Sanderson Farms, Inc.
Q1 2020 Earnings Call Transcript

Published: 28 Feb 2020

[Operator:]

Good day, and welcome to the Sanderson Farms, Incorporated First Quarter 2020 Conference Call. Today's call is being recorded.At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Joe Sanderson. Please go ahead, sir.

[Joe Sanderson:]

Thank you. Good morning, and welcome to the Sanderson Farms first quarter conference call.This morning we announced a net loss of $38.6 million or $1.76 per share for our first quarter fiscal 2020. This compares to a net loss of $17.8 million or $0.18 per share for our first quarter of fiscal 2019. I will begin the call with comments about general market conditions and grain costs, and then turn the call over to Lampkin and Mike for a more detail count of the quarter.Before we make any further comments, I will ask Mike to give the customary statement regarding forward looking statements.

[Michael Cockrell:]

Thank you, Joe, and good morning, everyone. This morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Examples of forward-looking statements include statements regarding supply and demand factors, future grain and chicken market prices, economic conditions, production levels, and our future growth plans.The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our most recent annual report on Form 10-K, and on the company’s quarterly report on Form 10-Q for the quarter ended January 31, 2020, which was filed with the SEC this morning.

[Joe Sanderson:]

Thank you, Mike.Results for the first quarter reflect continued challenging market conditions for products produced for food service customers at our plant processing and larger birds. Demand for retail grocery store customers has remained stable, and that stability is reflected in overall average tray pack prices that were slightly higher than during last year's first quarter.On the other hand, market prices for boneless breast meat, chicken tenders, and boneless fat meat saw food service customers were lower compared to last year's first quarter. And in fact, quoted boneless breast meat market prices fell to all-time lows in January, and remained there into February. Those prices have moved higher over the past week however.Cash market prices for corn were higher during the quarter compared to last year, while soybean meal prices were lower. Our feed cost per pound of chicken process was higher by 1.5% per pound when compared to chicken - when compared to the first fiscal quarter of 2019. Both corn and soybean balance tables are healthy as we head into the 2020 planting season, but corn basis remains much higher than last year.As a result, we have bought little corn basis past April, while we have most of our soybean meal basis for the full fiscal year. The next events that will impact grain markets are the South American Harvest, and the March 31 Planting Intentions report.The South American Harvest is progressing very well, and expectations now are for good crops from the region. At its 2020 agricultural outlook forum last week, the USDA estimated corn acres in 2020 will be 94 million acres versus 89.7 million acres last year and the acres planted in soybeans would be 85 million acres versus 76.1 million acres last year.It is not unusual for the USDA to significantly revise its outlook before March 31 Planting Intentions report, so we will be watching for that report. We have priced our grain age through March, have bought substantially all our soybean - all our soya meal basis for the full fiscal year but have low corn basis price past April.Based on our calls through the first fiscal quarter and what we have priced so far, when combined with prices we could have locked in for the balance of the year and yesterday's close, our grain cost for fiscal 2020 would be flat with fiscal 2019, based on 2019 volumes.I've told our shareholders at our Annual Meeting two weeks ago that in addition to grain crops in South America and the Planting Intention of the United States farmers, we're focused on several things as we start fiscal 2020. We will of course watch chicken production numbers.The USDA is projecting that our industry will produce 4.3% more chicken during calendar 2020 than last year, which will compete with more pork as well. According to USDA data, pork placements are higher by over 2% in recent months, and egg sets and chicks place are trending higher by 4% compared to last year.I have several reasons to remain optimistic about 2020. First, we are operating well in all areas of our business. While our model of selling fresh chicken in market prices does not compete when commodity market prices are at historic lows both our live production and our processing divisions start the year in a very strong position.Second, I believe grain markets will at worst they've been then. Finally, low market prices for boneless breast meat produced than our planting processing larger birds for food service customers remain under pressure and market conditions during our first fiscal quarter were very challenging, we continue to be positive about our opportunities in both domestic and export markets over the next year.With respect to domestic markets, we expect to see continued favorable demand in retail grocery stores. Chicken remains favorably priced compared to other proteins, and we believe that dynamic will continue. We also believe we will see improved land from food service customers, supported by an increase in promotional activities and quick service restaurants particularly.With respect to the export markets, the outbreak of African swine fever in China has affected the worldwide platform, bringing a significant protein deficit that should ultimately benefit poultry market in the United States.At the end of 2019, China lifted nearly five-year ban on the import of the United States poultry, and we resumed shipments to China almost immediately. Since the ban was lifted, we have shipped or have customer orders for approximately 18 million pounds of chicken products, including dark meat parts in China.This includes 137 loads of dark meat and 283 loads of chicken feet. We continued to receive strong indications of interest for our products from buyers in China. And we were pleased to see the recent announcements regarding the reduction of tariffs on United States poultry, which should further support our business.While a devastating coronavirus is currently disrupting the markets, depressing demand and negatively affecting shipping logistics and slowing China's economic growth rate. We believe demand for protein from China is strong and we expect to benefit in 2020 from the return to an open market.Finally, we will focus our efforts on our growth. Operations in Tyler will reach near full production by August of 2020, and we are seeking a new site for our next plant.At this point I'll turn the call over to Lampkin for a more detailed discussion of the chicken markets and our operations going forward.

[Lampkin Butts:]

Thank you, Joe. Good morning, everyone.Overall market prices for poultry products were higher by $2.58 per pound, or 4% during the quarter when compared to our first quarter last year. Overall, average market prices for poultry products reflected good demand during the quarter, an average just under $0.01 higher per pound during the quarter compared to the first quarter of fiscal 2019, based on mix improvements.Tray pack prices were lower by quarter of a cent per pound sequentially. Again, mostly all mix. Both leg quarter prices during our first quarter averaged $31.5 per pound compared to $25.7 per pound last year. Final number for calendar 2019 shows the volume of all broiler meat exported goes higher by 1.5 of 1% compared to 2018.The average closing market price for jumbo wings was higher during our first quarter compared to last year and reflected a good Super Bowl season. Jumbo wing prices averaged $1.61 per pound during our first quarter this year compared to $1.56 per pound during last year's first quarter.Boneless breast prices averaged $0.92 during this year's first quarter compared to $0.95 a pound last year. We sold 1.15 billion pounds of poultry products during the first quarter, an 8.2% increase from the 1.06 billion pounds sold during last year's first quarter.Our processed pounds were up 1.06 million to 1.17 billion pounds. That is 3.3% higher than our guidance of pounds processed during the fourth quarter, as both the number of processed during the quarter and [indiscernible] were higher than our estimate.We expect to process approximately 1.23 billion pounds during our second quarter, up from 1.08 billion pound processed during last year's second quarter. We expect to process approximately 1.29 billion pounds in Q3 and 1.27 billion pounds in Q4.Prepared chicken sales were 51.6 million, down 6 million or 10.5% on 4 million pounds sold. Our average sales price per pound of prepared chicken was higher about $5.3 per pound, up 2.9%.We remained focused on our operations during the quarter and we will maintain that focus as we move towards our full production in April. As Joe noted, our big bird product mix is a challenge in the environment we faced November through February. But we will continue to look for efficiency improvements and do everything we can to meet our goal of performing at the top of the industry.At this point, I'll turn the call over the Mike to discuss financial statements.

[Michael Cockrell:]

Thank you, Lampkin.Net sales for the quarter totaled $823.1 million, and that's up from $743.4 million for the same quarter last year. Our net loss of $1.76 per share during the quarter compares to a net loss of $0.82 per share against last year's first quarter. Our cost of sales in poultry products for the first three months into January 31 as compared to the same three months a year ago, increased 17.9%. This increase is a result of more pounds sold and an increase in the average cost of goods sold.Ramp up in efficiencies at Tyler and additional cost inherent and a trade pack plan accounted for $1.2 per pound of our higher cost of goods sold compared to last year's first quarter. We expect to get three quarters of one cent of that back by September 2020.Non-feed related COGS were higher by $74.3 million or $2.7 per pound compared to last year. Several factors contributed to this. First, lower than capacity volumes impacted COGS per pound. The Brazos and Macon plants were down a week during the quarter for the installation of new equipment.Labor costs were up $31.7 million, or $1.67 per pound compared to last year, and fixed costs were higher by $8 million or just under one half of a cent per pound. As we have begun depreciating some of the equipment we've been adding to the plants over the last year. The change in benefit of the reversal of the fiscal year and low comp adjustment was two thirds of a cent higher in Q1 2019 and this year.Our feed cost per pound to poultry products processed were higher by 25 - were higher at $25.97 per pound, compared to $24.44 per pound last year, while our cost per pound to poultry products sold were higher by $5.5 per pound. Our sales price per pound to poultry products increased only 4% or $2.58 per pound compared to last year. And this combination obviously resulted in lower operating margins during this year's first quarterSG&A expenses for the first fiscal quarter of 2020 were $9 million lower than the same three months a year ago. This decrease compared to last year's, the result of a $1.4 million reduction in trainee cost, the elimination of $9.3 million in Tyler startup cost and lower stock compensation expenses. These reductions were offset by higher legal and other expenses.We're modeling $50 million for SG&A expenses in Q2, $50 million in Q3, and $52 million in Q4. And these estimates include no accrual for a potential ESOP contribution or bonus rewards. We've spent $71.2 million on CapEx during the first quarter, and we've approved $203.8 million in CapEx for the 2020 fiscal year.The fiscal 2020 capital budget currently includes $40 million for several large scale equipment upgrades at our processing plants in Bryan, Texas, McComb and Laurel, Mississippi, and Moultrie, Georgia. We've also budgeted $15 million during fiscal 2024 of new hatchery under construction right now in Jones County, Mississippi, and that will replace the Laurel Mississippi hatchery.Our depreciation and amortization during the first quarter totaled $36.7 million and we expect to cross approximately $154.6 million in depreciation for the full fiscal year.Michelle, that is all of our prepared remarks and you can now open the call for questions.

[Operator:]

[Operator Instructions] And our first question today, we'll hear from Heather Jones with Heather Jones Research. Please go ahead.

[Heather Jones:]

I wanted to ask a quick question about on the cost. Using the pounds that you all are projecting for Q2 and given some of these conversions are over, how should we be thinking about non-feed cost per pound in Q2.

[Joe Sanderson:]

Yes, the labors is baked in has a vest not going anywhere, you're going to get back the inefficiencies at tire three quarters of a cent of pound, you're going to get a little bit of that back in Q2. Your volumes are going to be higher, which are going to help, you might model a penny lower, but I wouldn't model any lower than that. And then you're going to get some more back in Q3.

[Heather Jones:]

And then going to China, so talking about the tariff reductions that they announced. Now, my understanding is that the different distributors have to offer that and then they're awarded it. It's not like a blanket waiver. Is that correct?

[Joe Sanderson:]

That is correct.

[Heather Jones:]

Okay.

[Michael Cockrell:]

China published a list of things that they dropped the tears long completely. Probably was not on it. But they allowed the employers to apply for that tariff exemption which they've all - the ones we deal with it all. Yes.

[Heather Jones:]

So the ones you deal with these all aquifer waiver and they are going to [indiscernible].

[Joe Sanderson:]

The waiver is 30% that is still in place.

[Heather Jones:]

Okay. And given that waiver, I mean, how competitive is U.S. product into China right now?

[Joe Sanderson:]

Well, its pricing in, they dropped to 30% is just going to be more that much better for us.

[Heather Jones:]

Yes.

[Joe Sanderson:]

[indiscernible].

[Heather Jones:]

And then my final question is on the strength that we've seen in the DSP market of late. Is that in your view is that mainly just seasonal strength and have you started to see any of the QSR step in and buy for their anticipated needs, like what do you think is driving this recent strength?

[Joe Sanderson:]

I think its several things. I think what surprise or bonus right now, I think its volatile market share. We're exporting a good bit of boneless into Mexico right now. Brazil does not have -has no quota right now to ship any boneless into Mexico, so and without price the U.S. is shipping a good bit of boneless.We believe that further processors are buying a good bit of boneless at these prices and fabricating and putting boneless away right now in anticipation of higher prices. We also believe without knowing that there may be some quick service restaurants putting some products up for features that are going to break in spring. I think all of those…

[Operator:]

Next, we'll move to Peter Galbo with Bank of America.

[Peter Galbo:]

Joe, there were some reports out this morning that some of the ports in China have actually started to lower the wait times to offload product from ships. And I'm just wondering from any of the [indiscernible] you've spoken to just over the past couple of days, have you heard about any incremental easing as people are returning to work that they're actually able to move more product through the ports in a more orderly fashion?

[Michael Cockrell:]

Well it has gotten better. I asked him this morning. He had not heard anything because I saw that same report, Peter, but I hadn't heard that from our guys.

[Joe Sanderson:]

I haven't heard anything in the last couple of days, but I will say it's a little slower getting stuff out of the port, but we had missed it. We had everything we shipped, that is on scheduled. [indiscernible] loads diverted to different port in Korea to unload. But everything else we've gotten.

[Michael Cockrell:]

Yes, it is kind of - but we've added always shipped over there and we started shipping right at the 1st, December. And we bought a handful of vessels that were diverted. And we probably, I don't know how many landed, but we got out and they might go from one port in China to another port in China but we've gotten almost everyone of ours in, and it's kind of getting slowly back to normal.

[Peter Galbo:]

And just a quick clarification on the tariff comments. Your understanding that the labor, as you import supply for, would go to zero percent effective March 2 similar to the other proteins, that would just be helpful to clarify. Thanks.

[Joe Sanderson:]

Well, if approved, we don't know about the approval yet, but our understanding it will happen quickly if they get approved - if China approves it.

[Operator:]

Next, we'll move to Ken Goldman with JPMorgan.

[Kenneth Goldman:]

I have two quick ones. One, what's your appetite for buying back stock at these levels? And two, is there any reason to expect earnings to be anything other than positive in the second quarter as you see it right now? I feel like 10 times I am asking you free bottom line questions. [indiscernible].

[Michael Cockrell:]

I will give you the first one, Kenneth [indiscernible] in $70, $75, $80, is where you had bad stock rather than build the plant, I think there's a target last time we looked at it, [indiscernible]. And what was second question?

[Joe Sanderson:]

And to that point to Ken, we bought stuff by 850,000 shares back - we never borrowed money to buy back stock, I don't understand your question $128 is kind of getting like cheer up a little bit, but we hadn't borrowed money to do that in the past. And then the second question then was - profitability. [indiscernible].

[Michael Cockrell:]

I will observe this. You probably noticed that we did not book a lower of cost or market entry at the end of the first fiscal quarter that we obviously think it's going to be much improved, but no that. Margin rate, volumes will get improved. Dark meat is improving, March dark meat is going to better than February but boneless is going to get up. We can’t sell boneless for $0.68 per pound and we have seven plants deboning and doesn't matter what you pay for bone when you sell them boneless at 76 pounds.

[Operator:]

Next, we'll move to Benjamin Theurer with Barclays.

[Benjamin Theurer:]

Thanks for taking my question. So I wanted to follow up and put a little bit into perspective, what you've been shipping to China. So you've mentioned in the press release and in your prepared remarks that you've had shipped approximately 18 million pounds. How has been the velocity of shipment over call the last four to five weeks since the more severe coronavirus outbreaks and some of the delays in the offloading in China. Have you continued to ship? Have you slowed down shipments as I remember, you gave guidance last quarter call in December on your potential benefit from the chicken feed shipping them over to just to understand if there's going to be a revision on that number because of lower levels of shipment?

[Joe Sanderson:]

No we continue to shift. We haven't slowed anything. And as I mentioned earlier, everything we've gotten over there, it's gotten into the customer, but we haven't slowed down.

[Benjamin Theurer:]

Okay, and how is your progress on getting the quality of the POS, because that was one of the discussions, we had two months ago. The grey day, where do you think your targets going to be? Have you started to further improve that work on and just to get a feel off what the potential volume could be?

[Joe Sanderson:]

Yes, it's gotten better. We've still got some work to do, but it's slowly gotten better. In terms of the flats, they've been trying to pack them and quality coming out of the houses but it's - not ethical growing we want to cross the board. I don't know that we've recalculated our - how our markets worked where what we've done so far as market prices that we can recalculate that. We haven't done.

[Benjamin Theurer:]

That once more.

[Joe Sanderson:]

Yes - today pretax its $65 million to $70 million and if we can get - we could add $30 million to $40 million to that. If we can get everything right. So Paul's coming out of the broiler house and the grading and the plants, we can add $30 million to $40 million to that we believe.

[Benjamin Theurer:]

Okay, now that $65 million to $70 million is that for fiscal 2020 or would that be an annualized figure that fiscal 2020, okay?

[Joe Sanderson:]

2020, that’s annualized.

[Operator:]

And next we move on to Ben Bienvenu with Stephens.

[Benjamin Bienvenu:]

Mike, I think you made some comments around McComb and process being down in the quarter for equipment upgrades. I think Moultrie is supposed to be down a week in 2Q.

[Michael Cockrell:]

February, it's done.

[Benjamin Bienvenu:]

It’s done, okay. Are there any other scheduled maintenance upgrades or equipment upgrades that we should be looking?

[Michael Cockrell:]

We have Waco and Palace Theme to put some dark meat, deep boning and but we have delayed that primarily because of China business. And so, we don't have any more anything else scheduled right now.

[Benjamin Bienvenu:]

And then Joe, you mentioned it's been difficult to price your corn basis. Any thoughts on when you think that improves and we question there I’ll keep it simple, simple question?

[Joe Sanderson:]

I don't know frankly we booked April yesterday. We went out first of the week and sort basis through July corn basis through July and it was still sky high. And we just about capable and my thought is perhaps it might get better when the March 31 planning intentions come out and if it comes out with a big number 92, 93, 94 million acres. It might - that might break something loose, but if not, I'm going to buy hand mill.There is no need to go out and my maintenance the basis is high is high as I've ever seen and in the East for Kingston and Adel it's sky high because they have a small crop out of Ohio and Indiana. I understand that but not in the Midwest. I don't understand there was no oil in Nebraska and but the farmers are I understand farmers being upset about prices and board got the price Chicago Board, right? The price has been low for them since 2012.And they're hurting and I got that. But I'm setting bonus breath for setting the central plan and feel their pain, I feel - emphasize, but I'm not going play but you have to sell it. Yes. I can’t store mine.

[Operator:]

And next we'll move to Robert Moskow with Credit Suisse.

[Unidentified Analyst:]

This is [indiscernible] for Rob. Just a quick question on pricing I guess you mentioned that food service specifically quick serve demand should ramp up this year, seeing some promos in the spring. Could you just provide some color on I guess how this would exactly benefit the overall chicken pricing environment considering I mean correct me if I'm wrong, but most of the quick serve supplies are from smaller birds. And it’s way smaller portion of its total supply growth. So yes, I guess how, what would happen with the bigger bird supplies and would that continue to pressure pricing, just trying to get just some color on, just how pricing would improve from quick serve?

[Joe Sanderson:]

In the past, we've seen the best unbearable market prices. The boneless, skinless breasts, with breast sandwiches or maybe breast items are featured heavily on Television nationwide. We've seen with McDonald's and Burger King and Wendy's and they're all promoting. We see enough demand for boneless breasts and I'm talking about out of the jumbo plant that it moves the market and those three I mentioned we don't sell any of them directly. But when they're buying and selling a lot of product through their restaurants, the markets respond yes.

[Lampkin Butts:]

You can take breast out of our plants out of a nine pound, nine and a quarter pound chicken and fabricate a four pound piece of chicken out of. And that's what happens a lot of times when there is not enough of the 7.5 pound chicken or - they will take our boneless and cut that 4, 4.5 pounds portion out of our bone.

[Michael Cockrell:]

Yes, we've seen some of that we've actually sold some to fabricators who have turned around and sold it to another fast food company that's got a really popular sandwich right now. But even that regimented was out of 6.5 to 7 pound and they cut it and it’s not a fall growth.

[Lampkin Butts:]

Yes.

[Unidentified Analyst:]

Got it, it was very helpful. Thanks.

[Joe Sanderson:]

Yes.

[Unidentified Analyst:]

And simply helpful thank you and just a follow up just kind of an overall supply question just for the market. When should we expect to see this, the elevated supply level is going to taper off the 4% is kind of the high end of the range? And, is this yes, is it largely coming from capacity expansion. And if so, when should we see that expansion kind of taper off just in terms of, from what you can tell, when should we see more balanced supply demand dynamic?

[Joe Sanderson:]

I don't, I think what's likely to happen is I think channel and the channel business and what we believe is going to happen in the quick service restaurants is going to bail the industry out. And a 4% would be too much along with the pork. And that's too much protein, but we're probably [indiscernible] probably going to get bailed out because of the export market. And because ofthe feature business that we think is going to happen.Now when that export market disappears whenever that is and I don't know when that's going to be and when this future business disappears and I don't know when that's going to be and all that meat stays, and - you’ll go through a period of losses. And that's what will and when that happens, that's when the 4% will disappear.There will be a time of challenge and that's when 4% goes away. I think the industry likely to get bailed out this year because of extraordinary circumstances in China and Topaz, chicken sandwich, it’s going to be a catalyst for early chicken sandwiches and I think - events are going to bail the industry out in 2020.

[Unidentified Analyst:]

I guess I was more focused on just specifically supplies in terms of - is the 4% do you kick event largely the elevated number there is that largely coming from capacity expansion or is that just more utilization of existing supply, existing plants. And I guess, if it is from the expansion, when should we see that kind of taper off if you have any color there that would be helpful? Thank you.

[Michael Cockrell:]

Well, I think it's from expansion. If you're looking at chick price and egg sets half of the - its running about $8 million a week and half of that was in notch that Sanderson, [indiscernible] Cosco, Simmons and our neighbor up in North Carolina. Right, about half of that you would cut and then cook and wine and added lime. And then that will count for about $4 million roughly about $4 million a week all that put together roughly and then there's another $4 million that just showed up set my highest to 8 million a week, eggs and chick placements.And so that's people that had just either. They didn't announce it just showed up and that people had agreed to run their lines from 140 to 175 or added a line or something nobody knows about. So that is the result of tremendous profitability in 2014, 2015, 2017 wanting to expand and that's what they did. And so what's going to stop that is red ink. And when that happens, it'll go away. And but I think 2020 entries is going get bailed out maybe 2021 as well.

[Operator:]

And next we will move to Eric Larson with Buckingham Research.

[Eric Larson:]

So a couple things I'm curious on the persistent increase in weights - is the industry holding back a little bit. Joe just if you’ll - hopefully that they’ll get a perennial increase in price and it's a little bit sort of inconsistent with what we hear that in your quality of grain feed your corn is just not quite as good this year so you actually have to feed more grain. So, I guess could you talk about the persistent increase in the weights that we've seen and what happens there?

[Joe Sanderson:]

Well, we have had a very mild winter and our weights and our company got way out of line in January. And so, we had to run probably three Saturdays at big bird plants to get our weights back and down to our target weights. And our weights are back to normal and I believe we're at least a day, at least a day younger, maybe two days younger right now than we were a year ago. And on our big birds, but our conversion rates are just spectacular right now. I don't know corn and soy I hadn't heard anything say I mean it’s’

[Michael Cockrell:]

Hit from the market yes, I don’t think our corn and soy is planned.

[Eric Larson:]

Yes, got it. Fair enough.

[Joe Sanderson:]

So I think - the industry ran a lot of I think that's what happened in January to boneless breast the industry had to run a lot of Saturday's to get their weights down a little bit.

[Eric Larson:]

Okay.

[Joe Sanderson:]

The weights we see indicate that the industry has a heavier bird particularly in the big bird the boning region our segments and definitely a bigger bird in that category.

[Eric Larson:]

So maybe if the whole industry has experienced this kind of very mild winter and they're trying to do this catch up and stuff here as well. When you kind of look at you've drifted up in boneless over the last two three weeks a bit, but you've drifted down in wings, which is kind of color seasonal because you're going into March Madness and now when you generally get that big wing demand. And so, we've seen a little bit of drop in, I think in leg, I think in quarters and in wings recently and maybe just this - the week that here near term is just maybe a blow off of people trying to catch up with weights across the industry is that possible?

[Joe Sanderson:]

Yes, late quarters are going up right now by the way. At March leg quarters are going to be up $0.03 or $0.04 a pound. Don't know about wings yet they had made a move yet boneless and leg quarters though, are both going up and wings hadn’t done anything we think they are bottomed out.

[Eric Larson:]

Got it.

[Joe Sanderson:]

This is little too early for March Madness that hit the wing, but it’s coming.

[Eric Larson:]

Yes, I would assume that you're probably getting pretty close that gives you only a couple Saturdays Sundays away here from selection day and I would imagine - you need a couple of weeks, prep to get that. But the final question that I have here that and I - we get this cold storage data, I’m not sure how relevant it is. And I think Mike, you made a comment to me once that you thought that maybe also in poke that there's a bunch of meat that's going into cold storage.It's sitting in ports in New Orleans, has already tagged, maybe already sold for shipment. What's getting caught up and carried up in this cold storage number it is, maybe distorting the numbers. How do you feel about I mean, is that makes sense, and how should we think about that?

[Michael Cockrell:]

I think cold storage data is important. And I will chat about that with me letter is on my desk. First thing I do in a cold storage thing is look at up to that last category. What was the last category?

[Joe Sanderson:]

Other.

[Michael Cockrell:]

And I take that and half of almost half of that 950,000 pounds, a million, billion, whatever it is I know that 50 million is other and we don't know what, we think that is an error. And I don't think anybody knows what that is.

[Joe Sanderson:]

When we see that total number running 950 or above, we think that’s too much in freezer and it sort of matches up with the cold storage we deal with they're all busting at the same they're all full. And we still have to struggle the total make sense. I don't think - I don't know that they report two categories, right.

[Michael Cockrell:]

I don't think the bones the breast meat is to high that’s too much but we pack beginning in November. We pack frozen breast meat for one of our customers. And every year when the market gets down at these levels, they cook boneless breast meat further processor but this boneless breast meat in the freezer that he will pull out in the spring when boneless at 68.70 a pound and he will pull that out. And when boneless breast meat goes to $20, $30, he will pull it out running and further processor.So it doesn't surprise me but it still - and in late quarters that doesn’t bother me because I think that is staging to go to China. So I can understand breast meat and I understand the late quarters.And the other category is the one nobody knows what it is, that is the one that bothers me a little bit. Yes, I do think that is meat is significant and it could be this other category that might be something that is you know supposed to be chicken waffles and [indiscernible] they can’t be that many -can’t be that it's got to be something else.

[Eric Larson:]

Yes, that's definitely helpful. I mean it's something I've watched pretty closely so I pulled it up while we're talking and you’re right about half of that increase in the last report was in that other category. So if that's a mystery to you it's certainly a mystery to us.

[Joe Sanderson:]

Well I think that's the one that is, I don’t what that is.

[Operator:]

Next, we’ll move to Mike Piken with Cleveland Research Company.

[Unidentified Analyst:]

It's Chris [indiscernible] for Mike. Taking a longer term view, do guys think maybe the coronavirus creates a situation in China where they're more dependent on imported proteins and kind of we previously thought?

[Joe Sanderson:]

I have seen that theory embedded around at the end of the day, it's unprecedented. And by definition, that means we don't know exactly how it's going to play out. But you know the theory is the province where they've had most of the problems and where the quarantine has been most severe is where a lot of chickens and other protein are processed and they have to get feed in there, to feed the animals.

[Michael Cockrell:]

And the wet market is.

[Joe Sanderson:]

The wet market is going to be closed. Yes, I mean I think theoretically that makes sense. But at the end of the day, let's wait and see what else they want to do it. They can go to commercial.They can go to large scale commercial chicken processors, yes.

[Unidentified Analyst:]

And sell the live birds.

[Joe Sanderson:]

No, they can go to commercial poultry industry in China.

[Unidentified Analyst:]

Oh, long term.

[Joe Sanderson:]

Yes right for short term they are going to have to import, that could develop on commercial industry post the wet market. So you’re a commercial pork and commercial poultry industry but for the short term over the next 3, 4, 5 years the problem they have is they have avian influenza and multiple [indiscernible] that's their danger.

[Unidentified Analyst:]

The second one is you guys mentioned the new plant, I guess given the tightness and small bird and the relative strength in that category are you guys maybe looking to add in the small bird category or how are you guys thinking about where you guys want to add capacity how many plant once you guys kind of choose a location?

[Joe Sanderson:]

We would add either trade pack for big bird boneless, we would not do small bird.

[Operator:]

And we'll hear from Adam Samuelson with Goldman Sachs next.

[Adam Samuelson:]

Maybe first, Joe, you alluded in one of the earlier questions to exports and QSR is bailing out the industry this year. I mean, just how do you frame what bailing - is bailing out just meaning avoiding losses or does bailing out in your line mean prospects of above long term average margins I mean, there's such a wide range of outcomes how all the pricing has been and I think we kind of just narrow kind of what that could be?

[Joe Sanderson:]

I think that the China export could probably take all of this 4% expansion in pounds and it's going to be dark meat primarily. And I think they could take all of the expansion and pork and by taking those extra pounds off the market, once you get going that's going to do two things, it takes dark meat out of the U.S. and it takes the pork, that's going to have two ways to go have first retail.The pork is taking - the pork and it's going to have help us by having the industry I'm talking about by taking the dark meat. I also think they are going be, I believe they're going to be features at QSR on chicken sandwiches. I think they have to get in the ball game. I don't have any inside information on that. But I think they cannot allow the competitors cannot sit still and let two people dominate the chicken sandwich segment that other players have to be relevant in that. That that's why I said what I do.

[Adam Samuelson:]

Okay, that's very helpful color. And then my second question was on the retail market and just how you've kind of alluded to a balance kind of supply demand and pricing mostly on mix is up modestly. But I was just trying to get a sense as you look forward for the next kind of couple months. How kind of future planning is going. Looking at the USDA data year-to-date seems like future activity is pretty similar to last year. And wondering and why you're seeing an engagement with retailers you think there's a pickup coming that could take some more breast meat off the market? Thank you.

[Joe Sanderson:]

I think seasonally, I think we’ll get seasonally better demand and better future activity in retail.

[Michael Cockrell:]

It has not been great just tell you the truth. We got first to January like we always do right afterChristmas but February has been pretty slow. If this pork gets exported, like we think it will, that's going to help us a great deal. But hog prices are cheap, very, very cheap and it's hurting us with features that grocery stores right now it's been very slow in February. Prices have held up, but we're not getting - February we're getting very little future activity.

[Operator:]

And next we’ll move to [indiscernible] with Bank of Montreal.

[Unidentified Analyst:]

Just a couple of questions to follow up more than anything else. When you think about production levels, what is your full year production and how do you think its breakdown between the first half and the second half?

[Michael Cockrell:]

Question is first half versus second half?

[Joe Sanderson:]

I think they will be the same.

[Michael Cockrell:]

Do you mean industry production?

[Unidentified Analyst:]

Yes, the industry production for the year. My understanding is, there is lot more plans coming under front half and then maybe slow down but I don't know if you believe that or not. There's a [indiscernible].

[Joe Sanderson:]

If the industry is profitable which I think it will be, you know, past, after April, May if say April, May the best prices in that quarter, we think they're going to do - then I think you'll have the same - we'll have this 4% increase all of you.

[Unidentified Analyst:]

You keep on referring to the idea that you want to build more capacity, there's always been a long term thought. Recently then you said there's been labor constraints and the ability for you to get pick up plan. Has that changed? Or you feel any of that, where there's a greater probability that you will be able to seek plant?

[Joe Sanderson:]

Oh, well, we hadn't been able to find a site with ample labor yet, but we're - you know, they're 50 things we look for. One of the things you can do about locating a site, I won't tell you everything, but it could go back and look 10 years back and see what the unemployment rate was 10 years ago, or 15 years ago, and see what historically unemployment was. And you might see what the labor was and anticipate that you're going to have a recession and look at something in the past and not what it is today.And you know, today everything's hot, it's [indiscernible], but if you go back and look and see what it was pre-2007 which was a normal year, and see what your unemployment was then, and labor availability was and look at that. And that might give you some idea of what you could expect when the economy gets normal. And another thing, we look forward to the aquifer where we can have well, for facility and for our growers can drill wells.That's a couple of things we look for. Our checklist has 50/50 plus things on it, but those are a couple of things. Right now you can't find any place that has plenty of labor - go ahead.

[Unidentified Analyst:]

I thought it just seemed like your tone change that. Given what your stock prices, I think you said to first question that you would prefer to build, but as you know, your tone changed where, hey, we're finding more opportunities to build, but it doesn't seem like that has changed. Is that fair?

[Joe Sanderson:]

That's fair. We want to have a new side for the next one. We're not ready to break ground today.

[Unidentified Analyst:]

And my last question is, in terms of the logistics of getting product to China, I think you made it pretty clear that you're still getting every product in there. Do you think it's more of a desire and willingness for China to buy? Or do you think it's more logistics? I'm trying to think I think that's more the question because it seems like, AAF is obviously there. But what's going to give China the desire and willingness to actually really change their direction, is it more a political relationship with, you know, causing trouble, how does that evolve and just - I guess that's pretty loaded question, but is it more desire or is it logistic issues and what's going to change? And I'll leave it there.

[Joe Sanderson:]

Do you mean to go ahead and start pulling product, Ben?

[Unidentified Analyst:]

Yes, exactly. Really moving exports.

[Joe Sanderson:]

They need the protein, right now they don't have the demand that they will because of the coronavirus and people are just now starting to move back around again. They've had restaurants, I mean, they've had local ordinances banning restaurants from opening, they had needed protein over the last month because coronavirus actually going to - their whole economy is disrupted.Once that settles down and I know there's a big question mark about coronavirus not just there but in other places too but what they’re going to need it and they’re going to need more obviously than they did. Thank you.

[Operator:]

And that will conclude the question-and-answer session. At this time, I'd like to turn the call back over to Mr. Joe Sanderson for any additional or closing remarks.

[Joe Sanderson:]

Good. Thank you for spending time with us this morning, and we look forward to reporting our results to you throughout the year. Thank you very much.

[Operator:]

And that will conclude today's call. We thank you for your participation.