Surging feed prices and proposals to require cage-free chickens have scrambled the egg market, bringing record-high prices for eggs and - perhaps surprisingly - record profits for North County ranchers.

Ranchers say the upward price spiral is erasing the losses they had suffered in prior years.

Since 2006, the growing production of ethanol fuel has driven up the price of corn, the main component of chicken feed. Nationally, average prices of animal feed have risen 40 percent in the last two years, according to a report last week by the U.S. Bureau of Labor Statistics.

Wholesale egg prices have risen 85 percent in the same time as demand from a steadily growing population stretches a limited supply, the agency reported.

Normally, a rancher would respond to higher egg prices by building another chicken house and filling it with hens, at a total cost of $1 million to $5 million, depending on its size.

But ranchers are balking, worried that traditional houses, which feature rows of tightly packed cages, could go the way of the dodo bird as consumers become more sensitive to chicken ranching techniques, according to ranchers and others in the industry.

North County's scenic hinterland is something of a center for egg production, thanks to its moderate climate, its proximity to an Escondido feed mill, and demand from Southern California's densely populated coast. At least 10 farms house a total of 2.5 million to 3 million hens along the byways of Valley Center, Ramona and Pauma Valley.

Several North County egg farms have been awaiting renovation and maintenance, and none has been built in at least a year, ranchers said.

"Very few people are willing to go in," said Kevin Demler, whose million-hen egg farm east of Ramona is the largest in San Diego County.

Public pressure

Pleasanton-based Safeway Inc., which operates Vons supermarkets in Southern California, recently called for its suppliers to begin phasing out use of the dominant variety of chicken cages, which are often stacked three to five high and lined up, one after the other, in a house the length of football field.

A measure that appears headed for California's November 2008 ballot would block new cages and give ranchers six years to phase out existing cages.

"It's a very cruel form of confinement that retailers, increasingly, don't want to support," said Paul Shapiro, an advocate with the nonprofit Humane Society of the United States, which is sponsoring the measure.

But Americans' omelettes and French toast aren't waiting for the supply to catch up: Like gasoline, eggs are "demand-inelastic," economists' way of saying that consumers don't cut back significantly when prices rise.

Eggs are inelastic because they make up a fairly small portion of shoppers' budgets, and because they remain a relatively cheap source of protein, economists and ranchers say. As a result, swings in price tend to be much more dramatic than with many other goods.

August Fluegge, who owns 180,000 hens in Valley Center, said 100 pounds of chicken feed cost him about $13.50 now, about twice as much as a year ago, though that still doesn't completely offset the effects of rising egg prices: Buyers are now willing to pay $1.44 a dozen for mid-grade eggs, double last year's wholesale price, he said.

"There's not enough eggs out there," Fluegge said.

That could change over the next few months, as warmer weather prompts hens to lay with greater frequency, said Don Bell, a retired UC Riverside professor who advises egg ranchers. In summer months, nearly every hen in a flock lays one egg every day, up from 90 to 95 percent in winter months. The greater supply will probably push prices back down, Bell said.

New ingredient: inflation

In the meantime, the egg prices that grocery shoppers see have risen by 20 percent to 25 percent in the last year, according to the Bureau of Labor Statistics. An Albertsons supermarket on East Valley Parkway was selling Grade AA large eggs for $3.39 a dozen one day last week.

Across the street, Mi Puebla grocery store was competing at $2.39. The new Fresh & Easy market at the nearby corner of Ash Street had the same grade and size priced at $1.58 per dozen; a dozen "cage-free" eggs were $2.28.

Eggs aren't the only food item that's getting more expensive. Government statistics show prices of bread and other grain products have risen by about 9 percent in the last year. Most economists have attributed that trend to America's rising demand for ethanol fuel, which is refined from corn, and to consumers in developing countries, who are eating more grain-fed beef.

On the whole, U.S. food prices have risen by about 4.5 percent in the last year, roughly the same rate as overall inflation and about one percentage point faster than Americans' take-home pay.

Another factor in the rising inflation rate is the U.S. dollar, whose value is being eroded by large government budget deficits and by Americans' low savings rate, economists say. Foreign importers are taking advantage of it by buying more American-grown food products, and the new competition with American buyers is driving up food prices, said Amar Mann, an economist for the Bureau of Labor Statistics' western region.

"That's reducing our purchasing power for everything, and these staple foods, as well," Mann said.

- Contact staff writer Chris Bagley at (760) 740-5444 or cbagley@nctimes.com.