Editorial


Impasse over Phase One Continues

11/19/2019

To determine progress on concluding a Phase-1 trade agreement between the U.S. and China it is necessary to weigh the conflicting comments from both the White House and Beijing. Since the conclusion of the October 10/11th negotiations in Washington the White House has projected optimism over rapid conclusion of a Phase-1 agreement noting that details not released following the bilateral discussions, only required “papering”. It was the intent of the U.S to sign the “agreement” during the Asian-Pacific Cooperation Summit in Santiago in mid-November.  In the event, unrest in Chile resulted in cancelation of the agreement. It is doubtful in retrospect that an agreement would have been signed at this time. There is evidently an impasse over rescission of tariffs and reluctance by China to concede on structural issues.  As yet, neither venue nor date has been set for signing of any agreement and China recently invited U.S. negotiators to Beijing to continue talks.

 

It is instructive to review comments by Gao Feng who has emerged as an important spokesperson reflecting the position of China on the trade dispute.  It appears that rescission of tariffs will be a prerequisite for China accepting any partial agreement.  Gao stated, “The trade war was begun with adding tariffs and should be ended by canceling these additional tariffs.  This is an important condition for both sides to reach an agreement.”  He added, “If both sides reach a Phase-1 agreement the level of tariff rollback will fully reflect the importance of this agreement.”  

 

In contrast Larry Kudlow, White House Economic Advisor commented at a Council on Foreign Relations meeting that Washington and Beijing were “close to a deal” He added “The mood music is pretty good and that has not always been so in these things” Despite obvious conflict within the Administration, Kudlow apparently based his optimism on the outcome of recent telephone discussions between U.S. Trade Representative Amb. Robert Lighthizer in consultation with Treasury Secretary Steven Mnuchin with their counterparts in China led by Vice Premier Liu He.

 

On Friday November 8th November, the President categorically stated that he had not agreed to remove tariffs on imports from China.  This is consistent with the belief that tariffs provide the leverage to induce China to make structural changes that were the genesis of the dispute in 2017.  The Department of Commerce specifically emphasizes reluctance of China to commit to importation of agricultural commodities.  After the October discussions, the President quoted  that purchases of $40 to 50 million would be made although this was subsequently denied by China.

 

The Administration points to the more than $5 billion monthly in tariffs accruing to the Treasury.  On the distaff side, over $28 billion will be disbursed to farmers over two years to compensate in part for losses associated with sharply lower prices for agriculture commodities including soybeans, corn, sorghum, fruit and nuts.  Recently China announced increased imports of U.S. pork and lifted the embargo on poultry.  This is less a concession to the trade dispute than a reflection of basic need given the reduction and availability of domestic pork as a result of African swine fever which may have resulted in the death of up to 40 percent of the national herd.

 

China is playing a long game. They have no intention of abandoning past practices including neglect of intellectual property rights, coercive joint-venture practices and state support for industrial enterprises. These strategies are pivotal to achieving the “Made in China 2015” initiative. To make meaningful concessions at this time would be detrimental to growth that is lagging and would be a manifestation of loss of “face” It is also evident that China is keenly aware of political considerations in the U.S. and consider that they can, through prolongation of the trade dispute, influence the 2020 election to their advantage. 

 

Farmers, manufacturers and investors need clarity on the state of negations and above all a phased resolution of the dispute leading to restoration of trade for the mutual benefit of both nations and the world economy.


 

Egg Industry News


Updated USDA Projections for 2018 and 2019 U.S. Egg Production

11/15/2019

The USDA Economic Research Service issued an updated forecast of egg production on November 15th, following the previous October 17th report. The volume of eggs produced and per capita consumption in 2019 were increased by 2.7 and 1.9 percent respectively compared to 2018 data. Consistent with this disparity, the benchmark New York price was reduced by 33.3 percent in unit value. Production data reflecting 2016 and 2017 should be compared to 2015, impacted by the Spring outbreak of HPAI in the upper-Midwest. The price elasticity of eggs is denoted by the disparity in the decline in the New York price benchmark relative to forecast volume of production. The latest data is reflected in the table below:-

 

 

Parameter

2015

 (actual)

2016

 (actual)

2017

 (actual)

2018                 2019          Difference %     2020

 (actual)    (forecast)        2018 to 2019  (projection)            

 

 

EGGS

 

 

 

 

 

Production (m. dozen)

      6,938*

7,437

 7,755

 7,952                8,165             +2.7%             8,225

 

Consumption (eggs per capita)

      255.8*

    272.0

 279.9

 284.0                289.0             +1.9%             291.2

New York price (c/doz.)

          182*

         86

     101

    138                    92              -34.7%              99

                   

 

 

Source: Livestock, Dairy and Poultry Outlook –November 15th 2019

 

*Impacted by Spring 2015 HPAI outbreaks. Consumption in 2014, 267 eggs per capita

Subscribers to EGG-NEWS are referred to the postings depicting weekly prices, volumes and trends and the monthly review of prices and related industry statistics.


 

Egg Week

11/20/2019

USDA Weekly Egg Price and Inventory Report, November 20th 2019.

  • Hen numbers in production up 1.0 million to 331.9 million .
  • Shell inventory down 3.6 percent after rise of 3.3 percent in previous week
  • USDA Midwest benchmark generic prices for Extra large and Large up 19.9 and 20.3 percent respectively to 144.5 and 142.5 cents per dozen. Mediums were unchanged at 94.5 cents per dozen. An increase in USDA benchmark price for the third consecutive week confirms that prices are moving up from a prolonged market bottom. Midwest prices for all sizes are now above nest-run production cost.
  • Price of breaking stock up 0.7 percent to 77.0 cents per dozen. Checks up 1.6 percent to 63.0 cents per dozen reflecting shell-egg prices. Both categories are now above the cost of production

 


 

Harvest Report for the Past Week

11/18/2019

The November 18th USDA Crop Progress Report documents continued advances in harvesting the 2019 crop delayed by late planting due to flooding and inclement weather over the harvest period.

 

 

As of November 17th in 18 major corn-producing states responsible for 94 percent of the 2018 crop, 76 percent of the corn had been harvested. This compares to a five-year average of 92 percent. During the past week 11 percent was gathered.

 

Farmers harvested an additional 6 percent of the soybean crop this past week to bring the total in the bin to 91 percent compared to a five-year average of 95 percent.


 

Moba Offers Technical Training on Robotic Packing

11/07/2019

Recognizing the complexities of operation of the Moba R12 packing robot, the company Technical Training Center now offers a course on operational and technical aspects including maintenance.  The R12 Course includes instruction on electrical panels, adjustments, fault- finding and information necessary to operate and maintain the functionality of the system.  Courses are offered in Barneveld, the Netherlands and at the U.S. Farmington Hills location.  Additional information can be obtained from training@moba.net


 

Kemin Opens Research Facility in China

11/13/2019

In a November 4th press release Kemin Industries announced the opening of an Innovation and Technology Center located in Zhuhai.  The 40,000 square foot facility represents a $14 million investment in R & D for the market in China focusing on human and animal nutrition and health, aquaculture, food technology and improvement of specialty crops.

 

Dr. Chris Nelson, president and CEO of Kemin stated “This new laboratory will allow Kemin to harness the talent and creative thinking of scientists in China and improve our insights of the needs of our customers to develop the technology they require.”  He added, “Opening a research and development center here prepares us to better meet the growing demands of our industries in the region and increase our global impact.”

 

Kemin has maintained a presence in China for three decades.


 

Propane Shortage Preventing Drying of Harvested Corn

11/13/2019

A November 4th article by Sonja Begemann in Farm Journal Ag Web documents a shortage of

liquid propane in Iowa, Minnesota and Wisconsin. This is reducing the ability of farmers to dry grain.  Early snowfall superimposed on an already wet corn crop necessitates drying.  Storage of wet grain will lead to problems with mycotoxicosis and deterioration in nutrient content. 

 

Governors in affected states are issuing waivers to drivers to expedite delivery.  Agriculture officials in a number of Midwest states are reviewing the situation and will attempt to develop proactive solutions to prevent a reoccurrence in subsequent years.


 

Kroger Introduces New Logo and Slogan

11/13/2019

The Kroger Company has announced a brand transformation campaign with a new logo and motto as the centerpiece. 

 

Developed by advertising agency DDB, Kroger has adopted Fresh for Everyone as their tag line.

 

Mike Donnelly, Kroger executive Vice-president and COO stated, “The new brand launch of Kroger is a unified framework for our seamless shopping experience designed to deepen our connection with customers and associates.”  He added, “Kroger chose Fresh for Everyone as our leading brand message because it is inclusive, clear and memorable and supports our vision of serving America through food, inspiration and uplift.”  Kroger will also introduce a Kroji emoji that will be used in a mass media adverting campaign.


 

British Egg Industry Council Standards for Cage-Free Housing

11/13/2019

The British Egg Industry Council has introduced a British Lion Quality Code of Practice Standard for cage-free housing.  The minimum requirements include:-

 

  • 1.5 square ft per hen floor area

 

  •  Restriction on colony size

 

  • Upgraded nest boxes

 

  • A ban on “combi” systems effective November 2019

 

The standards followed requests by U.K. retailers to develop a common standard to support a “cage-free” claim for eggs sold after 2025.


 

Blue Apron Posts “Less Bad” Q3 Results

11/13/2019

On October 31st Blue Apron Holdings (APRN) posted results for the third quarter of FY 2019 ending September 30th.  For the period, the company recorded a loss of $26.2 million on revenue of $99.5 million.  Comparable figures for fiscal 2018 were a loss of $33.9 million on revenue of $150.6 million.  Orders for the quarter decreased to 1.7 million from 2.7 million for the corresponding third quarter of 2018.  Customers declined from 646,000 in Q3 FY 2018 to 386,000 during the most recent quarter.  Average revenue per customer increased from $233 to $258 in comparing Q3 2018 to Q3 2019. 

 

Important financial parameters for APRN include:-

 

Market Capitalization $95.9 million; Forward P/E -2.0.

52-Week share price range $6.10 to $24.60; 50-day moving average $8.11; Close November 13th $7.28

Return on assets -8.4%; Return on equity $-55.3%; Operating margin -10.0; Profit margin -12.5%

 

CEO Linda Findley Kozlowski expressed confidence in the future of Blue Apron noting a strengthening of the customer base especially with key customer matrix during the third quarter.  The company completed refinancing of revolving credit facilities. 

 

Blue Apron can be regarded as a bellwether for the food delivery industry which appears to be unprofitable even with strict cost control. It is evident that current business models favor customers to the detriment of investors.


 

Wendy’s Reports on Q3 2019

11/13/2019

In a November 6th press release, the Wendy’s Company (WEN) reported on the third quarter of fiscal 2019 ending September 29.  The company posted a net income of $46.1 million on total revenue of $437.8 million.  Of this total 41.5 percent was derived from sales in company-owned stores representing a gross margin of 16.2 percent.

For the corresponding third quarter of 2018 ending September 30th Wendy’s posted net income of $3.9 million on total revenue of $400.6 million with a gross margin for company stores of 15.7 percent. During the third quarter of 2018, Wendy’s charged a non-recurring “Other Income” item of $450 million accounting for the difference between quarters.


Wendy's Store Locations

Important financial parameters for WEN include:-

Market Capitalization $4.8 billion; Forward P/E 32.1.

52-Week share price range $14.96 to $22.8; 50-day moving average $20.73; Close November 13th $20.92

Return on assets 3.5%; Return on equity $18.0%; Operating margin 20.2; Profit margin 9.6%

 

System-wide sales growth for Q3 2019 attained 5.7 percent compared to 1.7 percent for the third quarter of 2018. Sales growth for North America increased from 1.2 percent in Q3 2018 to 5.5 percent for the most recent quarter.  Sales per store including both franchised and company- owned attained $2.6 million for the most recent quarter compared to $2.5 million for Q3 2018. 


 

Au Revoir Foie Gras

11/15/2019

The New York City Council passed legislation on October 30th banning both the sale and serving of foie gras effective January 2022. Both coasts now bracket the U.S. following the prohibition in California.

There is no question that traditional production of foie gras by force-feeding ducks and geese confined to small cages is inhumane and reflects badly on the entire poultry industry.

India, Israel and the U.K. have banned the sale and production of foie gras. New York State is home to two production operations in Sullivan County with sales approaching $20 million annually.


 

SE Diagnosed in Nursery School in Poland

11/15/2019

A total of 192 cases of Salmonella Enteritidis infection occurred in a nursery school in Sanok in Eastern Poland. The causal organism was isolated from 40 children and 20 members of the staff. Children represented 83 percent of the cases with the remainder adult caretakers. The presumed vehicle was a vegetable salad served and consumed on October 23rd. Cases were reported on October 24th and two days later, ten children required hospitalization. Currently the facility is undergoing decontamination.


 

Research Demonstrates that Measles virus is Immunosuppressive in Children

11/15/2019

Two research papers published in Science and in Science Immunology respectively demonstrated the immunosuppressive effect of measles virus in infected children. The studies were conducted at the Howard Hughes Medical Institute in conjunction with pediatricians at Harvard University. The second study in the E.U. was conducted jointly by the Wellcome Sanger Institute and Amsterdam University in the Netherlands.  

The virus has a similar effect as infection bursal disease virus in chickens and hemorrhagic enteritis virus in turkeys.

Measles was responsible for as many as 110,000 deaths in 2017, mostly in children under five years of age predominantly in developing nations. The incidence of measles has risen sharply in the E.U. with 82,500 cases in 2018, 15 times as many as in 2016. The reason for the upsurge relates to the “anti-vax” movement. Withholding the MMR vaccine exposes children to measles, mumps and rubella with potentially serious complications. The studies failed to show any adverse effect of the MMR vaccine administered in accordance with current guidelines.

Vaccination when performed at an appropriate age and with approved safe and immunogenetic biologics will induce immunity. Whether dealing with a population of children, hogs or poultry, it is necessary to raise the level of immunity to prevent outbreaks of disease. Generally more than 90 percent of a large population with frequent interaction among individuals is required to attain “herd immunity”. It is unconscionable that certain ZIP Codes reflecting affluent residents should have vaccine compliance values considerably lower than areas in the Deep South of the U.S. where there is considerable poverty and less access to preventive medical resources including post-natal and pediatric care.


 

AEB Represented at USFRA Annual Meeting

11/18/2019

AEB President & CEO Anne Alonzo and Chair Emeritus Blair Van Zetten participated at the annual meeting of partner organization the US Farmers & Ranchers Alliance (USFRA) this week in St Louis. Van Zetten was also re-elected as its Treasurer.

 

USFRA is comprised of more than 75 organizations whose mission is to co-create sustainable food systems connecting farmers, ranchers and food makers.


 

Research Needs and Priorities for Egg Production

11/19/2019

The American Association of Avian Pathologists (AAAP) conducted a survey of research needs and priorities by surveying the responses of practitioners, academics and industry-employed veterinarians. Research priorities based on 18 responses indicated the need for additional study of infectious bronchitis, coryza, colibacillosis and post-bacterin hepatitis.  Of specific concern was Delmarva/1639 infectious bronchitis virus responsible for False Layer Syndrome.

A noteworthy omission was any reference to avian influenza responsible for extensive losses and disruption of the industry in 2015. My how our memories are short!


 

Walmart Appoints CEO for Sam’s Club

11/19/2019

Following the scheduled return of Greg Foran to New Zealand, John Furner, president and CEO of Sam’s Club was appointed as CEO of Walmart U.S.  This vacancy will be filled by Kathryn McLay, currently responsible for Neighborhood Markets.  McLay joined Walmart in April 2015 with an emphasis on finance and strategy and was promoted to Senior Vice-president for the supply chain.  Prior to her affiliation with Walmart, Ms. McLay served for 14 years in various managerial positions with Woolworths Limited of Australia.

 

Ms. McLay will have a difficult task to build same-store sales and margins that in recent years have compared unfavorably with competitor Costco.

 


 

Cal-Maine Foods Donates to Canopy Children’s Solutions

11/19/2019

In a November 5th release, Cal-Maine Foods announced donation of $100,000 to Canopy Children’s Solutions. The organization serves 5,000 children annually through the state of Mississippi’s largest non-profit committed to behavioral health education and social services. Dr. John D. Damon, CEO of Canopy stated “We are immeasurably grateful to have Cal-Maine Foods as a transformational partner. They see beyond the statistics and visualize the kids that these numbers represent. Thanks to their generosity, the future of Mississippi’s children and families is brighter.”

Dolph Baker, Chairman and CEO of Cal-Maine Foods commented “We are very proud to support Canopy Children’s Solutions”. He added “They have a long-standing history of finding vital solutions for the most vulnerable children in our community. We recognize the critical need to continue their mission and we are pleased that our gift will help make a difference through expanded programs and innovative treatment options for more families in Mississippi.”


 

Easterbrook Resigns from Walmart Board

11/21/2019

Following his departure as president and CEO of McDonald’s Corporation, Greg Easterbrook has resigned from the Board of Walmart Stores Inc. He joined the Board in 2018 and served on committees relating to management development and finance.


 

Commentary


Speculation on Just IPO

11/19/2019

At approximately six-month intervals, Josh Tetrick receives adulatory publicity for his business acumen and concern for the environment. Just, the most recent iteration of the enterprises he operates was accorded the usual treatment by less than conscientious journalists with regard to an IPO. Tetrick is on record as intending to replace the entire complement of U.S. laying hens by substituting his brand of egg substitute.

 

It would appear that he and Just are riding on the somewhat tattered coattails of Beyond Meat.  Opponents of intensive livestock production and the financially naïve are speculating on an IPO although Tetrick has indicated “no timeline but at some point we will do it”.  Given concern over the rapid rise and then fall in share price of Beyond Meat, negative profitability and impending competition, Just would have great difficulty in obtaining a listing. Basically Just markets an ersatz mayonnaise, cookie dough and now a scrambled egg substitute based on mung beans.

 

It would appear that Tetrick has initiated a presence in China for his company where even a fraction of a vast market can accrue large sales.  Investors in the U.S. have become weary of the grandiose promises by Tetrick over the years and are obviously concerned over allegations of unethical marketing practices, defective corporate governance and churn in directors and managers over the years associated with Hampton Creek and other entities under his management.

 

Approximately two years ago, when cell-cultured meat was in vogue Tetrick announced that his company would market a product within a year.  This was obviously nonsense at the time given the lack of technical resources available to his company and that fact that label regulations and standards for cell-cultured meat will not be finalized before 2021.  In any event there is no indication that any of the current companies involved in the development of cell-cultured meat in the U.S., Holland and Israel can achieve a competitive price to conventional meat in the foreseeable future without a radical breakthrough in technology or advantage from scale of operation.

 

Journalists entering his orbit would be well advised to carefully investigate the claims made by Tetrick, consider the history of his numerous companies and evaluate market realities in promoting his image and businesses.  Moving the focus of his company to China without having achieved market penetration in the U.S. and with claims to sell product in India and the EU are probably expressions of desperation. Relocating to a new continent is an attempt to generate financial support from the uninitiated.  An IPO would be an unacceptable strategy for Tetrick and his company since this would involve preparation of a prospectus and would engender critical evaluation of his track record and prospects.

 

As with previous postings Josh Tetrick is welcome to respond to this commentary but with substantiation of claims, presentation of realistic business plans and technical data.


 

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Dr. Simon M. Shane
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