Why Cal-Maine Foods Stock Cracked on Monday
Key Points
The US Department of Justice is investigating Cal-Maine and others for price fixing in the eggs market.
Egg prices hit $6 a dozen last year, but are down by nearly half already.
Cal-Maine Foods (NASDAQ: CALM) sat on a wall. Cal-Maine Foods had a great fall (in the first five minutes of trading this morning, the nation's biggest producer of chicken eggs fell 4.5%!) But here's the good news: All the king's horses and all the king's men are already trying to put Cal-Maine Foods back together again.
And as of 10:10 a.m. ET, Cal-Maine has recovered most of its losses and is down only 1.5%.
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What went wrong with Cal-Maine stock this morning?
To find out what happened to Cal-Maine today, you need to flip back a few pages in your Wall Street Journal to Friday's edition, which reported the U.S. Department of Justice may sue the country's biggest egg producers -- Cal-Maine included -- alleging price fixing in the egg industry.
DOJ says Cal-Maine and others have been sharing price information through a service called "Expana." Ostensibly, Expana simply collects price data and publishes a benchmark price for egg producers to reference when setting prices independently. But DOJ alleges the companies are using Expana to coordinate and inflate egg prices for consumers, contributing to the run-up to $6-plus eggs last year.
What this means for Cal-Maine stock
Despite what it sounds like, this case is not open and shut. The most obvious reason why egg prices rose last year was a round of avian flu that began in 2022 and continues to this day, subtracting 200 million egg-laying fowl from the market. Flocks are rebuilding, however, and egg prices are already down 45% over the past year, suggesting that if price collusion did happen, it isn't anymore.
Investors' bigger worry should be falling profits at Cal-Maine. From $1.2 billion last year, net profits are forecast to fall below $200 million over the next two years.
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.