Editorial

Transparency Regarding COVID-19 in Packing Plants

The emergence of an epidemic such as COVID-19 makes for strange bedfellows and unexpected alliances. An advocacy group comprising hog farmers in South Dakota is working with the United Food and Commercial Workers International Union to reduce the mounting incidence of COVID-19 in Midwest packing plants.  Farmers recognize their vulnerability with respect to maintaining the chain of production with packing plants representing the sensitive link in the chain extending from grow-out houses to the consumer.

 

Nick Nemec a prominent farmer in South Dakota commented "too many workers are being sent back into meat packing plants without adequate protection in place, thereby reigniting more outbreaks in the plants and our communities".  Many plants ceased operation due to ascending incidence rates of COVID-19. After cleaning, reconfiguring of lines, instituting antigen assays and providing PPE, many plants have recommenced operation, albeit at reduced rates.

 

A measure of legal protection was incorporated into the Presidential Executive Order mandating reopening of plants to maintain the nation’s supply of protein provided CDC guidelines are followed.  It is estimated that during late March through early April, hog and beef production was reduced by 40 to 50 percent.  Currently red meat plants are operating at between 70 and 80 percent of capacity depending on location and the policies of operators.  Most recently a Tyson Foods hog plant in Storm Lake, IA was closed temporarily due to a 22 percent positive   COVID-19 rate. Tyson Foods was proactive in initiating testing using the services of a specialist agency that deployed mobile testing installations for all Company plants.  Tyson also recognized the vulnerability of workers and introduced PPE and training of personnel in early April.

 

The impact of COVID-19 will ultimately be reduced by a combination of immunization using an effective vaccine and a rise in the level of immunity through natural exposure. Cycles of infection will continue until immunity is achieved in 70 percent of the population. This desirable situation cannot be expected before mid-2021.

 

Periodic decontamination of plants and supplying PPE are only ameliorative.  COVID-19 infection will persist given the high level of susceptibility in our population and the ease of transmission of infection both in plants and the communities where workers live. 

 

It is estimated that there have been 3,000 confirmed COVID-19 diagnoses with 44 fatalities among approximately 50,000 meat-packing workers in the U.S. since the emergence of COVID-19.  The number of cases is obviously underestimated given the fact that only a few companies have adopted a policy of testing a high proportion of their workers. It is evident that at any point in time the low sensitivity of available antigen assays are yielding an unacceptable number of   false-negative results allowing asymptomatic carriers to disseminate virus.  Control of     COVID-19 in rural communities with large packing plants is complicated by lack of transparency. Some companies, abetted by officials in states such as Nebraska, are failing in their collective responsibility by withholding data on prevalence rates in specific plants. In the absence of a national policy on diagnosis and control of COVID-19 we are reliant on the openness of companies such as Tyson Foods, Perdue Farms and others demonstrating their civic-mindedness by releasing data for the benefit of their employees and officials responsible for public health in the communities where they operate.

 

Poultry Industry News

STOP PRESS

China Freezing Commodity Purchases

 

Knowledgeable sources within China suggest that a ban has been imposed on brokers affiliated to the Government, enjoining them from placing orders for U.S. agricultural commodities. Observers suggest that this action is in retribution for the mild response by the U.S. following passage of a law by the National Assembly to restrict protests in Hong Kong. China is sensitive over relations with Hong Kong regarded as an internal matter.

 

It is questioned whether the ban will only be temporary, without causing inconvenience to China at present. Their action may be to establish a negotiating point with the U.S.

 

If rhetoric intensifies and if agreed quantities of commodities are not ordered, the Administration may revoke the Phase-One Trade Agreement, re-impose tariffs and reactivate a trade war that will be to the detriment of both nations.

 


 

Turkey Week

Weekly Turkey Production and Prices

Poult Production and Placement:

The May 14th edition of the USDA Turkey Hatchery Report, issued monthly, documented 28.1 million eggs in incubators on May 1st 2020 (27.9 million eggs on April 1st 2020) and down 1.0 percent (290,000 eggs) from May 1st 2019.

 

A total of 23.7 million poults were hatched during April 2020 (23.7 million in March 2020) representing a decrease of 2.2 percent from April 2019.

 

A total of 21.9 million poults were placed on farms in the U.S. in April 2020, (21.7 million in March 2020), 4.9 percent less than in April 2019. This suggests disposal of 1.7 million poults during the month. Assuming all tom poults were placed, 14.4 percent of April-hatched hen poults or 8.3 percent of all April-hatched poults were not placed.

 

For the twelve-month period May 2019 through April 2020 inclusive, 282.0 million poults were hatched and 258.7 million were placed. This suggests disposal of 23.3 million poults. Assuming all tom poults were placed, 16.5 percent of hen poults or 8.3 percent of all poults hatched during the period were not placed.


 

Broiler Week

Weekly Broiler Production and Prices

Chick Placements.

The Broiler Hatchery Report released on May 27th 2020 confirmed that a total of 231.1 million eggs were set during the week ending May 23rd 2020, two percent lower than the corresponding week in 2019 and 0.3 percent less than the previous week. A total of 170.7 million day-old chicks were placed among the 19 major broiler-producing states during the week ending May 23rd 2020. This was five percent less than during the corresponding week in 2019 and 4.0 percent more than the previous week. Total chick placements for the U.S. amounted to 179.5 million, five percent less than the corresponding week in 2019. Claimed average hatchability was 82.3 percent for eggs set three weeks earlier compared to 80.2 percent in the previous week. Cumulative placements for January 4th through May 23rd 2002 amounted to 3.89 billion chicks, down less than one percent from the corresponding period in 2019.

 

Broiler Production

According to the May 29th 2020 USDA Broiler Market News Report (Vol. 67: No. 22) for the processing week ending May 23rd 2020, 162.2 million broilers were processed during the past processing week (last week 160.6 million) at an average live weight of 6.42 lbs. (6.42 lbs. last week) and a nominal yield of 76.0 percent. The number of broilers processed was 5.5 percent less than the corresponding processing week in 2019. Processed (RTC) broiler production for the week was 791.5 million lbs. (359,770 metric tons), (783.6 million lbs. last week) 2.5 percent less than the corresponding processing week in 2019. For YTD 2020 Processed (RTC) production attained 16,527 million lbs. (7,12,271 metric tons), 4.1 percent more than YTD 2019.

 

 

Broiler Prices

The USDA National Composite Weighted Wholesale price on May 29th 2020 was down 0.5 cents per lb. from the previous week to 74.0 cents per lb. compared to 99.5 cents per lb. during the corresponding week of 2019; 73.8 cents per lb. for May 2020 and 113 cents per lb. for the three-year average. The USDA Composite price has stabilized after moving up 21 cents per lb. from a bottom of 52.7 cents per lb. during the last week of April. The decline over the three previous weeks was attributed to the collapse of the food service segment following imposition of COVID-19 restrictions.

The USDA Southern States (SS) benchmark prices in cents per lb. (rounded to nearest cent) as documented in the Broiler Market News Reports May 29th 2020 are tabulated with a comparison with the previous week:-


 

COMMODITY REPORT: MAY 29th 2020.

  • The financial and economic implications of the COVID-19 pandemic are becoming more apparent in the U.S. economy.  Corn and soybeans both increased slightly in price this past week. Corn futures for July delivery were higher by 2.5 percent compared with the quotation on May 22nd.  Soybeans were 0.7 percent higher compared with the May 22nd quotation for July delivery. Anticipated increases in price have not materialized after signing the Phase-One trade agreement with China or following ratification of the USMCA.
  • Prospects for commodity exports to China are apparently still restrained, but less by the logistic restrictions imposed by the late phases of the COVID-19 outbreak. China has reduced their short-term demand for soybeans as a result of continuing losses from African swine fever and disruption of poultry production that has now recovered. Soybeans from Brazil are priced more competitively than from the U.S. due to availability and a favorable currency exchange. The USDA projects that 1.8 billion bushels of soybeans will be imported by China from Brazil in 2020. The U.S. hopes to commence shipping in quantity during late summer following established seasonal patterns.

 

 

Uncertainties still include:-

  • The extent and timing of soybean purchases by China in 2020. The U.S - China Phase-One agreement signed in mid-January incorporated U.S. tariff rescissions, promised purchases of agricultural commodities, concessions on some structural issues by China and strengthened enforcement provisions. A telephone meeting between senior officials of the U.S. and China on Friday May 8th elicited a reassurance that China would fulfill its obligations with respect to imports of U.S agricultural products. Both sides accepted the need to improve relations damaged by recent injudicious rhetoric relating to the origin of COVID-19.The Phase-One Trade Agreement appears intact after the Presidential news conference on May 29th.
  • It is anticipated that China will take advantage of low world prices for commodities to import 20 million tons of corn (787 million bushels) and 10 million tons of soybeans (365 million bushels) to add to reserves. The U.S. expects to supply part of this requirement
  • Imports of soybeans from Brazil were delayed by inclement weather and COVID-19 port disruptions during the first quarter of 2020, resulting in soybean stocks falling to a multiple-year low. Imported consignments increased stocks to 4.26 million tons (157 million bushels), up 28.7 percent from March 2020.
  • The market is now more accepting of the reality that future shipments of soybeans to China will not take place according to the quantities promised by the Administration after signing the Phase-One agreement.
  • Total world soybean shipments from the U.S. in 2020 YTD have amounted to 5.26 million tons, (193 million bushels), approximately 9.3 percent of the quantity required to meet the May USDA WASDE projection of 2.055 billion bushels. Through March 2020 soybean shipments attained an average of 16.5 million bushels per week compared to a quantity of 30.3 million bushels (1,102 million metric tons) per week to meet the projected export target.
  • Domestic U.S. soybean and soybean meal demand is currently constrained by cutbacks in the intensive livestock and poultry sectors as impacted by COVID-19.
  • Justifiable uncertainty exists regarding the spread of COVID-19 to other Asian nations, Europe and North America with the potential to create a worldwide depression as economic activity is curtailed

 

Questions still exist:-

 

  • The optimistic projections for planting corn and soybeans in 2020 as published on March 31st by the USDA are materializing. Planting is advancing at a rapid pace and nearing completion ahead of the five-year average.
  • A U.S. trade agreement with the U.K. should be concluded in 2020 but trade with the U.S. will be conditioned by commitments to the E.U. by the departing nation. Negotiations commenced in early January between Amb. Robert Lighthizer and his U.K. counterpart, Minister Elizabeth Truss and are continuing at appropriate levels in working groups. A bilateral agreement will have to overcome U.S objections over the use of Huawei communications equipment by the U.K. and chlorination in processing U.S. chicken.

 

Compared with the May 22nd 2020 close, the CME quotation for July corn on May 29th was up by 8 cents per bushel to 325 cents.  China purchased 567,000 tons of corn on Friday 3rd April valued at $73 million. This quantity represented 1.3 percent of projected U.S. corn exports in 2020. The social restrictions imposed in the U.S. as a result of COVID-19 will reduce ethanol demand by 1.5 billion gallons or 10 percent of projected 2020 addition to gasoline. Forty percent of U.S. ethanol fermentation capacity is off-line at present but the outlook for additional demand is improving. Ethanol was priced at $1.14 per gallon on May 29th up from a five-year low of $0.92 per gallon on March 26th. Currently gasoline at $1.05 per gallon is less expensive and with a higher BTU rating than ethanol.  

July soybeans, expected to be the beneficiary of the Phase-One agreement, were up 6 cents per bushel to 841 cents, partly reversing losses during the past month.

 

For consecutive years 2017 through 2019 the U.S. supplied 34.4 percent of soybean requirements for China amounting to 95.5 million metric tons. This was followed by a decline to 16.9 percent of 88.5 million metric tons in 2018 and 16.6 percent of 88.0 million metric tons in 2019.

 

The following extracts from the March 31st 2020 edition of the USDA Grain Stocks Report indicate the levels of storage on farms and in fields and off-farm for corn and soybeans.

  • Corn stored in all positions on March 1st, 2020 totaled 7.95 billion bushels, down 7.7 percent from March 1st 2019. Of the total stocks, 4.45 billion bushels are stored on farms, down 13.3 percent from a year earlier. Off-farm stocks, at 3.50 billion bushels, are up 0.5 percent from a year ago. The December 2019 through February 2020 data indicated disappearance at 3.45 billion bushels, compared with 3.32 billion bushels during the same period last year.
  • Soybeans stored in all positions on March 1st 2019 totaled 2.25 billion bushels, down 17.4 percent from March 1st 2019. Soybean stocks stored on farms totaled 1.01 billion bushels, down 20.3 percent from a year ago. Off-farm stocks, at 1.24 billion bushels, are down 14.8 percent from March 1st 2019. Indicated disappearance for December 2019 through February 2020 totaled 1.00 billion bushels, down one percent from the same period a year earlier.

The May 12th WASDE projected the 2020 harvest for corn from 89.6 million acres and from 82.8 million acres for soybeans. These values were lower than the projections developed before the advent of COVID-19.

 

The following quotations for July delivery were posted by the CME at the close on May 29th compared with values posted on May 22nd  (in parentheses) reflecting specified months for delivery.

 

 

COMMODITY

 

Corn (cents per bushel)

  July  325  (317)        

Sept.  330  (322)

Soybeans (cents per bushel)

  July  841  (835)

Sept.  846  (833)

Soybean meal ($ per ton)

  July  283  (284)

Sept.  286  (288)

 

 

Changes in the price of corn, soybeans and soybean meal over five trading days this past week were:-

 

COMMODITY            CHANGE FROM PAST WEEK

Corn:                  July quotation up 8 cents per bushel         (+2.5 percent)               

Soybeans:          July quotation up 6 cents per bushel         (+0.7 percent)

Soybean Meal:    July quotation up $1 per ton                     (+0.4 percent)

 

 

The current shortage of meat and bone meal is due to reduced processing of pork and beef. Prices for this ingredient for Minneapolis delivery settled at $267 per ton on May 26th compared to $350 per ton on May 6th. On May 14th 2019 Meat and bone meal was priced at $180 per ton. Depending on location and availability the rise in price of meat and bone meal could add $3 to $7 per ton to layer-hen diets due to escalation and higher inclusion of synthetic amino acids. An increase of $5 in the cost of reformulated diets represents 1.0 cent per dozen in production cost. The cost of meat and bone meal should decline as packing plants resume operation. The production of meat and bone meal from euthanized whole hogs will require adjustment of ingredient matrices for meat and bone meal depending on source.

 

 

  • For each 10 cent per bushel change in corn:-

 

The cost of egg production would change by 0.45 cent per dozen

 

The cost of broiler production would change by 0.25 cent per pound live weight

 

 

  • For each $10 per ton change in the price of soybean meal:-

 

The cost of egg production would change by 0.44 cent per dozen

 

The cost of broiler production would change by 0.25 cent per pound live weight

 

COMMENTS

 

Subscribers are referred to the May 12th WASDE #600 under the Statistics TAB.

 

 

Dr. Joe Glauber of the International Food Research Institute and formerly a USDA economist for 30 years, expressed the view that China would not comply with obligations under the Phase One Agreement. Imports of U.S. commodities amounted to $5 billion in the first quarter of 2020, comprising pork, cotton, corn and wheat. The volume of commodities delivered would have to increase to $10 billion for each of the succeeding quarters to attain the promised $36.5 billion for the current year. Dr. Glauber anticipates that China will fail to meet the 2017 baseline of $24 billion. Escalating tensions with China over COVID-19 will not promote exports to that Nation.

 

During 2018 and 2019 a total of $28 billion was disbursed to the agricultural sector in Market Facilitation Program (MFP) payments. Additional requests are being made by industry groups for 2020 MFP relief and these may be justified by delayed or anticipated lower imports by China. President Donald Trump stated in late February 2020 that the Federal Government would “provide additional aid to U.S. farmers as needed until recently negotiated trade deals with China, Mexico, Canada and other countries fully kick in”. At least one round of 2020 MFP payments or their equivalent amounting to $15.5 billion to producers would be funded in part by tariff revenue. This represents a transfer of money from consumers to the agricultural sector.


 

Status of 2019 Corn and Soybean Crops

The USDA Crop Progress Report released on June 1st documented corn and soybean planting proceeding ahead of the 5-year average with corn almost complete. Subsoil and surface moisture levels were lower than the corresponding weeks in 2019 expediting planting. CHICK-NEWS and EGG-NEWS will report on the progress of the two major crops as monitored by the USDA through the end of the 2020 harvest in October.

Reference is made to the May 12th WASDE Report #600 accessible under the STATISTICS tab for projected 2020 acreage and yields.

 

WEEK ENDING

Crop

May 26th

May 31st

5-Year Average

Corn Planted (%)

Corn Emerged (%)

 

 

88

64

 

93

78

 

89

73

 

 

 

 

 

 

 

Soybeans planted (%)

Soybeans Emerged (%)

 

65

35

75

52

68

44

 

 

 

 

 

Crop Condition

 

V. Poor

Poor

Fair

Good

Excellent

Corn 2020 (%)

Corn 2019 (%) *

* late planting

1

 

 

3

 

22

 

61

 

13

 

Soybeans 2020 (%)

Soybeans 2019 (%)*

* late planting

1

 

3

 

26

 

60

 

10

 

Parameter

V. Short

Short

Adequate

Surplus

Topsoil moisture: Past Week

3

13

67

17

Past Year

2

9

56

33

Subsoil moisture: Past Week

3

12

69

16

Past Year

2

8

59

31

 


 

Chicken Executives Indicted for Alleged Price Manipulation

On June 3rd a grand jury in Colorado handed down indictments against Jayson Penn, CEO of Pilgrim's Pride Corporation and Roger Austin, a former Pilgrim's Pride Vice President.  Indictments were also filed against Mikell Fries, President of Claxton Poultry of Georgia and Scott Brady, Vice President of the company. 

 

In announcing the indictments, Makan Delrahim, Head of the Department of Justice (DOJ) Antitrust Division stated, "executives who cheat American consumers, restauranteurs and grocers and compromise the integrity of our food supply will be held responsible for their actions".

 

The origin of the case lies in a civil lawsuit initiated in September 2016, alleging that seventeen chicken integrators colluded to "fix, raise, maintain and stabilize" prices for broiler products. Judge Thomas Durkin of the District Court for the Northern District of Illinois halted the process of discovery in the civil suit on June 25th 2019. Judge Durkin issued the stay in response to a petition from the Department of Justice.  The Government maintained that obtaining depositions and gathering evidence would prejudice an ongoing criminal investigation. The stay was requested to protect an investigation by a grand jury.

 

As noted in the CHICK-NEWS report of July 2nd 2019, the civil lawsuit also alleged manipulation of the Georgia Dock benchmark price from 2015 through to its termination by the Georgia Department of Agriculture in mid-2017.

 

Central to the civil case was an allegation that the defendants colluded indirectly through data abstracted from the Agristats® benchmarking system.  The Plaintiffs maintained that information published in reports circulated by Agristats containing production and marketing data allowed integrators to adjust production to the detriment of both the retail and food service sectors of the food industry. Agristats® is a co-defendant in the civil suit and represents a potential liability for the then owner Elanco Animal Health and parent company Eli Lilly before the spin-off of Elanco and the subsequent sale of Agristats® to unnamed acquirers.

 

Fieldale Farms settled the civil lawsuit in November 2018 paying $2.3 million and agreeing to provide substantial cooperation supporting plaintiffs' complaints.

 

Although the press reports concerning the indictments do not provide information beyond the names of the four indicted and their company affiliations, there are a number of inferences that can be derived from events preceding the release of the Federal Grand Jury findings: -

  • It is considered significant that Bill Lovette was not indicted notwithstanding the fact that he was the president and CEO of Pilgrim’s Pride for eight years during which the alleged collusion took place. It is noted that Lovette "retired" from his executive position and the Board of Pilgrim's Pride Corporation on March 22, 2019. In commenting on the retirement, Gilberto Tomazoni, Chairman of the Board of Directors stated, "William W. Lovette will be retiring from his position as president and CEO and as a member of the Board of Directors effective March 22nd 2019 and not as a result of any disagreement with the company regarding its operations, policies or practices”. The sudden departure of Lovette generally recognized as a competent and experienced executive, popular in the industry and without a hint of ethical concerns, generated considerable speculation at the time.  The question now arises as to his involvement as president and CEO of Pilgrim’s Pride in any possible collusion that occurred and his subsequent possible cooperation with the DOJ

 

  • A second question relates to the selection of the companies allegedly involved in collusion. Obviously it takes more than one company to be involved in an alleged crime, but it is noted that Pilgrim's Pride with a weekly production of 30 million broilers is over ten times the size of Claxton Farms. It is difficult to see how these two companies, even if illegal activities occurred, could have collectively manipulated the broiler market. The DOJ has documentary evidence of collusion between indicted personnel at Pilgrim's Pride and Claxton Poultry concerning an attempt to "rig" a contract. It is also hypothesized that pressure will be brought to bear at both ends of the spectrum of defendants to elicit plea bargains that will be applied to future indictments.

 

  • There is no question that if guilty pleas are extracted by the DOJ, the subsequent liability with regard to the civil case will devolve into negotiating the quantum of damages that will accrue to billions.

 

The disclosure of the indictments had an immediate effect on the share price of the three quoted companies producing chicken.  On a day when the S&P rose 1.4 percent and the Dow by 2.0 percent, Tyson Foods closed at $60.10 down 3.8 percent; Sanderson Farms closed at $122.62 down 6.2 percent and Pilgrim's Pride Corporation closed at $18.29 falling 12.4 percent. Erosion of share value would have been greater but for a mid-afternoon recovery.

 

The involvement of Pilgrim's Pride plays out against a background of woes for JBS SA of Brazil the holder of 75 percent of the equity of PPC.  Production units producing chicken, beef and pork in both the U.S. and Brazil have been impacted by COVID-19.  Brothers Wesley and Joesley Batista scions of the founder and controlling shareholders of J&F SA that in turn controls JBS SA, recently had their civil and business rights restored. This was after a two-year suspension following a plea agreement involving payment of a $1.2 billion penalty. The Batista brothers acknowledged bribery and corruption of officials extending up to the President of Brazil, Michel Temer, in addition to flagrant insider trading.

 

It is hoped that the allegations advanced by the DOJ lack substance and that the criminal charges will be confined to the companies implicated and the action by the DOJ does not reflect activities in the chicken industry. It woild be best for all concerned for the issue to be resolved quickly with a minimal of negative publicity.

 

In the interest of completeness, relevant postings in CHICK-NEWS are re-posted in this special edition.


 

Spurious Allegations Give Rise to Nuisance Lawsuit

 

    

According to recent news reports, attorneys in Chicago, Minneapolis, New York and Buffalo have filed a Federal class action, antitrust lawsuit against the nation’s major broiler producers.  These include Koch Foods, Tyson Foods, Pilgrim’s Pride, Perdue Farms and Sanderson Farms with at present 14 named Defendants. The lawsuit is eerily reminiscent of the 2008 antitrust case against major egg-liquid producers and the subsequent complaints against companies marketing shell eggs. The latter action was settled with high legal costs and payments to the Class and its lawyers.

  

 

 

The Plaintiff, Maplevale Farms, according to their website, is a regional food distributor centered in Western New York State and adjoining Northeastern Pennsylvania serving communities along Lake Erie. The Plaintiff bases the claim on “historically unusual price stability” which they claim is attributed to alleged collusion among the large broiler integrators. The complaint alleges that the major broiler producers “conspired to hatch a plan to manipulate the supply of chicken to keep the price of the birds artificially high, harvesting bumper profits.”

 

The report dealing with the Maplevale action cites AgriStats® “a private publication available only to the producers, which regularly updates the condition of the poultry market” This is entirely a mischaracterization and is blatantly false.  AgriStats® is a cost-based benchmarking system which deals with historical costs of production and processing and is not related in any way to either revenue or profitability.  It is a technical and cost-guideline intended to improve performance.  It has nothing whatsoever to do with “artificially restricting the supply of poultry, driving up the price.”


 

Controversy over the Georgia Dock Benchmark Price

 

    

On February 10th 2016, CHICK-CITE posted an article refuting a January 19th article in The Wall Street Journal which implied that an inflated Georgia Dock price could increase retail prices.

The reliability of the Georgia Dock price index has simmered for a number of months culminating in an extensive posting on Seeking Alpha by an anonymous analyst ManBearChicken, an acknowledged short on the three public traded broiler stocks.

  

 

Subsequent negative publicity arising from the Thursday November 10th New York Times report resulted in an approximately five percent decline in the share price of Sanderson Farms (SAFM); Pilgrim’s Pride Corporation (PPC) and Tyson Foods (TSN).  Given that the three companies have a collective market capitalization of $31 billion, publicity relating to the Georgia Dock price has cost shareholders $1.5 billion. By Friday 18th November, observers considered that the reaction was overblown.

 

The recent news reports and postings suggest that the composition of the Georgia Dock price and its compilation have resulted in overpayment by customers who have used the index as a basis for payment.  Data shows that there was close correspondence between the USDA Composite Index, the Urner Barry Index and the Express Markets Index through 2011. Price deviation between the Georgia Dock price when compared to the other three indexes was evident from 2012 onwards.  Despite seasonal fluctuations in the price of chicken, the Georgia Dock price demonstrated both consistency and a higher level with exception of mid-2012 when feed prices were exceptionally high and then again during mid-2014.


 

Tyson Foods Exonerated by SEC

In a press release dated August 25th, Tyson Foods announced that the Securities and Exchange Commission has issued a letter indicating that the Agency has completed an investigation into allegations raised in a civil lawsuit Broiler Chicken Antitrust Litigation and has concluded that no enforcement action against the Company is required.

 

 

(SMS 1,406-17 September 1st 2017)


 

Plea Bargain Agreement Previously Negotiated by Batista Brothers is Vacated

A plea bargain negotiated between Joesley, Chairman of JBS SA and his brother Wesley, CEO of the operating company arranged with prosecutors in Brazil in February 2017 is to be nullified. In their plea bargain agreement they admitted to lying to investigators and bribing politicians.

In September 2017, both Batista brothers were arrested on allegations of insider trading. Apparently they sold a considerable quantity of JBS SA shares immediately before news of the plea bargain became public knowledge. It is calculated that the illegal trade generated a profit of $31 million. Wesley was released from custody on February 21st 2018 but with restrictions on his involvement with JBS, the stock market and his confinement to Brazil. His brother Joesley remains in prison based on an allegation of concealing information during the plea bargain process.

On a cynical note it is hoped that Wesley Batista is not confined in the same prison as the executives of BRF since this could result in further collusion.


 

Fieldale Farms Corporation Settles on Broiler Chicken Antitrust Litigation

According to court records, Fieldale Farms Corporation has settled without admitting wrong doing in Broiler Chicken Antitrust Litigation N.D. Illinois Case No. 1:16-cv-08637. Fieldale Farms will pay the Plaintiffs $2.3 million and the Company has agreed to cooperate with Direct Purchaser Plaintiffs in ongoing litigation against the non-settling Defendants. 

 

Ligation arises from a claim alleging collusion among the major broiler producers. An important aspect of the case is that all of the Defendants had access to cost data circulated by a major U.S. benchmarking system which is in turn a subsidiary of a pharmaceutical company.  Plaintiffs allege that by becoming aware of their competitors’ production costs, it would be possible to make decisions concerning volumes of production and pricing.  Although this contention appears to be a long stretch, the cost of defending such an action can be immense as experienced previously by the egg industry with their civil antitrust lawsuits.  The magnitude of the claims against major producers can be judged from the seven figures offered by Fieldale Farms which is now released from liability by the class of Direct Purchaser Plaintiffs.

 

This lawsuit will have profound implications for the benchmarking system and its parent company in addition to the subscribers.


 

Joesley Batista of JBS SA Rearrested

On Friday, 9th November, Joesley Batista was arrested by Brazilian Federal authorities. The action was taken following a probe of bribery and illegal campaign donations involving the Agricultural Ministry of Brazil from 2014 to 2015.

Joesley and his brother Wesley are concurrently facing allegations of insider-trading following share disposal after agreeing to a settlement with the Department of Justice in Brazil.

The cozy relationship between the Batista’s and the previous Government in power has obviously been impacted by election of Jair Bolsonaro as the President and the appointment of new officials at the Department of Justice.

Neither Wesley nor Joesley serve as officers or directors of JBS SA although it is evident that they wield considerable influence over policy and decisions by management.


 

Department of Justice Intervenes in Antitrust Lawsuit

According to a Reuters article on June 25th Judge Thomas Durkin of the District Court for the Northern District of Illinois issued a six-month stay to all defendant’s employees and former employees to prevent discovery of evidence in an ongoing civil antitrust lawsuit alleging that major broiler producers colluded to artificially maintain high prices for chicken.

 

The Department of Justice has also convened a grand jury to investigate possible criminal   wrongdoing by the defendants in the lawsuit. The purpose of the DOJ motion was to protect a grand jury investigation. According to Dr. Peter Carstensen, professor of law emeritus at the University of Wisconsin, Madison, “The intervention signals that the DOJ thinks that there’s a really serious violation here that requires a grand jury inquiry and the potential for indictments.”

Carstensen added, “The probability that there was not just an antitrust violation but a criminal violation is such that they now want to stay the discovery so that the grand jury gets first shot at these alleged felons.”

 

The civil lawsuit was initiated in September 2016 when Maplevale Farms alleged that Tyson and other large broiler producers colluded to “fix, raise, maintain and stabilize” prices for broiler chicken.  Central to the allegation is that the broiler companies used the historical production statistics and price data circulated to subscribers of the Agristats® benchmarking discovery subscription service.  Subsequently additional lawsuits were filed by major food manufacturers and retailers including Conagra Brands, Nestle USA Inc., Sysco, Walmart Stores and the Kraft-Heinz Company.

 

The plaintiffs maintain that major broiler producers including Tyson Foods Inc., Pilgrim’s Pride Corp., Koch Foods, Mar-Jac, Wayne Farms, Claxton Poultry, Sanderson Farms and others were involved in collusion from 2008 through 2016.  The plaintiffs maintain that knowledge gained through Agristats® enabled the producers to limit production of broiler chicks and hence reduce the volume of chicken delivered to the marketplace.  It is considered significant that one of the original defendants, Fieldale Farms settled for $2.3 million and will provide substantial cooperation supporting the plaintiff’s complaints.

 

 

A second component of the lawsuit involves an allegation of manipulating the Georgia Dock benchmark price.  The weekly values released by the State of Georgia corresponded closely to other industry benchmarks including those released by the USDA and private services. There was correspondence among the various price benchmarks until about 2015 when a significant divergence was noted.  The Georgia Dock price based on Company reporting was investigated by the Georgia Department of Agriculture and following an attempt at refinement was abandoned in 2017.

 

A spokesperson for Tyson Foods stated, “The plaintiffs in the antitrust lawsuit notified us that they had been served with a grand jury subpoena from the U.S. Department of Justice requesting all discoveries produced in the case since its inception in 2016.”  Worth Sparkman of Tyson Foods noted that the allegations lacked merit and that the company would vigorously defend the antitrust lawsuit and would cooperate with the Department of Justice.

 

Agristats® is based in Fort Wayne and was sold to the Elanco Animal Health Division of Eli Lilly before the 2018 spinoff of Elanco Animal Health. More recently Agristats® was sold to undisclosed private investors. It is apparent that Eli Lilly as the parent of Elanco Animal Health is vulnerable should the antitrust lawsuit be decided in favor of the plaintiffs. 

 

The allegations of collusion against major broiler producers was the subject of a Washington Post article on November 17th, 2016 by Peter Whoriskey dealing principally with the allegation of manipulation of the Georgia Dock price.

 

When originally filed the civil lawsuit had the markings of a shakedown similar to litigation aimed against the egg production industry. The intervention if the DOJ raises the credibility of the allegations with implications for the defendants who at best will be obliged to expend time, money and effort in responding to both civil litigation and potential criminal investigations.


 

Class Action Suit Filed Against the Boiler Industry Alleging Collusion over Labor Costs

A class-action suit was recently filed inthe Baltimore Federal court by Handley, Farah and Anderson, a Washington, DC-based law firm. Named Defendants include18 leading broiler integrators, AgriStats and consultant Webber, Meng, Sahl and Company.  The Plaintiffs allege that numerous instances of direct collusion occurred involving regular consultation on labor rates among regional processors.  It is also claimed that through the intermediary of Webber, Meng, Sahl and Company, that labor rates were compiled and disseminated at annual meetings in Destin, FL. concurrent with USPOULTRY seminars for the U.S. industry.  The complaint also implicates AgriStats since historical data circulated could have been used by subscribers to ascertain labor rates for complexes within their areas of operation.

 

Peter Carstensen a professor at the University of Wisconsin Law School and a former antitrust lawyer for the DOJ was quoted as stating, “As a pure antitrust matter it looks really strong, like there was a pattern of coordination in shared control over wages.”  Carstensen also commented on the use of AgriStats data.  He commented, “The kind of information that AgriStats is producing for its subscribers, the detailed wage information, raises serious concerns because it gives everyone involved a basis to restrict and limit how they compete”.

 

The current lawsuit parallels an ongoing class action suit alleging collusion in pricing.  Discovery in this case is currently on hold following intervention by the DOJ that is investigating possible criminal activities. 

 


 

Brazilian Department of Justice Takes Action against JBS S.A. and Executives

J&F Investimentos the family-controlled holding company for JBS S.A. and affiliates including Pilgrim’s Pride in the U.S., Moy Park in the UK and beef and pork companies in the U.S. and Latin America will have to answer to charges of fraud associated with illegally-obtained loans from the National Development Bank (BNDES).  It is alleged that Joesley and Wesley Batista and senior executives were involved in a scheme to bribe officials at BNDES and State pension funds to provide sweetheart loans between 2007 and 2011. This finance allowed the extensive expansion of the company by acquisition of competitors.

                                                                                                                                              Batista Brothers, Joesley and Wesley

 

The federal prosecutor responsible for the latest action stated, “JBS through its owners and the use of intermediaries paid substantial bribes to senior government officials to coopt the BNDES president and his staff.”  The Department of Justice of Brazil is demanding $5 billion in compensatory and punitive damages for irregular practices conducted by JBS S.A.


 

Pilgrim’s Pride Reports on First Quarter of 2020

In a press release dated April 29th Pilgrim’s Pride Corporation (PPC) announced results for the 1st Quarter of 2020 ending March 29th March.

The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as US$ x 1,000 except EPS)


Jayson Penn CEO Pilgrim's Pride

1st Quarter Ending

March 29th 2020

March 31st 2019

Difference (%)

Sales:

$3,074,928

$2,724,675

+12.9

Gross profit:

$177,099

$218,939

-11.1

Operating income:

$84,386

$137,042

-38.4

Pre-tax Income

Net Income

$105,961

$67,449

$104,541

$84,125

+1.4

-19.8

Diluted earnings per share:

$0.27

$0.34

-20.6

Gross Margin (%)

5.7

8.0

-28.8

Operating Margin (%)

2.7

5.0

-46.0

Profit Margin (%)

2.2

3.1

-29.0

Long-term Debt:

$2,620,907

$2,276,029

+15.1

12 Months Trailing:

     

Return on Assets (%)

5.8

   

Return on Equity (%)

19.0

   

Operating Margin (%)

5.4

   

Profit Margin (%)

3.7

   

Total Assets

$7,251,982

$7,102,364

+2.1

Market Capitalization

$5,195,000

   

52-Week Range in Share Price: $15.75 to $33.67 50-day Moving average $18.90

Market Close Wed 29th April pre-release $22.01; Open Thursday 30 th post-release $20.71

Forward P/E 8.0 Beta 0.9


In a statement accompanying the press release, president and CEO of PPC, Jayson Penn stated “We are grateful to our team members for their commitment, dedication, and continued hard work, in supporting our ability to keep our team members safe and healthy, while maintaining production and supply to our customers during this unprecedented crisis. Despite the volatile and challenging markets in Q1, in part due to Covid-19, our strategy has continued to achieve solid results in relative performance to industry competition, and deliver more resilient performance regardless of changes in specific market conditions. Operating results in Europe significantly improved but were more than offset by difficult market dynamics in the U.S. and Mexico. In spite of the difficult global macro conditions, our results have remained well-balanced, and are the result of our vision to become the best and most respected company, creating the opportunity of a better future for our team members..

 

Penn continued “in the U.S., the market tracked normal seasonality initially during Q1 before wider implementations of travel and movement restrictions due to Covid-19 disrupted retail and foodservice channel demand. The large-bird deboning market was especially volatile during the quarter and remained challenging compared to 2019. Operationally however, we continue to improve our relative performance versus the industry across all our business units, including large bird deboning. We also adapted quickly to the change in channel demand by shifting the mix of our production capabilities, supported by our close partnerships with Key Customers, strong focus in execution by our team members, the geographical diversity of our footprint, and our presence across all bird size categories.”

 

In opining on Mexico, Penn stated “the market environment in Mexico during Q1 was difficult as weak macro conditions persisted longer than expected, contributing to uncertainties in consumer spending. Prices, especially in the traditional markets, were below seasonal expectations before rebounding to reach normal levels by the end of the quarter. Our increased share of non-commodity products, strong execution, and growth in Prepared Foods, helped to partially offset the weakness.”

 

The European components were reviewed by Penn, including “the legacy operations once again delivered robust results in Q1, maintaining the trend achieved in the last three quarters of 2019. We generated revenue that was in-line with last year while operating income significantly improved year on year, and was 8% higher than the previous quarter. Our newly acquired European operations also performed well and continued to generate positive EBITDA. The increase in performance was driven by robust demand at retail, partially offset by a reduction in foodservice, continuing strength in pork exports especially to China, as well as the initial implementations of operational improvements.”


 

JBS SA Reports on 1st Quarter of 2020.

In a press release dated May 14th JBS SA (JBSAY) announced results for the 1st quarter ending March 31st. JBS SA, a multinational based in Brazil is the holding Company for beef and pork packing companies in the U.S and owns approximately 75 percent of Pilgrim’s Pride Corp. with operations in Mexico, Northern Ireland and the EU.

 

The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as US$ x 1,000 except EPS. Conversion R$5.9=US$1)

 

1st Quarter Ending March 31st.

2020

2019

Difference (%)

Sales:

$9,573,119

$7,520,338

+27.3

Gross profit:

$1,233,000

$989,237

+24.7

Operating income:

$387,810

$288,741

+34.3

Pre-tax Income

Net Income

($1,150,202)

($997,812)

$59,031

$198,040

Neg.

Neg.

Diluted earnings per share:

($0.38)

$0.07

Neg.

Gross Margin (%)

12.8

13.2

-3.0

Operating Margin (%)

4.1

3.9

+5.1

Profit Margin (%)

Neg.

2.6

Neg.

Long-term Debt:

$12,058,051

$8,989,423

+34.1

12 Months Trailing:

 

 

 

Return on Assets (%)

6.9

 

 

Return on Equity (%)

21.4

 

 

Operating Margin (%)

0

 

 

Profit Margin (%)

3.0

 

 

Total Assets

$25,984,915

$21,413,455

+21.4

Market Capitalization

$10,234,000

 

 

 

52-Week Range in Share Price: $4.43 to $16.31 50-day Moving average $8.12

Market Close Thursday, May 14th $8.62 Close post-release Friday, May15th $7.97

Forward P/E 9.6 Beta 0.3

 

EBITDA as a percentage of revenue generated by subsidiaries in Q1 2020:-

Seara Brazil: Chicken, meats and frozen foods = 16.9

JBS Brazil: Beef, leather = 4.1

JBS USA: Beef. = 4.8

JBS USA: Pork = 5.0

Pilgrim’s Pride: USA, Mexico and EU. Chicken and pork in UK =8.3.

JBS SA derived 76 percent of Q1 2020 revenue from the three U.S subsidiaries. PPC represented 24 percent of JBS SA Q1 2020 revenue.


In commenting on the performance of the PPC subsidiary Gilberto Tomazoni stated:-Considering results posted net revenue of $2.3 billion, a 33.5% growth in comparison to Q1 of 2019 and an EBITDA of $186 million, 1.1% higher than the same quarter of last year, with an EBITDA margin of 8.3%. These results include a 15% impact of the average foreign exchange rate (BRL vs USD), which was 3.8 in Q1 2019 and 4.46 in Q1 2020 (May 19th 5.9)

 

In U.S. GAAP and net revenue totaled $3.1 billion, 12.9% higher than Q1 2019, and EBITDA was $165.5 million, 19% lower than the same period of last year, while EBITDA margin was 5.4%.

In the USA, the market tracked normal seasonality initially during Q1 before wider implementation of travel and movement restrictions due to Covid-19 disrupted retail and foodservice channel demand. The large-bird deboning market was especially volatile during the quarter and remained challenging compared to 2019. Operationally however, PPC continued to improve its relative performance versus the industry across all its business units. PPC also adapted quickly to the change in channel demand by shifting the mix of its production capabilities, supported by its close partnerships with key customers, a strong focus in execution by PPC team members, the geographical diversity of its footprint, and its presence across all bird-size categories.

In Mexico, revenue was stable. Market environment during Q1 was difficult as weak macro conditions persisted longer than expected, contributing to uncertainties in consumer spending. Prices, especially in the traditional markets, were below seasonal expectations before rebounding to reach normal levels by the end of the quarter. The PPC increased share of non-commodity products, strong execution, and growth in prepared foods have helped to partially offset the weakness.

In Europe, the legacy operations once again delivered robust results in Q1, maintaining the trend achieved in the last three quarters of 2019. Revenue in the quarter was in-line with last year while operating income significantly improved year on year. The newly acquired European operations also performed well and continued to generate positive EBITDA. The increase in performance was driven by robust demand at retail, in addition to continuing strength in pork exports especially to China, as well as the initial implementations of operational improvements and synergy capturing.


 

2002 Annual Meeting of the USAPEEC in Virtual Format

The May 21st edition of the  USAPEEC MondayLine lists the schedule, speakers and presentations for the virtual meeting to be presented June 8th through 12th. 

 


 

COVID-19 Incidence and Precautions at Tyson Foods Wilkesboro, NC. Plant

According to a May 20th release by Tyson Foods, the company provided data on incidence rates among workers at the Wilkesboro, NC plant.  Tyson Foods entered into an agreement with Matrix Medical Network in late April to deploy a fleet of mobile clinics and staff to undertake COVID-19 screening and education of workers on prevention at all processing and packing facilities.  On-site testing from May 6th to May 9th encompassing 2,007 employees, plus an additional 237 tested by the Department of Health, disclosed a 25.4 percent COVID-19 positive rate based on demonstration of the virus using approved technology.  It is also accepted that tests in use have a low predictive positive value and generate false negatives due to low sensitivity.  Accordingly, the prevalence rate among employees of the plant is probably higher than the indicated 25.4 proportion.  It is also of importance to note that the majority of cases detected using screening were asymptomatic.  Based on the data from the first week of May, production was terminated on May 14th to allow for decontamination.

 

Contrary to the policies of some broiler integrators, Tyson Foods has been completely transparent with the results of testing.  Kevin Taylor, Complex Manager for the Wilkesboro plant, noted “disclosing our testing results will help better protect our team members and help provide the wider Wilkesboro community with the information it needs to stop the spread of the virus.”  He added, “Our team members are essential to helping to feed the nation and their health and safety is always our first priority.”

 

Tom Brower, Senior VP for Health and Safety for Tyson Foods, stated “We are working closely with local health departments to protect our team members and their families and to help manage the spread of the virus in our communities.” He added, “We are using the most modern resources to support our team members and we are committed to ensuring they feel safe and secure when they come to work.”

 

Tyson has been proactive, along with Perdue Farms, in implementing protective measures including screening workers for possible COVID symptoms at the beginning of each shift, providing face masks, maintaining social distancing and physical barriers between workstations and in common areas including lockers and break rooms.


 

Nestle Introduces Life Cuisine Brand

Nestle, a multinational based in Switzerland has introduced their range of Life Cuisine® brand prepared meals in fifteen flavors suitable for breakfasts and snacks.

 

The recipes feature low carbohydrate content, high protein and are vegetable-sourced and gluten free.   John Carmichael, President, Nestle Foods Division stated, “Eating well is no longer ‘one-size-fits-all,’ so our offerings can't be either.”  He added, “As needs evolve and expand, our team of culinary experts and nutritionists works in lockstep to deliver contemporary meals made for these emerging food lifestyles.”

 

It is known that Nestle has been developing plant-based meats substitutes and it appears that they are now ready to apply previous research and food technology to marketable products.

 


 

Perdue Cooperates with CDC to Upgrade COVID-19 Prevention

During mid-May, officials from the U.S. Centers for Disease Control and Prevention [CDC] visited the Salisbury, MD.; Accomac, VA.; and Milford, DE facilities of Perdue Farms to review procedures implemented to limit introduction and spread of COVID-19.

 

Perdue Farms has been proactive in introducing preventive measures including suggestions and recommendations made by OSHA and the CDC. 

Best practices in plants include:

  • Checking temperatures of workers on entry to facilities
  • Wearing masks
  • Maintaining social distancing, especially in restaurants, locker rooms, break rooms, and offices
  • Installation of partitions between workers on production lines
  • Placing dispensers for hand-sanitizer throughout facilities for ease of use
  • Installing foot-operated faucets for hand washing
  • Introducing dedicated staff to clean and sanitize contact surfaces during both shifts
  • Ensuring thorough decontamination of plants over weekends and at night

 

In addition to processing facilities and procedures Perdue has implemented:

  • Distribution of educational materials on COVID-19 in English, Spanish, and Haitain Creole
  • Amplifying CDC recommendations on TV monitors
  • Arranging webinars at all production operations to allow workers to interact with health professionals.

 

Perdue Farms has established outreach to local community leaders to encourage hand washing, social distancing, wearing masks, and to make the community aware of the symptoms of COVID-19 and the response to infection.

 

Perdue Farms has been transparent in reporting incidence rates of COVID-19.  Extensive testing in plants has shown a prevalence rate of approximately four percent, which is lower than in the counties where Perdue operates.

 

Additional suggestions provided by CDC included:-

 

  • Removal of all fans from processing floors
  • Establishing single-file movement for workers through facilities, especially at entrances and during shift changes
  • Emphasizing hand hygiene
  • Ongoing training and assistance to management on infection control

 

Chicken Marketing Summit To Be in Virtual Format

The 2020 Chicken Market Summit is being presented as a webinar series. The five remaining sessions for the program will run from June 3rd through July 1st and will focus on the effects of COVID-19 on changes in retail consumption, brands May 21st and post-COVID issues.


 

NCC Responds to Marler Petition on Declaring Salmonella Serotypes as Adulterants

Previously CHICK-NEWS reported on the January 2020 petition submitted by Attorney Bill Marler, supported by activist groups, to declare thirty serotypes of Salmonella as adulterants within The Federal Meat Inspection Act and The Poultry Products Inspection Act*.  Declaring thirty serotypes as adulterants would effectively cripple the broiler and turkey industries and it is therefore appropriate for the NCC to file an opposing petition.

 

In the documents submitted to the FSIS under signature of Dr. Ashley B. Peterson, Senior Vice President, Scientific and Regulatory affairs on May 22nd, the NCC stated "we believe that all regulatory action related to food safety, including performance must be lawful and based on sound science".  The NCC added "the actions requested in the petition represent "a procedurally improper change to longstanding and unequivocal Agency policy that would contradict court precedent dating back decades”.

 

*Docket #FSIS-2020-007: Petition for interpretive rule declaring outbreaks serotypes of Salmonella enterica subspecies enterica to be adulterants.


 

COVID-19 Impacts Southern California Food Plants

According to the Los Angeles Times, COVID-19 has affected operations in four meat packing plants in the city of Vernon, in LA County.  In the case of the Farmer John plant owned by Smithfield Foods, 153 of 1,837 employees tested positive in early May.  Eight other facilities packing tea, baked goods, frozen food and meat have recorded cases of COVID-19. The various plants confirmed between five and twenty-five employees as positive presumably using on-site sampling and remote assay by the County health department.

Smithfield Foods maintains that it is following CDC and OSHA guidelines and has relaxed attendance policies, eliminated co-payment for treatment and extended paid leave to at-risk employees.

 

In addition to the Southern California outbreaks, 138 employees at Central Valley Meat Company in Hanford were diagnosed with COVID-19.


 

Impact of COVID on Pork Processing and Exports

According to the USDA Agricultural Marketing Service, pork-processing capacity decreased from approximately 480 million pounds per week during the first week of April to 320 million pounds during the first week of May.  Capacity utilization declined from 95 percent to 65 percent over the period.  April hog slaughter fell 11 percent compared to the corresponding month in 2019.  Capacity utilization bottomed at 58 percent during the week ending May 1st. 

Exports of pork and pork products in March 2020 attained 701.6 million pounds, 36 percent above March 2019.  Imports by China and Hong Kong combined increased by 330.1 percent from 46 million pounds to 196 million pounds.  Exports to Mexico increased by 9.5 percent in March 2020 compared to March 2019 attaining 141 million pounds or 20.1 percent of total exports. 

During the first quarter of 2020 China imported 928,000 metric tons of pork compared to 334,000 metric tons during the first quarter of 2019.  The United States shipped 168,000 metric tons of pork and pork products to China in the first quarter representing 18.1 percent of total imports by China.  US exports for the quarter represented a six-fold increase over the first quarter of 2019.  The European Union was the major exporter to China with 539,000 metric tons or 58 percent of China's import volume.


 

Dutch Packing Plant Encounters COVID-19

Vion N.V. one of the largest meat packing companies in Holland has closed a plant in Groenlo adjacent to the border with Germany as a result of COVID-19 infection among workers. A problem relating to the outbreak is that many of the workers commute daily from Germany resulting in testing and quarantine requiring interaction between two national jurisdictions. To date 79 German workers and 68 Dutch workers have tested positive for COVID-19 out of 657 in the plant with many yet to be examined.

In commenting on the outbreak, CEO John Klijn noted "meat processing is labor intensive, and requires a large number of people".  He added "the sector is extremely vulnerable because 80 percent of the workforce are migrant workers who live together and travel to work in small buses.  If you then spend the day in a place where social distancing is not possible, you are asking for problems".

 

This is the second outbreak effecting Vion with a previous shutdown at a plant in Scherpenzeel.  This incident required immigrant workers for Eastern Europe to be quarantined on a river boat.  Vion employs 13,000 workers with more than half comprising immigrant labor.

 

The Netherlands has reported 45,250 cases of COVID-19 infection and 5,800 deaths since the advent of the epidemic.


 

Meat and Poultry Packers in Brazil Under COVID Pressure

Recently Aurora S.A. a major meat producer in Brazil signed a consent agreement with Federal officials in Brazil requiring routine testing of employees for COVID-19 and enhanced protective measures.  Aurora employs 26,000 workers in sixteen plants.

BRF, a second major meat and poultry processor in Brazil announced a seven percent positive rate among 5,000 workers at a plant in Concordia in Santa Catarina State.  BRF plants are running at under capacity but have not been closed other than in two locations where state or local public health authorities have enforced suspension of operations affecting plants operated by both BRF and JBS SA.

 

On May 30th JBS SA obtained a ruling from a labor court allowing re-opening of the Ipumirim plant in Santa Catarina State, processing 850,000 birds per week. This action, subject to complying with safety regulations has prevented euthanasia of up to a million birds. JBS SA are under a court mandate issued on May 28th to provide protection to workers, to implement testing of those showing symptoms and to cease knowingly retaining workers with illness on processing lines. Deviations from acceptable and prudent precautions were documented by independent auditors but wrongdoing was denied by the company.


 

Batista Brothers Redux

The Superior Court of Justice in Brazil has restored business privileges to Joesley and Wesley Batista after paying penalties amounting to $2 billion.  In May 2017, J&F, the family holding company of JBS S.A. accepted a leniency agreement over pay-offs to corrupt politicians and government officials and in addition flagrant insider trading.

 

It was noted in their petition to the court that their return to active management would be beneficial in the light of the ongoing COVID-19 outbreak.

 


 

Documentary Problems Complicating Exports to China

According to a recent advisory circulated by USAPEEC, exporters are experiencing difficulties relating to completion of documentation accompanying exports to China.

The question arises as to whether this action is a deliberate policy based on heightened tensions between China and our nation or whether it is due to apparatchiks independently working-to-rule.

 

It is frequently challenging to distinguish between ultra-efficiency involving rigid conformity to procedures or an obstructionist policy decreed by the Central Government.  Exporters will recollect problems with shipments to the Russian Federation in the late 1990s. To protect local production and create opportunities for bribery this nation contrived barriers including the alleged presence of pathogens and drug residues and in one case even radioactivity was advanced as a reason to exclude shipments.

 

The problems cited by USAPEEC involve minor errors and inconsistencies in documents.  Accordingly, USAPEEC is advising shippers to ensure that forms are correctly completed with accurate data and to ensure correspondence in information submitted among required shipping documents. The chicken industry should be grateful for the efforts expended by USAPEEC to provide advice and support to exporters and to coordinate with the USDA to maintain exports critical to profitability.


 

Delay in Implementing Feeding Program Accentuates Child Hunger

Congress created the Pandemic-Electronic Benefit Transfer (EBT) program to enable 30 million under-privileged children to maintain an acceptable standard of nutrition given that schools are closed as a result of COVID-19 restrictions.  According to an article by Jason DeParle in a May 26th article in The New York Times, less than four million children have benefited from the program approved in mid-March.  Two months after approval only 15 percent of eligible children had received benefits and only twelve states have fully provided benefits to parents.

 

Reasons for the delay in providing relief to families relate to obsolete computer systems, lack of coordination between Federal and state agencies and inefficiency in companies providing technical and logistic support.

 

 

 

A spokesperson for the Food Research and Action Center located in Washington stressed the need for a Federal nutrition safety net to implement programs that are beyond the resources of states especially those in the south.  The Brookings Institution conducted a survey that determined that a fifth of U.S. children are currently deprived of food.  This was confirmed by the Census Bureau that reported almost one third of U.S. households with children lacked financial resources to supply adequate food.  It is estimated that 80 percent of children in Louisiana and 85 percent in West Virginia qualify for the program that established an income threshold of $48,000 for a family of four.


 

Consumers Concerned Over Present Conditions but Express Optimism for the Future

The Conference Board issued the May Consumer Confidence Index on May 27th.  Understandably the Index declined sharply in April attributed to the economic downturn following COVID-19 restrictions.  For May, the Consumer Confidence Index was calculated to be 86.6 up from 85.7 for the previous month.  The Present Situation Index, a component of the broader index reflects current business sentiment and the labor market. The Present Index declined from an April value of 73.0 to 71.1 in May.  In contrast the Expectations Index rose from 94.3 in April to 96.9 for the past month.

 

Lynn Franco, Senior Director of Economic Indicators at the Conference Board stated, "following two months of rapid decline, the free-fall in confidence stopped in May".  She added "the severe and widespread impact of COVID-19 is being mostly reflected in the Present Situation Index which has plummeted nearly 100 points since the onset of the pandemic".  She concluded "while the decline in confidence appears to have stopped for the moment, the uneven path to recovery and potential second wave are likely to keep a cloud of uncertainty hanging over consumers' heads".


 

OSHA to Require Recording of COVID-19 Cases

According to a recent policy decision, OSHA will require employers with more than ten workers to record and presumably report cases of COVID-19.  At issue will be whether the case was work-related even though recording a specific case does not imply violation of an OSHA standard.

 

 

 

Over the past two decades, OSHA data has demonstrated a progressive decline in work-related injuries and illnesses.  It is inevitable that reporting COVID-19 cases as "work-related" will result in a profound increase in work-related events, distorting the data confirming advances in worker safety attributed to investment by the poultry industry in equipment, mechanization, safety installations, ergonomics, training and enhanced supervision.


 

Iowa to Continue Transparency on Incidence of COVID in Plants

Sarah Reisetter, Deputy Director of The Iowa Department of Public Health indicated to media that the State would continue to provide data on COVID-19 testing at specific plants.  This policy is in contrast to the state of Nebraska that will not release data relating to the incidence rates in packing plants in which the infection has emerged.

 

At issue is the presence of COVID-19 among workers in two hog plants operated by Perdue Farms in Sioux City and Sioux Center.  A total of 89 workers tested positive out of 425 submitting specimens at the beginning of May. All apparently were asymptomatic. Kerri McClimen, Vice President of Communications for Perdue noted "everyone is healthy and back at work and our attendance is high".  Perdue Farms has been proactive in implementing protective measures for workers and is aggressive in testing and quarantine.

The Iowa Medical Director has determined that it is "in the public interest to name businesses if 10 percent or more of their employees are ill or absent" This policy is strongly supported since communities in which affected plants are located have the right to know the prevalence of COVID-19 to initiate and maintain protective measures.

 

 


Sioux City IA. Location of hog packing plants

 

Consumer Changes Post-COVID

According to Datassential a market research company, 65 percent of consumers cooked more food at home during the eight-week confinement period due to the ongoing COVID-19 outbreak.  Some respondents indicated cooking fatigue especially in homes with children. Generally Datassential determined that most consumers followed their previous shopping routines but over 20 percent of respondents did commence on-line ordering of groceries, most making use of curbside pickup.  Approximately 20 percent of those surveyed, mostly millennials, responded that they had tried home delivery for the first time during home confinement.  There was not an obvious move to try meal kits although those with subscriptions intend to continue buying.  Bundled meals ordered from restaurants featured in the survey with almost three-quarters of the respondents intending to continue using restaurant services in the future. In contrast boomers who appreciate social interaction intend dinning out when restrictions are lifted.

The rediscovery of home baking should benefit egg sales and inclusion of eggs in meal times other than breakfast will be beneficial to per capita consumption even with the return of the food service sector.


 

Sanderson Farms Reports on Q2 of FY 2020

In a press release dated May 28th Sanderson Farms Inc. announced results for the 2nd quarter of FY 2020 ending April 30th.

 

The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as US$ x 1,000 except EPS)

 

2nd Quarter Ending April 30th.

2020

2019

Difference (%)

Sales:

$844,711

$845,229

+<0.1

Gross profit:

$12,428

$104,396

-88.1

Operating income:

$(43,786)

$55,166

-179.4

Pre-tax Income

Net Income

$(45,566)

$6,118*

$53,996

$40,636

-184.4

-84.9

Diluted earnings per share:

$0.28

$1.83

-84.7

Gross Margin (%)

1.5

12.4

-87.9

Operating Margin (%)

(5.2)

6.5

-180.0

Profit Margin (%)

0.7

4.8

-85.4

Long-term Debt:

$200,000

$55,000

 

12 Months Trailing:

 

 

 

Return on Assets (%)

1.5

 

 

Return on Equity (%)

2.4

 

 

Operating Margin (%)

1.2

 

 

Profit Margin (%)

0.9

 

 

Total Assets

$1,969,510

$1,774,134

+11.0

Market Capitalization

$2,971,000

 

 

 

*Takes into account CARES benefit, without which EPS would have been negative at a consensus estimate of $(1.29)

 

52-Week Range in Share Price: $ 102.30 to $179.45 50-day Moving average $134.30

Market open May 28th $140.80 Close $133.62

Forward P/E 126.6 Beta 0.7


In commenting on Q2 results, Joe F. Sanderson, Jr., chairman and CEO, stated “These are challenging and unprecedented times for all of us, I am especially proud of the dedicated work and perseverance of our 18,000 employees, contract poultry producers, customers, vendors, consumers who buy our products and the communities and states in which we operate”.

 

He noted “the financial results for our second quarter of fiscal 2020 reflect the impact of the extraordinary challenges caused by the COVID-19 pandemic. The unprecedented social and economic impact of the virus and the related government actions to contain its spread materially affected every aspect of our business, including our labor force, sales, operations and production levels, as well as our customers. Sanderson Farms entered this crisis with and continues to have a strong financial position, little debt and ample liquidity. The Company had $776.9 million of borrowing capacity available under its revolving credit facility at the end of the second fiscal quarter.

 

In commenting on the market situation Sanderson commented “volatility is reflected in the market prices for boneless breast meat produced at our plants that target food service customers. Quoted market prices for boneless breast meat began moving seasonally higher in late February, and reached $1.35 per pound during the fourth week of March. Less than one month later, the quoted market price was at an historic low of $0.74 per pound, with some realized prices below $0.50 per pound. However, prices began to move higher at the end of April, as certain parts of the country began to relax restrictions to mitigate the spread of the virus and moved to $1.58 per pound by mid-May. The current quoted market price for boneless breast meat is $1.31 per pound. Our average sales price per pound of fresh and frozen poultry decreased 8.3 percent during the second quarter of this fiscal year compared with the same period last year and was lower by 2.5 percent through the first half of this fiscal year compared to the first half of last year.

Referring to the Sanderson Farms product mix he stated “demand for our products shifted among our customer base during the quarter, as orders from food service customers declined dramatically due to widespread closures of restaurants and other venues where food is consumed away from home, while orders from our retail grocery store customers surged. We were able to shift production from our food service program into our retail program to some extent, but overall, we processed 4.2 percent fewer pounds during the second quarter than we expected when we announced our first quarter results on February 27th 2020. Moving into our third fiscal quarter, we have reduced egg sets relative to our expectations, and we now expect to produce 5.9 percent fewer pounds during our third fiscal quarter than we projected in February, as we shift production into our retail grocery store program and reduce production levels at our plants that process a larger bird for food service customers.” He added “we expect our total production during our third and fourth fiscal quarters of 2020 to be up 2.2 percent and down 5.0 percent, respectively, compared to the same quarters of fiscal 2019”.

The cost of responding to COVID-19 was described by Sanderson in his concluding statement, “among other measures taken to manage through the current environment, Sanderson Farms announced on March 31, 2020, that, effective immediately and continuing to June 26, 2020, all hourly employees who work their scheduled hours are eligible to earn an attendance bonus of $1.00 per hour. In addition, steps we have taken to protect the health, safety and welfare of our workforce and to address other challenges of this pandemic will increase our operating costs and negatively affect our volumes for the remainder of fiscal 2020

In the post-release call Sanderson indicated that food service demand was back to 75 percent of the pre-COVID-19 level. He commented on uncertainty regarding exports to China. Sanderson indicated that although repurposing plants from the current 58% “big-bird” to 42 percent tray-pack was feasible there was no plan to do so.


 

Canada Rules on Extradition of Huawei CFO

After prolonged litigation, Associate Chief Justice Heather Holmes of the Supreme Court of British Columbia ruled that the U.S. extradition request for Meng Wanzhou to the U.S. was valid with respect to Canadian law.

 

Meng Wanzhou is the daughter of Ren Chengfei, founder and CEO of Huawei.  She was arrested in Canada in December 2018 on a warrant issued by the U.S. Department of Justice.  At issue is an allegation of fraud relating to transfer of funds from Iran to Huawei through a series of banks in contravention of U.S. sanctions.  In her judgment, Justice Holmes noted that U.S. allegations of bank fraud would be illegal in Canada and accordingly met the test of applicability.


Ms. Meng

 

The Embassy of China in Toronto expressed dissatisfaction and opposition to the court ruling and is continuing to apply diplomatic pressure to arrange for the release of Ms. Meng.

 

The situation is playing out against deteriorating relations between China and the U.S. and may evoke retaliatory action by China. Although action against China over Hong Kong announced by the President on May 29th was mild, there is no evident move to thawing relations. The Administration has threatened re-imposition of tariffs on Chinese goods that would effectively invalidate the January 15th Phase-One trade agreement. Despite some exports of pork and orders for consignments of corn and soybeans, the agreement may be in jeopardy based on rhetoric from Washington and Beijing. A collapse of the agreement would have profound effects on the U.S. agricultural sector.

 

Perhaps Ms. Meng has now become a “piece” in an international chess game


 

Northland Boom MistMAXX 360™ "Hurricane" Sanitizer

With increased concern over protecting employees from COVID-19, effective disinfection is required for work areas and locations where staff come into close contact.  Northland Boom and Custom Spray, located Holdingford, MN. has adapted their patented spraying technology to develop the MistMAXX 360™ environmental disinfectant dispenser.

 

The self-contained, pull-along unit can be operated by a single worker dispensing a mist of disinfectant particles ranging from 50 to 80 microns in diameter.  The unit is designed for efficiency, portability and ease of operation.  The compressor was selected for durability and to maintain a continuous release of disinfectant.  The unit is rechargeable and is fully equipped with a coiled hose and a wand releasing a disinfectant spray solution ranging from 15 to 25 feet at a delivery rate of 3 to 5 gallons per hour. The MistMAXX 360™ Hurricane can be used to decontaminate equipment, work surfaces, the interior of vehicles, locker rooms, dining areas and offices.

 

The MistMAXX 360™ Hurricane aerosol sanitizer allows homogenous distribution of EPA-approved disinfectants, reducing the risk of staff contracting bacterial and viral diseases from contact surfaces and the workplace environment.

 

For additional information and ordering access <www.mistmaxx360.com>

 


 

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