Editorial

 

WITHDRAWAL FROM THE TPP

Feb 22, 2017

    

It came as no surprise that during the first full working day of the Administration of President Donald J. Trump that an Executive Order was issued, formerly withdrawing from the Trans-Pacific Partnership (TPP).  It was anticipated that the TPP would have provided considerable advantage to agriculture although the potential downsides were highlighted by both Presidential candidates.

  

Formal withdrawal from the TPP has created a vacuum which will inevitably be filled by China which is promoting a competing Regional Comprehensive Economic Partnership.  Trade with Malaysia, Philippines and Thailand will be impaired in the absence of the proposed 12-Nation TPP.  Japan and specifically Prime Minister Abe will be the most embarrassed by failure of the TPP which was a cornerstone of his economic recovery strategy.

The World recently witnessed Xi Jinping extolling the virtues of free-trade at the Davos Gathering of economist and business leaders.  The reality is that China may talk free-trade but the reality is quite different. China effectively imposes barriers against importation, ignores intellectual property rights and promotes national enterprises many of which are government- owned, to the detriment of foreign competitors.

In an incisive editorial in the January 24th Wall Street Journal it was noted that the President might have had a stronger bargaining hand with China had the TPP been ratified, which was the hope of outgoing President Barack Obama.

To maintain exports, especially in the agricultural sector, the U.S. will now have to negotiate a series of bilateral trade agreements with Japan as the priority.

There will be no immediate economic impact from failure of the TPP. Going forward it will be necessary to balance self-interest with the realities of globalization in order to avert a decline in the export of agricultural commodities and poultry to Asian nations who comprise our accessible and qualified markets.

   

Poultry Industry News

 

SHADY BROOK FARMS® OBTAINS CARU DESIGNATION

Feb 22, 2017

    

The Cargill Shady Brook Farms® brand has earned the Certified Responsible Antibiotic use (CARU) designation from the UDSA.

Cargill has established a supply chain extending from farms to School Food Focus programs with birds raised free of antibiotics in accordance with the certification standards.

  

Dr. Scott Eilert, Food Safety and Quality Regulatory Affairs for Cargill’s turkey brands stated, “It is a true collaboration between School Food Focus, the USDA and Shady Brook Farms.  The results are a win for schools, childhood nutrition and the people who work so hard every day to provide the food we eat”. 

The CARU designation is a combination of efforts which commenced in 2014 to eliminate the use of growth-promoting antibiotics in production. In 2016 Cargill eliminated gentamicin in hatcheries as this was a shared-class antibiotic.  The Honest Turkey™ Brand was introduced in 2017 for a line of turkeys and products.

Kathy Lawrence, co-founder of School Food Focus stated, “We created the Certified Responsible Antibiotic Use standard to reduce the administration of medically important antibiotics and to provide an essential level of transparency, accountability and customer choice lacking in the school food market”.

   
 

Weekly Turkey Production and Prices

Feb 15, 2017

    

The January 13th edition of the USDA Turkey Hatchery Report, issued monthly, documented 29.9 million eggs in incubators on January 1st 2017, up 9 percent from January 1st 2016. A total of 25.50 million poults were hatched in December 2016, up 13 percent from December 2016.

A total of 23.4 million poults were placed on farms in the U.S. in December 2016, up 4 percent from December 2016. The relative hatch and placement values suggest disposal of 2.1 million hen poults or 8.2 percent of hatch. Poult placements in 2016 attained 271.4 million.

  

   
 

Weekly Broiler Production and Prices

Feb 15, 2017

    

The February 8th 2017 edition of the USDA Broiler Hatchery Report confirmed that 170 million day-old chicks were placed among the 19 major broiler-producing states during the week ending February 4th, 1.0 percent more than the corresponding week in 2016 Total chick placements for the U.S. amounted to 177 million. Average hatchability was 83 percent for eggs set three weeks earlier. Cumulative placements for the period January 7th through February 4th amounted to 894 million chicks, one percent more than the corresponding period in 2016.

  

For the processing week ending February 4th 162,401 million broilers were processed at an average live weight of 2.83 kg (2.80 kg. last week) and a yield of 76.0 percent. The number of broilers processed was 2.5 percent more than the corresponding week in 2016. Processed (RTC) broiler production attained 341,662 metric tons 0.2 percent more than the corresponding week in 2016. Processed (RTC) broiler production attained 1,699,818 metric. tons YTD, equivalent to YTD 2016.

Following suspension of the Georgia Dock Index* CHICK-CITE will post the USDA Southern States (SS) benchmark prices in $ per kg. as reflected in successive weekly editions of the Broiler Market News Report.

   
 

USDA- WASDE FORECAST #562, February 9th 2016

Feb 15, 2017

    

Overview

The February 9th 2017 USDA WASDE projections for the 2016/7 corn and soybean crops reflected actual harvest data. Areas for corn and soybeans were unchanged at 86.7 million and 82.7 million acres respectively.

The USDA retained corn and soybean yields as 174.6 bushels per acre and 52.1 bushels per acre. Ending stocks for corn and soybeans were projected at 2,320 million bushels and 420 million bushels respectively.

  

Corn

The corn harvest attained a near record of 15,148 million bushels. None of the major categories of use were appreciably changed as is normal for a post-harvest WASDE report. The projected USDA range in farm price incorporated a 40 cent per bushel spread and price was raised by 10 cents per bushel on the low end and down 10 cents per bushel on the high end compared to the January 2016 WASDE Report, attaining 320 to 360 cents per bushel. At the close of trading on February 12th, CME quotations for March and May 2017 corn were 374 cents and 382 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. It is doubtful that the incoming Administration will alter existing RFS levels given support of the Midwest agricultural sector to the election outcome and reinforced by assurances to corn-state legislators in early January 2017.

A wild card will be the influence of the nominees for the EPA-Director and Secretary of Energy, both of whom favor the oil and refining industries of their home states and both have opposed the RFS. Business associates of the President-elect have recently commented adversely on the system of Renewable Identification Numbers (RINs) which affect the profitability of many domestic refineries. The coming year should emerge as an interesting exercise in power shifts with very little precedent to indicate future policy, giving rise to a potential soap opera to be called As the Swamp Drains.

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 now restricted output from Saudi Arabia, lower production from Nigeria and Venezuela, resumption of supply from Iraq and Iran, and interference by Russia in Mideast affairs. Reduced output according to an OPEC “agreement” in early December are all contributory factors, determining the balance between supply and demand which is important to the livestock industry as oil price is correlated to grain prices. The WTI fluctuated between $50 and $54 per barrel during the past month.

   
 

USDA Awards Grants for Microbiome Research

Feb 15, 2017

    

The USDA, National Institute of Food and Agriculture has awarded 11 grants totaling $3 million for projects under the Early Concept Grants for Exploratory Research.  The grants are funded through the National Institute of Agriculture and Food Research Initiative authorized in the 2008 Farm Bill.

The University of California-Davis project will develop a model artificial gut system to facilitate analysis of the microbiome of the intestinal tract.

  

A project funded at the University of Illinois will develop technology to characterize the microbiome applying cytometric fingerprinting with machine learning.

Dr. Sonny Ramanswamy director of the National Institute of Food and Agriculture commented “working jointly with the National Science Foundation we are able to leverage funding and enhance partnership opportunities to propel us into the future of food and agricultural science.”

These awards are timely since the poultry industry is moving rapidly towards antibiotic-free production. A knowledge of the factors that influence the microbiome is critical to developing alternative nutritional and management strategies to maintain performance and flock health.

   
 

IPPE Donates to Atlanta Community Food Bank

Feb 15, 2017

    

Following the 2017 IPPE, the joint organizers donated $13,000 to the Atlanta Community Food Bank through the Giving Back to Atlanta campaign.

Ben Burgess, food sourcing specialist for Atlanta Community Food Bank commented, “We are grateful for the support that IPPE, Hawkins, Inc., and Wincorp International have given the Atlanta Community Food Bank. Support from these valued partners will help provide more than 50,000 meals to families in Metro Atlanta and North Georgia, where one in four children face food insecurity each day.”

  

The  IPPE in turn thanked exhibitors and attendees who indirectly contributed to the donation.

   
 

Pilgrim’s Pride Reports on Q4 and FY 2016

Feb 15, 2017

    

In a press release dated February 8th Pilgrim’s Pride Corporation (PPC) announced results for the 4th Quarter and Fiscal 2016 ending December 25th 2016.

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)

  

   
 

Renegotiation of NAFTA Should Begin Within 90 days

Feb 15, 2017

    

The Dollar Business Bureau, cited by Dow Jones on February 6th indicated that the White House intends initiating a renegotiation of NAFTA within a 90-day timetable. Talks will include both Canada and Mexico with Wilbur Ross serving as the top U.S. negotiator.

President Donald J. Trump maintains that the trade deficit with Mexico now exceeds $60 billion annually and that the initial advantages accruing to the U.S. have long since evaporated.  The trade deficit with Canada exceeded $15.5 billion in 2015.

  

Issues which must be resolved include digital trade and the proportion of domestic content to qualify for duty-free importation. Since inception in 1993, various trade groups have lobbied for retention of NAFTA based on advantages accrued to their constituencies.

Canada maintains a regulated production system for eggs, turkeys and broilers which is to the disadvantage of the U.S., despite the concept of “free trade” between the U.S. and the two other NAFTA partners. This provision was excluded from the now abandoned TPP.

   
 

South Korea Reports an Outbreak of Foot-and-Mouth Disease on a Dairy Farm

Feb 15, 2017

    

In addition to the current outbreak of HPAI, South Korean authorities must now attempt to eradicate foot-and-mouth disease in a nation that has been free of the infection for approximately a year. 

Fortunately, the serotype isolated from the affected herd is homologous with the vaccine which has been extensively used in South Korea to suppress the infection.

  

Preliminary investigation has disclosed irregularities in vaccinating the index herd. All cattle will now be re-vaccinated at a cost of $1 per animal.

   
 

POWER OF INVESTMENT GROUPS IN REDUCING ANTIBIOTIC USE

Feb 15, 2017

    

Green Century Capital Management, an influential investor in Starbucks has withdrawn a shareholder proposal from consideration following an announcement by management that they would commit to a program of sourcing poultry, pork and beef from flocks and herds not receiving antibiotics. 

Although the discretion to use antibiotics by producers is severely limited by the FDA Veterinary Feed Directive, customers including the major food service companies, QSRs and members of the NRA are fairly unanimous in their rejection of any use of antibiotics.

  

The announcement by Green Century Balanced Fund extends the chain constraining antibiotic use.  Originally confined to activist organizations, the opposition to antibiotics now includes government agencies (FDA and CDC), professional associations (AMA), members of Congress, consumer groups, customers and now shareholders.

In a separate decision, Starbucks has issued a statement on animal welfare that includes compliance with standards established by the Global Animal Partnership to be achieved by 2024.

The president of Green Century noted, “With this newly updated policy Starbucks joins other industry peers including McDonald’s, Panera Bread, Subway and Chick-fil-A® which adopted similar policies that have either ended or plan to phase out the purchase of meat raised with routine antibiotic use”.

   
 

COMMENT PERIOD FOR THE GIPSA RULE TO BE EXTENDED TO MARCH 24TH.

Feb 15, 2017

    

Implementation of the Farmer Fair Practices Rules developed by the USDA and finalized on the day of  departure of Tom Vilsack, the previous Secretary of Agriculture, was suspended by the new Administration.  The comment period for the proposal rules has now been extended to March 24th.

Provisions in the Final Rule relate to “unfair, unjustly discriminatory or deceptive practices” and “undue or unreasonable preferences or advantages”.

  

At issue is the intent in the Final Rule to consider any unfair or discriminatory practices as a violation of Federal law irrespective of the existence or absence of competition or competitive damage.

The president of the National Pork Producers Council, John Weber observed, “eliminating the need to prove injury to competition will prompt an explosion in PSA lawsuits by turning every contract dispute into a Federal case subject to triple damages.

The concern expressed by Weber is that legal uncertainty associated with contracts would stimulate vertical immigration with packers trending to own their own hogs to the disadvantage of independent farmer-contractors.

An Informa Economics study determined that the proposed GIPSA Rule might cost the U.S. Pork Industry more than $420 million annually as a result of lawsuits under the proposed Rule established under the Packers and Stockyards Act.

   
 

JBS SHARES FALL FOLLOWING ALLEGATIONS AGAINST CHAIRMAN

Feb 15, 2017

    

According to a February 8th article in Reuters, Federal prosecutors in Brazil have requested that Joesley Batista again stand down as the Chairman of family holding company J & F Investimentos which controls JBS the World’s largest protein producer. 

The allegations which have been under investigation for at least a year involve alleged “sweetheart loans” from national banks and pension funds to Eldorado Brazil Celulose SA., a pulp producer, owned by J and F Investimentos.

  

News of the action by Federal prosecutors resulted in a 6 percent decline in the shares of JBS on the Bovespa Stock Index. 

In September, Joesley Batista and his brother Wesley were forced to suspend their corporate responsibilities although the matter was settled after the family posted a substantial guarantee pending a final decision on the disposition of the allegations.

It is unfortunate that shareholders in JBS suffer from the actions of Brazilian prosecutors who apparently do not recognize the principle of innocence until proven guilty. The alleged actions by the ownership of J & F might be regarded as illegal in the U.S. but should be viewed in the context of the business and political environment in Brazil over the past decade.

It is hoped that events in Brazil will have no direct deleterious impact on Pilgrim’s Pride Corporation which is 75 percent owned by JBS along with other broiler producing companies in the UK and Mexico.

   
 

Buffalo Wild Wings Reports on Q4 and FY 2016

Feb 15, 2017

    

In a press release dated February 7th Buffalo Wild Wings (BWLD) announced results for the 4th Quarter of Fiscal 2016 ending December 25th    

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)

  

   
 

Tyson Foods receives SEC Subpoena

Feb 15, 2017

    

Following civil suits against the nation’s major broiler integrators the Securities and Exchange Commission has issued a subpoena to Tyson Foods (TSN) as part of an investigation into allegations of irregular and non-competitive practices. Central to the issue is the derivation of the Georgia Dock Index.

Referring to the civil suit, Tom Hayes CEO of Tyson Foods quoted in the February 7th edition of The Wall Street Journal stated “We are anxious to defend ourselves in court and feel we have a great story to tell”

  

The allegations in the civil suit implicate Agristats® reports which constitute a series of industry-wide benchmark cost comparisons. Since the data is anonymous as to complex and comprise cost figures relating to aspects of production and processing, the monthly report cannot be regarded as a form of collusion to regulate production volumes.

Tyson Foods has indicated that it will cooperate with the SEC investigation.

   
 

USPOULTRY RECOGNIZES LONG-TERM EXHIBITORS

Feb 15, 2017

    

USPOULTRY recognized eight companies for their long-term participation in the IPPE and its preceding exhibitions.  The eight recipients included:

  • ChickMaster Incubator Company - 65 years
  • Morris and Associates- 60 years
  • Kuhl Corporation - 60 years
  • Bright Coop Inc.- 55 years
  • Pactiv for 55 years, Marel - 55 years
  • Acme Engineering and Manufacturing Corp.- 50 years
  • Warren Manufacturing Inc.- 50 years
   

In some cases, companies have been acquired during the periods over which they have continuously exhibited but their new owners have continued to support the IPPE in recognition of the preeminent status of the annual event as venue to promote products and technology

   
 

SCHNUCKS TO INITIATE HOME DELIVERY

Feb 15, 2017

    

Schnuck’s, a major food retailer in the St. Louis metro area will partner with InstaCart for delivery services in their area of operation.

They join Shop’n Save, Whole Foods Market and Costco in using InstaCart.

   
   

Shane Commentary

 

The U.S Poultry Industry -- Perspectives and the Future

Feb 22, 2017

Grady Fain

    

Guest Commentary by Grady Fain

When relevant and informative, CHICK-CITE posts Guest Commentaries of interest to Subscribers and Sponsors.

Grady Fain, Senior Vice President for Nutriad in the U.S. is generally positive with regard to 2017.

He projects steady prices for chicken and stable or slightly reduced feed costs.

For outreach to his friends and clients at the IPPE, Grady prepared a review of his perceptions of the State of the Industry and included forecasts for 2017

 

Introduction

As the U.S. is moving from a turbulent 2016 into a new year with an uncertain political outlook, it is important for the poultry industry to understand the various scenarios that may unfold in the near future and possible changes in global trade agreements, currency exchange rates, regulations and overall cost of production.

Using insights from industry experts within the Nutriad Group and input from consultants, several possible scenarios will shape the year ahead.

  

Political Scenario

The election of President Donald J. Trump, will most certainly bring changes in the overall trade and currency panorama. The outlines of some of those changes can already be seen in his first days in office. The US withdrawal from TPP will leave a vacuum to be filled by China. This nation will assume greater importance in Asia and the Pacific Rim. To compensate, the U.S. must establish bilateral trade deals with the Philippines, Malaysia, Indonesia and Thailand.

According to USDA, close to 18 percent of the total poultry production in U.S. is exported in the form of leg quarters an undifferentiated commodity. This makes the U.S. poultry industry extremely vulnerable to competition, currency fluctuation and escalation in value, trade negotiations and economic growth in importing markets.

The renegotiation of NAFTA will disturb current trade with Mexico and Canada. The threat to overtax Mexican products by 20%, might have a direct effect on bilateral trade. In 2015 Mexican poultry imports from the U.S. excluding eggs-reached over US$ 1 billion.

The devaluation of the Mexican Peso versus the US$ might benefit Mexican imports from countries such as Argentina, Chile and Brazil in comparison to the United States. In January 2017, the value of the peso fell almost 20 percent compared to January 2016.

Regulations and Welfare

The appointment of Scott Pruitt as head of the EPA and possible increased industry focused policies, including an easing of regulations imposed by the previous Administration, might have a positive impact on poultry producers. However, the consumer-driven requirements are still leading the way as retailers and QSRs select their suppliers.

The enigma currently faced by producers is to decide on which aspects of welfare should be followed. Any reduction in density, a move to smaller-scale operations and using non-GM ingredients will demand more land and resources, consequently negatively affecting sustainability.

The new Veterinary Feed Directive (VFD) will also have an impact on operation procedures and costs, as companies adjust to the withdrawal of antibiotics growth promoters and adapt to natural alternatives.

Export Restrictions and Avian Influenza

Avian Influenza outbreaks in many nations in Asia, Africa and the European Union will play an important role in trade of U.S. poultry.  According to USDA, the egg export forecast has increased by 30 million dozen eggs following the H5N6 AI outbreak in South Korea.

The dissemination of recombinant HPAI strains by migratory birds will alter trade patterns affecting the outlook for Asia, Europe and Africa. Even with strains such as H5N8 possibly being eradicated in the EU, and H5N6 being controlled in a few more months in South Korea and Japan, there will be considerable potential for re-introduction of these and other recombinant strains.

The dissemination of AI, and its endemic situation in wild birds, will have a long-term impact on global markets and trade. AI creates business risks for companies which will now be required to adjust their business models, intensifying biosecurity and interacting with Federal, State and local governments.

Commodities

The 2016 corn (maize) harvest is projected to break records in yield and total production, according to the January 2017 World Agricultural Supply and Demand Estimates (WASDE) Number 561.

For the current season the U.S has harvested 175.3 bu/acre or 11.2 m.tons/Ha representing an estimated crop of 15,148 milion bu. or 385 million m. tons, which would be among the largest U.S. corn crops on record.

The soybean crop will attain 4,307 million bu. (117 million m. tons) yielding 34.1 million tons of soybean meal for domestic use and 11.6 million tons for export.

Argentina and Brazil also follow a strong trend in growth and should reach record quantities for corn production due the prospect of favorable weather and heavy planting in anticipation of domestic demand. Brazil is estimating a harvest of 215 million tons of grains, comprising over 108 million tons of soybeans, up 8.7% over 2016. Argentina, even with recent reports of floods, is estimating 36 million tons of corn and 55 million tons of soybeans.

The elevated production numbers, combined with China’s high stock, will pressure the commodities prices in the national and global market. Overall prices should hold close to the current $3.58/bu ($140/m. ton) for corn and $10.32/bu ($378/m. ton) for soybeans.

The poultry market and forecast

U.S. ready-to cook broiler and turkey production for 2017 are forecast at 18.898 million m. tons and 2.782 million m. tons respectively. The forecasts for 2017 prices were increased slightly for broilers and lowered for turkey as projected by the USDA.

As of January 2017, broilers achieved a slight increase in price, reaching 87 cents per pound ($1.91/kg) with a forecast range for the year of 80 to 86 cents per pound for whole birds.

With over 309 million hens in lay and a per capita consumption of 268 eggs in either shell or processed form, profitability will be dampened by over-production. U.S. producers anticipate an annual output of 7,400 million dozen with prices at or above production cost following seasonal fluctuation in price.

   
 

Kuwait Bans U.S. Raw Poultry then Reverses Decision

Feb 22, 2017

    

Inexplicably and without any scientific justification the Government of Kuwait placed a ban on U.S.- origin raw poultry.  The action is believed to be in response to the isolation of avian influenza from a single mallard duck in Montana in January.

According to a USAPEEC February 9th release, Kuwait has not previously placed a restriction on imports as a result of isolating avian influenza virus from migratory or free living birds.

  

Apparently Kuwait on reflection followed the world Organization of Animal Health guidelines relating to isolation of AI virus from wildlife surveillance and accepted regionalization allowing shipments from the Northeast, Southeast and South Central production areas.

   
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Industry Prices: Tue Feb 21
 Corn3.96 $/bu
 Soybeans10.15 $/bu
 Soybean Meal335.60 $/ton
 Eggs, Producer40  ¢/doz
 Eggs, Warehouse 56-59  ¢/doz 























 
Copyright 2017 Simon M. Shane