Editorial

Antimicrobial Use Survey in Broilers and Turkeys

08/19/2019

Dr. Randall S. Singer a faculty member at the University of Minnesota, College of Veterinary Medicine has released a report entitled Estimates of On-Farm Antimicrobial Usage in Broiler Chicken and Turkey Production in the United States, 2013-2017. The survey was supported by the U.S. Poultry and Egg Association and funded by the U.S. Food and Drug Administration with contributions from the National Chicken Council and the National Turkey Federation. It is accepted that the report is based on a substantial proportion of the industry including 7.5 billion broilers and 164 million turkeys slaughtered in 2017. The responses provided by industry were confidential and insulated from the Freedom of Information Act. Data was provided to Mind Walk Consulting Group LLC., established by Dr. Singer as an intermediary independent from the University of Minnesota.

The data presented in the report clearly reflects the impact of the Veterinary Feed Directive rule established on October 1, 2015 and implemented in January 2017 in accordance with FDA Guidance for Industry #213. What occurred between 2015 through 2016 is of historical value and can be used as a basis to establish the effect of the Veterinary Feed Directive. What is important is the trend from 2017 onwards. It is considered interesting that the report did not attempt to correlate the data submitted by integrators with the broiler and turkey data circulated in Agristats® reports that quantify individual antibacterial compounds used by participants in their benchmarking service. Sales data as reported to the FDA in relation to species would also be an important validation of the industry-submitted data.

The public health and marketing related implications of antibiotic administration became evident from the 2000's onwards in the U.S. notwithstanding action taken in the EU dating back to the Swann Commission Report in the UK in 1969. No restrictions were imposed on administration of antibiotics until 2015 consistent with releases from the Animal Health Institute, and statements by individual producers that antibiotics were harmless, since there were no residues and the compounds were essential to achieve acceptable performance, The growing problem of transmissible drug resistance was highlighted by public health authorities and academics during the 1980s and 1990s. This resulted in Congressional pressure and ultimately restrictions by the FDA. The value of administering antibiotics for the purpose of growth promotion as opposed to therapy was questioned by Perdue Farms following a three-year evaluation and the results published in a peer reviewed journal.*

The study conducted by Dr. Singer is an important contribution to the literature and clearly demonstrates that reducing antibacterial use has not resulted in any appreciable increase in industry mortality as denoted by USDA and Agristats® data. It is however evident that individuals companies and specific flocks are still affected by the E. coli complex and clostridial enterotoxaemia manifested by necrotic enteritis and gangrenous dermatitis.

The reduction in the use of antibiotics to prevent infection and growth promotion is clearly evident. Administration of antimicrobials to broiler chicks decreased from 93 percent in 2013 to 17 percent in 2017. Gentamicin is still administered in broiler hatcheries despites a 74 percent reduction over the survey period. Use of gentamicin over an extended period in a complex will inexorably lead to the emergence of Salmonella resistant to this antibiotic and plasmid transfer of resistance genes will extend non-susceptibility to other pathogens of avian and human health significance.

The distinction between antibiotics important to human health and those suitable for livestock has resulted in bacitracin emerging as the predominant product to suppress clostridial infections. Administration of water-soluble antimicrobials and in-feed antibiotics declined sharply over the four-year period, again without appreciable increase in mortality or degradation in growth rate or feed conversion efficiency as measured across the industry. It is now accepted that 50 percent of broilers are now marketed with an "antibiotic-free" claim. Administration of antibiotics for therapy or prevention requires either a prescription or a veterinary feed directive issued by a licensed Veterinarian applying FDA principles relating to prudent use.

The withdrawal of antibiotics has resulted in an emphasis on prevention of infection with specific attention to immunization, ventilation practices, litter quality and control of coccidiosis. This is coupled with the introduction of antibiotic alternatives including probiotics, prebiotics, botanicals and feed additives including butyrates and acidifiers.

The situation with regards to turkeys shows a divergence from broilers in that the relative use of antibiotics to suppress colibacillosis and enteric infections has necessitated retention of antibiotics. The range of compounds that have been abandoned includes virginimycin and tylosin following FDA restrictions on the compounds. Whereas broiler producers managed to reduce antibiotic administration to chicks from 93 percent in 2013 to 17 percent in 2017, the turkey industry has only halved hatchery antimicrobial use for poults from 96 percent to 41 percent. Clearly enhanced disinfection of eggs and improved hatchery hygiene could reduce the routine use of injectable antibiotics. The turkey industry could beneficially examine retention of gentamicin especially in relation to Salmonella infection currently under investigation by the FDA and FSIS. It is noteworthy that the turkey industry has reduced in-feed tetracycline use by 67 percent but the reduction in water-soluble antibiotics including penicillin, tetracycline and lincomycin decreased by levels lower than achieved by the broiler industry.

The Singer report clearly demonstrated progress in reducing antibiotics in the broiler industry and to a lesser extent for turkeys. To ascertain whether alternative modalities to prevent and treat disease are effective, additional surveys extending from 2017 to 2020 will be instructive especially if validated by other antibiotic databases and with reference to industry production data. Clearly poultry health professionals have heeded the demand to reduce antibiotics and have complied with federal restrictions without apparent degradation of field performance as measured on an industry level. This must eventually be beneficial to flock and human health and will enhance the image of the poultry industry among consumers and regulators.

  • Engester, H.M. et al. The effect of withdrawing growth-promoting antibiotics from broiler chickens: A long-term commercial industry study. J. Applied Poultry Science. 11:431-436. (2002)

 



 

Poultry Industry News

Broiler Week

08/16/2019

Weekly Broiler Production and Prices

Chick Placements.

The Broiler Hatchery Report released on August 14th confirmed that a total of 230.5 million eggs were set during the week ending August 10th, up one percent compared to the corresponding week in 2018. A total of 181.0 million day-old chicks were placed among the 19 major broiler-producing states during the week ending August 10 th. This was one percent more than in the corresponding week in 2018. Total chick placements for the U.S. amounted to 188.5 million. Claimed average hatchability was 82.7 percent for eggs set three weeks earlier. Broiler chick placements for 2019 through August 10th amounted to 5.97 billion, one percent more than YTD 2018.

Broiler Production

According to the August 16th USDA Broiler Market News Report (Vol. 66: No. 33) for the processing week ending August 10th 2019, 172.4 million broilers were processed during the week at an average live weight of 6.15 lbs. (6.18 lbs. last week) and a nominal yield of 76.0 percent. The number of broilers processed was 2.5 percent more than the corresponding processing week in 2018. Processed (RTC) broiler production for the week was 825.2 million lbs. (375,107 metric tons), 5.0 percent more than the corresponding week in 2018. Production YTD of RTC in 2019 is 24.56 million lbs. (11,365,340 metric tons), 2.1 percent more than in 2018 YTD.

Broiler Prices

The USDA National Composite Weighted Wholesale price on August 10 th 2019 was down 0.7 cent per lb. from the previous week to 82.6 cents per lb. compared to 86.1 cents per lb. during the corresponding week of 2018; 88.2 cents per lb. for July 2019 and 87 cents per lb. for the three-year average.


 

UPDATED COMMODITY REPORT August 16th

08/16/2019

Price of corn down 3.6 percent at close of CME trading on August 16 th compared to August 12th following release of the August WASDE. Soybeans and soybean meal relatively unchanged.

Corn responded to the mid-session release of the August WASDE on Monday 12 th with a 5.2 downward turn by close of trading. The WASDE documented an unexpected higher yield and an 8.6 percent increase in ending stocks of corn. Soybeans gained 1.4 percent on a 5.0 percent lower ending stock. The market was indifferent to the August 8th announcement concerning imposition of a 10 percent tariff on the remaining $300 billion in annual imports from China not subject to previous tariffs, since delayed to December.

The absence of any substantial news regarding the latest round of talks in Shanghai and a resumption scheduled only for September in Washington suggests intractability by both the U.S. and China. Current consensus is that there will be no resolution of the trade dispute before the end of 2019. In the interim China has retaliated by banning all imports of agricultural products from the U.S.

The continuous stream of conflicting statements by White House and Government of China spokespersons over the months since the dispute began is disconcerting to the commodities market and has contributed to price fluctuation.

The following quotations were posted by the CME at close of trading on Friday 16th August compared with values for Monday 12 th August (in parentheses).

COMMODITY

 

Corn (cents per bushel)

Sept. 371 (385)

Dec. 381 (393)

Soybeans (cents per bushel)

Sept. 866 (862 Aug.)

Nov. 879 (866 Sept.)

Soybean meal ($ per ton)

Sept. 295 (293)

Dec. 300 (293 Sept.)

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

COMMODITY CHANGE FROM PAST WEEK

Corn: Sept. quotation down 14 cents per Bu                  (-3.6 percent)

Soybeans: Sept. quotation up 4 cents per Bu                 (+0.5 percent)

Soybean Meal: Sept. quotation up $2 per ton from Aug. (+0.7 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:-

COMMENTS

Subscribers are referred to the weekly USDA Crop Progress Report and the August 12th WASDE posted under the STATISTICS tab.

In June some concessions were promised by China to reduce coercive trade practices and clarify dispute resolution. Subsequently U.S. negotiators claim that China has backtracked on structural issues hence the threat of more stringent tariffs and embargos on trade with tech. companies in China.

Prices will be determined by the trend in levels of ending stocks as influenced by the 2019 harvest, exports and domestic use.

For comparison the values below are commodity prices posted by the Dalian Mercantile Exchange in $US per short ton* at market open on August 13 th 2019 (local time) with comparable August 12th closing CME values in parentheses:-

Corn $244 ($140)

Soybeans $410 ($287)

Soybean meal $365 ($293)

*(conversion Rmb7.14=$US1 prevailing August 12th)

The August 12th 2019 WASDE Report #591, projected that 82.0 million acres of corn would be harvested in 2019 to produce 13.90 Billion bushels. The WASDE projected a harvest of 3.68 Billion bushels of soybeans from 75.9 million acres. The levels of production and ending stocks for the two commodities are based on completion of planting in June and current data of harvest area and projected yield. The WASDE to be published in mid-September will confirm the projected yields and ending stocks of corn and soybeans respectively.

The corn price was adversely affected by the August 9th decision by the EPA to grant 31 and to deny six waivers to refineries. This action according to the Renewable Fuel Association decreased demand by 1 billion gallons of biofuel. This was reflected in a precipitous decline in the value of a RIN from 20 to 11 cents. Ethanol fell to $1.27 per gallon on August 9th down 25 percent since the beginning of June.

Unless shipments of corn and especially soybeans to China resume in volume, which is highly unlikely, the financial future for row-crop farmers in 2019 appears bleak despite the release of two tranches of support funding in 2018 amounting to $8 billion as "short-term" compensation for disruption in trade. On July 25th the USDA announced a $16 million package to support agriculture with Market Facilitation funds to be distributed in three tranches. The first will take place in August through the Farm Services Agency under authority of the Commodity Credit Corporation. Payments will be based on a value corresponding to the higher of 50 percent of the Producer's calculated payment or $15 per acre, provided a cover crop is planted.

The magnitude of the second (November 2019) and third (January 2020) payments will be decided on according to prevailing conditions. Regulations framed in terms of the Additional Supplementation Appropriations for Disaster Relief Act of 2019 enacted in June will determine eligibility.


 

Updated USDA-ERS Poultry Meat Projection for 2019.

08/16/2019

The USDA-Economic Research Service released production and consumption data on August 16th for broilers and turkeys covering 2018 (revised) and 2019 (forecast) together with a projection for 2020.

Broiler data for 2019 was essentially unchanged from the July 2019 report. Production in 2019 will increase by 1.7 percent compared to 2018 to 19.81 million metric tons (43,311 million lbs.) RTC. Per capita consumption in 2019 was increased from the July report at 42.7 kg. (93.9 lbs.) Exports will represent 16.4 percent of RTC production in 2019 attaining 3.237 million metric tons (7,121 million lbs.) This is based on the presumption that the USMCA concluded in September 2018 will be approved by Congress and by the Parliament of Canada by the end of the year.

Turkey production will remain almost unchanged in 2019 compared to 2018 at 2.675 million metric tons (5,885 million lbs.) RTC. Per capita consumption will remain at 7.3 kg. (16.1 lb.) during 2019, a 1.4 percent downward projection despite promotions and introduction of further-processed items. Export volume will be 0.285 million metric tons (627 million lbs.).

Forecast values for production and consumption of RTC turkey in 2019 are considered to be optimistic given 2019 prices, egg settings, poult placements, disposal of hen poults, weekly production levels, live weights and inventory. The USDA projection presumably takes into account that the recently concluded USMCA, if ratified by the legislatures of the U.S and Canada, will avert tariffs. This will maintain market share in Mexico despite growing competition from Chile and other nations in Latin America.

Metric values for the broiler and turkey segments of the U.S. poultry meat industry are tabulated below:-

 

Parameter

2018 (actual)

2019 (forecast)

% Difference 2020 2018 to 2019 (projection)

Broilers

     

Production (m. metric tons)

19.364

19.687

+1.7 19.909

Consumption (kg per capita)

42.0

42.5

+0.8 42.7

Exports (m. metric tons)

3.213

3.237

+0.7 3.295

Proportion of production (%)

16.5

16.4

-0.6 16.6

       

Turkeys

     

Production (m. metric tons)

2.672

2.675

-0.1 2.695

Consumption (kg per capita)

7.4

7.3

-1.4 7.3

Exports (m. metric tons)

0.278

0.285

+2.5 0.286

Proportion of production (%)

10.4

10.7

+2.9 10.6

Subscribers are referred to the weekly updates of production and inventories of broilers and turkeys posted weekly on CHICK-NEWS

Source: Livestock, Dairy and Poultry Outlook -August 16 th 2019


 

Turkey Week

08/16/2019

Weekly Turkey Production and Prices

Poult Production and Placement:

The August 14th edition of the USDA Turkey Hatchery Report, issued monthly, documented 29.1 million eggs in incubators on August 1st 2018 (29.0 million eggs on July 1st 2019) and up 0.2 percent (71,000 eggs) from August 1 st 2018.

A total of 25.2 million poults were hatched during July 2019 (22.8 million in June 2019) and a decrease of 1.9 percent from July 2018.

A total of 21.3 million poults were placed on farms in the U.S. in July 2019, (21.3 million in June 2019), amounting to 5.2 percent less than in July 2018. This suggests disposal of 0.9 million poults during the month. Assuming all tom poults were placed, 7.1 percent of July-hatched hen poults or 3.6 percent of all July-hatched poults in 2019 were not placed.

For the twelve-month period August 2018 through July 2019 inclusive, 288.8 million poults were hatched and 259.9 million were placed. This suggests disposal of 29.1 million poults. Assuming all tom poults were placed 20.1 percent of hen poults or 10.0 percent of all poults hatched during the period were not placed.


 

UPDATED COMMODITY REPORT August 22th

08/16/2019

Price of corn down 2.4 percent at close of CME trading on August 22nd following a 3.6 percent decline last week. Soybeans and soybean meal relatively unchanged.

Corn continues the downward trend in price. Previously corn responded to the mid-session release of the August WASDE on Monday 12th with a 5.2 downward turn by close of trading. The WASDE documented an unexpected higher yield and an 8.6 percent increase in ending stocks of corn. Currently field evaluation of the status of the 2019 crop is in progress amid conflicts. Soybeans were relatively unchanged this past week but a re-evaluation of yield will be incorporation in the September WASD. This may alter the 5.0 percent estimate of ending stock, an important  determinant of price.

The absence of any substantial news regarding negotiations with China and now the new issue of possible intervention by China in Hong Kong has created pessimism over a resolution of the trade conflict. Resumption is scheduled for some undisclosed time during September in Washington suggesting intractability by both the U.S. and China. Current consensus is that there will be no resolution of the trade dispute before the end of 2019. In the interim China has retaliated by banning all imports of agricultural products from the U.S.

The continuous stream of conflicting statements by White House and Government of China spokespersons over the months since the dispute began is disconcerting to the commodities market and has contributed to price fluctuation.

The following quotations were posted by the CME at close of trading on Friday 22nd August compared with values for Monday 16 th August (in parentheses).

COMMODITY

 

Corn (cents per bushel)

Sept. 362 (371)

Dec. 370 (381)

Soybeans (cents per bushel)

Sept. 858 (866)

Nov. 870 (879)

Soybean meal ($ per ton)

Sept. 294 (295)

Dec. 300 (300)

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

COMMODITY CHANGE FROM PAST WEEK

Corn: Sept. quotation down 8 cents per Bu                          (-2.4 percent)

Soybeans: Sept. quotation down 8 cents per Bu                  (-1.0 percent)

Soybean Meal: Sept. quotation down $1 per ton from Aug.. (-0.3 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:-

COMMENTS

Subscribers are referred to the weekly USDA Crop Progress Report and the August 12th WASDE posted under the STATISTICS tab.

In June some concessions were promised by China to reduce coercive trade practices and clarify dispute resolution. Subsequently U.S. negotiators claim that China has backtracked on structural issues hence the threat of more stringent tariffs and embargos on trade with tech. companies in China.

Prices will be determined by the trend in levels of ending stocks as influenced by the 2019 harvest, exports and domestic use.

For comparison the values below are commodity prices posted by the Dalian Mercantile Exchange in $US per short ton* at market open on August 13 th 2019 (local time) with comparable August 12th closing CME values in parentheses:-

Corn $244 ($140)

Soybeans $410 ($287)

Soybean meal $365 ($293)

*(conversion Rmb7.14=$US1 prevailing August 12th)

The August 12th 2019 WASDE Report #591, projected that 82.0 million acres of corn will be harvested in 2019 to produce 13.90 Billion bushels. The WASDE projected a harvest of 3.68 Billion bushels of soybeans from 75.9 million acres. The levels of production and ending stocks for the two commodities are based on completion of planting in June and current data on harvest area and projected yield. The WASDE to be published in mid-September will confirm the projected yields and ending stocks of corn and soybeans respectively.

The corn price was adversely affected by the August 9th decision by the EPA to grant 31 and to deny six waivers to refineries. This action according to the Renewable Fuel Association decreased demand by 1 billion gallons of biofuel. This was reflected in a sharp decline in the value of a RIN from 20 to 11 cents. Ethanol spot price was $1.34 per gallon 0n August 22nd ($1.27 per gallon on August 9th).

Unless shipments of corn and especially soybeans to China resume in volume, which is highly unlikely, the financial future for row-crop farmers in 2019 appears bleak despite the release of two tranches of support funding in 2018 amounting to $8 billion as "short-term" compensation for disruption in trade. On July 25th the USDA announced a $16 million package to support agriculture with Market Facilitation funds to be distributed in three tranches. The first payment has commenced through the Farm Services Agency under authority of the Commodity Credit Corporation. Payments will be based on a value corresponding to the higher of 50 percent of the Producer's calculated payment or $15 per acre, provided a cover crop is planted.

The magnitude of the second (November 2019) and third (January 2020) payments will be decided on according to prevailing conditions. Regulations framed in terms of the Additional Supplementation Appropriations for Disaster Relief Act of 2019 enacted in June will determine eligibility.


 

Crop Progress

08/19/2019

Status of 2019 Corn and Soybean Crops

The USDA Crop Progress Report released August 19th documented progress in both corn and soybeans after a slow start to planting that is expected to negatively impact yields as documented in the August WASDE Report under the STATISTICS tab. Current crop condition for both soybeans and corn are inferior to the 2018 harvest as tabulated below. High topsoil moisture levels are evident in comparison with the corresponding week in 2018. Long-range forecasts call for dry weather in the Eastern corn-belt in late August.

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 2019 harvest in October.

WEEK ENDING

Crop

August 11th

August 18th

5-Year Average

Corn Silking %

Corn Dough %

Corn Dented

90

39

7

95

55

15

99

76

30

       

Soybeans Blooming %

Soybeans Setting pods %

82

54

90

68

96

85

       

Crop Condition

V. Poor

Poor

Fair

Good

Excellent

Corn 2019

Corn 2018

3

4

11

8

29

20

47

48

10

20

Soybeans 2019

Soybeans 2018

4

3

10

8

33

24

46

49

8

16

 

Parameter

V. Short

Short

Adequate

Surplus

Topsoil moisture: Past Week

10

26

58

6

Past Year

13

25

56

6

Subsoil moisture: Past Week

8

24

62

6

Past Year

13

27

55

5


 

STOP PRESS

08/20/2019

Elanco Acquires Bayer Animal Health

 

Following extensive industry speculation, Elanco Animal Health (ELAN) announced the acquisition of Bayer Animal Health on August 20th.The transaction was valued at $7.6 billion, financed 70 percent in cash and the remainder in equity. Bayer Animal Health products will complement the Elanco portfolio and strengthen the Company position in companion animals and will also provide an additional international presence in the food animal sector.

 


 

Tyson Foods Invests in Automation and Robotics Research

08/14/2019

In an August 8th release Tyson Foods announced the dedication of the new Tyson Manufacturing Automation Center. The facility comprises a two-story building providing 26,000 square foot of space for research and development. The Center will incorporate a machine vision technology laboratory, a food production pilot plant, training classrooms all dedicated to refine and evaluate automation and robotics. Over the past five years, Tyson Foods has invested $215 million in automation and robotics and recognizes the need to extend application of new technology including machine vision to enhance quality, increase efficiency and reduce labor cost.

Doug Foreman, Director of Engineering for Tyson Foods stated “The key to TMAC success will be the collaboration of world-class talent bringing expertise from all aspects of processing”. He added “The skills and the resources within this facility will allow us to create solutions that will make a difference in the lives of our team members and create value for our business”.

The TMAC will collaborate with the Don Tyson School of Innovation in Springdale. A robotics team from the STEM school will travel to Dubai on October 24th to compete in the first global challenge comprising an Olympics-style robotics event bringing together youth from around the world. Tyson will provide monetary support to help offset travel costs for the team.

In past years, Tyson Foods has opened facilities in reconditioned buildings in Springdale, AR. including the JTL building housing the company store with administrative personnel and the Tyson Emma Building with 300 information technology applications specialists.


 

Restaurant Brands International Posts Q2 Results

08/14/2019

For the 2nd quarter ended June 30th, Restaurant Brands International (QSR) posted net income of $257 million on total revenues of $1,400 million yielding a diluted EPS of $0.55. For the corresponding 2nd quarter in 2018, Restaurant Brands International posted a net income of $167 million on revenue of $1,343 million with an EPS of $0.66.

Restaurant Brands International operates major subsidiaries, Tim Horton’s, Burger King and Popeye’s Louisiana Kitchen. System-wide sales growth for Q2 2019 (with 2018 in parentheses) for the major QSR chains amounted to:

  • Tim Horton’s:  1.6 (2.2) percent
  • Burger King:  9.8 percent (8.4) percent
  • Popeye’s Louisiana Kitchen:  8.8 (10.7) percent

In decreasing order, Restaurant Brands International operates or has as franchise operations, 18,008 Burger King locations, 4,872 Tim Horton’s and 3,156 Popeye’s Louisiana Kitchen stores. The company lists $21,725 million in total assets with $16,168 million in intangibles and goodwill. The balance sheet records $11.737 million in long term debt.

In commenting on results, Jose Cil, CEO commented “during the 2nd quarter we grew global system-wide sales nearly eight percent and we crossed two restaurant milestones with more than 26,000 restaurants globally including 18,000 Burger King locations”. 

Restaurant Brands International has a market capitalization of $18.92 billion and trades with a forward P/E of 25.0. On a trailing 12-month basis, operating margin is 36.1 percent and profit margin, 10.6 percent. Return on assets is 5.8 percent and on equity 25.8 percent. The 52 week share price range is $50.20 to $78.26. On Friday, August 9th, QSR closed at $74.30.


 

Production and Import of Poultry Meat by Mexico

08/14/2019

USDA-FAS GAIN Report MX9025 released June 31st documents projected 2020 production and imports of broiler and turkey meat. It is estimated that production of broiler meat will attain 3,710 metric tons (8,162 million pounds). Total imports will amount to 870,000 tons or 19 percent of the total supply.  Mexico will export a token quantity of 7 metric tons and domestic consumption will amount to 85 pounds per capita.

In 2013 in response to an HPAI outbreak, Mexico established a zero duty tariff quota of 300,000 metric tons of broiler meat. Subsequently approval of 46 plants in Brazil allowed that nation to utilize 80 percent of the tariff quota with the remainder supplied by Chile, Argentina and Canada. Brazil supplies breasts, wings and MDM. During 2019, the U.S. supplied 730,575 metric tons of chicken meat followed by Brazil with 107,865 metric tons. The proportion of total supply from Brazil increased from 7.2 percent of imports in 2016 to 12.7 percent in 2019.

Mexico was the largest importer of broiler meat from the U.S. during the first half of 2019 with 328,505 metric tons representing 21 percent of U.S. export volume and 19.0 percent of total value at a unit price of $885 per metric ton.

Production of turkey meat by Mexico in 2020 will amount to 18,000 metric tons, less than 10 percent of projected total availability of 184,000 metric tons. Per capita consumption is estimated at 3.5 pounds. For the first half of 2019, Mexico was the leading importer of turkey products with 57.6 percent of U.S. exports and 59 percent of total value. For the first half of 2019, broiler exports were valued at $290.8 million and turkey at $183.5 million.

Reference to recent editions of USAPEEC MondayLine demonstrate the commitment to maintaining the export market presenting technical programs for the food industry and for customs officials as reported in CHICK-NEWS.

The legislature of Mexico ratified the USMCA to replace NAFTA two months ago. This agreement has yet to be ratified by Canada and the U.S.


 

Wayne Farms Fined by OSHA

08/15/2019

The Occupational Safety and Health Administration levied a fine of $120,000 on Wayne Farms LLC following release of 2,100 pounds of anhydrous ammonia in late January. The incident resulted in the hospitalization of twelve employees. The citations issued by OSHA are relevant and serve as a check-list for all plants with ammonia refrigeration installations.

 

  • Systems should be fitted with a pressure relief device in accordance with the manufacturer's specifications.

  • Technicians should be trained to use alternative over-pressure safety procedures to prevent rupture of pipes.

  • Management of charge procedures should be applied to ascertain the result of removing safety release devices from condensers.

  • Medical surveillance data should be available for members of response-teams.

Hazardous substances

  • Level B respiratory protection equipment should be regularly inspected with appropriate documentation

  • Each employee's ability to use a respirator should be evaluated and documented.


 

Beyond Meat Defers Involvement in Japan

08/15/2019

Mitsui & Company a prominent conglomerate in Japan and an investor in Beyond Meat has declined to proceed with a project to roll out the product.  No specific reason has been provided for the decision but the reluctance to proceed could relate to the difference in dietary habits between the U.S. and Japan.

It may also be possible that Mitsui is adopting a wait-and-see response to competition to Beyond Meat from alternatives such as Impossible Foods, Tyson Foods, Perdue Foods, Nestle and other contenders.


 

Smithfield Foods Donates to Central Illinois Foodbank

08/15/2019

Smithfield Foods has contributed 50,000 pounds of pork to the Central Illinois Foodbank representing 200,000 servings of protein.  Pam Molitoris, Executive Director for the Central Illinois Foodbank stated, “Our aim is to provide food and develop awareness of creative solutions for food insecurity throughout our 21-county service area.”  She added, “One in eight people in our area faces hunger including one in six children.  We are grateful to Smithfield for supporting our efforts to alleviate food insecurity in central and southern Illinois.”

 

Since 2008, Smithfield has donated sufficient protein for 130 million servings provided through food banks and in disaster relief efforts.


 

Kraft-Heinz First Half Results for FY 2019

08/15/2019

In an August 8th release, Kraft-Heinz Company (KHC) reported financial results for the first half of Fiscal 2019. For the period, the Company posted a net income of $854 million on sales of $12.365 billion.  These values were respectively 48.6 percent and 95 percent of net income and sales posted in the half-year ending June 30 2018.  The 4.8 percent decline in sales and the 51.4 percent decline in net income were reflected in a 23.8 percent lower EPS of $1.44 compared to the first half of 2018. 

 

The company report noted the 1.9 percent decline in sales value was attributed in part to a 1.8 percent decrease in unit price.  The company also pointed to increased raw material costs and lower demand for a range of products including refrigerated meal combinations and cream cheese.  The CEO of Kraft-Heinz, Miguel Patricio stated, “The level of decline we experienced in the first half of this year is nothing we should find acceptable moving forward.”  He added, “we have significant work ahead of us to set our strategic priorities and change the trajectory of our business.”

 

The company incurred impairment charges of $744 million pretax for the six months ending June 29th and impairment of intangible assets valued at $474 million pretax.

 

 The consolidated balance sheet reflecting June 29th confirms total assets of $103.2 million  including $84.9 million in goodwill and intangibles representing 82.3 percent of assets.

 

Kraft-Heinz has a market cap of $30 billion and trades with a forward P/E of 9.5. The 52 week range in share price is $26.05 to $61.68.  At close of trading on Friday July 9th KHC was $26.65, down 6 percent and close to the 52 week low.  The Company has a 12-month trailing operating margin of 20.8 percent and a negative profit margin of 43.3 percent.  Return on assets is 3.0 percent and return on equity on a trailing 12 month basis is -19.0.

 

The major reason for the precipitous 34 percent decline in share value in 2019 relates to a combination of strategic errors and deficiencies with respect to legacy brands. Kraft-Heinz has failed to revamp brands to emphasize healthfulness and natural ingredients.

 

Due to the restrictive polices imposed by 3G, the majority owner, known to slash costs, promotion especially for iconic brands, was reduced with a negative effect on demand.

In response the company lowered prices on specific brands without materially increasing volume. A further headwind for Kraft-Heinz has been the decline experienced by the entire packaged food segment that has undergone severe erosion in both volume and margin as a result of the rise in private brands.

 

Notwithstanding the challenges facing Kraft-Heinz, competitors such as Conagra negotiated the realities of the marketplace as reflected in their increased share price.  Mondelez International actually increased sales volume despite increasing prices based on enhanced product and perceived value.

 

It remains to be seen whether spending on promotion especially to ethnic demographics will materially improve the fortunes of Kraft-Heinz in the intermediate term.


 

Aftermath of Koch Foods Raid by ICE

08/16/2019

Following the ICE raid and detention of allegedly illegal alien workers, Koch Foods organized a job fair on Monday, August 12th hosted by the Mississippi Department of Employment Security. Obviously applicants must be eligible to work legally in the U.S.

In a statement of mitigation, Koch Foods noted that they follow the E-Verify program, but the system responds to documentation provided by the applicant as entered into the database. If information that the applicant provides is the stolen identity of an authorized worker, the E-Verify system will confirm eligibility. Federal Immigration law requires Koch Foods to accept documents that “appear authentic” according to a company statement.

The Koch Foods plant in Morton employs 1,000 and the raid and apprehensions have impacted available labor to maintain throughput.


 

Walmart Inc. Reports on Q2 FY 2020

08/17/2019

In a press release dated August 15th Walmart Inc. announced results for the 2nd Quarter of Fiscal 2020 ending July 31 st 2019.

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 $ x 1,000 except EPS)

 

 

 

 

 

Quarter Ending July 31st

2020

2019

Difference (%)

Sales:

$130,377,000

$128,028,000

+1.8

Gross profit:

$32,454,000

$32,457,000

<-0.1

Operating income:

$5,583,000

$5,750,000

-2.9

Pre-tax Income*

Net Income

$4,913,000

$3,610,000

$398,000

$(861,000)

+1.134

+519.2

Diluted earnings per share:

$1.26

$(0.29)

+534.5

Gross Margin (%)

27.9

23.4

+19.2

Operating Margin (%)

4.3

4.5

-4.4

Profit Margin (%)

2.8

neg

-

Long-term Debt:

$64,398,000

$50,203,000

+28.3

12 Months Trailing:

     

Return on Assets (%)

6.2

   

Return on Equity (%)

17.5

   

Operating Margin (%)

4.2

   

Profit Margin (%)

2.5

   

Total Assets

$234,861,000

$219,295,000

+7.1

Market Capitalization

$322,600,000

   

*Q2 2019 includes $4.9 billion designated "other losses"

52-Week Range in Share Price: $85.78 to $ 115.49

Market Close 14th August pre-release $106.22 Close 15 th August $112.70

Forward P/E 22.2 Beta 0.7

Same store comparisons (excl. fuel) and Segment operating profit:

Walmart U.S.: 2.8%, $4.7B;

Sam's 1.2%: $0.5B

International: $0.9B (constant currency)

E-Commerce increased by 35% over Q2 2019,

Walmart U.S. has 1,100 delivery locations and 2,700 pickup points.

Guidance for FY 2020: Comparable same-store sales +2.5 to 3.0%; Net sales +3.0%: EPS growth, low single digits: Capex $11B.


 

Sale of Bayer Animal Health to Elanco Imminent?

08/17/2019

According to a Bloomberg article on August 7th, negotiations for acquisition of Bayer Animal Health by Elanco Animal Health have reached an advanced stage. It is however considered significant that no mention of the widely rumored acquisition was made in the recent Q2 Release by Elanco. Bayer Animal Health is valued at between $5 to $7 billion and the acquisition would increase the size and penetration of the companion animal market for Elanco. It is speculated that the transaction would involve Bayer acquiring shares in Elanco. This would not serve the interest of the seller that requires capital from the sale of subsidiaries to bolster their balance sheet. It is possible that an alternative buyer including a state-supported company in China might offer cash at the eleventh hour.

Elanco paid $250 million to acquire Aratana Therapeutics based in Kansas in addition to about ten relatively small animal health-related companies also including the major acquisition of Novartis in 2014. Elanco was detached from Eli Lilly in an IPO during September 2018.

Elanco Animal Health has a market capitalization of $11.4 billion trading with a forward P/E of 24.5. The company has posted a trailing 12-month operating margin of 11.9 and a profit margin of 1.5 which lags competitors Zoetis. Over the past 52 weeks, ELAN has ranged from $28.00 to $37.61. The company carries total debt of $2.6 billion.


 

Oregon Enacts Housing Law for Hens

08/19/2019

Oregon with approximately four million hens has enacted legislation mirroring regulations introduced into California relating to housing of hens and other livestock, to take effect in 2023. Standards will be based on the UEP space and equipment requirements.

 

The three contiguous Pacific states now have uniform housing regulations that will enable in-state producers to plan conversions and new facilities and at the same time create a level playing for producers and states supplying California, Washington and Oregon.


 

Tyson Foods to Rebuild Kansas Beef Plant

08/19/2019

In an August 12th release, Tyson Foods confirmed extensive damage to the beef plant in Holcomb, KS. that occurred on Friday August 9th.  The company intends to rebuild the plant in the same location but a schedule will only be provided after assessment of damage.

To their credit, Tyson Foods will address the needs of employees.  Steve Stouffer, group president of Tyson Fresh Meats stated, “This is a difficult time for team members and their families and we want to ensure they are taken care of.”  He added, “Today we will notify our full-time active team members that they will be paid weekly until production resumes.”

Tyson has sufficient redundancy to handle production at alternative sites and will maintain the supply chain.

 

Tyson Foods expressed appreciation to first responders and also company personnel.  Evacuation of the building was completed without injury.  Tyson currently operates six plants in Kansas employing more than 5,600 people.  The company has estimated economic impact of $2.4 billion annually in the state.


 

Noelle O’Mara Appointed Group President Prepared Food at Tyson

08/19/2019

Noel White President and CEO of Tyson Foods announced the appointment Noelle O’Mara as Group President, Prepared Foods.  The portfolio involves management of one-third of Tyson Food’s manufacturing facilities with 25,000 team members.  Ms. O’Mara previously served as Chief Marketing Officer completing two years with Tyson Foods as a General Manager and Senior Vice-president of the Jimmy Dean® business unit.

 

Ms. O’Mara has more than 17 years of general management experience in food marketing and innovation. She will replace Sally Grimes who announced her intention to leave Tyson Foods but will assist with the transition.  Ms. O’Mara will continue to report to Noel White and will continue as Chief Marketing Officer on an interim basis.

 


 

David W. Gibbs to Succeed Greg Creed at Yum! Brands

08/19/2019

In a company release on August 13th, Yum! Brands announced that David W. Gibbs currently COO responsible for KFC, Pizza Hut and Taco Bell Division will replace Greg Creed who will retire at the end of 2019.  In commenting on the appointment Gibbs stated, “I’ve had the privilege of partnering with our franchisees to grow the three iconic brands within the Yum! Brands portfolio for over 30 years and am honored to follow in Greg’s footsteps.”  He added, “I’m grateful that Greg and I have had the good fortune to build on the legacy of our co-founder David Novak —with the positive culture he established after our company’s spinoff from Pepsi in 1997.”

 


 

Serbia Reports African Swine Fever

08/19/2019

The World Organization for Animal Health (OIE) reported that Serbia has diagnosed four presumptive cases of African swine fever in backyard hogs. Given the prevalence of the infection in Eastern Europe including Bulgaria with which Serbia has a common border it is highly likely that the infection is present in the nation. Control of ASF in countries with a high proportion of backyard hogs held under minimal biosecurity is difficult. A further complication is the presence of feral hogs. The challenge facing veterinary authorities in Serbia will be to restrict movement of hogs to prevent introduction of the disease into commercial farms. This will require extensive upgrading of biosecurity.


 

Shane Commentary

Sanderson Farms Wins “Natural” Lawsuit against Advocacy Groups

08/08/2019

After prolonged litigation, Sanderson Farms Inc. has prevailed against Friends of the Earth and the Center for Food Safety regarding an allegation of deceptive advertising.  The U.S. District Court for the Northern District of California dismissed the lawsuit on the grounds that the plaintiff’s lacked “organizational standing” to pursue the suit because they were unable to demonstrate that the allegations of deceptive advertising made them divert resources from their respective missions. 

 

At issue was the claim that Sanderson Farms chicken was “100 percent natural”. The plaintiffs maintained that failure to allow flocks outside access and administration of antibiotics constituted misrepresentation.

 

The lawsuit was filed in June 2017 and at the time Sanderson Farms vowed to defend the action.  Court documents indicated a number of assays demonstrating antibiotic residues.  At the time, plaintiffs maintained that residues of ketamine were present in chicken.  There is no valid reason why ketamine, which is an exceptionally expensive and highly controlled drug should have been administered to poultry and the finding is regarded as spurious since valid testing methods have not been developed for detection of residues of this drug in poultry meat.  Some of the assays that apparently detected specific antibiotics and pesticides were also invalid to assay poultry meat.  At the time the lawsuit was filed Sanderson noted that the company did not administer any of the antibiotics, chemicals or pesticides listed in the complaint. Sanderson Farms did however acknowledge that company veterinarians prescribe penicillin in accordance with FDA regulations and prudent use principles as therapy for specific flocks as required by clinical and laboratory indications.  The company claimed that appropriate withdrawal times exceeding FDA guidelines were followed.

 

The findings of the Northern District Court of California should serve as a warning to advocacy groups to more circumspect when initiating of litigation.  By their vigorous defense, Sanderson Farms has benefited the entire industry and placed potential plaintiffs on notice with respect to discrediting current production practices and advertising claims.

 

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