Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKS
COMMODITY PRICE RISK
Our primary exposure to market risk arises from changes
in the prices of conventional eggs,
which are subject to significant price
fluctuations that are largely
beyond our control. We
are focused on growing our
specialty shell egg business because
the selling
prices
of
specialty
shell
eggs are
generally
not
as
volatile
as conventional
shell
egg
prices. Our
exposure
to
market
risk
also
includes changes in
the prices of corn
and soybean meal,
which are commodities
subject to significant
price fluctuations due
to
market conditions
that are
largely beyond
our control.
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 and commit to purchase
organic ingredients to help
assure supply.
Ordinarily, we
do
not enter
long-term contracts
beyond a
year to
purchase corn
and soybean
meal or
hedge against
increases in
the price
of corn
and soybean meal.
The following table
outlines the impact
of price changes
for corn and
soybean meal on
feed costs per dozen
as feed ingredient pricing varies:
Change in price per bushel of corn
$
(0.84)
$
(0.56)
$
(0.28)
$
0.00
$
0.28
$
0.56
$
0.84
Change
in price
per ton
soybean
meal
$
(76.50)
0.616
0.626
0.636
0.646
0.656
0.666
0.676
$
(51.00)
0.626
0.636
0.646
0.656
0.666
0.676
0.686
$
(25.50)
0.636
0.646
0.656
0.666
0.676
0.686
0.696
$
0.00
0.646
0.656
0.666
0.676
(a)
0.686
0.696
0.706
$
25.50
0.656
0.666
0.676
0.686
0.696
0.706
0.716
$
51.00
0.666
0.676
0.686
0.696
0.706
0.716
0.726
$
76.50
0.676
0.686
0.696
0.706
0.716
0.726
0.736
(a)
Based on 2023
actual costs, table flexes feed cost inputs to show $0.01 impacts to per dozen egg feed production
costs.
INTEREST RATE
RISK
We
have
a
$250 million
Credit
Facility,
borrowings
under
which
would
bear
interest
at
variable
rates.
No
amounts
were
outstanding under that facility during fiscal 2023 or fiscal 2022. Under our current policies, we do not use interest rate derivative
instruments to manage our exposure to interest rate changes.
FIXED INCOME SECURITIES RISK
At June 3,
2023,
the effective maturity
of our cash equivalents
and investment securities
available for sale
was 4.8 months, and
the composite credit rating of
the holdings are AA- /
Aa3 / AA- (S&P
/ Moody’s / Fitch). Generally speaking, rising
interest rates,
as have
been
experienced
in recent
periods,
decrease
the value
of fixed
income
securities
portfolios.
As of
June 3,
2023,
the
estimated fair value
of our
fixed income securities
portfolio was approximately
$355 million
and reflected
unrealized losses
of
approximately
$2.4
million.
For
additional
information
see
Note 1 – Summary of Significant Accounting Policies
under
the
heading
“Investment
Securities”
and
Note 3 – Investment Securities
in
Part
II.
Item
8.
Notes
to
the
Consolidated
Financial
Statements.
CONCENTRATION
OF CREDIT RISK
Our financial instruments exposed to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit
risk with
respect to
receivables are
limited due
to our
large number
of customers
and their
dispersion across
geographic areas,
except that
at June 3,
2023 and
May 28,
2022, 30.1%
and 27.9%,
respectively,
of our net
accounts receivable
balance was due
from
Walmart
Inc.
(including
Sam’s
Club).
No
other
single
customer
or
customer
group
represented
10%
or
greater
of
net
accounts receivable at June 3, 2023 and May 28, 2022.
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