Editorial

 

Chicken from China Enters the U.S. Amid Criticism

Jul 19, 2017

    

In accordance with a May 2017 bilateral agreement between China and the U.S., a token quantity of cooked chicken has entered the U.S. from the Nine-Alliance group of Qingdao, People’s Republic of China.

The U.S. Department of Agriculture-FSIS has proposed a rule allowing China to raise, slaughter and cook product from chickens and ducks to be exported to the U.S.  The shipment follows a prolonged period of inspection during which it was determined that standards of processing and food safety in China are equivalent to U.S. plants.

  

The agreement on cooked chicken was regarded as a quid pro quo for China to accept U.S. beef according to Representative Rosa L. DeLauro (D-CT). As a public health professional before entering politics, DeLauro has consistently opposed importation of food products including poultry from China based on considerations of food safety. Congressional disapproval of the Administration policy on importation of cooked chicken is reflected in a rider to an appropriations bill, banning chicken of Chinese origin from being served in schools.  It is intended to extend the ban to all Federal nutrition programs.

Although China may be regarded as a nation with endemic avian influenza, this should not be a restraint to importation into the U.S. if poultry meat is thoroughly cooked.  At the present time  raw chicken must be sourced from either the U.S., Canada or Chile although a subsequent Rule will allow chicken raised in China to be included in shipments. USDA officials are confident that four facilities approved for export to the U.S. will provide safe product based on repeated inspection over a ten-year period

Those objecting to the principle of importation from China note that apart from avian influenza, adulterants including Listeria and antibiotic-resistant pathogens in addition to pharmaceutical and other chemical residues may be present in cooked product. Ian Ronholm, previously Deputy Undersecretary for Food Safety at the USDA in the previous Administration, also criticized the agreement stating, “When you look at China it has a very spotty history with food safety and it’s very easy to fear the worst.”

 Opinions contrary to those expressed by the USDA are advanced by companies involved in auditing food plants in China supplying multinational companies.  Quoted in a Dow Jones Factiva report, based on a July 7th Washington Post article, a representative of an auditing company, Asia Inspection, noted that food-safety is the responsibility of individual manufacturers and is not as rigidly supervised by a government agency as in the U.S.

The USDA expects China to ship 324 million pounds (150,000 metric tons) of cooked poultry annually over the next five years representing 2.6 percent of total U.S. production.

Since Chicken imported from China will be labeled as to country of origin, it is expected that consumers will display reserve in their selection at the supermarket shelf.

Concern over importation from China stimulates preemptive labeling

Poultry Industry News

 

Status of 2017 Corn and Soybean Crops

Jul 21, 2017

    

The USDA Crop Progress Report released Monday July 17th  recorded progress in corn and soybean progress and condition similar to 2016 as expressed in the table below:-

 

  

                                                                            WEEK ENDING

Crop

July 9th

July 16th

5-Year Average

Corn and Soy Emerged

         100

         100

          100

Corn Silking

           19

           40

            47

Soybeans Blooming

           34

           52

            51

Soybeans Setting Pods

      7   

           16

            13

                  

Crop

V. Poor

Poor

Fair

Good

Excellent

Corn Condition

     3         

   8

 25

  52

     13

Soybean Condition

     3

   8

 28

  51

     10

 

Parameter

v. Short

Short

Adequate

Surplus

Topsoil moisture:  Past Week

    14

   26

53

 7

                              Past Year

8

22

62

 8

Subsoil moisture:  Past Week

    11

   25

58

 6

                              Past Year

7

21

66

 6

 

 

Weekly Broiler Production and Prices

Jul 19, 2017

    

The July 12th 2017 edition of the USDA Broiler Hatchery Report confirmed that 175 million day-old chicks were placed among the 19 major broiler-producing states during the week ending July 8th, two percent more than the corresponding week in 2016 Total chick placements for the U.S. amounted to 182 million.

Average hatchability was a nominal 83 percent for eggs set three weeks earlier. The unchanging 83 percent reported by the USDA is questioned in the light of comments that high-yield strains are showing suboptimal fertility and hence lower hatchability. Cumulative placements for the period January 7th through July 8th amounted to 4.88 billion chicks, two percent more than the corresponding period in 2016. The USDA Livestock, Dairy and Poultry Outlook issued on April 17th documented a one percent difference in chicks hatched and the number placed for broiler grow-out.

  

For the processing week ending July 8th 141.87 million broilers were processed at an average live weight of 2.79 kg or 6.13 lbs. (2.79 kg. last week) and a yield of 76.0 percent. The number of broilers processed was 2.1 percent more than the corresponding week in 2016. Processed (RTC) broiler production attained 300,423 metric tons, 0.9 percent more than the corresponding week in 2016. Processed (RTC) broiler production in 2017 has attained 9,171,026 metric tons YTD, 0.9 percent more than YTD 2016.

  
 

Weekly Turkey Production and Prices

Jul 19, 2017

    

Poult Production and Placement:

The July 13th edition of the USDA Turkey Hatchery Report, issued monthly, documented 30.0 million eggs in incubators on July 1st 2017 (29.4 million eggs on June 1st 2017) down 2.0 percent from June 1st 2016. A total of 25.1 million poults were hatched in June 2017 (25.0 million in May 2017) down 0.3 percent from June 2016.

  

A total of 24.3 million poults were placed on farms in the U.S. in June 2017, down 0.3 percent from June 2016. This suggests disposal of 6.8 percent of hen poults hatched during June or 3.4 percent of the total hatch.

For the period January through June 2017, 147.02 million poults were hatched and 137.44 million were placed. This suggests disposal of 9.58 million hen poults over six months representing 6.5 percent of the total hatch or 13.0 percent of hen poults hatched.

Turkey Production:

The July 14th edition of the USDA Turkey Market News Report (Vol. 64, No. 28) confirmed the following provisional data for turkeys slaughtered under Federal inspection:-

  • For the processing week ending July 8th 1.149 million young hens were slaughtered at a live weight of 7.8 kg or 17.1 lbs. (7.7 kg last week). During the corresponding week in 2016, 1.696 million hens were processed. Ready-to-cook hen weight for the short-processing week  attained 7,172 metric tons, 31.6 percent less than the corresponding week of 2016. Dressing percentage was 80.5. Year-to-date RTC hen production has attained 279,861 metric tons, 11.3 percent less than YTD 2016.
  • For the processing week ending July 8th 1,823 million toms were slaughtered at 18.8 kg or 41.4 lbs. (19.0 kg last week) compared to 2.299 million toms during the previous processing week. For the corresponding week in 2016, 2.061 million toms were processed. Ready-to-cook tom weight for the short-processing week attained 27,609 metric tons, 10.9 percent less than in the corresponding week of 2016.  Dressing percentage was 80.5.Year-to-date RTC tom production has attained 995,554 metric tons, 3.2 percent more than YTD 2016.

 

  
 

CME Prices

Jul 19, 2017

    

On Friday July 14th at close of trading on the CME, the following rounded quotations for corn, soybeans and soybean meal were recorded, together with the bracketed value for the previous week. Values were lower, reversing the advances of the previous week.

This is attributed to the release of the WASDE Report #557 on July 12th detailing increased ending stocks for corn (2,325 million bushels) but despite a decline in soybeans (460 million bushels).

  

According to the July WASDE release, a 90.9 million acres were planted to corn, three percent lower than the previous season with a predicted harvest of 14.3 billion bushels. Farmers planted 88.7 acres to soybeans, up seven percent above 2016, with a crop of 4.3 billion bushels anticipated.

 

COMMODITY

 

Corn (cents per bushel)

July ’17   369  (382)    

Sept. ’17  377   (391)  

Soybeans (cents per bushel)

July ’17   987  (992)    

Sept. ’17  994   (1,003)  

Soybean meal ($per ton)

July ’17   322  (327)

Sept’17    325   (331) 

 

 

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

  • Corn:                     July quotation down by 13 cents.                    (-3.4 percent)
  • Soybeans:            July quotation down by 5 cents                       (-0.5 percent)
  • Soybean Meal:   July quotation down by $5/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 0.40 cent per dozen
  • The cost of broiler production would change by 0.25 cent per pound live weight

See posting on the June edition of CHICK-CITE (enter WASD in SEARCH block) summarizing the July 12th USDA-WASDE Report #567, for a review of price projections and quantities of commodities produced during the 2016-17 season.

 

FSIS Clarifies Policy on Breast Muscle Myodystrophy

Jul 19, 2017

    

The FSIS has issued Notice 35-17 dated July 5th relating to “woody breast” and “white striping” which are two forms of pectoral myodystrophy usually affecting broilers grown to live weight in excess of 7 lbs.

In recognition of the increase in incidence of pectoral muscle myodystrophy the FSIS has issued instructions to inspectors as to the disposition of cases of “white striping” and woody breast”. 

  

Inflammation characterized by edema and hemorrhage often with the presence of transudate renders affected muscle tissue unwholesome and therefore unfit for human food requiring trimming.  White stripping which is visible as a result of fat deposition between muscle fibers is regarded as a quality issue and does not need to be trimmed. 

The FSIS does not have a zero tolerance for trimmable defects.  If an inflammatory process is observed associated with either of the myodystrophies program personnel must determine whether product is usable based on the entire lot.  A Non-compliance Record can be issued in the event of extensive and numerous severe defects in accordance with 9 CFR 381.1.  The FSIS Notice instructs inspection personnel to issue a Notice of Receipt or to complete a Notice of Receipt of Adulterated or Misbranded Product if it is determined that the lot is adulterated as evidenced by a high prevalence rate of inflammatory changes.

The FSIS notice includes images of changes requiring trimming to illustrate the lesions associated with inflammation.

Additional information on the causation and detection of myodystrophies can be accessed by entering “Wooden Breast” in the SEARCH block.

 

Pilgrim’s Pride Sustainability Report

Jul 19, 2017

    

According to the 2016 Pilgrim’s Pride Sustainability Report, the Company achieved the following:-

  • All employees and contractors were trained in accordance with the Pilgrim’s Animal Welfare Program
  • The Company eliminated the use of antibiotics designated as critical for human health.  This was in any event a statutory requirement imposed by the Food and Drug Administration effective January 1st.
  • The Company achieved a Total Recordable Incident Rate lower than the industry average
  • Contributed $500,000 over five years to the USPOULTRY Foundation to advance research

The goals for 2020 are:-

  

CEO Bill Lovette noted, “We are confident that our progress to date, coupled with our ambitious goals for 2020 will continue to position Pilgrim’s as a global industry leader in the production of high-quality, sustainable chicken products.”

The Report is available from Pilgrim’s Pride on request.

 

Whole Foods Cancels 365 Stores in Illinois, Substitutes Florida

Jul 19, 2017

    

Small-format 365 stores scheduled to be opened by Whole Foods Market in Evergreen Park, IL., Toledo, OH. and Bloomington, IN. have been placed on hold.  The company planned for at least 22 stores but only four have been opened. 

It is possible that the hold relates to the recent acquisition of Whole Foods Market by Amazon which will of necessity conduct an evaluation of previous strategy.

  

In contrast to the hold in the Midwest, Whole Foods Market will introduce 365 stores in Florida with the first to open in Delray Beach in 2019.

 

Department of Commerce Buyer Program at the 2018 IPPE

Jul 19, 2017

    

USPOULTRY has announced that the U.S. Department of Commerce, International Buyer Program will take place at the 2018 International Production and Processing Expo (IPPE).

The program is intended to facilitate trade by bringing together American suppliers with delegations and international attendees with the IPPE proving to be the most satisfactory venue.

  

The IPPE noted that 2018 will be the 11th year for the program and since 2006 attendance from outside the U.S. has grown by 240 percent.

For reference, the 2018 IPPE show dates are:-

  • Tuesday, 30 January 2018: 10 a.m. – 5 p.m.
  • Wednesday, 31 January 2018: 9 a.m. – 5 p.m.
  • Thursday, 1 February 2018: 9 a.m. – 3 p.m.

Readers are reminded that show dates will be moved back to mid-February (12th-14th, 2019) due to the Super Bowl being held in Atlanta in 2019.

 

Aldi to Renovate Texas Stores

Jul 19, 2017

    

According to Supermarket News, Aldi will invest up to $100 million to renovate 80 stores in Texas. 

The project will include expanding and updating produce, dairy and bakery sections according to Karla Waddleton a spokesperson for the company.

It is evident that Aldi recognizes future competition from Lidl which has indicated that it will establish stores in metropolitan areas in Texas in addition to an initial concentration on Mid- Atlantic states.

  

 

Peapod to Introduce Voice Activated Ordering

Jul 19, 2017

    

According to the IFT Weekly, Peapod, a subsidiary of Ahold-Delhaize has introduced a hands-free Alexa voice ordering system to add items to virtual carts.

This feature may have benefits for some tech-savvy urbanites using either click-and-collect or home-delivery services but the innovation is not expected to make any major impression on the highly competitive segment of the retail food industry.

  

 

 

Panera Acquisition by JAB Holdings Ratified

Jul 19, 2017

    

In a July 12th press release, Panera Bread Company announced that stockholders have approved the merger agreement with JAB Holdings. Each holder of a share in Panera common stock will receive $315 in cash.

For Q1 of FY 2017 Panera Bread Company earned $41 million on revenue of $727 million. The comparative figures for Q1 of 2016 were $ 38 million on sales of $685 million.

  

Over the 30 years since Panera was founded, the Company has projected an image of healthy food, a welcoming atmosphere in its stores and has been a leader in eliminating antibiotics and artificial coloring agents from its ingredients and menus. The company under founder Ron Shaich has been in the forefront of promoting welfare and was an early proponent of The Global Animal Partnership.

Panera Bread operates 2,043 bakery/cafes in 46 states and in Ontario Canada.

 

OSI Group appoints Chief Sustainability Officer

Jul 19, 2017

    

In a press release, the OSI Group announced the appointment of Nicole Johnson-Hoffman as Chief Sustainability Officer. She will also continue as Senior Vice President of the McDonald’s Global Business Unit.

OSI recognizes the need to promote sustainability in lockstep with their principal customer. It will be remember that OSI operations in China operated by a subsidiary, Husi Foods were accused of unhygienic practices.

  

Despite mounting a defense the negative publicity was responsible for profound degradation of brand  image when the Dragon TV Channel and the Xinhau news agency reported on alleged unhygienic practices in OSI plants  preparing chicken-derived items for McDonalds’ and Yum Brands stores in China.

 

Dust Explosion at Fieldale Feed Mill in Baldwin, GA.

Jul 19, 2017

    

Four fire companies responded to an explosion at the Fieldale Feed Mill in Baldwin. Significant damage occurred in many areas of the facility and one worker was seriously injured and a second worker had to be located and rescued from wreckage by first responders.

 

This incident follows a number of explosions in grain storage elevators and feed mills in recent years. Explosions occur when critical levels of suspended grain dust accumulate under favorable conditions of temperature, humidity and the presence of static electricity, an electrical spark or welding.

OSHA has cited a number of feed mills for accumulated dust which is regarded as a fire and injury hazard in addition to being a respiratory irritant. Fieldale experienced a dust explosion in January 1987 although there wer no injuries reported.

 

Brazilian Poultry Exports Impacted By Adverse Publicity over Corruption

Jul 19, 2017

    

According to the Brazilian Association of Animal Protection (ABPA), exports for the first six months of 2017 declined by 6.4 percent compared to the same period in 2016, attaining 2.12 million tons.

Most of the revelations concerning corruption in processing plants involved beef. Francisco Turra, president of ABPA does not anticipate that the problems experienced in this industry will affect poultry exports.

  

Despite the decline in volume, revenue increased by almost six percent with a value amounting to $3.6 billion. The increase in unit value is attributed to demand, possibly due to disruption in supply from the E.U. to the Middle East following embargoes imposed as a result of outbreaks of H5N8 Avian Influenza.

 

China to Extend H7N9 Vaccination of Poultry

Jul 19, 2017

    

Based on the increasing incidence rate and distribution of H7N9 avian influenza infection among consumers of poultry purchased at wet markets, the Government of the PRC will initiate an extensive vaccination program in an attempt to control infection.

 

This approach will only be effective if the movement of live poultry is restricted followed by a rapid transition from sale in wet markets to processed birds in stores with a cold chain. Supply flocks must be certified free of avian influenza before transport to wet markets but in the long-term only processing in commercial plants will reduce risk of AI to consumers.

Zoonotic infection with H7N9 is not only a problem of China retaining a primitive and archaic system of distribution of poultry. The presence of an H7N9 reservoir in the supply flocks in China and infection extending to consumers represents the potential for emergence of a pandemic strain. Mutations in the H7N9 virus could occur as previously noted by molecular biologists and epidemiologists.

China has a responsibility to the World to suppress infection and ultimately eradicate both the virus and the system which contributes to persistence and propagation of a potentially serious pathogen.

 

2018 Agricultural Appropriations Bill

Jul 19, 2017

    

The House Appropriations Committee has approved 2018 expenditure and a budget is awaiting approval by the full House. The combined total for mandatory and discretional programs will be $144.9 billion, approximately $8.5 billion lower than in fiscal year 2017.

The Bill will incorporate a $1.1 billion reduction in USDA expenditures compared to 2017. The Bill will provide $5.2 billion for the FDA to exercise increased scrutiny over food products as mandated by FSMA. This would appear to be justified considering the volume and diversity of items imported from Asia and Latin America.

  

A recent example of suboptimal quality relates to the USDA-FSIS having to impose individual carcass inspection of beef from Brazil prior to imposing an embargo. This followed the scandal in Brazil over inspection and the rejection by the FSIS of 11 percent of sides entering the U.S. based on the presence of abscesses.

The Bill directs the USDA to establish that the standard of inspection in plants in Brazil is equivalent to the U.S. to maintain eligibility to export. An amendment to the Bill requires the USDA to report to Congress concerning inspection of chickens in China prior to allowing broilers raised and slaughtered in that nation to enter the U.S.

 

Aviagen Extends “Slow Growing” Strains for the Market in the Netherlands

Jul 19, 2017

    

Aviagen has announced that Ranger Gold and Rambler Ranger are now approved strains under the Dutch Better Life Star Certification Scheme for Broilers. Certification was previously extended to Aviagen’s Rowan Ranger. The Dutch Animal Welfare Association has a one-, two- or three-star system which establishes welfare standards.

  

Magnus Swalander, General Manager of Aviagen noted “A core objective of Aviagen’s slower-growing portfolio is to enhance the welfare benefits of the birds at the same time delivering strong advantages for feed efficiency for meat yield within this sector.”

Aviagen Ranger Gold and Ranger Classic have also been approved by the UK Royal Society for the Prevention of Cruelty of Animals in accordance with their Assured Welfare Program.

 

Tyson Foods Faces Hearing before Virginia Water Control Board

Jul 19, 2017

    

Virginia Eastern Shorekeeper, an advocacy group formed by Citizens for a Better Eastern Shore, have motivated a hearing on discharges from the Tyson Foods, Temperanceville, VA. plant.

According to information obtained in terms of the Freedom of Information Act by the activist group, Tyson Foods was responsible for overflow from a lagoon that exceeded discharge limits for ammonia, suspended solids, coliforms and possibly other pollutants.

  

The Virginia Eastern Shorekeeper maintains that penalties for releases in excess of permit result in fines that are disproportionate to the high cost of prevention and are therefore not an incentive for investment in installations and operational procedures to limit violative releases.

Tyson Foods attributes releases to an excess of solids in their wastewater treatment system. When the problem was recognized, solids were removed from an anaerobic lagoon in January 2016 at a cost of $800,000. An amount of $1.8 million has been budgeted for an ongoing remediation project during the current year. In addition, the Temperanceville plant introduced a water conservation program to reduce loading of the system which resulted in a ten percent reduction in water use based on quantity of product.

 

USDA Secretary Addresses School Nutrition Rules

Jul 19, 2017

Sonny Perdue

    

Speaking at the School Nutrition Association, Dr. Sonny Perdue justified his decision to rescind a number of requirements imposed by the previous Administration which were incorporated into the Healthy Hunger-Free Kids Act of 2010.

These provisions included reducing sodium, serving skimmed milk and imposing wholegrain requirements. The designated nutritional standards, although scientifically and clinically justified in theory, had the unintended consequence of children rejecting school meals and remaining hungry.

  

The School Nutrition Association has repeatedly requested delays in implementation of the new standards to develop appropriate menus. Some school districts rejected the standards and prepared their own meals. Shrinking revenues and wasted food were apparent in the majority of schools adopting the standards, a fact well known to the previous Secretary of the USDA.

Lynn Harvey, incoming president of the School Nutrition Association, noted “School nutrition professionals want more than anything to provide meals that are wholesome, nutritional and appealing to students.” She added “We want our students to be happy and to enjoy their meals.”

Perdue rejects the principle of the “nanny-state” indicating that problems of obesity relate to meals served in homes, lack of exercise and other factors. He implied that simply imposing onerous and impractical standards on schools would not achieve desired health outcomes.

Organizations such as the Center for Science in the Public Interest and the American Heart Association have criticized Dr. Sonny Perdue and the USDA for rescinding Obama-era regulations without necessarily appreciating the total picture. The more practical approach by the current USDA will in the long term be more beneficial to students and schools than impractical but well-meaning dictates.

 

Sale of JBS Beef Business to Minerva to Proceed

Jul 19, 2017

    

According to a report in Reuters, the embargo on the sale of beef assets owned by JBS SA in Argentina and adjoining countries was lifted by an appeals court.

This will allow the $300 million sale to proceed after it was blocked by Federal Judge Ricardo Leite in late June on the basis that the sale would impair an investigation directed against the Batista family.

  

In a related matter J&F, the holding company for JBS SA, sold Alpargatas SA, a manufacturer of footwear for $1.1 billion.

The plea bargain requiring the Batista family to pay a fine of $3.2 billion over 25 years as a result of extensive bribery of government officials has yet to be confirmed by the court system in Brazil.

 

Mar-Jac Poultry to Erect New Feed Mill

Jul 19, 2017

    

Mar-Jac Poultry has received a $300,000 grant administered by the Alabama Department of Economic and Community Affairs to assist in erection of a $35 million feed mill in Spruce Pine, AL. The company will concurrently build a $23 million hatchery.

Alabama governor Kay Ivey noted “This project will put food on the tables for numerous families in Franklin County and northwest Alabama and will have an economic impact on the area.” Previously Mar-Jac received assistance from the Alabama Department of Economic and Community Affairs to upgrade a wastewater treatment system in the city of Jasper.

  

 

Cargill Reports Fourth Quarter Fiscal 2017 and Full-Year Results

Jul 19, 2017

    

In a press release dated July 13th Cargill Inc. released data on financial performance.  The accompanying table documents sales, operating earnings and net earnings for the two quarters.

 

In commenting on results, David MacLennan, chairman and CEO stated, “The past two years have seen significant work to improve performance and position the company for growth.”  He added, “The structural improvements we have made, as well as favorable conditions in some markets, have yielded strong results.”  Improvements implemented in FY 2017 and beyond included:-

  • Strategic emphasis on nutrition achieved through sustainability and responsibility.
  • Increased sophistication through digitalization and analytics and enhancing the supply chain.
  • $1 billion of investment in strategic acquisitions, joint ventures and expanded facilities coupled with $700 million in divestitures of non-strategic assets.
  • Repurchased $2.1 billion in long-term debt.

In commenting on individual segments, the Cargill release noted that the Animal Nutrition and Protein component was the largest contributor to adjusted operating earnings in Q4 and FY 2017.

Poultry posted higher earnings for the year.  Cargill has extensive investments in Central America, Thailand, China and also the UK.

The Food Ingredients and Applications segment was the second largest contributor to earnings.  Innovations centers were opened in Shanghai and in Minneapolis.

The Origination and Processing segment reversed losses during Q4 of 2016 and generated a profit in Q4 2017.  Improved performance was attributed in part to high demand for ingredients and feeds associated with Global growth in livestock production.

The Industrial and Financial Services sector generated enhanced returns from managing assets and more profitable trading.

During the past year, Cargill divested petroleum trading to the Macquarie Group of Australia and has agreed to sell their natural gas and power businesses to the same acquirer.

During Fiscal 2017 Cargill sold the U.S. crop imports business, oil seed processing facilities in France and the Netherlands and a flour milling joint venture in Australia.

Social and charitable activities including partnership with CARE with a $7 million three-year extension of their partnership.  Cargill also donated $3 million to Feeding America and continued work with the Nature Conservancy and World Resources Institute to limit deforestation, protect water resources and limit greenhouse gas emission.

Since Cargill is a privately held company, details of financial performance are not released. The table below encapsulates significant figures.

Q4 2017

Q4 2016

Sales                     $28,300,000*

Sales -                   $27,168,000

Operating Earnings   $460,000

Operating Earnings   ($19,000)

Net Earnings             $247,000

Net Earnings -             $15,000

 

 

FY 2017

FY 2016

Sales -                    $109,700,000

Sales                     $107,506,000

Operating Earnings   $3,040,000

Operating Earnings  $1,640,000

Net Earnings             $2,840,000

Net Earnings            $2,300,400

*All values US$ x 1,000

 

Steve Censky Nominated as Deputy Secretary of Agriculture

Jul 19, 2017

    

On Thursday July 13th the White Announced that Steve Censky long-term CEO of the American Soybean Association has been nominated as Deputy Secretary of Agriculture.  In his position, he will be responsible for day-to-day operations at USDA.

Censky established his career in agriculture administration after graduating from South Dakota State University as an aide to the Senate Agriculture Committee and served in previous republican administrations.  His nomination has been held by farmers groups with Ron Moore currently president of ASA stating, “Steve has guided our organization for 21 years and in that time he has proven himself as an effective, dedicated and visionary voice on behalf of soybean farmers nationwide.  

  

Moore added, “Nobody in agriculture is better equipped to assist Secretary Perdue in meeting the needs of farmers with practical solutions.”  (Add above – administrator of the Foreign Agriculture Service, aide to Senator Jim Abdnor of South Dakota)  The CEO of the National Association of Wheat Growers, Chandler Goule supports the nomination stating, “I’ve worked with Steve for years as a fellow commodity organization CEO, I have seen first-hand his dedication to American agriculture.”

 

USDA Filling Senior Ranks

Jul 19, 2017

    

The fact that Dr. Sonny Perdue was the last cabinet member appointed as obviously delayed recruitment and nomination of his subordinates assuming the Office Dr. Perdue rearranged his reporting relationships. 

The following nominees will be responsible for the areas as designated:-

 

 

  • Steve Censky, Deputy Secretary Nominee.  Previously CEO of the American Soybean Association and extensive experience in DC
  • Ted McKinney, Undersecretary for Trade and Foreign Agriculture Affairs
  • Dr. Sam Clovis, Undersecretary for Research, Education and Economics
  • Bill Northey, Undersecretary for Farm Production and Conservation
 

Chipotle Restaurant Closed Following Presumptive Norovirus Infection

Jul 19, 2017

    

In a statement released Tuesday 18th Chipotle Mexican Grill announced closure of a single store in Sterling, VA., implicated in a limited outbreak of presumed norovirus infection

In contrast to the outbreaks occurring in Simi Valley with 207 diagnosed cases in August 2015 and in Boston with 80 cases in December of that year the present case has been handled expeditiously and professionally under the direction of Dr. James Marsden Executive Director of Food Safety, appointed in 2016 and previously a professor at Kansas State University.

 

The store was closed immediately on noting eight postings on <iwaspoisoned.com> and public health authorities were informed. Following thorough decontamination the store will be reopened.

Norovirus infection is common during summer months and is not related directly to food but is due to contamination by clinically ill or recently infected personnel preparing and handling food. The probability of infection is increased if there are deficiencies in personal hygiene due to poor training and supervision or with inadequate facilities to frequently wash hands.

Workers in the food and catering industries should not report to work if they suffer from nausea, vomiting or diarrhea. Companies not extending sick-leave benefits to workers are obviously vulnerable to introduction of infection as low-paid workers will not wish to miss work shifts. 

Chipotle shares traded at $391 at 10H30 on Tuesday but fell to $364.40 within an hour of the release. CMG closed at $374.98 down 4.3 percent. In after-hours trading share price stabilized down only 0.3 percent to $373.50.

 

USDA - WASDE FORECAST #567, July 12th 2017

Jul 14, 2017

    

Overview

The July 12th 2017 USDA WASDE projections for the 2017 corn and soybean crops reflected planting data and estimates of yield based on crop progress. Harvest areas for corn and soybeans were raised from the June Report to 83.5 million acres (86.7 million in 2016) and 88.7 million acres (82.7 million in 2016) respectively.

The USDA projected corn and soybean yields were unchanged at 170.7 bushels per acre (174.6 bushels in 2016) and 48.0 bushels per acre (52.1 bushels in 2016). Ending stock for corn was increased for July and projected at 2,325 million bushels (2,110 million in June WASDE Report) and for soybeans down 7.1 percent to 460 million bushels (495 million in June 2017 WASDE Report).

  

Corn

The projection of the corn harvest was increased from June attaining 14,225 million bushels, down 6.0 percent from 2016. None of the major categories of use were appreciably changed. The projected USDA range in farm price incorporated an 80 cents per bushel spread as is normal for a mid-year report with many uncertainties relating to weather ahead. Price was reduced by 10 cents per bushel on both ends of the range in the June WASDE Report to 290 to 370 cents per bushel. At noon on July 12th, CME quotations for July and September 2017 corn were 390 cents and 400 cents per bushel respectively.

The RFS for 2016 was belatedly determined to be 18.11 billion gallons by the EPA on November 30th 2015 (See Editorial in CHICK-CITE). The value was four percent higher than the May 2015 proposal of 17.4 billion gallons. The RFS declared by the EPA is currently the subject of litigation. It is doubtful that the incoming Administration will alter existing RFS levels given support of the Midwest agricultural sector to the 2016 election outcome and subsequently reinforced by Administration assurances to Corn-State legislators in early January 2017. A wild card will be the influence of the incoming EPA Administrator and the Secretary of Energy, both of whom favor the oil and refining industries of their home states.

Both officials have historically opposed the RFS. Business associates of the President-elect have recently commented negatively on the system of Renewable Identification Numbers (RINs) which affect the profitability of many domestic refineries. For 2017, USDA raised diversion of corn to ethanol by 50 million bushels to 5,500 million bushels or 33.0 percent of the harvest. It is acknowledged that this value  will allow for approximately 1,650 million bushel corn-equivalents of DDGS. The Heritage Foundation recently issued a report on energy policy, strongly questioning the environmental and economic benefits from the U.S. biofuels program considered to be replete with unintended consequences. The report recommended revocation of the RFS and allowing free market influences to determine the supply of biofuels.

The prevailing but stable historically low oil price reflects a slowing of World economic activity and increased oil and gas production in North America. Supply is a function of apparent restricted output from Saudi Arabia, lower production from Nigeria and Venezuela, resumption of supply from Iraq and Iran, and turbulence in the Mideast. Reduced output according to an OPEC “agreement” in early December 2016 and subsequent negotiations between OPEC and Russia are all contributory factors, determining the balance between supply and demand. This is important to the livestock industry as oil price is correlated to grain prices. The WTI fluctuated in a narrow range of $47 to $52 per barrel during June.

  

Shane Commentary

 

Chipotle Battles to Regain Customer Loyalty

Jul 19, 2017

    

Same store sales data for 2016 indicate a progressively improving situation for Chipotle Mexican Grill after the disastrous losses experienced following the multiple foodborne infections which closed restaurants and repelled customers.

Net earnings in FY 2015 attained $475 million compared with $23 million for FY 2016. The four quarters of 2016 compared to the corresponding quarters in 2015 demonstrated percentage declines in same-store sales of -29.7; -23.6 and -21.9 respectively with a trend to a turnaround in the fourth quarter to -4.8 percent.

Chipotle stock (CMG) peaked at $749 on August 3rd 2015.

  

Steve Ells

The trailing 12-month (ttm) price of CMG has fluctuated in a range of $352 to $499. At noon on July 17th CMG traded at $392, last recorded on June 17th 2013. With a forward PE of 32.5, a ttm operating margin of 4.3 percent and a profit margin of 2.3 percent, the Company had better have a sure-fire recovery plan better than a new cheese burrito to restore investor confidence. 

The reversal in the downward trend in same-store sales was accomplished at high cost with promotions including free food and other inducements. Chipotle is currently advertising the quality of ingredients but appears to be sidestepping the issue of safety.  The company has also experienced other distractions including a data breach and negative publicity relating to payment of overtime.

Global Data has conducted research on Chipotle Mexican Grill and has determined that the decline in transaction frequency among loyal customers has not regained momentum.  Increases in price have not helped in this respect. Steve Ells considers his enterprise to be a casual dining chain in the mold of Panera Bread, Chilli’s or even The Cheesecake Factory! No way, just hype and chutzpa. A restaurant which operates a menu board and serves from a steam table is effectively a fast-food venue. Research has demonstrated that the majority of lunch-time customers do not dine-in.  Generally suburban storefront operations, some erected on outparcels or located in strip-shopping malls do not have a drive-thru which is an important contributor to sales volume and customer convenience for QSRs.

Some analyst have pointed to the recovery of Jack-in-the-Box following the cluster of E. coli outbreaks in 1993.  The recovery of that chain within a year was due in large measure to the fact that only a single pathogen was involved. The cause was rapidly identified, appropriate steps were taken to increase cooking temperature of patties and the problem was resolved within a week accompanied by appropriate crisis control.  Chipotle demonstrated the characteristics of a slow-motion train wreck with an exceedingly amateur response to outbreaks which stretched from coast to coast over five months and involved at least four pathogens, denoting profound deficiencies in their supply chain and quality control. 

The future recovery of Chipotle same-store sales has less to do with food safety than it does with image and perception.  If the chain is regarded as a high-priced fast-food enterprise it will not regain its former luster.  If it can successfully recast it image as a casual dining operation, it has a chance to regain customer loyalty.  Since the disasters of 2015, other chains have moved into the Chipotle space and have acquired the relatively narrow demographic representing their core customers.

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Dr. Simon M. Shane
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Industry Prices: Fri Jul 21
 Corn3.94 $/bu
 Soybeans10.22 $/bu
 Soybean Meal336.80 $/ton
 Eggs, Producer64  ¢/doz
 Eggs, Warehouse 74-77  ¢/doz 















































 
Copyright 2017 Simon M. Shane