Land O'Lakes looks to sell its egg operations

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: April 27, 2014 - 6:23 AM

The Minnesota-based farmers’ cooperative has been losing money in eggs, and new rules could make the business even more difficult.

Land O’Lakes Inc., the nation’s third-largest egg producer, is looking to jettison much of the operation.

The Arden Hills-based farmers’ cooperative, one of the nation’s largest, disclosed in its annual report that it’s exploring “options to divest of this business, ” referring to egg subsidiary Moark.

Moark, with major operations in California, Missouri and Maine, had 16.1 million egg-laying hens as of Dec. 31, the third-largest egg producer by bird count, according to Egg Industry, a trade publication.

But Land O’Lakes’ “layers division” has lost money for the past three years. And the egg business generally is a volatile one, fraught with increasing uncertainty over animal rights issues.

Asked in an e-mail what prompted the divestiture decision, Land O’Lakes replied that it “constantly evaluates all segments of its business as part of our strategic plan. We are focused on smart, strategic growth and aligning our businesses to optimize our growth strategy.”

The company declined to make an executive available to comment for this article.

Land O’Lakes would continue to have a presence in eggs through a marketing joint venture with Eggland’s Best, which sells premium eggs — a hot market — throughout the country.

But while Land O’Lakes is big in eggs, eggs are a relatively small part of its overall business, accounting for a ­single-digit percentage of its $14.2 billion in sales last year. Land O’Lakes’ three main businesses are dairy foods, animal feed and crop inputs such as seed and pesticides.

Moark started as a Missouri egg producer in the 1950s and entered into a joint venture with Land O’Lakes in 2000. By 2006, Moark had become a wholly owned subsidiary of Land O’Lakes.

The egg division has had some tough years lately, losing $25.1 million before taxes in 2013. However, that was an improvement over a $39.5 million pretax loss in 2012. High feed costs — the result of high corn prices — weighed down the results.

To make matters worse, there’s a cloud hanging over the entire U.S. egg industry. Animal rights activists have long decried the small amount of cage space allotted to hens, saying the birds can barely move.

Lawmakers step in

Legislative efforts to increase living space have been brewing, pressuring egg producers. “During the next five years, regulations regarding the welfare of chickens are expected to tighten, causing more companies to exit the industry, ” said an October report from market researcher IBISWorld.

California, often a bellwether state, will require its egg producers by Jan. 1 to expand living space per hen to about 116 square inches; 67 square inches is the industry average. All out-of-state egg producers must adopt California cage rules if they want to sell there.

“It’s hard to know how this proposition in California will impact things, ” said Michael Boland, director of the University of Minnesota’s Food Industry Center. “There’s a whole bunch of uncertainty in the egg industry.”

California is the nation’s fifth-largest egg-producing state (Minnesota is eighth), and Moark has a major presence there. Its California egg facilities continue to operate, Land O’Lakes said in an e-mail.

During 2013’s fourth quarter, Land O’Lakes “adopted a plan to divest of substantially all of the assets of the West and Midwest regions of Moark,” according to its annual financial report.

“The two regions (which include California and Missouri) will be sold in separate transactions that are expected to take place in 2014.” The fate of Land O’Lakes’ egg operations in Maine isn’t clear.

While Land O’Lakes is moving out of egg production, it will still be a player in eggs through its two-year-old joint venture with Eggland’s Best, a cooperative comprised of several egg producers.

Eggland’s Best boasts a superior — and more expensive — egg, with increased nutrient levels and better health properties than most eggs. Eggs marketed under the Eggland’s Best brand are laid by hens fed a special diet.

The company is part of the “specialty” egg category, a sweet spot in the egg business that also includes eggs from free-range hens, birds that aren’t kept in traditional wire cages.

 

Mike Hughlett • 612-673-7003

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