Item 1. Business
ITEM 1.
BUSINESS
Our Business
We are the largest
producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable
producer
and reliable
supplier of
consistent, high
quality fresh
shell eggs
and egg
products
in the
country,
demonstrating
a "Culture
of
Sustainability" in everything we do, and
creating value for our shareholders,
customers, team members and communities. We sell
most of our shell
eggs in the southwestern,
southeastern, mid-western and
mid-Atlantic regions of the
U.S. and aim to maintain
efficient, state-of-the-art operations located close to our customers. We
were founded in 1957 by the late Fred R. Adams, Jr. and
are headquartered in Ridgeland, Mississippi.
The Company has one reportable
operating segment, which is the production,
grading, packaging, marketing and distribution
of
shell eggs. Our integrated
operations consist of hatching
chicks, growing and maintaining
flocks of pullets, layers
and breeders,
manufacturing feed, and
producing, processing, packaging, and
distributing shell eggs.
Layers are mature
female chickens, pullets
are female chickens usually less than 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to
be hatched for egg production
flocks. Our total flock as of
June 3, 2023 consisted of approximately
41.2 million layers and 10.8
million pullets and breeders.
Many of our customers rely
on us to provide most of
their shell egg needs, including
specialty and conventional eggs.
Specialty
eggs encompass
a broad
range of
products. We
classify cage-free,
organic,
brown, free-range,
pasture-raised
and nutritionally
enhanced
as specialty
eggs
for
accounting
and
reporting
purposes.
We
classify
all other
shell
eggs
as conventional
products.
While we report separate sales information
for these egg types, there are
many cost factors that are not
specifically available for
conventional or
specialty eggs
due to
the nature
of egg
production. We
manage our
operations and
allocate resources
to these
types of eggs on a consolidated basis based on the demands of our customers.
4
We
believe that
an important
competitive advantage
for Cal-Maine
Foods is our
ability to meet
our customers’
evolving needs
with a
favorable product
mix of
conventional and
specialty eggs,
including cage-free,
organic and
other specialty
offerings, as
well
as egg
products.
We
have
also
enhanced
our efforts
to provide
free-range
and pasture
-raised
eggs that
meet
consumers’
evolving choice preferences.
While a small
part of our
current business,
the free-range and
pasture-raised eggs
we produce and
sell represent
attractive
offerings
to a
subset of
consumers, and
therefore
our customers,
and
help us
continue
to serve
as the
trusted provider of quality food choices.
Throughout the Company’s history,
we have acquired other companies in our industry. Since 1989 through our fiscal year ended
June 3, 2023,
we have completed
23 acquisitions ranging
in size from
160 thousand layers to
7.5 million layers. Most
recently,
effective on May 30, 2021, the Company acquired
the remaining 50% membership interest in Red River Valley
Egg Farm, LLC
(“Red River”), which owns and operates a specialty shell egg production complex that includes 1.7 million cage-free hens. For a
further
description
of
this
transaction,
refer
to
Part
II.
Item
8.
Notes
to
the
Consolidated
Financial
Statements,
Note 2 –
Acquisition
. We are also focused on additional ways to enhance our product mix and support new opportunities in the restaurant,
institutional and
commercial food
preparation area.
Beginning in fiscal
2022, we have
invested approximately
$32.3 million in
Meadowcreek Foods,
LLC (“Meadowcreek”),
an egg
products operation
focused on
offering
hard-cooked eggs.
In addition
to
growth through
acquisitions, we
have also
grown by
making substantial
investments in
our business,
primarily to
increase our
cage-free production capacity.
When
we
use
“we,”
“us,”
“our,”
or
the
“Company”
in
this
report,
we
mean
Cal-Maine
Foods,
Inc.
and
our
consolidated
subsidiaries,
unless
otherwise
indicated
or
the
context
otherwise
requires.
The
Company’s
fiscal
year-end
is
on
the
Saturday
closest to May
31. Our
fiscal year
2023 and
fourth quarter ended
June 3, 2023,
included 53 weeks
and 14
weeks, respectively.
The first three fiscal quarters of fiscal 2023 ended August 27, 2022,
November 26, 2022, and February 25, 2023, all included 13
weeks.
All references herein to a fiscal year means our fiscal year and all references
to a year mean a calendar year.
Industry Background
According to the U.S.
Department of Agriculture (“USDA”) Agricultural
Marketing Service, in 2022 approximately
71% of table
eggs produced in the U.S.
were sold as shell
eggs, with 56.6% sold through food
at home outlets such
as grocery and convenience
stores, 12.4% sold to
food-away-from home channels such
as restaurants and 1.7% exported.
The USDA estimated that in
2022
approximately 29.6%
of eggs
produced in
the U.S.
were sold
as egg
products (shell
eggs broken
and sold
in liquid,
frozen, or
dried
form)
to
institutions
(e.g.
companies
producing
baked
goods).
For
information
about
egg
producers
in
the
U.S.,
see
“Competition” below.
Our
industry
has
been
greatly
impacted
by
the
outbreaks
of
highly
pathogenic
avian
influenza
(“HPAI”),
first
detected
in
commercial flocks in
the U.S. in
February 2022 and
continuing during our
fiscal 2023. For
additional information regarding HPAI
and its impact
on our industry
and business, see
Part II. Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
.
Given
historical
consumption
trends,
we believe
that general
demand
for
eggs in
the U.S.
increases basically
in line
with the
overall
U.S.
population
growth;
however,
specific
events
can
impact
egg
supply
and
consumption
in
a
particular
period,
as
occurred with the 2015 HPAI outbreak,
the COVID-19 pandemic (particularly during 2020), and the most recent HPAI
outbreak
starting in
early 2022.
According to
the USDA’s
Economic Research
Service, estimated
annual per
capita consumption
in the
United States between 2018
and 2022 varied, ranging from 279 to 292 eggs. In calendar year 2022,
per capita U.S. consumption
was estimated to
be 279 eggs,
or approximately 5.4
eggs per
person per week.
According to
the USDA,
the decline in
consumption
was primarily
due to limited
availability caused
by the outbreak
of HPAI.
As of July
18, 2023,
the USDA projects
that the
per
capita consumption
will increase
in calendar
year 2023
and 2024
to 282.6
and 292.7,
respectively.
The USDA
calculates per
capita consumption by dividing
total shell egg disappearance in the U.S. by the U.S. population.
Prices for Shell Eggs
Wholesale shell
egg sales
prices are
a critical
component of
revenue for
the Company.
Wholesale shell
egg prices
are volatile,
cyclical, and impacted
by a number
of factors, including
consumer demand, seasonal
fluctuations, the number
and productivity
of laying hens
in the U.S.
and outbreaks of
agricultural diseases such
as HPAI.
While we use
several different pricing mechanisms
in pricing
agreements with
our customers,
we believe
the majority
of conventional
shell eggs
sold in
the U.S.
in the
retail and
foodservice channels
are sold
at prices
that take
into account,
in varying
ways, independently
quoted wholesale
market prices,
such as those published
by Urner Barry Publications,
Inc. (“UB”) for shell
eggs, however, grain-based and cost
plus arrangements
are being
utilized in
the food
service channel
and some
western markets.
We
sell the
majority of
our conventional
shell eggs
based on formulas that take into account, in varying ways, independently
quoted regional wholesale market prices for shell eggs
5
or formulas related
to our costs of production,
which include the cost
of corn and soybean
meal. We
do not sell eggs
directly to
consumers or set the prices at which eggs are sold to consumers.
The weekly
average price for
the southeast region
for large white
conventional shell
eggs as quoted
by UB is
shown below for
the past three
fiscal years along
with the five-year average
price. As further
discussed in
Part II. Item 7. Management’s Discussion
and Analysis – Results of Operations
, conventional
shell egg prices
rose during
the fourth quarter
of fiscal 2022
and first three
quarters of fiscal
2023, due
to the reduced
supply related
to the HPAI
outbreak first
detected in
commercial flocks
in February
2022,
steady shell egg demand
and higher production costs. Conventional shell
egg prices continued to rise
into the fourth quarter
of fiscal 2023 followed by a substantial decline,
as demand for shell eggs began to decrease in line
with typical seasonal variance
and as
supply increased
due to
the repopulating
of HPAI
-affected
layer flocks.
The actual
prices that
we realize
on any
given
transaction will not necessarily equal quoted market prices because of
the individualized terms that we negotiate with individual
customers which are influenced by many factors. Depending on market conditions, input costs
and individualized
contract terms,
the price we receive
per dozen eggs in any
given transaction may be
more than or less than
our farm production and
other costs
per dozen.
Specialty eggs
are typically
sold at
prices and
terms negotiated
directly with
customers. Historically,
prices for
specialty eggs
have
experienced
less
volatility
than
prices
for
conventional
shell
eggs
and
have
generally
been
higher
due
to
customer
and
consumer willingness to pay more for specialty eggs. However, throughout most of
fiscal 2023 conventional egg prices exceeded
specialty egg prices. Conventional
egg prices generally respond
more quickly to market conditions
because we sell the majority
of our conventional
shell eggs based on
formulas that adjust periodically
and take into account,
in varying ways, independently
quoted regional wholesale market prices for shell eggs or
formulas related to our costs of
production. Because the majority of our
specialty eggs
are typically
sold at prices
and terms negotiated
directly with
customers, specialty
egg prices
do not fluctuate
as
much as conventional pricing.
Feed Costs for Shell Egg Production
Feed is a primary cost component in
the production of shell eggs and
represented 63.1% of our fiscal 2023 farm
production costs.
We
routinely fill
our storage
bins during
harvest season
when prices
for feed
ingredients, primarily
corn and
to a
lesser extent
soybean meal,
are generally
lower.
To
ensure continued
availability of
feed ingredients,
we may
enter into
contracts for
future
purchases
of
corn
and
soybean meal,
and
as part
of these
contracts,
we
may
lock-in
the basis
portion
of our
grain
purchases
several months in advance.
Basis is the difference between the local cash price for grain and the applicable futures price. A basis
6
contract is a common transaction in the grain market that allows us to lock-in a basis level for a specific delivery period and wait
to set
the futures
price at
a later
date. Furthermore,
due to
the more
limited supply
for organic
ingredients,
we may
commit to
purchase organic ingredients in advance to help assure supply.
Ordinarily, we do not enter into long-term contracts beyond a year
to
purchase
corn
and
soybean
meal
or
hedge
against
increases
in
the
prices
of
corn
and
soybean
meal.
As
the
quality
and
composition of feed is a critical factor in the nutritional value of shell eggs and health of our chickens, we formulate
and produce
the vast
majority of
our own
feed at
our feed
mills located
near our
production plants.
Our annual
feed requirements
for fiscal
2023 were 2.0 million tons of finished
feed, of which we manufactured 1.9 million
tons. We currently
have the capacity to store
182 thousand tons of corn and soybean meal, and we replenish these stores as needed
throughout the year.
Our primary feed ingredients, corn
and soybean meal, are commodities subject
to volatile price changes due to
weather, various
supply and
demand factors,
transportation and
storage costs,
speculators and
agricultural, energy
and trade
policies in
the U.S.
and internationally and most recently
the Russia-Ukraine War.
While we do not import corn
or soy directly from the region,
the
Russia-Ukraine War
has had
a negative
impact on
the worldwide
supply of
grain, including
corn, putting
upward pressure
on
prices.
We
purchase
the
vast
majority
of
our
corn
and
soybean
meal
from
U.S
sources
but
may
be
forced
to
purchase
internationally
when
U.S.
supplies are
not
readily
available.
Feed
grains
are
currently
available
from
an
adequate
number
of
sources in the U.S. As a point
of reference, a multi-year comparison
of the average of daily closing prices
per Chicago Board of
Trade for each period in our fiscal calendar are
shown below for corn and soybean meal:
Shell Egg Production
Our percentage of dozens produced to sold
was 92.3%
of our total shell eggs sold in fiscal 2023,
with 91.8% of such production
coming from company-owned facilities,
and 8.2% from contract
producers. Under a
typical arrangement with
a contract producer,
we
own
the
flock,
furnish
all feed
and
critical
supplies,
own
the
shell
eggs
produced
and
assume
market
risks.
The contract
producers own and operate their facilities and are paid a fee based on production
with incentives for performance.
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We hatch the majority of
our chicks in
our own breeder
farms and hatcheries
in a
computer-controlled environment and obtain
the balance from
commercial
sources. The chicks are grown in our own pullet farms and are placed into the laying
flock once they reach maturity.
7
After eggs are
produced, they are
cleaned, graded and
packaged. Substantially all
our farms have
modern “in-line” facilities
which
mechanically
gather,
clean,
grade
and
package
the
eggs
at
the
location
where
they
are
laid.
The
in-line
facilities
generate
significant efficiencies
and cost
savings compared
to the
cost of
eggs produced
from non-in-line
facilities, which
process eggs
that
have
been
laid
at
another
location
and
transported
to the
processing
facility.
The
in-line
facilities
also
produce
a
higher
percentage of USDA Grade A eggs, which sell at higher prices. Eggs
produced on farms owned by contractors are brought to our
processing plants
to be graded
and packaged.
Because shell eggs
are perishable,
we do not
maintain large
egg inventories. Our
egg
inventory
averaged
six
days
of
sales
during
fiscal
2023.
We
believe
our
constant
focus
on
production
efficiencies
and
automation throughout the supply chain enable us to be a low-cost supplier
in our markets.
We
are proud
to have
created and
upheld
what we
believe is
a leading
poultry
Animal Welfare
Program
(“AWP”).
We
have
aligned our AWP with
regulatory, veterinary
and our third-party certifying bodies’ guidance to govern welfare of
animals in our
direct care, our contract farmers’ care and our farmer-suppliers’
care. We continually
review our program to monitor and evolve
standards that guide how we hatch chicks, rear pullets and nurture
breeder and layer hens. At each stage of
our animals’ lives, we
are dedicated to providing welfare conditions aligned
to our commitment to the principles of the internationally
recognized
Five
Freedoms of Animal Welfare
. Our standards apply to
our enterprise and are
tailored for our owned and
contract grower operations
with oversights and approvals from senior members of our compliance team.
We
do not
use artificial
hormones in
the production
of our
eggs. Hormone
use in
the poultry
and egg
production industry
has
been
effectively
banned
in
the U.S.
since
the
1950s.
We
have
an
extensive
written
protocol
that
allows
the
use
of
medically
important
antibiotics
only
when
animal
health
is
at
risk,
consistent
with
guidance
from
the
United
States
Food
and
Drug
Administration
(“FDA”)
and
the
Guidance
for
Judicious
Therapeutic
Use
of
Antimicrobials
in
Poultry,
developed
by
the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary
doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We
do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We
are
one
of
the
largest
producers
and
marketers
of
value-added
specialty
shell
eggs
in
the
U.S.,
which
continues
to
be
a
significant and growing segment
of the market.
We classify cage-free, organic, brown, free-range, pasture-raised and
nutritionally
enhanced as specialty eggs for accounting and
reporting purposes. Specialty eggs are intended to
meet the demands of consumers
sensitive to environmental, health and/or animal welfare issues and
to comply with state requirements for cage-free eggs.
As defined by the USDA, eggs packed in USDA grade
marked consumer packages labeled as cage-free are
laid by hens that are
able to roam vertically and horizontally in indoor houses and have access to fresh food and water.
Cage-free systems must allow
hens to
exhibit natural
behaviors and
include enrichments
such as
scratch areas,
perches and
nests. Hens
must have
access to
litter, protection from predators and be
able to move in a barn in a manner that promotes bird welfare.
Ten
states
have
passed
legislation
or
regulations
mandating
minimum
space
or
cage-free
requirements
for
egg
production
or
mandated the sale of
only cage-free eggs and
egg products in
their states, with implementation
of these laws ranging
from January
2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
California,
Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated
U.S. population
have cage-free legislation in effect currently.
In May 2023, the U.S. Supreme Court upheld as
constitutional California’s law that
requires the sale of
only cage-free eggs
in that state and
regardless of the state
in which the eggs
are produced. Although
we do
not sell the majority of our eggs in these ten states, these state laws have impacted
egg production practices nationally.
A significant number of our customers previously announced goals to
offer cage-free eggs exclusively on or before 2026, subject
in most cases to availability of supply,
affordability and consumer demand, among other contingencies. Some of these customers
have recently
changed those
goals to
offer 70%
cage-free eggs
by the
end of
2030. Our
customers typically
do not
commit to
long-term purchases
of specific quantities
or types of
eggs with us,
and as a
result, it is
difficult to
accurately predict
customer
requirements for cage-free eggs. We are focused on adjusting our cage-free production capacity with a goal of meeting the future
needs of our customers in light of changing
state requirements and our customer’s
goals. As always, we strive to offer a product
mix that aligns with current and anticipated customer purchase decisions. We are engaging with our customers to help them meet
their announced goals and needs. We have invested significant capital in
recent years to acquire and construct
cage-free facilities,
and we expect our focus for future expansion will continue
to include cage-free facilities. Our volume of cage-free egg sales has
continued to increase and account for a larger share of our product mix. Cage-free sales represented approximately 20.1% of our
total net
shell sales
for
fiscal
year
2023.
At the
same time,
we understand
the importance
of our
continued
ability to
provide
conventional eggs in order to provide our customers with a variety
of egg choices and to address hunger in our communities.
8
We are a member of the Eggland’s
Best, Inc. cooperative (“EB”) and produce, market, distribute and sell
Egg-Land’s
Best®
and
Land O’
Lakes®
branded eggs
under license
from EB at
our facilities under
EB guidelines.
Land O’
Lakes®
branded eggs
are
produced by hens that are fed a
whole-grain vegetarian diet. Our
Farmhouse Eggs
® brand eggs are produced at our
facilities by
cage-free hens
that are
provided with
a vegetarian
diet. We
market organic,
vegetarian and
omega-3 eggs
under our
4-Grain®
brand, which
consists of
conventional and
cage-free eggs.
We
also produce,
market and
distribute private
label specialty
shell
eggs to several customers.
Egg Products
Egg products are shell eggs broken
and sold in liquid, frozen, or
dried form. We
sell liquid and frozen egg products
primarily to
the institutional, foodservice and food manufacturing sectors in the U.S. Our egg products are primarily
sold through our wholly
owned subsidiaries American Egg Products, LLC located in Georgia
and Texas Egg Products, LLC located
in Texas.
During March 2023,
MeadowCreek Food,
LLC (“Meadowcreek”),
a majority-owned subsidiary,
began operations with
a focus
on being a
leading provider of
hard-cooked eggs. We
serve as the
preferred provider to
supply specialty and
conventional eggs
that MeadowCreek
needs to
manufacture egg
products. MeadowCreek’s
marketing plan
is designed
to extend
our reach
in the
foodservice and retail marketplace and bring
new opportunities in the restaurant,
institutional and industrial food products arenas.
Summary of Conventional and Specialty Shell Egg and Egg Product
Sales
The
following
table
sets
forth
the
contribution
as
a
percentage
of
revenue
and
volumes
of
dozens
sold
of
conventional
and
specialty shell egg and egg product sales for the following fiscal years:
2023
2022
2021
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
65.2
%
65.3
%
59.8
%
69.0
%
56.8
%
73.2
%
Specialty Eggs
Egg-Land’s Best®
14.7
%
16.6
%
19.2
%
15.9
%
20.9
%
13.5
%
Other Specialty Eggs
15.7
%
18.1
%
17.3
%
15.1
%
19.1
%
13.3
%
Total Specialty Eggs
30.4
%
34.7
%
36.5
%
31.0
%
40.0
%
26.8
%
Egg Products
3.9
%
3.4
%
2.7
%
Marketing and Distribution
In fiscal 2023, we sold our shell eggs in 38 states through
the southwestern, southeastern, mid-western and mid-Atlantic regions
of the U.S.
through our extensive
distribution network
to a diverse group
of customers, including
national and regional
grocery
store chains,
club stores,
companies servicing
independent supermarkets
in the
U.S., foodservice
distributors and
egg product
consumers. Some of
our sales
are completed through
co-pack agreements –
a common practice
in the
industry whereby production
and
processing of
certain products
are outsourced
to another
producer.
Although we
face intense
competition
from numerous
other companies,
we believe
that we
have the
largest market
share for
the sale
of shell
eggs in
the grocery
segment, including
large U.S. food retailers.
The majority of eggs sold are based on the daily
or short-term needs of our customers. Most sales to established
accounts are on
payment terms ranging from
seven to 30
days. Although we
have established long-term relationships
with many of
our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs we
sell are either delivered to
our customers’ warehouse or retail
stores, by our own
fleet or contracted refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
We
are a member
of the Eggland’s
Best, Inc. cooperative
and produce, market,
distribute and
sell
Egg-Land’s
Best®
and
Land
O’ Lakes®
branded eggs directly and through
our joint ventures, Specialty
Eggs, LLC and Southwest
Specialty Eggs, LLC, under
exclusive
license
agreements
in
Alabama,
Arizona,
Florida,
Georgia,
Louisiana,
Mississippi
and
Texas,
and
in
portions
of
Arkansas, California,
Nevada, North
Carolina,
Oklahoma and
South Carolina.
We
also have
an exclusive
license in New
York
City in addition
to exclusivity in
select New York
metropolitan areas, including
areas within New
Jersey and Pennsylvania.
As
discussed above under “Specialty Eggs,” we also sell our own Farmhouse
Eggs® and 4Grain® branded eggs.
9
During
2022,
the
Company
joined
in
the
formation
of
a
new
egg
farmer
cooperative
in
the
western
United
States.
ProEgg,
Inc.(“ProEgg”) is comprised
of leading egg production
companies, including Cal-Maine
Foods, servicing retail and
foodservice
shell egg customers in 13 western states. ProEgg is a producer-owned
cooperative organized under the Capper-Volstead
Act.
The Company’s
top priority in joining
as a member of
ProEgg is serving
our valued customers in
this important market
region.
Our
membership
in
ProEgg
is
expected
to
provide
benefits
for
its
customers,
including
supply
chain
stability
and
enhanced
reliability. Initially,
Cal-Maine Foods’ customer relationships and customer support are expected to remain the same. We
expect
that starting January
1, 2024, each
producer member
will sell through
ProEgg the
shell eggs it
produces for
sale in the
western
states covered by the cooperative. Customers will
have a single point of
contact for their shell egg
purchases, as ProEgg will have
a dedicated team to market and sell the members’ combined egg production
in the region.
Customers
Our top
three customers
accounted for
an aggregate of
50.1%, 45.9%
and 48.6% of
net sales dollars
for fiscal 2023
,
2022, and
2021,
respectively.
Our largest
customer,
Walmart
Inc. (including
Sam's Club),
accounted for
34.2%, 29.5%
and 29.8%
of net
sales dollars for fiscal 2023, 2022 and 2021, respectively.
In fiscal 2023,
approximately 85.3% of
our revenue related
to sales to retail
customers, 10.8% to
sales to foodservice
providers
and 3.9%
to egg products
sales. Retail customers
include primarily
national and
regional grocery
store chains,
club stores, and
companies
servicing
independent
supermarkets
in the
U.S. Foodservice
customers
include
primarily
companies that
sell food
products and related items to restaurants, healthcare and education facilities and
hotels.
Competition
The production, processing,
and distribution of shell
eggs is an intensely
competitive business, which
has traditionally attracted
large numbers of
producers in the United
States. Shell egg competition
is generally based on
price, service and product
quality.
The shell
egg production
industry remains
highly fragmented.
According to
Egg Industry
Magazine
, the
ten largest
producers
owned approximately
53% of industry
table egg layer
hens at year-end
2022 and 2021.
We
believe industry
consolidation may
continue,
and
we
plan
to
capitalize
on
opportunities
as
they
arise.
We
believe
further
concentration
could
result
in
reduced
cyclicality of shell egg prices, but no assurance can be given in that regard.
Seasonality
Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer months.
Prices for shell eggs fluctuate
in response to seasonal demand
factors and a natural
increase in egg production during
the spring
and early summer.
Historically,
shell egg prices tend
to increase with the
start of the school
year and tend
to be highest prior
to
holiday
periods,
particularly
Thanksgiving,
Christmas
and
Easter.
Consequently,
and
all
other
things
being
equal,
we
would
expect to experience
lower selling prices,
sales volumes and net
income (and may
incur net losses) in
our first and
fourth fiscal
quarters ending in August/September and May/June, respectively. Accordingly, we generally expect our need for
working capital
to be highest during those quarters.
Growth Strategy
Our growth strategy is focused on remaining a
low-cost provider of shell eggs located near
our customers, offering our customers
choices
that
meet
their
requirements
for
eggs
and
egg
products
and
continuing
to
grow
our
focus
on
specialty
eggs
and
egg
products. For example, our
recent investment in MeadowCreek,
discussed under the heading
“Egg Products” above, is
intended
to
extend
our
reach
in
the
foodservice
and
retail
marketplace
and
bring
new
opportunities
in
the
restaurant,
institutional
and
industrial food products arenas.
In light
of the growing
customer demand
and increased
legal requirements
for cage-free
eggs, we
intend to
continue to
closely
evaluate the
need to expand
through selective acquisitions,
with a priority
on those that
will facilitate our
ability to expand
our
cage-free shell
egg production
capabilities in
key locations
and markets.
We
will also
continue to
closely evaluate
the need
to
continue to expand and convert
our own facilities to increase production
of cage-free eggs based on
a timeline designed to meet
the anticipated
needs of
our customers
and comply
with evolving
legal requirements.
As the
ongoing
production
of cage-free
eggs
is
more
costly
than
the
production
of
conventional
eggs,
aligning
our
cage-free
production
capabilities
with
changing
demand for cage-free eggs is important to the success of our business.
10
Trademarks
and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
and
4Grain®
. We produce and
market
Egg-Land's Best
®
and
Land O’ Lakes
® branded eggs under
license agreements with
EB. We
believe these trademarks
and license agreements
are
important to our business.
Government Regulation
Our facilities and
operations are subject
to regulation by
various federal, state,
and local agencies,
including, but not
limited to,
the FDA,
USDA, Environmental
Protection
Agency (“EPA
”), Occupational
Safety and
Health Administration
("OSHA") and
corresponding state agencies or
laws. The applicable regulations relate
to grading, quality control,
labeling, sanitary control and
reuse or
disposal of
waste. Our
shell egg
facilities are
subject to
periodic USDA,
FDA, EPA
and OSHA
inspections. Our
feed
production facilities are
subject to FDA,
EPA
and OSHA regulation
and inspections. We
maintain our own
inspection program
to
monitor
compliance
with
our
own
standards
and
customer
specifications.
It
is
possible
that
we
will
be
required
to
incur
significant
costs
for
compliance
with
such
statutes
and
regulations.
In
the
future,
additional
rules
could
be
proposed
that,
if
adopted, could increase our costs.
Ten
states
have
passed
legislation
or
regulations
mandating
minimum
space
or
cage-free
requirements
for
egg
production
or
mandated the sale of
only cage-free eggs and
egg products in
their states, with implementation
of these laws ranging
from January
2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020 U.S. Census.
California,
Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated
U.S. population
have cage-free legislation in effect currently.
In May 2023, the U.S. Supreme Court upheld as
constitutional California’s law that
requires the sale of only cage-free eggs in that state and regardless of the
state in which the eggs are produced.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations
governing,
among
other
things,
the
generation,
storage,
handling,
use,
transportation,
disposal,
and
remediation
of
hazardous
materials. Under these laws and regulations, we must obtain permits from governmental authorities,
including, but not limited to,
wastewater discharge
permits. We
have made, and
will continue to make,
capital and other expenditures
relating to compliance
with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital
expenditures
necessary
to
comply
with
such
laws
and
regulations;
however,
as
environmental,
health
and
safety
laws
and
regulations are becoming
increasingly more stringent,
including those relating to
animal wastes and wastewater discharges,
it is
possible that we will have to incur significant costs for compliance with such
laws and regulations in the future.
Human Capital Resources
As of June 3, 2023, we had 2,976 employees, of whom 2,305 worked in egg production, processing,
and marketing, 207 worked
in
feed
mill operations
and 464, including
our
executive officers,
were
administrative
employees. Approximately
5.4% of
our
personnel
are
part-time, and we
utilize
temporary
employment
agencies
and
independent
contractors
to
augment
our
staffing needs when necessary. For fiscal 2023, the average monthly full-time
equivalent for contingent workers was
1,349. None
of our employees are covered by a collective bargaining
agreement. We consider
our relations with employees to be good.
Culture and Values
We
are
proud
to
be contributing corporate
citizens
where
we live
and
work and to
help create healthy,
prosperous
communities. Our
colleagues
help
us
continue
to
enhance our community
contributions,
which are driven
by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to
realize full potential. These
commitments are encapsulated
in the
Cal-Maine Foods Code
of Ethics and
Business
Conduct
and in our
Human Rights Statement
.
Health and Safety
Our top priority is the
health and safety of our
employees, who continue to produce
high-quality,
affordable egg choices for
our
customers and contribute to
a stable food
supply. Our enterprise safety committee
comprises two corporate safety managers,
eight
area compliance managers
(three specifically for
worker health
and safety),
55 local site
compliance managers, feed
mill managers
and general managers.
The committee that
oversees health and safety regularly reviews
our written policies and
changes to OSHA
regulation standards and shares information as it relates to outcomes from incidents in order to improve future performance. The
11
committee’s
goals
include
working
to
help
ensure
that
our
engagements
with
our consumers,
customers,
and
regulators
evidence our strong commitment to our workers’ health and safety.
Our commitment to our colleagues’ health includes a strong
commitment to on-site worker safety,
including a focus on accident
prevention and life safety.
Our Safety and Health Program
is designed to promote best
practices that help prevent
and minimize
workplace accidents and illnesses. The scope of our Safety and
Health Program applies to all enterprise colleagues. Additionally,
to
help
protect
the health
and well-being
of
our
colleagues and
people
in our
value
chain,
we
require
that any
contractors
or
vendors
acknowledge
and
agree
to
comply
with
the
guidelines
governed
by
our
Safety
and
Health
Program.
At
each
of
our
locations, our general managers are expected to
uphold and implement our Safety and Health Program in alignment
with OSHA
requirements. We
believe that
this program,
which is reviewed
annually by
our senior management
team, contributes
to strong
safety outcomes. As part of our
Safety and Health Program, we conduct multi-lingual training that
covers topics such as slip-and-
fall avoidance, respiratory protection, prevention of
hazardous communication of chemicals, the
proper use of personal
protective
equipment, hearing
conservation, emergency
response, lockout
and tagout
of equipment
and forklift
safety,
among others.
We
have
also
installed dry
hydrogen
peroxide biodefense
systems
in
our
processing
facilities
to
help
protect
our
colleagues’
respiratory health. To help drive
our focus on
colleague safety, we developed safety
committees at each
of our sites
with employee
representation from each department.
We
review
the success
of our
safety programs
on a
monthly basis
to monitor
their effectiveness
and
the development
of any
trends that need to
be addressed. During fiscal
year 2023
our recordable incident rates
decreased by 29% compared to
fiscal 2022.
Diversity, Equity and Inclusion
Our
culture seeks
to
embrace the
diversity
and
inclusion
of
all
our
team
members.
This
culture is driven
by
our
board
and
executive management team. Our board comprises seven members, four of
whom are independent. Women comprise 29% of our
board and 14% of our
board members identify as a
racial or ethnic
minority. As
of June 3, 2023,
our total workforce comprised
29% women and 53%
of colleagues who
identify as racial or
ethnic minorities. Our Policy
against Harassment, Discrimination,
Unlawful
or
Unethical
Conduct
and
Retaliation;
Reporting
Procedure affirms
our
commitment
to
supporting
our
employees
regardless of race, color, religion, sex, national
origin or any other basis protected by applicable law.
Cal-Maine Foods strives
to ensure that
our colleagues are
treated equitably. We are an Equal
Opportunity Employer that prohibits,
by policy and practice,
any violation of applicable
federal, state, or local
law regarding employment.
Discrimination because of
race, color, religion,
sex, pregnancy, age,
national origin, citizenship status, veteran
status, physical or mental disability,
genetic
information, or any other basis protected by applicable law
is prohibited. We value diversity in our workplaces or in
work-related
situations. We maintain
strong protocols to help our colleagues perform
their jobs free from harassment and discrimination. Our
focus
on
equitable
treatment
extends
to
recruitment,
employment
applications,
hiring,
placement,
job
assignments,
career
development, training, remuneration,
benefits, discharge
and other matters
tied to terms and
conditions of employment.
We
are
committed
to
offering
our
colleagues
opportunities
commensurate
with
our
operational
needs,
their
experiences,
goals
and
contributions.
Recruitment, Development and Retention
We
believe
in compensating
our
colleagues
with
fair
and competitive wages, in
addition
to offering
competitive benefits. Approximately 76% of our employees
are paid at hourly rates, which are all paid at rates above
the federal
minimum
wage
requirement.
We
offer
our
full-time
eligible
employees
a
range
of
benefits,
including
company-paid
life
insurance. The Company provides a comprehensive self-insured health plan and pays approximately 84% of the costs of the plan
for
participating
employees
and
their
families
as
of
December
31,
2022. Recent
benchmarking
of
our health
plan
indicates comparable
benefits, at
lower
employee contributions, when compared
to an applicable
Agriculture
and
Food Manufacturing sector grouping, as well as peer group data.
In addition, we offer employees the opportunity to purchase an
extensive range of other group
plan benefits, such as dental, vision,
accident, critical illness, disability
and voluntary life.
After
one
year
of
employment, full-time employees
who
meet
eligibility
requirements may
elect
to participate
in
our
KSOP retirement plan,
which
offers
a
range
of
investment
alternatives
and
includes
many positive features,
such
as
automatic enrollment with scheduled
automatic contribution
increases and loan
provisions. Regardless of
the
employees’ elections
to contribute
to
the
KSOP,
the
Company contributes shares
of Company
stock or
cash
equivalent
to 3%
of participants’ eligible compensation for each pay period that hours
are worked.
We
provide
extensive
training
and
development related
to
safety,
regulatory
compliance,
and
task
training.
We
invest
in
developing our future leaders through our Management Intern, Management
Trainee and informal mentoring programs.
12
Sustainability
We understand that climate, and
the potential consequences of climate change, freshwater availability and preservation of global
biodiversity, in addition to
responsible management of
our flocks, are
vital to
the production of
high-quality eggs and
egg products
and to the success of our
Company. We have engaged in agricultural production for
more than 60
years. Our agricultural practices
continue to evolve as we continue to strive to meet the need for nutritious, affordable foods to feed a growing population even as
we exercise responsible
natural resource stewardship. We plan to publish our most recent sustainability report on or around early
August 2023, which
will be available
on our website.
Information contained
on our website is
not a part
of this report
on Form
10-K.
Our Corporate Information
We
maintain
a
website
at
www.calmainefoods.com
where
general
information
about
our
business
and
corporate
governance
matters is
available. The
information contained
in our
website is
not a
part of
this report.
Our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q, Current Reports
on Form 8-K, proxy
statements, and all amendments
to those reports filed
or
furnished pursuant
to Section
13(a) or
15(d) of
the Exchange
Act are
available, free
of charge,
through our
website as
soon as
reasonably
practicable
after
we
file
them
with,
or
furnish
them
to,
the
SEC.
In
addition,
the
SEC
maintains
a
website
at
www.sec.gov
that
contains
reports,
proxy
and
information
statements,
and
other
information
regarding
issuers
that
file
electronically with the SEC. Cal-Maine Foods, Inc. is a Delaware corporation,
incorporated in 1969.