Editorial

Agriculture and the New Administration; Predictions and Possibilities

With the now inevitable inauguration of President-elect Biden on January 20th, 2021 it is appropriate that we should consider the approach of the incoming Administration with respect to trade issues, agriculture and related environmental considerations.  “Prediction is a difficult exercise especially as it involves the future” is an oft-repeated adage.  It is, however, worthwhile to play the informed guessing game if only as an intellectual exercise, but possibly to adapt to future policies.

 

According to the Biden-Harris transition website <buildbackbetter.com> a series of agency review teams have been established to facilitate a smooth transfer of power.  The website states that "these teams are most highly experienced and talented professionals with deep backgrounds in crucial policy areas across the Federal government".

 

Members of transition teams are governed by the provisions of the Presidential Transaction Act. This law requires disclosure of both the source of funding and most recent employment of participants. Members of teams can be either volunteers, full-time transition employees receiving payment from the funds provided by the elected candidate or through an appropriation administered by the General Service Administration. For the 2021 transition, the GSA has yet to assign funds based on directions from the White House.

 


USDA Building DC.

In reviewing the composition of the transition teams for relevant areas including the Council of Economic Advisors, Council on Environment Quality, Department of Commerce, Department of Health and Human Services, Department of Labor, the Environmental Protection Agency, International Development, Office of the U.S. Trade Representative and the USDA, a number of trends are evident.  The review teams are balanced with respect to current affiliation including thank tanks, past senior-level administrators in federal and state government, professionals in consultancy, media, law and academia but few from industry.  The Biden-Harris website claims that the teams were "crafted to ensure that they reflect the values and priorities of the incoming administration".  It is obvious that there is considerable demographic diversity, but with few household names given that the review teams have been chosen for professional experience and creditability in their respective fields. 

 

  • The USDA team comprises seventeen members with five from academia, one member from a union and four current or retired state or federal agricultural administrators.  All are classified as volunteers.  The team is led by Dr. Robert Bonnie of the Duke University Bi-partisan Policy Center. 
  • The team reviewing the office of the United States Trade Representative is led by Jason Miller and comprises fifteen members, again representing a wide array of affiliations including academia and think-tanks including the Council on Foreign Relations, the Center for American Progress and the Urban Institute.
  • The Environmental Protection Agency Team is led by Patrice Simms of Earth Justice, an advocacy group and includes eleven other members drawn from academia and law firms with one representative from the Sierra Club.
  • The team reviewing the Department of Health and Human Services with an indirect involvement with agriculture and food production is led by Chiquita Brooks-LaSure of a Washington law firm.  Members are drawn from academia, advocacy groups including the Center for Budget and Policy Priorities, the Pew Charitable Trust and state departments of health and human services.

 

The intended policies of the incoming Administration with respect to agriculture are difficult to predict by simply reviewing the names of those appointed to review teams.  Probable policies with regard to agriculture and food were not emphasized during the election campaign that was dominated by considerations including COVID, economic recovery and differences in style between the two candidates.  The following broad assumptions can be drawn from pre-election rhetoric.

 

  • Many of the Presidential executive orders relating to labor, immigration, environmental and climatic issues will be rescinded.
  • Support for ethanol production is a bipartisan issue and has become a third-rail in government. The biofuels program will continue to be supported despite opposition from the livestock industry and consumers. The RFS supports corn growers and the ethanol industry and represents an indirect tax on all who eat or drive.
  • Regulations issued in terms of the GIPSA released on the last day of the Obama administration in January 2017 will in all probability be resuscitated in some form favoring contract growers.
  • The confrontational trade policy especially with regard to China will be softened benefiting exports.
  • The U.S. may join the Comprehensive and Progressive Agreement for Trans-Pacific Trade with advantages for U.S. exporters.
  • The U.S. will rejoin the WHO and will become active in the WTO restoring cooperation with other international agencies.
  • Since control and suppression of COVID is critical to restoration of our economy it is hoped that the incoming administration will build on the availability of vaccines developed through Operation Warp Speed, initiated by the outgoing administration in early 2020.  Implementing necessary improvements in disease reporting, restoring the image and creditability of the FDA and the CDC. will be critical to controlling COVID. Reducing the incidence rate of COVID will have a beneficial effect on the economy and directly improve the financial position of U.S. agriculture and allied industries. 
  • During 2020, farmers earned as much as 40 percent of their income from federal programs including CFAP payments and compensation from disruption in trade with China. A more balanced trade policy should obviate the need to support agriculture with public funds.

 

It will be a few weeks before the Biden-Harris team nominates Secretaries for departments relevant to agriculture.  It is hoped that the transition teams will develop candidate lists reflecting experience, bipartisanship, depth of knowledge and ability to select and motivate subordinates.  Above all it is hoped that the process will proceed rapidly without the interminable delays noted following the 2017 inauguration.  Secretary Sonny Perdue was the last nomination to be announced in the current Administration and many of the critical deputy positions remained unfilled almost to the midterm election.  It is hoped that there will not be any political obstruction of qualified nominees by the Senate and that confirmation will be rapid and non-partisan.

 

Poultry Industry News

Thanksgiving Message

Barbara and I send to all our sponsors, subscribers and industry friends our best wishes for a safe and enjoyable Thanksgiving.  This year, 2020 will be like no other. Many of you, as with our family, will have to accept a zoom gathering in place of the usual fellowship and interaction. We are the lucky ones. A sobering thought is that one in four of our fellow citizens is experiencing "food insecurity" Government-speak for hunger on this day.

 

At least we can look forward to the release of effective COVID vaccines in 2021 although our current statistics are a cause for concern. We must all recognize that masking, social distancing and commonsense decisions regarding gatherings will be necessary to drive down the incidence rate of COVID until we are protected by vaccines. Our hearts go out to those who have been affected and to the families of those who have passed away. The generosity of the Industry in helping those less fortunate is acknowledged but our efforts will have to continue well into the New Year.

 

As we gather around our tables we should be deeply thankful for our health, family support and wellbeing. Let us all commit to cooperating to restore our pre-COVID lives and assist those who have been impacted over the past nine months. We owe a debt of gratitude to first responders and medical providers who have worked tirelessly over an extended period. 


 

Updated USDA-ERS Poultry Meat Projection for 2020-2021.

The USDA-Economic Research Service released updated production and consumption data on November 17th 2020 for broilers and turkeys covering 2019 (revised), a projection for 2020 and a forecast for 2021.

 

Broiler RTC production in 2020 was increased from the October report to reflect a 1.8 percent increase over 2019 to 20.32 million metric tons RTC (44,708 million lbs.). Processing rates in March and April were depressed due to COVID-19 despite demand. Per capita consumption in 2020 was unchanged in the November report and is projected to be 1.6 percent higher than in 2019 at 43.8 kg. (96.4 lbs.). Exports will represent 16.3 percent of RTC production in 2020 attaining 3.320 million metric tons (7,304 million lbs.) representing both RTC and feet.

 

The projection presumably takes into account exports to China in 2020 following signing of the Phase-1 Trade Agreement on January 15th 2020. Disruption in shipping attributed to the COVID-19 outbreak restricted exports to China during the first quarter of 2020. China and Hong Kong combined imported 45,096 metric tons of chicken products with feet predominating during the first nine months of 2020 valued at $522 million.

 

For 2021 RTC production is expected to increase 0.9 percent from 2020 to 20.50 million metric tons, (45,060 million lbs.) with per capita consumption unchanged at 44.1 kg (97.0 lbs.) up 0.7 percent from 2019. Exports are projected to decrease 0.4 percent to 3.30 million metric tons (7,275 million lbs.)

 

Turkey production for 2020 compared to 2019 was reduced by 1.4 percent to 2.608 million metric tons RTC, (5,738 million lbs.). Per capita consumption is forecast at 7.2 kg. (15.8 lb.) during 2020, 1.4 percent less than 2019 despite promotions and introduction of further-processed items. Export volume for 2020 is expected to decline to 0.254 million metric tons (559 million lbs.) Forecast values for production and consumption of RTC turkey in 2020 are considered to be realistic, given the prevailing economy, lower poult placements, disposal of hen poults, weekly production levels and inventories.

 

USDA projected a 2.0 percent increase in turkey RTC production in 2021 to attain 2.623 million metric tons (5,771 million lbs.) with per capita consumption unchanged at 7.1 kg (15.7 lbs.) and a 2.0 percent increase in exports of 0.259 million metric tons (570 million lbs.)

 

The export projections do not allow for a breakdown in trade relations with existing partners including China nor the emergence of catastrophic diseases including HPAI and vvND. Metric values for the broiler and turkey segments of the U.S. poultry meat industry are tabulated below:-

 

Subscribers are referred to the weekly updates of production and inventories of broilers and turkeys posted weekly on CHICK-NEWS and the review of monthly export data under the STATISTICS tab.

 

Parameter

2019 (revised)

2020

(projection)

2021 Difference %

(forecast) 2019 to 2020

Broilers

Production (m. metric tons)

19.957

20.322

20.498 +0.9

Consumption (kg per capita)

43.1

43.8

44.1 +0.7

Exports (m. metric tons)

3.231

3.320

3.307 -0.4

Proportion of production (%)

16.2

16.3

16.1 -1.2

Turkeys

Production (m. metric tons)

2.644

2.608

2.623 +2.0

Consumption (kg per capita)

7.3

7.2

7.1 -1.3

Exports (m. metric tons)

0.291

0.254

0.259 +2.0

Proportion of production (%)

11.2

9.6

9.9 +3.3

Source: Livestock, Dairy and Poultry Outlook –November 17th 2020


 

WEEKLY COMMODITY REPORT: November 20th 2020.

  • The financial and economic uncertainties of a Biden-Harris Administration and the escalating COVID-19 pandemic continue but these factors appear to have had little influence on the commodity market this past week as society struggles with ascending COVID incidence delaying a return to a “new normal”. The direction of agricultural and trade policy to be implemented in 2021 will emerge following the nomination of Cabinet members and their subordinates.
  • S producers are now receiving and conversely, livestock producers are paying over $4 per bushel for corn and $11 per bushel for soybeans.
  • Commodity prices this past week were higher, adding to increases recorded last week. Factors influencing prices included export orders, lower projections for 2020 crop yields and ending stocks as documented in the November 10th WASDE Report. Corn showed a 3.4 percent rise for the week with daily fluctuation on prospects of additional orders from China and shipments to Mexico and S. Korea. Soybeans were up 2.9 percent in price this week mainly due to orders booked by China and other nations and projected lower ending stocks attributed to a downward revision of yield and associated factors. Soybean meal rose 1.5 percent disproportionately lower than the rise in the price of soybeans.
  • Since July 10th year-to-date exports and 2020/2021 market-year orders for corn have attained 9.39 million metric tons (370.0 million bushels). Orders for soybeans amounted to 19.5 million tons (716.0 million bushels) accelerating during September and October. USDA did not report on sales of corn and soybeans this past week.
  • Prospects for commodity exports to China during the 2020/2021 market year that began on September 1st for corn and soybeans have apparently improved. China adjusted their domestic short-term demand for soybeans as a result of an apparent increase in the hog population after severe losses in 2019 and early 2020 from African swine fever. White-feathered chicken production has now recovered after COVID disruptions and on QSR demand. China is also taking advantage of shipping rates that are fluctuating sharply in order to build inventory. The Baltic Dry Index tracking the three categories of vessels that was 1,860 in mid-October 2019, fell to 504 in late May 2020 and is now at 1,134 having risen 0.9 percent from the value last week to the lowest level since mid-June.

 

The following quotations for delivery in the months as indicated were posted by the CME shortly before the close of trading on November 20th compared with values posted on November 13th (in parentheses) reflecting specified months for delivery.

 

COMMODITY

Corn (cents per bushel)

 Dec. 423 (409)

March ‘21 428 (418)

Soybeans (cents per bushel)

 Jan. ’21 1,181 (1,148)

March ’21 1,182 (1,145)

Soybean meal ($ per ton)

 Dec. 395 (389)

March ‘21 390 (385)

 

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

 

COMMODITY CHANGE FROM PAST WEEK

Corn: Dec. quotation up 14 cents per bushel (+3.4 percent)

Soybeans: Jan. quotation up 33 cents per bushel (+2.9 percent)

Soybean Meal: Dec. quotation up $6 per ton (+1.5 percent)

 

  • 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

 

This week the escalation in the prices of corn and soybeans would increase production cost for eggs by 0.9 cents per dozen and 0.5 cents per pound live for broilers.

 

Uncertainties still include:-

  • There are questions as to whether China will satisfy quantitative obligations in terms of the Phase One Trade Agreement during calendar 2020. The Agreement signed in mid-January incorporated U.S. tariff rescissions, promised purchases of agricultural commodities (valued at $36.5 billion in 2020 and $43.5 billion in 2021), concessions on some structural issues by China and strengthened enforcement provisions. Since the Phase One agreement was signed, China has imported agricultural commodities including soybeans, corn, sorghum, pork and beef to the value of $23 Billion according to the Office of the U.S. Trade Representative, amounting to 63 percent of commitment by China although this figure is disputed by independent economists. Renegotiation of the Phase-One Agreement by the incoming Administration is an unknown quantity.
  • Domestic U.S. soybean and soybean meal demand is now less constrained by COVID-induced cutbacks in the intensive livestock and poultry sectors.

 

According to the November 10th WASDE, corn to be harvested in calendar 2020 is expected to attain 14,507 million bushels with ending stocks projected at 1,702 million bushels. Final values will be modified by actual yield as influenced by weather conditions and export volume. Compared with the November 6th closing price the CME quotation for corn on November 20th was up 14 cents per bushel for December delivery to 423 cents, adding to the 22 cents per bushel rise recorded during the preceding two weeks.

 

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 requirement accepting a nominal ten percent addition to gasoline. More than thirty percent of U.S. ethanol fermentation capacity is off-line at present and the outlook for increased demand is questionable. Ethanol was priced lower at $1.39 per gallon on November 20th down 4 cents per gallon (2.8 percent) representing a similar increase to the 2.1 percent rise last week and compared with a five-year low of $0.92 per gallon on March 26th. Concurrently gasoline at $1.17 per gallon (quoted, New York Harbor) is 22 cents per gallon lower than ethanol and has a 63 percent higher BTU rating.

 

With more plants producing ethanol in the 4th quarter, DDGS is now available but at a higher price than in the third quarter. Eastern Corn-belt product was priced at $192 per ton on November 17th, $9 higher than the previous week and $44 per ton more expensive than November 19th 2019.

 

 Soybeans were to be the beneficiary of the Phase-One agreement with China and were up 33 cents per bushel to 1,181 cents for January 2021 delivery. The USDA anticipates a 2020 crop of 4,170 million bushels, but this value may be depressed by drought in some states. Ending stocks according to the November 10th WASDE projection will attain 190 million bushels, down from the October projection of 290 million bushels.

 

On November 17th Meat and Bone meal quoted Central U.S. attained $335 per ton, up $108 per ton from November 19th 2019.

 

On November 20th the BRL exchange with the CNY was 0.82, (up CNY 0.01 from the previous week). The conversion of the US$ to the CNY was set at 6.6 on November 20th, up CNY 0.2 from the previous week.

 

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 USDA anticipates that soybean imports by China will amount to 95 million metric tons during the 2020-2021 market year.

 

The following extracts from the September 30th 2020 edition of the Quarterly USDA Grain Stocks Report indicate the levels of storage on farms and in fields and off-farm for corn and soybeans.

  • “Old crop corn stocks in all positions on September 1, 2020 totaled 2.00 billion bushels, down 10 percent from September 1, 2019. Of the total stocks, 751 million bushels are stored on farms, down 8 percent from a year earlier. Off-farm stocks, at 1.24 billion bushels, are down 12 percent from a year ago. The June to August 2020 indicated disappearance is 3.02 billion bushels, compared with 2.98 billion bushels during the same period last year. Based on an analysis of end-of-marketing year stock estimates, disappearance data for exports, and farm program administrative data, the 2019 corn for grain production is revised up 2.67 million bushels from the previous estimate. Corn silage production is revised up 715 thousand tons. Planted area is revised to 89.7 million acres, and area harvested for grain is revised to 81.3 million acres. Area harvested for silage is revised to 6.62 million acres. The 2019 grain yield, at 167.5 bushels per acre, is up 0.1 bushel from the previous estimate. The 2019 silage yield, at 20.2 tons per acre, remains unchanged from the previous estimate”.
  • “Old crop soybeans stored in all positions on September 1, 2020 totaled 523 million bushels, down 42 percent from September 1, 2019. Soybean stocks stored on farms totaled 141 million bushels, down 47 percent from a year ago. Off-farm stocks, at 382 million bushels, are down 41 percent from last September. Indicated disappearance for June - August 2020 totaled 858 million bushels, down 2 percent from the same period a year earlier. Based on an analysis of end-of-marketing year stock estimates, disappearance data for exports and crushings, and farm program administrative data, the 2019 soybean production is revised down 333 thousand bushels from the previous estimate. Planted area is unchanged at 76.1 million acres, but harvested area is revised to 74.9 million acres. The 2019 yield, at 47.4 bushels per acre, is unchanged from the previous estimate”.

 

On November 12th the USDA-ERS published data on the export volume (thousand metric tons) and value ($ million) of agricultural commodities covering the periods October through September 2019 and 2020:-

Corn. 2019: 49,124 million m. tons valued at $8,996 million. For 2020: 46,858 million m. tons valued at $8,214 million.

Soybeans. 2019: 48,241 million m. tons valued at $16,997 million. For 2020: 46,858 million m. tons valued at $18,021 million.

 

COMMENTS

Subscribers are referred to the November 10th WASDE #606 under the STATISTICS TAB and the result of the 2020 Pro Farmer 7-State Tour is retrievable under the Search TAB.

 

 President Trump opined on July 10th that he is “not contemplating a second phase of a trade agreement with China”

 

Approximately $16 billion will be disbursed under the Coronavirus Food Assistance Program (CFAP). An additional $14 Billion relief package was announced by the Administration on September 18th with most distributed.


 

Broiler Week

Weekly Broiler Production and Prices

 

Chick Placements.

The Broiler Hatchery Report released on November 18th 2020 confirmed that a total of 231.9 million eggs were set during the week ending November 14th 2020, two percent less than in the corresponding week of 2019 and 4.4 percent (9.7 million eggs) more than the previous week.

 

A total of 172.4 million day-old chicks were placed among the 19 major broiler-producing states during the week ending November 14th 2020. Total chick placements for the U.S. amounted to 179.9 million, two percent less than the corresponding week in 2019 and 3.2 percent (5.6 million chicks) more than the previous week. Claimed average hatchability was 82.2 percent for eggs set three weeks earlier, (81.9 percent for the previous week). Cumulative placements for the period January 4th through November 14th 2002 amounted to 8.49 billion chicks, one percent lower than the corresponding period in 2019.

 

Broiler Production

According to the November 20th 2020 USDA Broiler Market News Report (Vol. 67: No. 47) for the processing week ending November 14th 2020, 166.8 million broilers were processed during the past week (last week 170.0 million) at an average live weight of 6.35 lbs. (6.34 lbs. last week) and a nominal yield of 76.0 percent. The number of broilers processed was 1.1 percent less than the corresponding processing week in 2019. Processed (RTC) broiler production for the week was 804.8 million lbs. (365,806 metric tons), (819.2 million lbs. last week), 0.4 percent less than the corresponding processing week in 2019. For YTD 2020 Processed (RTC) production attained 36,405 million lbs. (16,547,805 metric tons), 0.7 percent more than YTD 2019.

 

Broiler Prices

The USDA National Composite Weighted Wholesale price on November 20th 2020 was up 5.1 cents per lb. from the previous week to 80.1 cents per lb. compared to 77.0 cents per lb. during the corresponding week of 2019; 67.7 cents per lb. for October 2020 and 84.0 cents per lb. for the three-year average. The USDA Composite price has risen for the past four weeks after being relatively stable, albeit at a depressed value for over nine previous weeks. Price moved up 22 cents per lb. from a bottom of 52.7 cents per lb. recorded during the last week of April. The decline during April and May was attributed to the collapse of the food service segment following imposition of COVID-19 restrictions.


 

Turkey Week

Weekly Turkey Production and Prices

 

Poult Production and Placement:

The November 18th edition of the USDA Turkey Hatchery Report, issued monthly, documented 26.8 million eggs in incubators on November 1st 2020 (27.3 million eggs on October 1st 2020) and up 0.6 percent (0.2 million eggs) from November 1st 2019.

 

A total of 23.3 million poults were hatched during October 2020 (21.8 million in September 2020), representing a decrease of 6.5 percent (1.6 million poults) from October 2019.

 

A total of 20.1 million poults were placed on farms in the U.S. in October 2020, (19.1 million in September 2020), 4.9 percent less than in October 2019. This suggests disposal of 3.2 million poults during the month (2.5 million in September 2020). Assuming all tom poults were placed up to 27.0 percent of October-hatched hen poults or 13.6 percent of all October-hatched poults may not have been placed. This is an unsubstantiated estimate in a fluctuating demand for processed toms and hens in a COVID-affected year and with the approach of Thanksgiving and Christmas. See relative numbers of hen and tom poults under Production Data below.

For the twelve-month period November 2019 through October 2020 inclusive, 275.5 million poults were hatched and 251.9 million were placed. This suggests disposal of 23.6 million poults. Assuming all tom poults were placed, (representing a broad assumption as above), 17.0 percent of hen poults or 8.6 percent of all poults hatched during the period were not placed.

 

To be updated in the mid-December edition following release of monthly data

 

Turkey Production:

The November 20th 2020 edition of the USDA Turkey Market News Report (Vol. 67: No. 47) confirmed the following provisional data for turkeys slaughtered under Federal inspection:-


 

Walmart Reports on Q3 of FY2021

In a November 17th release, Walmart Inc. (WMT) released results for the third quarter of Fiscal 2021, ending October 31st.

 

For the period, the company posted consolidated net income of $5.14 billion on net revenue of $134.71 billion with an EPS of $1.80.  Corresponding figures for Q3 of Fiscal 2020 were net income of $3.29 billion on total revenue of $127.99 billion and an EPS of $1.15.

 

Comparable same-store sales, (excluding fuel), attained 11.1 percent compared to 0.6 percent for the third quarter of Fiscal 2020.  Transactions increased by 6.8 percent and the average ticket by 4.0 percent.

 

Walmart U.S. attained net sales of $88.4 billion with an operating income of $4.6 billion.  Walmart International posted net sales of $29.6 billion with an adjusted operating income of $1.1 billion.  Sam's Club acheived net sales of $15.8 billion with an operating income of $0.4 billion.

 

Walmart Inc. operates 11,400 stores under 55 banners in 26 nations in addition to Ecommerce website centers, Walmart employs 2.2 million and serves 265 million customers each week.

 

In commenting on third quarter results, Doug McMillon, President and CEO stated “This was another strong quarter on the top and bottom line.  Our associates continue to impress during this challenging year.  They are working together to serve customers and communities in new, relevant ways and we are very proud of them.  We think these new customer behaviors will largely persist and we are well positioned to serve customers with the value and experience they are looking for.”

 

Walmart has a market capitalization of $423.28 billion.  The stock has traded over a 52-week range of $102.00 to $153.40 with a 50-day moving average of $143.17.

 

The company achieved a trailing 12-month operating margin of 4.6 percent and a profit margin of 3.3 percent.  Return on assets and equity are 6.6 percent and 22.9 percent respectively.  On November 16th WMT closed at $152.44.

 


 

BJ's Reports on Third Quarter Results

In a release dated November 19th, BJ's Wholesale Club Holdings Inc. (BJ) reported results for the third quarter ended October 31, 2020. For the period, the company reported net income of $122.8 million on total revenues of $3,731 million with an EPS of $0.88.  Comparable values for the third quarter of fiscal 2019 ending November 2nd were net income of $55.09 million on total revenue of $3,229 million with an EPS of $0.40.

 

Comparable club store-sales (excluding gasoline) increased by 18.5 percent with a 200 percent increase in digital sales compared with the corresponding 3rd quarter of 2019.

 

Lee Delaney, president and CEO stated, "our recent quarter was another remarkable quarter with robust comparative growth, significant market share gains and record profitability.  As we look ahead, we are confident our business will continue to thrive given the structural shift in consumer behavior, our market share gains and our strategic investment in digital capabilities, membership, assortment, marketing and geographic expansion".

 

BJ has a market capitalization of $6.15 billion and has traded over the past 52 weeks over a range of $18.842 to $47.46 with a 50-day moving average of $40.61.  Return on assets over the trailing twelve months was 6.1 percent.  The company generated an operating margin of 3.5 percent and a profit margin of 2.1 percent.


 

Maple Leaf Foods Prevails on Appeal over Listeriosis Lawsuit

The Supreme Court of Canada ruled in favor of Maple Leaf Foods Inc. in a case arising from an outbreak of listeriosis in 2008. A sandwich chain, Mr. Sub, sued Maple Leaf Foods for loss of sales and profit as a result of adverse publicity attributed to contaminated cold cuts supplied by Maple Leaf Foods. The Court ruled that the franchise agreement blocked the plaintiff from suing Maple Leaf Foods for lost revenue. The court also considered the fact that there were no documented cases of listeriosis among customers of Mr. Sub franchisees.

 

An original class action suit was filed by 424 franchisees of Mr. Sub noting that they were enjoined from purchasing from other than Maple Leaf Foods until two months after the outbreak commenced.  The franchisees were also prevented from suing Mr. Sub for loss in revenue.

 

Independently Maple Leaf Foods was sued by 60 patients who contracted listeriosis in addition to the estates of 23 patients who died in the outbreak.

 

 


 

Perdue Farms Celebrates Centenary and Thanksgiving with Donations and New Turkey Nuggets

On November 13th, Perdue Farms offered 100 bags of limited-edition Perdue ThanksNuggets on the Perdue Farms.com website for $19.20, recognizing the year the company was founded.  To mark the launch of ThanksNuggets, Perdue Farms will donate protein sufficient for 500 enlisted members and families of the 82nd Airborne Division at Fort Bragg, N.C.

 

Perdue Farms has launched ThanksNuggets as breaded turkey breast meat nuggets with a turkey-shape and breaded dark meat turkey and cranberry nuggets resembling drumsticks.

 

Tracy Hostetler, VP of Marketing, Premium Prepared Foods at Perdue Farms stated, "Thanksgiving is going to look very different this year and we know there's a lot of cooking fatigue out there right now so we thought we would have a little fun with it by launching our limited edition ThanksNuggets.  Tracy added, "whether you prefer white or dark turkey meat our ThanksNuggets will have you covered so you can enjoy your favorite holiday flavors without all the effort".


 

USAPEEC 2020 Virtual Winter Meeting

The 2020 winter meeting of the USA Poultry and Egg Export Council will take place in virtual format December 14th through 17th.

  • The Monday December 14th program will concentrate on commodity and egg marketing. 
  •  The Tuesday December 15th program will comprise a general session with international marketing and a speakers’ forum.  Nan-Dirk Mulder Senior Global Animal Protein Analyst with Rabobank will be featured along with USAPEEC CEO Jim Sumner and Chairmen Chaz Wilson. 
  • The Wednesday December 16th program will consider with sub-Saharan Africa and the Middle East markets and will include a presentation by Dr. Jeremy R. Haft on China. 
  • The Thursday December 17th program will include an update on the Philippines, Vietnam, and Latin American markets.  Charlie Cook of the Cook Political Reports will provide a perspective on the current and future political situation with the change in Administration.

 

Details concerning registration can be obtained from USA Poultry and Egg Export Council.


 

University of Nebraska-Lincoln Upgrades Ventilation Systems

Following guidance from the Centers for Disease Control and Prevention and from the American Society of Heating, Refrigerating and Air-Conditioning Engineers, the University of Nebraska at Lincoln has upgraded the air handling systems in more than 60 buildings.  Modifications to 260 air-handling systems included doubling the rate of air exchange and increasing the filtration capacity to remove particles that may carry COVID virus.  It is understood that currently filters are in short supply and institutions and commercial enterprises have had difficulty in both converting and maintaining systems.

 

The need for regular air exchange and filtration has been clearly demonstrated by the aviation industry in controlled trials.  The high rate of COVID incidence in meat packing plants is attributed to concentration of workers in areas with a low rate of air exchange and low temperature.  Following extensive modification of air handling systems in a Tönnies hog plant in Germany, processing resumed with minimal new cases.  In the context of meat-packing and poultry processing plants, air exchange, masking, partitions between workstations are obvious measures to reduce infection and will be necessary even after an effective vaccine becomes universally available.  Installation of dry hydrogen peroxide air generators in locker rooms, break rooms, offices, and confined spaces can potentially reduce airborne transmission of viral diseases.


 

McDonald’s Intensifies Safety Audits

According to a November 13th posting on Yahoo by Hillary Russ, McDonald’s Corporation will implement “safety reaffirmation visits” to ensure that franchisees are following company guidelines to prevent transmission of COVID-19. 

 

Quoted in the article, Charlie Strong Chief Field Officer for McDonald’s supported by two U.S. franchisees issued a statement “it is apparent we are entering what many predicted would be the most difficult period of the pandemic.” The proposed safety audits will be conducted on franchisee and company-operated stores and should be concluded by the end of the year.

 

Innovations to improve safety include making available credit card payment at drive-through windows, erecting protective panels between workstations and wearing masks.

 

McDonald’s USA President, Joe Erlinger stated that his company would convene an industry roundtable to share lessons learned in controlling the COVID-19 outbreak, he stated, “McDonald’s success, just like the success of Walmart, Apple, Starbucks or any other U.S.-based business depends on all of us getting back to some version of normality as quickly as possible.”


 

China Rebuilding Hog Herd After ASF Losses.

The Ministry of Agriculture for China announced that the sow-herd rose by 31 percent and the population of the growout herd by 27 percent respectively from November 2019.  Increasing supply of hogs mainly from large integrated units has resulted in a decline in the price of pork by approximately 20 percent since the February peak.

 

The hog herd in China was seriously impacted by African swine fever (ASF) that emerged in 2018 and reduced availability of domestic pork by as much as 40 percent through 2019. Rebuilding the national breeding and commercial herds has involved restructuring favoring integration at the expense of small family farms with deficient biosecurity. China has yet to deploy an effective ASF vaccine.


Multi story hog operation in China

 

The increase in herds is reflected in a higher demand for corn and soybeans to feed both the growing hog industry and also for white-feathered conventional broilers that served as a source of animal protein as supplies of pork from domestic hog producers dwindled.

 


 

FSIS Releases HACCP and SSOP Guidelines

The Food Safety and Inspection Service of the USDA has updated the Hazard Analysis and Critical Control Point (HACCP) Guide reflecting changes in policy and experience gained since the system was introduced into U.S. plants.  The guideline for the preparation of HACCP plans provides a stepwise approach including templates to enable an establishment to develop a specific plan.

 

FSIS has also issued a generic HACCP model specifically for poultry slaughter to enable plants to comply with the New Poultry Inspection System.

 

The November 13th FSIS Constituent Update provides references for the HACCP and SSOP guides that can be downloaded from <www.fsis.usda.gov/wps/wcm>.


 

Smithfield Foods Upgrades COVID Prevention at Sioux Center, IA. Plant

Smithfield Foods has initiated a project to add 3,600 ft2 to their Sioux Center, IA bacon plant to permit more effective control of COVID-19 among employees.  The project will include a cafeteria and entrance hallway that will permit social distancing of the 470 employees in accordance with the Centers for Disease Control and Prevention guidelines.

 

Although surfaces in the new facility are designed for ease of cleaning, it is emphasized that COVID-19 spreads mainly by the aerosol route, especially in confined spaces with a low rate of air exchange.  It is hoped that Smithfield has incorporated an effective HVAC system with HEPA filtration and has also considered dry hydrogen peroxide generators to decontaminate air. 

 

Notwithstanding a high standard for the proposed facility and the installations specified, it will be necessary for workers to follow guidelines on masking and social distancing especially in locker rooms.  These precautions will be necessary even when an effective COVID vaccine is deployed.


 

Tyson Applying Advanced Technology to Prevent COVID

Under the guidance of CEO, Dean Banks, Tyson has introduced a number of innovative programs to prevent and control COVID among employees in beef and pork packing plants and poultry processing facilities. Banks has a background in technology and pharmaceutical companies and has applied his knowledge and experience to providing a high level of security for employees and shareholders alike.

 

It will be remembered that during April and May, plant closures resulted in a shortage of meat and poultry with some segments of the protein industry experiencing up a 50 percent reduction in production.  Reduced throughput in plants resulted in an unprecedented accumulation of beef and hogs on the hoof necessitating euthanasia of hogs in some states and severe losses to farmers.

 

In the face of increasing incidence rates, Tyson and other packers intensified prevention modalities including on-site PCR testing, providing PPE and distancing. Tyson estimates that it has spent in excess of $350 million on COVID prevention and response including establishing clinics and hiring health professionals. Recently Tyson Foods  introduced an algorithm that tracks incidence rates in both their plants and in the communities where they operate.  An increase in rates of positivity in any of the Tyson Foods’ 240 U.S. processing facilities with 150,000 employees results in proactive prevention measures.

 

It is estimated that more than 16,000 workers in the meat packing industry contracted COVID-19 with as many as 90 fatalities.  Action taken by Tyson and other packers should hopefully  prevent a second wave of COVID.

 

The actions taken by Tyson have the support of the League of United Latin American Citizens (LULAC) that previously criticized packers for inaction in the face of escalating morbidity and mortality during the early stage of the pandemic. Cindy Benavides, CEO of LULAC noted that meat companies have since introduced strong protective measures that have reduced infection rates both in plants and communities.


 

Dog Food Containing Chicken Recalled for Salmonella Contamination

According to media reports from South Carolina, a production lot of Albright's raw dog food containing chicken was recalled as a result of salmonella contamination.  Sixty-seven cases of   2-lb chubs were distributed among ten northeastern, mid-Atlantic and southern states. 

 

One diagnosis of salmonellosis was made on a dog consuming the food.  Raw pet food may be contaminated with Salmonella and other pathogens.  Infection of pets in a household may lead to transmission to family members, especially children.  The American Veterinary Medical Association recommends against feeding raw meat products to domestic dogs and cats.


"I'm not eating that stuff!"

 

Rabobank Emphasizes Uncertainty in Global Animal Protein Market in 2021

In a recent forecast of animal production in various regions and nations, Rabobank emphasized uncertainty attributed to COVID-19.  The pandemic resulted in closure of processing plants in the major pork and beef-producing nations including the U.S., Brazil and Germany from March through July.  Restrictions imposed to prevent transmission of infection impacted the food service segment of the industry and diminished global trade.  Rabobank considers that the protein market will recover from disruptions in 2021, and will be dependent on measures to control COVID infection among workers and consumers following enhanced personal safety and the deployment of effective vaccines.

 

Rabobank expects only marginal changes in North America in 2021 with growth in beef consumption. Pork and poultry producers will be reliant on exports to maintain projected output levels.  In Europe, poultry demand will increase consistent with recovery of the food service sector although pork and beef production will decline.

With respect to China, recovery from African swine fever is apparent due mainly to restructuring of production and processing capacity into dedicated complexes despite the absence of a vaccine. An increase in pork consumption is anticipated at the expense of beef and imports.  Rabobank predicts a soft domestic market for Brazil with industry profitability dependent on exports.


 

Tyson Foods Responds to COVID Allegations Concerning the Waterloo IA. Pork Plant

Documents discovered in the lawsuit filed by the family of the late Isidro Fernandez who died of COVID alleged "willful and wanton disregard for workplace safety".  Fernandez and four other employees died while employed at the Tyson Foods Waterloo IA. hog plant. Over a thousand workers representing a third of the staff complement were infected with COVID-19.  The lawsuit alleges that management in the plant ignored simple preventive precautions and forced workers to report for duty even if they were symptomatic.  Problems occurred during March and early April when there was a dearth of knowledge about COVID, how it spreads and appropriate preventive measures.

 

The Waterloo plant along with other meat processing facilities remained opened during the pandemic following the April 28th Executive Order issued by the President in terms of the Defense Production Act.

In response to allegations revealed in the lawsuit, Dean Banks, president and CEO of Tyson Foods stated, "we are extremely upset about the accusations involving some of the leadership in our Waterloo plant.  He added, "the allegations do not represent who we are or our core values in team behavior".  Tyson Foods has retained Covington and Burling and former Attorney General Eric Holder will lead an investigation.  Banks maintained that if claims are confirmed, the company will take all necessary measures to avert a future occurrence.  He claimed, "our top priority is and remains the health and safety of our team members". This is demonstrated by the action taken by Tyson Foods during and subsequent to the peak incidence of COVID as reported in posts that can be retrieved   by entering Tyson in the SEARCH block.


Tyson Implemented a testing program in tents

as an emergency response


 

RCL Foods, Parent of Large South African Broiler Producer Undertaking Strategic Review

RCL Foods of South Africa has commissioned a merchant bank to conduct a strategic review of products and holdings.  The objective is to evaluate "whether the collective portfolio is optimally configured to achieve growth".  RCL Foods operates the largest chicken production enterprise in the Republic of South Africa in addition is a manufacturer of animal feed, branded mayonnaise, peanut butter and bakery items.  The company has suffered from the effects of COVID-19 and the deteriorating economy in South Africa.  RCL Foods has yet to recover from the national outbreak of listeriosis resulting in extensive morbidity and mortality in 2017 through 2018.  Currently the company faces a class action lawsuit that has the potential to severely impact the asset base.

 

The abridged integrated annual report for the year ended June 2020 showed revenue of $1.82 billion with a net loss of $62 million and a negative EPS of $6.70.  The chicken segment represented 32.5 percent of company sales amounting to $576 million generating an EBITDA of $1.8 million with a negative 14.6 percent return on invested capital.

 

Rainbow Chicken Limited was established in 1960 and demonstrated rapid growth and profitability under the rigid leadership but highly efficient management of the founder, Stanley C. Methven, who died in an accident in Monaco in 1986.  Thereafter the company was acquired and merged with a major feed milling group and suffered from mismanagement, competition and the deteriorating political environment and economy in South Africa.

 


 

Target Reports on Third Quarter Earnings

In a press release dated November 18th, Target Corporation (TGT) announced results for the third quarter ending October 31st. For the period, the company earned $1,014 million on total revenue of $22,632 million with an EPS of $2.02.  Comparable figures for the third quarter of fiscal 2019 ending November 2nd were net earnings of $714 million on total revenue of $18,665 million with an EPS of $1.40. 

 

The company claimed an increase of 4.5 percent in traffic and an average ticket increase of 15.6 percent.  Same-store sales improved by 9.9 percent compared to the third quarter of FY2019.  Digital comparable sales grew by 155 percent and same-day pickup, drive up and Shipt delivery grew by 217 percent.  It is significant that 95 percent of third quarter sales were fulfilled either in or by stores.

 

Target values total assets at $50,661 million up from $42,779 million effective February 1st 2020.  The company carries long-term debt and lease obligations of $14,700 million. 

 

In commenting on results, Brian Cornell, Chairman and CEO of Target Corporation stated, "our strong results in 2020 reflect the benefits of our multi-year effort to build a durable and flexible model with a differentiated assortment and a suite of industry-leading fulfillment options".  Cornell added, "in preparation for the holiday season we will focus first on the safety of our guests and our team, making changes to eliminate crowds while enhancing our fast-growing contactless options like in-store pickup, drive-up and Shipt".

 

Target Corporation has a market capitalization of $85,790 million.  TGT shares have traded in a 52-week range of $90.17 to $173.44 with a 50-day moving average of $160.35.  TGT trades with a forward P/E of 20.6.  Trailing twelve-month operating margin was 6.2 percent and profit margin 4.2 percent.  The trailing twelve-month return on assets is 7.4 percent and on equity 28.8 percent.


 

Iraq to Follow “Flexibility” Regarding Poultry Imports

The Cabinet of Iraq has granted the Minister of Agriculture the responsibility and authority to regulate importation of chicken, irrespective of source, in relation to domestic production and demand.  Iraq has evidently adopted a policy of protecting local production despite the fact that the nation is reliant on imports for at least 60 percent of requirements.

 

According to an advisory by USAPEEC on November 19th, a ban on imports may be imminent.  Citing USDA data, Iraq was ranked 14th among importing nations over the first nine months of 2020 receiving 48,049 metric tons of presumably leg quarters and MDM to the value of $31.9 million with a low unit price of  $664 per metric ton.

 

In retrospect, a nation that relies on imports for 60 percent of production is in no position to propose or impose restrictions, especially if domestic production is inefficient and incapable of expansion over the intermediate term.  The net result of this injudicious decision will be to deprive consumers of inexpensive protein and to generate superprofits for domestic producers.  Given the knowledge of how officialdom operates in Middle Eastern nations, it would appear that “flexibility” will create opportunities for corruption and lends credence to the impression that this was the basic purpose of the illogical action by the Government of Iraq.


 

Hormel Foods Corp. Reports Lower Sales and Contribution from Jennie-O ® Segment in FY 2020

On November 24th Hormel Foods Corporation (HRL) reported on Q4 and Fiscal 2020 ending October 25th.  For the quarter, Hormel earned $234.5 million on net sales of $2,420 million with an EPS of $0.43.  Comparable values for Q4 of FY 2019 were earnings of $255.6 million on net sales of $2,502 million with an EPS of $0.47. 

 

The Jennie-O Turkey Store segment attained sales of $373.4 million in Q4, down 6.3 percent from the $398.5 million in Q4 of 2019.  Based on volumes provided, unit revenue in 2020 was $1.57 per lb. down 4.2 percent from $1.64 per lb. in Q4 of 2019. Contribution from the Jennie-O Segment amounted to $32.6 million, down 20.5 percent from $41.03 million in Q4 of 2019.  Contribution margin in Q4 of 2020 was 8.7 percent, down 15.5 percent from 10.3 percent in Q4 of 2019.

 

For Fiscal 2020, Jennie-O earned $105.6 million on net revenue of $1,333 million with a contribution margin of 7.9 percent.  For FY 2019, Jennie-O sales were $1,324 million with a contribution of $117.9 million and a contribution margin of 8.9 percent.

 

In commenting on performance of the Jennie-O segment, Jim Snee, Chairman, president and CEO stated “Volume and sales growth of Jennie-O ® lean ground products and whole birds were exceptionally strong. A reduced amount for food service and commodity products lead to the overall decline in sales.  Lower food-service earnings and increased supply chain costs related to the COVID-19 pandemic drove the significant decline in segment profit.”

 

Hormel Foods has a market capitalization of $26.19 billion with assets of $9.91 billion.  HRL has traded over the past 52-weeks in a range of $39.01 to $52.97 with a 50-day moving average of $49.93.  The 12-month trailing operating margin for Hormel was 11.4 percent with a profit margin of 10.0 percent.  Hormel Foods has a 12-month trailing return on assets of 7.9 percent and 15.3 percent on equity.


 

Poland Dominates EU Turkey Production

According to a USDA-GAIN Report PL 2020-0048 released on November 18th, Poland increased turkey production in 2020 to 408,000 metric tons, one percent more than in 2019.  Expansion in 2020 was impacted by COVID, responsible for a sharp reduction in ex-farm price from $0.69 per lb. live pre-COVID in March to $0.50 per lb. in August.  Retail prices reflected decreased demand dropping from $1.12 per lb. in March to $0.95 per lb. in August.

 

Poland exported approximately 55 percent of 2019 production valued at $730 million.  Major importers included the EU, China and Ukraine.  For the first seven months of 2020 Poland anticipates exporting turkey products to the value of $365.  Annualized this would be lower than in 2019 amounting to $620 million.


 

Shane Commentary

Uncertainty Over Consumption of Turkey for Thanksgivingnin 2020

Each year turkey producers attempt to quantify demand for turkeys in anticipation of the Thanksgiving and Christmas period in order to determine the relative and total volumes of hen and tom placements. The current year has been like no other due to the impact of COVID-19 and the consequential effect on preferences and buying power.

 

 On November 19th the Centers for Disease Control and Prevention issued an advisory against family gatherings requiring travel or multigenerational or multifamily participation, for fear of increasing the rapidly escalating incidence rate especially in the midwest, southwest and northern-tier states.  Although placements of poults is lower in 2020 compared to previous years due to sharply lower earnings in 2019, predictions for the relative numbers of toms and hens to be sold will be influenced by public response to COVID.  Smaller family gatherings suggest hen turkeys of reduced size or in many cases substitution will occur with serving of roast chicken or only ham for the traditional meal.

 

It is significant that Meijer has slashed the price of store-brand birds to 39 cents per pound from mid-November through Thanksgiving.  Frozen branded turkeys are offered at prices from 79 cents to 99 cents per pound. Lynette Ackley, Vice President of Fresh for Meijer stated, “This year certainly has not been easy causing numerous disruptions to birthday celebrations, milestone occasions and family gatherings.”  She added, “As we head into the holiday season we wanted to make sure our time-honored Thanksgiving tradition of offering birds at an incredibly low price continued for our customers.” As stock of frozen toms increases many chains will offer loss leader prices to move inventory.

 

Many supermarkets and restaurants chains that have been impacted by COVID restrictions are offering pre-prepared family meals with a roasted hen turkey presented with the “fixings” to feed up to six diners.

 

Stock levels will be carefully monitored and will determine future placing of hen and tom poults as the industry moves through the first quarter of 2021.  Restoration of profitability or in the case of some companies, achieving a “less bad” situation may well be reversed. Following the situation in 2020, supply may have to be further reduced to balance demand in an economy that has yet to recover from the impact of COVID-19 and in a market with available protein in abundance. For the processing week ended November 14th the national average frozen hen wholesale price declined 6.8 cents per lb. to 106 cents per lb. compared to the previous week. In contrast fresh hens retained their value at 132 cents per lb. Consistent with seasonal trends, cold storage at selected centers decreased by 41 percent from November 1st to November 16th but accumulation of stock may be occurring at the retail level.

 

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