Why Cal-Maine Stock Popped on Wednesday

Cal-Maine Foods (NASDAQ: CALM) stock flew more than 7% higher in early trading Wednesday before settling back to roost on a 2.7% gain as of 10:55 a.m. ET. America's largest producer of eggs in the shell, Cal-Maine appears to be reacting to bombshell news from the Trump administration:

To solve the egg shortage, we're importing eggs.

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How to beat avian flu

Fears over avian flu infecting U.S. chickens and spreading to humans led the Biden administration to order the killing of upward of 140 million egg-laying hens over the past three years. This depleted egg-laying flocks, causing an undersupply of eggs -- and Econ 101 teaches us that when demand is constant but supply falls, prices rise.

To mitigate this problem, Turkey was already planning to sell the U.S. 420 million eggs this year. CNN says Turkey is the only place we import eggs from, and 420 million would be about six times our imports from Turkey in 2024. Even so, it's only enough to replace the output of about 1.4 million U.S. hens.

To close that gap, U.S. Secretary of Agriculture Brooke Rollins announced a plan today to invest "up to $1 billion to curb this crisis." USDA will review regulations that increase farmers' cost of egg production. It will invest $100 million in new vaccines for chickens. $400 million will subsidize egg producers whose flocks have been decimated. $500 million will support "biosecurity measures" to prevent further avian flu outbreaks.

Last but not least, the U.S. "will consider temporary import options to reduce egg costs in the short term," expanding the list of countries from which we import eggs from Turkey alone to three or four others.

Image source: Getty Images.

What does this mean for Cal-Maine?

It's unclear what additional imports will mean for Cal-Maine, but $1 billion in government subsidies and spending to promote egg production will almost certainly lower the company's costs and improve its profits.

It may be hard to say precisely how good this news is for Cal-Maine, but it's almost certain to be good news, period.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cal-Maine Foods. The Motley Fool has a disclosure policy.