^ » oo ■* o CO © i-H r-H 1< o h m ■* O lO TH CO CS CM O CO lO rfi N CO oo OO KJ -nOoot^^HOOOOO^fcoiOOO t~- CTi 00 CO © © »C (^ "* CO OS t- i— I OS CO CM OO O W rtl N 1-H lO 1-1 r-H t- OS t- i-ir^if ^ho^oooooocoioioo CO i-t O lO O CO CM OJ OO CD IO 1* OO H >o •>** CO lO O -H I i-l I CM CM OO © - cs •o is - o .3 S o C - ^ ™ J? <^ "■""« :1 :-1 3 3 M S £ „ o * ill S c3 cc3 Sqq c»5 o Bul. 056] Egg Marketing in the Los Angeles Area 77 V) 10 UJ < 9 O z 8 o -I 7 FARM PRODUCTION ^PLUS OR MINUS CHANGES IN COLD- STORAGE \^ HOLDINGS i i i i JFMAMJJASONDJFMAMJJASONDJFMAMJJASOND 1938 1939 1940 Fig. 30. — Apparent monthly United States egg consumption: monthly United States farm production, plus or minus changes in cold-storage holdings. (Data from tables 17 and 18) dealers are putting some eggs into storage, to be removed in a few days or a few weeks. In this process of balancing current needs against future needs, thou- sands of dealers are individually considering the question and making their own decisions as to how much of their current receipts they should sell at prevailing prices, and how much to store either for the future needs of their own customers or for sale to other dealers. It is the net result of these innumerable decisions that is presented in figure 30, show- ing United States farm production plus or minus changes in cold-storage holdings. 78 University of California — Experiment Station Such organizations as the large cooperative associations on the Pacific Coast usually store heavily each spring, deliberately "supporting the market" during the time when it is low because of heavy receipts, con- fident that they will be able to move the eggs at better prices in the fall. The sale of storage eggs in the fall will keep prices of current fresh supplies from rising as high as they otherwise would at that time. WHAT CAN LOCAL PRODUCERS DO TO IMPROVE THEIR POSITION? Before entering a discussion of what producers can do to improve their position, let us state a few general conditions disclosed by this study, and lay down a few general principles to be kept in mind. CONDITIONS FOUND IN THIS STUDY 1. There is a demand for high-quality eggs in Los Angeles. There is also a large demand for low-priced eggs on the part of those who are not discriminating in taste or who cannot afford to pay a premium for better quality. 2. Many consumers who would pay premiums for quality are confused by the multiplicity of brands and by the lack of consistency in the quality of those brands they may at one time think are good. 3. The quality of eggs deteriorates rapidly in the marketing process, especially if no means are employed to modify temperature or humidity conditions under which eggs are held. Such deterioration may explain much of the variation in quality which confuses consumers who are willing to pay for premium qualities. 4. The usual basis of payment to producers in the Los Angeles area does not adequately recognize variations in egg quality between pro- ducers. Buyers hesitate to "charge back" for off-quality, and almost never openly pay premiums for high proportions of Specials. The result is that dealers attempt to select only producers of superior-quality eggs or else pay secret bonuses to the better producers who demand more for their eggs. 5. Since the Los Angeles market is regularly on an import basis, many of the dealers have established connections through which the Los An- geles market is definitely related to outside markets, either by a constant flow to Los Angeles or by occasional shipments. 6. Such evidence as there is shows that merely changing or elaborating the quotation on eggs in this market will not increase producers' returns, but will keep them better informed. A change in the quotation in the past has merely led to a change in the relation of dealers' paying prices to the quotation. Bul. 656] Egg Marketing in the Los Angeles Area 79 PRINCIPLES TO BEAR IN MIND The way economic forces operate must be kept in mind when action is proposed in order to bring about given results. To fail to do so may mean wasted effort and disappointment. The following economic principles may be cited : 1. Benefits from improvements tend to diffuse themselves throughout the entire market structure after varying periods of time. 2. Any reduction in the cost of moving eggs from producers into the local wholesale markets, or any improvement in maintaining the quality of local eggs between producers and the wholesale markets, will benefit mainly the local producers. If an improvement in prices to local pro- ducers should lead them to supply more eggs, their increased offerings would lower the whole market but slightly, as long as Los Angeles is definitely on an import basis. The market need fall only a little before some of the outside supplies move to other markets and thus release pressure on local wholesale prices. Anything that will tend to improve the quality of local eggs will likewise make them more attractive to the wholesale trade and to consumers. 3. Any market improvement which permits moving eggs from the wholesale market to consumers at lower cost or with less decline in quality will benefit mainly the consumers. Thus, if the retailers gen- erally were to cut the cost of retailing, consumers would take somewhat more eggs as soon as the prices to them were reduced, and retailers would buy more from the distributors. A slight increase in the price at whole- sale would at once attract eggs from outside areas, even before local pro- ducers could increase their production. WHAT MAY BE DONE With this background of fact and principle, we may discuss the sorts of things that may be done to improve conditions in the Los Angeles mar- ket, especially from the point of view of raising income to producers. The following list of approaches is not set forth as all-inclusive, but merely suggestive. Discussion of the approaches listed, and of the gen- eral facts and principles set forth, should assist producers as individuals or in groups in taking such steps as they may find appropriate to im- prove their status. In many cases producers may find that the organiza- tions through which they are now selling, either private or cooperative, can best serve as vehicles for such improvements as may be deemed advisable. 1. Poultrymen who have high quality or who are willing to try to improve their quality may try to sell on some basis which pays a pre- 80 University of California — Experiment Station mium for superior quality. Such premium should definitely recognize not only such factors as size, shell quality, and interior quality, but should offer premiums for lots in which the proportion of Specials is particularly high at times when Specials are scarce. Eggs with a high proportion of Specials in August and September are worth greater pre- miums than eggs with even higher proportions of Specials in March or April, when most eggs are good. It is obvious that if a premium is paid for the Specials, such a premium is not a net gain because there may be a reduction in the relative price of the remaining eggs. Unless a poultryman has a high proportion of Specials, more refined grading may not increase his net returns. Such evidence as is at hand indicates that only the better producers might expect to get any immediate increase in returns if their eggs were paid for upon careful grading, and many of these are already getting more than those with low quality. The main advantage of payment on the basis of quality would arise from the fact that many producers, if paid on a basis definitely related to quality, would find ways of raising the average quality by improved breeding and production practices, and by increased attention to the care of eggs. 2. Consumers should be informed about the meaning of the new simpli- fied grade designations so that those who are willing to pay premiums may more readily come to know which offerings are of really superior quality, and that the great bulk of consumers who continue to take grade A do not lose confidence in that quality, and so reduce consumption. 3. An adequate inspection service should be maintained to make sure that qualities retailed under the grades A and AA really are of those qualities. This is of equal importance to consumers and to producers. It will doubtless benefit producers who have superior eggs more than others. 4. Distributors should be encouraged to improve methods of maintain- ing quality of eggs in the distributors' and retailers' hands. Such methods are equally applicable to outside eggs, but are necessary if local producers are to do anything effective in the way of improved merchan- dising of their own eggs. These methods include especially : (a) speed in moving high-quality eggs from producers to consumers; (&) making sure that high-quality brands of eggs are never kept overly long in retail stores; (c) keeping eggs under refrigeration during the movement through distributors' and retailers' hands. 5. For producers who sell to discriminating dealers, particular care may well be used to keep eggs cool on the farm. The use of cheap evapora- tive coolers and the use of wire baskets for cooling eggs before packing will do much to improve quality. Bul. 656] Egg Marketing in the Los Angeles Area 81 6. Consumer advertising may pay after other things above suggested have been done. Any general advertising to increase consumption of eggs will merely bring in more outside eggs, unless it is directed exclu- sively to a particular brand of eggs which is widely available and of consistently good quality. Any proposals for improvement must, of course, recognize certain facts: (a) the spreads between producer and consumer are now rela- tively narrow in the Los Angeles market; (b) many poultrymen already produce high quality; (c) some already are obtaining premiums of one sort or another. MEANS TO BE EMPLOYED It does not appear that there is any one best way of improving the position of poultry producers. A number of suggestions have been put forward which seem to offer some promise. It may develop that under different circumstances or in different localities each of several of them may be worthy of trial. Country Egg Auctions. — In the past decade there has developed in the northeastern part of the United States a system of selling eggs at country points through local egg auctions.* 4 The first of these was or- ganized in 1930. By 1937, 25 of them had been organized. Of these, 16 were selling both eggs and poultry, 6 were selling only eggs, and 3 had given up the auction plan of selling eggs. These auctions have been out- standingly successful, as indicated by the fact that the average member- ship was 44 at the start, whereas in 1938 the average was 594. It seems to be generally true that these auctions have functioned suc- cessfully where there is a concentrated area of commercial production of eggs within easy motoring distance of a high-income population group, and particularly where there were considerable numbers of "hucksters" buying mainly of producers and selling mainly to consumers and in part to retailers. In 1937, 70 per cent of the outlets at 22 auctions were to retail outlets, including "routemen" selling from house to house, to the retailers of the various sorts, dairy stores, producers selling to con- sumers, restaurants, hotels, and chain stores. Producers grade their eggs according to size, color, and cleanliness. About half of the eggs are collected by commercial truckers, and about half brought to the auctions by producers. The associations inspect the eggs before sale by candling 100 eggs in each case. Very few producers candle their own, and none of the auction associations candle all their eggs. Sale is by producer's lot number, except that lots of less than a case brought in by different producers are pooled. Sales are held twice 44 Most of the material in this section is based on: Scanlan, John J., and Roy W. Lennartson. Cooperative egg and poultry auction associations. Farm Credit Admin. Bul. 37:1-100. 1940. 82 University of California — Experiment Station weekly at 13 of the auctions, and three times at 3. The twice-a-week auctions are held either Mondays and Thursdays, or Tuesdays and Fridays. The costs of this method of selling vary considerably. The most com- mon charge is 45 cents a case, plus a charge of about 15 cents for used cases with flats and fillers. In addition, those producers who have their eggs collected by commercial truckers have to pay most commonly 15 to 20 cents a case for this service. At one time or another, most associations have attempted to promote the sale of eggs in cartons, with but little success. There was not only the extra cost of cartoning and selling, but the even more significant fact that the principal buyers were house-to-house peddlers and jobbers who preferred to buy eggs in the case, which they in turn graded to suit the needs of their own particular outlets. To what extent this plan of selling eggs may be adaptable to southern California is not clear from available data on these eastern auctions. There seem to be a number of areas in which some of the necessary conditions are fulfilled. Thus in the San Fernando Valley is a concen- trated commercial producing area relatively close to the high-income group of consumers located in the Beverly Hills section. But there are fewer house-to-house peddlers than in the eastern sections, and margins generally are somewhat narrower (see figs. 16, 17, and 18). Judging by the experience of the eastern group of auctions, it should not be an expensive experiment to try the auction method. In 1937 the average volume of 22 auctions was 828 cases a week. It would seem that any one of two or three existing organizations might try the auction plan. Eastern experience would suggest that perhaps the biggest gain from such auctions arises out of the fact that when individual producers' eggs are sold by lot number, each producer's number being the same from one sale to the next, it permits buyers to become acquainted with the lot numbers which prove satisfactory, and therefore to bid up the prices on those lots which are distinctly superior. A second advantage of the auc- tion method is that it establishes open competition for the eggs offered. Dealers of the various types who are sufficiently interested in high- quality eggs to go to such an auction are doubtless those catering to a quality-conscious trade. At such an auction the bidding is brought into the open. Whether such an auction in the Los Angeles area could develop out- lets for candled Specials would seem to depend on the merchandising skill and energy which might be displayed by any group attempting it. Apparently relatively little cash was needed to start these associa- tions, since they operated on the basis of a flat charge per unit, and Bul. 656] Egg Marketing in the Los Angeles Area 83 rented rather than purchased buildings. Capital required to meet cur- rent expenses was supplied chiefly from membership fees, annual dues, and handling deductions. Most of these associations have, however, grad- ually accumulated capital and have acquired buildings, inventory stocks (such as cases and fillers), in some cases motor trucks for the operation of collection routes or other purposes. In 1937, 19 of these associations had average assets of $17,373, and a net worth of $10,955. Government Egg Grading. — A plan under which eggs are graded at country points by graders licensed under federal-state governmental agencies and supervised by the same agencies has been developed in Virginia under the joint sponsorship of the United States Bureau of Agricultural Economics 45 and the Virginia State Division of Markets. Begun in 1928, the plan has spread until in 1938-39 slightly over 200,000 cases of Virginia eggs, about 11 per cent of total farm sales in the state, were purchased from producers and ultimately sold to consumers under the same set of government grades. The plan has recently been highly recommended to southern California poultrymen. In order to decide what possibilities the plan holds for California, either as it has been developed in Virginia or as it might be modified here, there should be consideration of just how the plan works, what it has accomplished where tried, and what sorts of problems may be faced in its development in California. The plan itself is simple. A city dealer or a poultry producers' co- operative association doing business in a city agrees with the govern- mental representatives to buy eggs from producers according to govern- ment grades at its country receiving stations or at its city plant, and to resell them on the same government grades. It employs as grader at the receiving points a man approved by the federal-state departments as qualified to grade eggs or to supervise the grading. This approval is evidenced by the issuance of a limited license, that is, a license revokable upon evidence of failure to grade correctly. Arrangements are made to have a competent man inspect the eggs at the terminal market to make sure that the grading is being done ac- curately. At the smaller receiving points, the country graders frequently em- ploy but a relatively small part of their time on the grading of eggs, and devote most of it to their regular duties as workers in local feed stores or clerking in country stores. The plan is not expensive. The dealer would have to have the eggs graded anyway before distributing them, and it should cost little, if any, * 5 Now the Agricultural Marketing Service of the United States Department of Agriculture. 84 University of California — Experiment Station more to hire a competent man willing to do the work according to gov- ernment specifications than to do it according to slightly different speci- fications. At the terminal market the dealers contribute a few cents a case to cover the expense of terminal market inspection. As the plan has developed, about half of the eggs handled by the 11 cooperating dealers receiving eggs under it in 1940 were received di- rectly from country points and graded in Washington, D. C. The plan has been developed in the face of considerable difficulties. In the first place, many receivers were reluctant to purchase eggs on a country-graded basis because they preferred to receive farm-graded or ungraded eggs so that they themselves could grade the eggs to meet the preferences of their particular trade. It is the general practice in all parts of the country for dealers to grade their eggs "to suit the trade" — meaning that they do not grade them equally strictly for all customers, or that they do not grade equally strictly at all times of the year, or that they may wish to make fewer or more grades than the government plan provides. At any rate, this prac- tice is so common in all markets that in many cases producers of fairly large volume are able to obtain greater returns on a dealer-grade basis than on a government-grade basis. As to what the plan has accomplished, the answer is not so clear. Ap- parently it has given producers who have good eggs but who formerly sold on a case-count basis an opportunity of getting a premium for their own eggs over what they received for those previously sold ungraded on a country market where all eggs were sold on a case-count basis. It has been found to be true in all markets that there are some cus- tomers who will pay premiums for quality, and this plan has made it easier for interested dealers to attract quality-conscious consumers. The result has been that on the one hand consumer outlets have been de- veloped for these government-graded eggs, and on the other hand in- creasing numbers of producers have prepared themselves to produce quality eggs by building egg cellars and humidors, which have very greatly increased the percentage of Extras delivered by these producers during the summer months. The plan appears to offer sufficient promise, with some modifications, to justify trial in southern California, not to save costs but to provide a way by which producers with a consistently high proportion of Spe- cials may have their quality of eggs recognized. In the Virginia- Wash- ington-Baltimore region, where the plan was developed to replace a system of payment by case count, there was no problem of a premium payment for Specials, as will have to be the case if the plan is to be satisfactory to southern California poultrymen. One of the problems to Bul. 656] Egg Marketing in the Los Angeles Area 85 be faced if the plan were modified to have Specials graded out is that most local dealers would have too many Specials to sell at prevailing premiums in the spring and too few to supply their trade during the hot months. This situation might be turned to advantage if premiums for Specials were allowed to change as necessary to move them, just as discounts for small and medium eggs are now allowed to vary from prices of large eggs as may be necessary to move all of the several sizes. Finally, it must be remembered that it takes time to develop con- sumer confidence, and furthermore, that it costs dealers more to grade out Specials than to sell Extras and Specials together ; hence increased returns to producers might not be startling. Although dealers might pay more for Specials, the price they would pay for Extras would be lower. This would mean that the weekly average prices received by growers would vary seasonally, and between growers. Many consumers are pre- disposed to favor government-graded products ; others would have to be acquainted with the claimed advantages and would have to be convinced of the soundness of the plan. Consumers who are willing to pay premiums for Specials are almost certain to lose confidence in a grade or brand (even if backed by a governmental agency) if the quality varies. The Quality -Egg-Club Plan. 46 — When the Atlantic Coast Cooperative Poultry Producers failed in the middle 1920's, New Jersey poultrymen looked about for some other method of selling than a return to the old pooling methods. The Association had been modeled after the successful Pacific Coast associations, but the idea had not worked in New Jersey. A director of the Vineland Cooperative Poultry Association, an as- sociation interesting itself in poultry shows and poultry improvement problems, worked out a plan with a New York egg receiver whereby the latter would pay the producer a premium over New York quotations for his eggs, on condition that the producer use particular care in produc- tion, handling, and grading. When outlets increased, other producers were taken into the plan, care being taken that only the more dependable were accepted. When the group had grown to 10 producers, a club was formed, rules and regulations were drawn up, and other receivers were taken into the plan. The club was merely a bargaining association, performing none of the functions of grading, packaging, assembling, and delivering, but only that of bargaining collectively with dealers for the producers. This is similar to the bargaining associations of milk producers in California. 46 Information largely obtained from the following articles: Huttar, J. C. The quality egg club system of cooperative marketing. American Cooperation 1935:338-44. 1935. Lennartson, Eoy W. All is not auction. News for Farmer Cooperatives 7(5) :3, 22. August, 1940. 86 University of California — Experiment Station Provisions were drawn up for penalties when eggs shipped in labeled cases did not come up to specifications. A manager was appointed, one of whose duties was the assignment of producers to the dealers to whom they were to ship ; for a number of dealers were now in the plan. An egg-labeling committee was elected to pass on applications from prospec- tive members for permission to use the labels and to supervise the en- forcement of the grading and packing rules among members, and to see that dealers paid the agreed premiums. Membership in the Association at one time reached 550, with 20 deal- ers participating. The plan has apparently continued to work, for a number of other associations were formed later along similar lines. 47 Such a plan will not, of course, run by itself. Among the important problems to face are those of working out arrangements with dealers, working out suitable arrangements for arbitration of disputes, and en- forcement of regulations. Skillful management and careful selection of members would be needed to make such an organization work. " In 1938 there were four of these bargaining associations, selling between them about 110,000 cases of eggs. (Lennartson, Koy W. All is not auction. News for Farmer Cooperatives 7(5) : 72. August, 1940.) Bul. 656] Egg Marketing in the Los Angeles Area 87 ACKNOWLEDGMENTS We wish to express our appreciation for the generous help given by the many persons whose assistance has made this study possible. We wish particularly to mention the Los Angeles County Farm Bu- reau, which paid for the eggs used in the quality study ; Mr. C. C. Maag, a producer, and Mr. H. W. Amelung of the Poultrymen's Cooperative Association, who made their facilities available for this phase of the study ; Mr. Earl Goodall, Secretary of the Los Angeles County Farm Bureau, and Mr. Lynn Sanborn, Assistant Farm Advisor, for aid in planning the study; Mr. C. A. Wirth and Mr. H. W. Bradway of the California State Department of Agriculture, for their assistance in the retail-store egg quality survey ; Mr. A. G. Abell, Mr. F. L. McKittrick, and Mr. C. L. Reiser, of the Los Angeles office of the Agricultural Mar- keting Service, and Mr. F. H. McCampbell of the San Francisco office of the same organization, for assistance in obtaining and evaluating mar- ket data and for criticizing the manuscript. We wish also to express our appreciation to Mr. F. M. Hudson, Secretary of the Produce Exchange of Los Angeles, and Mr. R. E. Bivens, Secretary of the Southern Cali- fornia Egg Council, and to the numerous other officers of private or cooperative marketing organizations, who patiently discussed problems or furnished detailed information. Finally, we must include our own colleagues, Professor L. W. Taylor and his associates, of the Poultry Husbandry Division; Mr. W. E. New- Ion, of the Agricultural Extension Service; Professor E. T. Gr ether, of the Department of Economics ; and the several members of the staff of the Giannini Foundation who have advised on current problems of procedure and have later read and criticized the manuscript. 88 University of California — Experiment Station APPENDIX: BASIC TABLES TABLE 17 United States Cold- Storage Holdings of Shell and Frozen Eggs in Case Equivalents* as of the First of Each Month, January, 1938, to December, 1940 1938 1939 1940 Date Holdings Change during month Holdings Change during month Holdings Change during month thousands 3,951 3,045 2,817 4,059 6,515 8,839 10,212 10,278 9,514 7,915 5,938 3,670 thousands - 906 - 228 +1,242 +2,456 +2,324 +1,373 + 66 - 764 -1,599 -1,977 -2,268 -1,571 thousands 2,099 1,574 1,436 2,833 5,896 9,249 11,019 11,149 10,482 8,901 6,498 4,089 thousands - 525 - 138 +1,397 +3,063 +3,353 +1,770 + 130 - 667 -1,581 -2,403 -2,409 -1,492 thousands 2,597 1,664 1,169 2,117f 5,611 9,517 11,809 12,211 11,403 9,777 7,339 4,570 thousands - 933 Feb. 1 - 495 Mar. 1 + 948f +3,494 May 1 June 1 July 1 Aug. 1 Sept. 1 +3,906 +2,292 + 402 - 808 -1,626 Oct. 1 Nov. 1 Dec. 1 -2,438 -2,769 -1,873 * Frozen eggs converted on the basis of 35 pounds to the case, t Preliminary. Source of data: United States Department of Agriculture Agricultural Marketing Service. Cold Storage Report, monthly mimeograph. Bul. 656] Egg Marketing in the Los Angeles Area 89 < W o « o ft <1 of 02 M Hi o A l £ 00 O CO = i § g ft w w -i 1^1 1 + + + + + 1 1 1 1 1 d o « 63 ■;e ~«®CO(N'*CCrtO)OONOlOe &£ *•» w o 1> ft do to o-oS "> O) d-5-c 8c. 2 £ 2 aj o3 43 2 d +=> ti 03 CO mtt CT> ar| dUiCH^H^OOHNtDrtiTfiC OS u d O oj GO'S >o ~* •« e ~Ol^OOCNCOC0005t^COiO>OCO w o !* a do 03 .2"" o £ °> CO 03 d-g £ o3 *3 ~ « N CO i- Ir-lOOOOOOOOOt^t-^t^ ■g* ^ ° (D 03 °0 en oo So » co01MNl9CO*rtOO-, d O c3 GO'S e» ~SoO'-<OtOMO!0<*tOCOlO si *i •« B ~tiOOOCMOO(MOCX3t^cOlOTt > i a a u s ' P t- i 1 ! > , « > "d C . bi d <1 s 9 G. X a c ' t C I c 5- E a t a c CI o cu Ci s A ft d a ^o 0^3 3) « c O d' s a W i^ bC O W o -d rt a 03 Of S >>03 d d 7> fci - Ch 2 'o ^ CJ U 03 p 0) ^ C d > o 03 T3 W CO 03 m ■2*£ 03 o3t3 CO GO S O CD d ■d "tf « NXOJ «_ o o o oUOO 90 University of California — Experiment Station TABLE 19 United States Imports for Consumption of Eggs and Egg Products, Calendar Years, 1924-1939 Eggs, whole, in shell Whole Eggs Yolks Egg albumen Calendar year Dried Frozen Dried Frozen Dried Frozen, prepared or preserved Total 1,000 dozen Thousands of pounds 1924 347 476 298 250 287 308 317 309 244 251 197 432 346 520 232 329 1,590 2,521 1,575 880 852 1,474 1,328 2,069 22 10 602 533 601 205 62 5,858 11,935 10,622 2,797 5,350 11,095 4,504 7,230 * 25 61 26 1 * 4,016 5,591 5,461 3,209 4,371 5,465 6,191 5,689 726 1,634 2,320 3,953 4,902 5,426 338 683 4,297 6,201 4,238 2,816 2,208 3,601 2,692 777 422 372 393 1,200 805 1,483 487 25 2,947 3,150 3,458 3,368 2,752 3,973 3,452 2,481 1,276 874 403 1,876 2,358 2.844 718 500 1,476 4,292 3.657 1,560 606 833 779 * * * 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 We ight-equiv ilent, thou sands of w hole eggst 1924 4,164 5,712 3,576 3,000 3,444 3,696 3,804 3,708 2,928 3,012 2,364 5,184 4,152 6,240 2,784 3,948 58,385 92,571 57,834 32.314 31,285 54,125 48,764 75,974 808 367 37 22,105 19,572 22,069 7,528 2,277 59,752 121,737 108,344 28,529 54,570 113,169 45,941 73,746 255 622 265 10 92,167 128,313 125,330 73,647 100,314 125,422 142,083 130,563 16,662 37,500 53,244 90,721 112,501 124,527 7,757 15,675 43,829 63,250 43,228 28,723 22,522 36,730 27,458 7,925 4,304 3.794 4,009 12,240 8,211 15,127 4,967 255 219,434 234,549 257,483 250,781 204,914 295,830 257,036 184,735 95,011 65,078 30,007 139,687 175,577 211,764 53,462 37,230 15,055 43,778 37,301 15,912 6,181 8,497 7,946 * _♦ 492,786 1925 689,910 1926 633,096 1927 432,906 1928 423,230 1929 637,469 1930 533,032 1931 476,651 1932 119,713 1933 110,006 1934 90,283 1935 269,937 1936 320,013 1937 379,992 1938 76,508 1939 59,385 * Less than 500 pounds. t Data in pounds were converted to an approximate weight equivalent of whole eggs by multiplying pounds of the several products by the conversion factors reported in: United States Department of Agri- culture. Handbook of poultry and egg statistics, table 126. p 116. 1937. The conversion factors given in the above source were: 1 pound of frozen or liquid egg equals 10.2 United States eggs in shell, 1 pound of dried whole egg equals 3.6 pounds liquid whole egg, 1 pound of dried yolk equals 2.25 pounds liquid yolk, 1 pound of dried albumen equals 7.3 pounds liquid albumen, 1 pound liquid whole egg equals 0.55 pound liquid white plus 0.45 pound liquid yolk, and 1 pound dried whole egg equals 0.25 pound dried white plus 0.75 pound dried yolk. The use of the above conversion factor of 10.2 eggs per pound of liquid whole for the conversion separately of yolks and whites to a weight-equivalent of whole eggs ignores any difference in specific gravity of whites and yolks. Sources of data: 1924-1936: United States Bureau of Foreign and Domestic Commerce. Foreign Commerce and Navigation of the United States. Annual issues. 1937-1939: United States Bureau of Foreign and Domestic Commerce. Monthly Summary of Foreign Commerce. December, 1937; December, 1938; and December, 1939, issues. Bul. 656] Egg Marketing in the Los Angeles Area 91 TABLE 20 United States Domestic Exports of Eggs and Egg Products, Calendar Years, 1924-1939 Calendar year Eggs in shell Eggs and yolks frozen, dried, or canned Eggs in shell 1924 1,000 dozen 28,117 24,999 26,634 28,707 20,192 12,075 18,579 7,684 2,319 1,866 1,928 1,812 2,098 2,376 2,092 2,697 1,000 pounds 505 301 522 661 508 326 196 255 44 49 79 99 85 217 * * 1,000 eggs 337,404 1925 299,988 1926 319,608 1927 344,484 1928 242,304 1929 144,900 1930 222,948 1931 92,208 1932 27,828 1933 22,392 1934 23,136 1935 21,744 1936 25,176 1937 28,512 1938 25,104 1939 32,364 * Data not reported. Sources of data: 1924-1936: United States Bureau of Foreign and Domestic Commerce. Foreign Commerce and Navigation of the United States. Annual issues. 1937-1939: United States Bureau of Foreign and Domestic Commerce. Monthly Summary of Foreign Commerce. December, 1937; December, 1938; and December, 1939, issues. TABLE 21 United States Exports* and Imports! of Eggs and Egg Products, Calendar Years, 1924-1939 Calendar year Imports Exportst Net imports 1924 thousands of eggs 492,786 689,910 633,096 432,906 423,230 637,469 533,032 476,651 119,713 110,006 90,283 269,937 320,013 379,992 76,508 59,385 thousands of eggs 337.404 299,988 319,608 344,484 242,304 144,900 222,948 92,208 27,828 22,392 23,136 21,744 25,176 28,512 25,104 32,364 thousands of eggs 155,382 1925 389,922 1926 313,488 1927 88,422 1928 180,926 1929 492,569 1930 310,084 1931 384,443 1932 91,885 1933 87,614 1934 67,147 1935 248,193 1936 294,837 1937 351,480 1938 51,404 1939 27,021 * Data are domestic exports. t Data are imports for consumption only, plus withdrawals from bond. t Exports of eggs in shells only; exports of eggs and yolks— frozen, dried, or canned— are not included but range from only 44,000 pounds to 661,000 pounds a year. Classifications not reported separately so cannot be converted to equivalent whole eggs. Allowing for such exports would slightly decrease the figures in the "net imports" column. Sources of data: 1924-1936: United States Bureau of Foreign and Domestic Commerce. Foreign Commerce and Navigation of the United States. Annual issues. 1937-1939: United States Bureau of Foreign and Domestic Commerce. Monthly Summary of Foreign Commerce. December. 1937; December, 1938; and December, 1939, issues. 15m-l,'42(3881)