Sanderson Farms, Inc.
Q4 2020 Earnings Call Transcript

Published: 17 Dec 2020

[Operator:]

Good day, and welcome to Sanderson Farms Incorporated Fourth 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 Sanderson Farms fourth quarter and fiscal year-end conference call. This morning, we reported net income of $27.9 million, or $1.26 per share for our fourth fiscal quarter of 2020. During the fourth quarter of last year, we lost $22.9 million, or $1.05 per share. For the year ended October 31, 2020, we reported net income of $28.3 million, or $1.27 per share. For fiscal 2019, we reported net income of $53.3 million, or $2.41 per share. If you did not receive a copy of the release and accompanying financial summary, they're available on our website at www.sandersonfarms.com.

[Mike Cockrell:]

Thank you, Joe, and good morning to everyone. This morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. 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 annual report on Form 10-K for the fiscal year ended October 31, 2020, which was filed with the SEC this morning and in our press released published today. These documents are available on our website at sandersonfarms.com. You should not place any undue reliance on forward-looking statements we make this morning. Each such statements speaks only as of today and we might not update or revise our forward-looking statements. External factors affecting our business such as feed grain cost, market prices for poultry meat, the health of the economy and, of course, the COVID-19 pandemic, among others, remain highly uncertain and volatile and our view today might be very different from our view a few days from now. As stated in our 10-K this morning, the risks and uncertainties for our business created by the COVID-19 pandemic include continued or worsening absentee rates at our facilities, labor shortages, the possible closure of one or more of our facilities and inability of our contract producers to manage their flocks, supply chain disruptions for feed grains, further changes in customer orders due to shifting consumer patterns, disruptions in logistics and the disruption chain for our products, liquidity challenges and a continuing or worsening decline in global commercial activity, among other unfavorable conditions.

[Joe Sanderson:]

Thank you, Mike. Our financial results for the fourth fiscal quarter and year ended October 31 reflects the extraordinary challenges caused by the COVID-19 pandemic and the unprecedented social and economic impact the virus continues to have on the United States. These conditions have resulted in weak market prices for boneless breast meat and other products produced at our big bird food service plants. On the positive side, market prices and demand for chicken products sold to retail grocery store customers remained strong through the end of fiscal years, as more consumers continued preparing meals at home, given the limited options for away from home ban. Overall, realized prices for poultry products increased during our fourth fiscal quarter compared to last year, but prices decreased for the year compared to fiscal 2019. Feed cost and broilers processed were lower both during the fourth quarter compared to a year ago and for the year compared to last year.

[Lampkin Butts:]

Thank you, Joe, and good morning, everyone. As Joe said, overall market prices for chicken were lower during the fiscal year compared to fiscal 2019 and our feed cost per pound for the year were lower than last year. Tray pack market prices during our fourth quarter and fiscal year continued to reflect strong demand from our retail grocery store customers and from consumers who continue to cook most of their meals at home. For the year, our tray pack market prices were slightly lower compared with fiscal 2019, but with the $1.86 per pound improvement in our mix, we realized an increase of $1.56 per pound in our overall average realized price for tray pack products. For the fourth quarter, realized tray pack sale prices were higher by $2.39 per pound compared with the fourth quarter of 2019. Sequentially, realized market prices were essentially flat. We remain constructive on our outlook for the tray pack markets during 2021.

[Mike Cockrell:]

Thank you, Lampkin and good morning again. Net sales for the fourth fiscal quarter totaled $940 million and that's up from $906.5 million for the same quarter down fiscal 2019. The increase in net sales for the quarter reflect an increase in realized prices for poultry products of 6.5% offset by a 1.1% decrease in pounds of poultry sold compared to last year. Our cost of sales of poultry product for the quarter ended October 31 decreased 3.2% reflecting a slight decrease in pounds sold and the lower cost of feed and brawlers processed during the quarter offset by an increase of $2.58 per pound in nonfeed related costs. For the fiscal year, net sales totaled $3.56 million up $3.6 million from $3.44 million a year ago. Our cost of sales for the year increased 6.7% compared to a year ago and totalled $3.37 million. The average cost per pound in our poultry business increased $1.72 or 2.7% compared to last fiscal year, reflecting higher nonfeed related cost offset by lower feed cost. Non-feed related COGS were $42.72 per pound during fiscal 2020 up $0.203 per pound compared to fiscal 2019. Non-feed related lab cost were three quarters of a cent per pound higher compared to fiscal 2019 on higher cost and lower all fall returns. Labor cost in our processing plants were higher by $0.126 per pound, fxied cost were higher about a third percent a pound and other costs were higher about $0.13 per pound primarily as a result of $23.7 million book to COGS for COVID related expenses. We sold 31.2 million fewer pounds of prepared chicken during our fiscal year, a 24% decrease but our sales price averaged $0.168 per pound higher which was almost 1% increase.

[Joe Sanderson:]

Thank you, Mike. Our freight cost per pound during fiscal 2020 were lower by just under a $0.01 per pound compared to the previous year and this represented the eighth straight year of lower or relatively flat feed cost. However, given current estimates regarding this flat feed grains and increased export demand for both corn and soybeans we now expect that trend to end in 2021. If we lock in prices for all of our needs for fiscal 2021 including what we have already priced at current values, that is if using these Chicago Board of trade contract prices for current and future needs as opposed to last night, our cash cost for grain during fiscal 2021 will be $193.2 million higer then during fiscal 2020. Based on 2020 volumes, USDA's estimate for carryout of both corn and soybeans for the 2020, 2021 crop year have both tightened considerably since August as a result of challenges with the 2020 crops in the United States. Corn and soybean's basis values have also moved higher. We have our basis for both corn and soybean of bulk through March and we have priced our corn and soybean needs through December. As always on the yearend call, I'll share a few things we're watching closely as we start the new fiscal year. First we'll keep an eye on the South American corn and soybean crops. As of today, expectations for those crops in Brazil and the rest of South America are cautious as there are pockets of dry hot weather in South America. It is still early, but we will keep an eye on those crops. Of course of challenge through crops will affect export demand for domestic supplies. Second, we will watch United States planning intention reports next March. USDA's current estimates is that corn acres will be essentially flat at 90 million acres in 2021, while soybean acres will increase 7% to $89 million acres. If realized, these acres will be the second highest acreage owned record and would be consistent with strong export demand, lower ending stocks and higher-priced. Third, we will watch chicken production numbers. USDA estimated that the industry will produce approximately 1% more pounds of chicken during the calendar 2021 compared to 2020. Looking at egg sets, chick placement, placement in the size of the hand flock, we believe the USDAs estimate is reasonable. We will of course also be watching chicken markets. Market prices for boneless breast meat produced at our big bird plants for the food service market have moved to counter seasonally higher over the past few weeks. The same is true for dark meat prices. However we expect demand from food service customers to remain under pressure until the COVID vaccine is widely distributed and consumers feel comfortable going out to eat again in large numbers. We will also be watching global markets as export demand continues to face pressure in key markets such as China. That said, we are encouraged by reports of a chicken sandwich war in 2021 and the QSR market and we wish all the participants much success. As Lampkin said, we feel good about retail grocery demand going forward. Volume here in 2020 reflected the shift in consumer demand away from food service and toward cooking at home and we expect that trend to continue. We started fiscal 2021 in good shape. Our balance sheet is strong, our operations are performing very well, our sales team has done an outstanding job placing new business and continues to do so and we're well-positioned to continue to execute our strategic growth plan. As noted we have a high degree of confidence in our strategy, our financial position and our ability to continue to deliver shareholder value. As a result, our Board of Directors recently increased our annual cash dividend by $0.48 a share and extended our share repurchase plan. We continue to evaluate a site for our next phase of growth and we're optimistic we will be able to announce that site and start work on that project during 2021. While we never try to predict the chicken markets, there are reasons for optimism as we move into calendar 2021. Hopefully consumers will feel more comfortable dining out once the COVID vaccines become widely available and demand will begin to rebound. That together with announced plans for a large QSR participant to push the chicken sandwich should support higher boneless breast meat prices during the new year. Regardless of foodservice demand, we expect good retail grocery demand to continue into 2021. As Lampkin mentioned, we picked up some new business through the summer and fall and that will improve our sales mix as we move in the new calendar year. I want to close by again thanking our employees and contract producers for their work during this past year. Their resilience, dedication, commitment to their responsibilities as essential workers and their performance under challenging conditions is nothing short of remarkable. It is my honor to be on their team and they provide a reason to be optimistic as we move into the New Year and continue to grow this company. With that, we'll now take your questions.

[Operator:]

Thank you. We'll begin the question-and-answer session. First question is from Ken Goldman from JPMorgan. Please go ahead.

[Ken Goldman:]

everybody. Thank you.

[Joe Sanderson:]

Good morning.

[Ken Goldman:]

I wanted to ask you, Joe, you talked about some reasons for optimism. You mentioned the potential chicken sandwich war. Broadening it out to foodservice in general, are you hearing or seeing any signs that food service customers as they look toward would – hopefully, will be a much better demand summer for them? Are you hearing about any of them starting to ask to build inventory or asking you to build inventory for them? Or is it just too early to even think about that?

[Joe Sanderson:]

It's too early. We have no -- we are aware of the one major QSR participant building inventory, just one. And preparing for their roll out of chicken sandwich, that's the only one that we’re aware of. And – but nobody else. I don't think any of that's going to happen until the vaccine is widely distributed and people start going out to eat again. But the thing we've been waiting on and we've talked about, the resolution to this is a vaccine and now we have it and it's going to take time for – to get people to take it. We don’t know how many people are going to take it. I think that is the question.

[Ken Goldman:]

Yes, that makes sense. And then wanted to follow-up on your comment that you felt the USDA estimate, I think, it was 1% increase or a 1% increase in chicken supply this year from the U.S. Are you disappointed, Joe, that the industry didn't cut back more? I think you are being a little more optimistic a couple of quarters ago. I am not sure it came in, in terms of the cutbacks as you expected. I just wanted to really follow-up and get your thoughts on how things played out versus what your anticipation of it was?

[Joe Sanderson:]

No, there was a cutback. Well, I can't remember my numbers now. Let me say they're very small, they're putting up on the screen for me and they're so small I can't read them. But if you look at the February chick placement for the U.S. total, they were running 190 million chicks to 191 million chicks a week in February and March. And then in August, I'll tell you more recently, they're running 187 million, 188 million, but in March, they were cut back to 186 million. So that's the cutbck we have, but I'm not disappointed and have no idea what the industry is going to do and the industry is going to respond to profitability and demand. My guess is that tray packers and fast food people have not cut it all and the people that did cut were big bird deboners that are selling boneless breast for $0.77 a pound right now and we're selling leg quarters – and leg quarter were up, but they've been selling leg quarters for $0.18 a pound - $0.17 a pound, $0.18 a pound, they're up substantially for January. Lampkin will report that in a minute, but I'm not disappointed.

[Ken Goldman:]

Great. Thanks, Joe.

[Joe Sanderson:]

Thank you very much.

[Operator:]

The next question is from Peter Galbo from Bank of America. Please go ahead.

[Peter Galbo:]

Hey, guys, good morning, and thank you for taking the question.

[Joe Sanderson:]

You bet.

[Peter Galbo:]

Joe and Mike, I just wanted to ask on the cadence around grain cost, certainly, a question that we're getting this morning. I think last quarter you had talked about that you would really see more material increases in grain costs and maybe your fiscal second quarter as those began to roll through. I just wanted to see if that was still kind of the case or if you're thinking has changed around that?

[Joe Sanderson:]

Yes. I mean, I think so. We actually -- the unit cost for corn delivered at our feed mills during our fourth fiscal quarter was actually down a little bit. Chicken is steady. That feed will be processed in Q1. So the full impact of the higher grain will….

[Mike Cockrell:]

Be in the second quarter.

[Joe Sanderson:]

…be in the second quarter.

[Mike Cockrell:]

You'll have blended….

[Joe Sanderson:]

That’s right.

[Mike Cockrell:]

…you’ll have a blended in the first quarter. You'll have some of the new prices and some of the old prices. But in the second quarter, you'll see the blend of the new board price.

[Peter Galbo:]

Got it. No, thank you for clarifying that. And Joe, I wanted to make sure I was remembering this correctly. last or I guess in the early month of 2020, particularly in some of the markets where you guys have your operations, it was particularly warm and the chickens had gained a lot of weight maybe more so than normal. Just as we think about modeling out potential pounds processed and within the context of your guidance, if we have a normalized winter right the weight kind of just revert to the mean, is there a possibility that, that USDA number and maybe even your numbers is a bit too high from a production standpoint?

[Joe Sanderson:]

Our weights?

[Mike Cockrell:]

Yes. So – yes, and there is a number that Lampkin threw out, we modeled our target lab weights. It's always subjects to weather and fluctuation. Last year's first quarter was extraordinarily mild and we did have higher bird weights across the industry, one that’s put.

[Peter Galbo:]

Yes.

[Mike Cockrell:]

It was everybody.

[Lampkin Butts:]

You don’t weight flocks through.

[Joe Sanderson:]

Trying to remember what – I can't remember last year. I think these numbers are good, but they're always subject to fluctuation.

[Lampkin Butts:]

Say that is, is that first quarter is you're talking about?

[Joe Sanderson:]

Yes, I don’t - they're right on the money right now. Lab weights are right on the money.

[Peter Galbo:]

Got it. Okay, great. Thanks very much, guys. Have a great holiday.

[Joe Sanderson:]

Thank you. You too.

[Operator:]

The next question is from Ken Zaslow from Bank of Montreal. Please go ahead.

[Ken Zaslow:]

Just two questions. One is how much pricing pressure do you think was created by COVID you look back at it?

[Joe Sanderson:]

Huge all our restaurant flows, distributor orders down 63% when they started and then December the sale was down 28% to 30% and if you look at the items that the distributors buy boneless breasts, wings and tenders, boneless breasts right now is all 31% in volume weighing to certainly they're only up 6% to 14%. So not only is there more pressure on all the food service products because of it. The restaurants are closing but also you got more demand for tenders than you do for boneless breast. It got better this summer but during the midst of more in different parts of the country. It's not New York, they can't serve on the streets any more. California is three weeks closed and it's all COVID. Every bit of COVID.

[Ken Zaslow:]

So you think the pricing would be well under $20.30.without if COVID came back, if we get the vaccine and everything goes back to normal, Is that a fair expectation?

[Joe Sanderson:]

There is no way to know what it would be. If we didn’t have COVID, it would be better than what it is nowm but no telling what it would be. There is still a lot of beef and pork and chicken out there but would COVID it would certainly be better than what it is

[Ken Zaslow:]

And then my second question is as you prepare for coming out of COVID what are you guys going to do in terms of your mix? Will you keep the mix, will start shipping back the big bird? How do you plan that out and what would be the cadence of that? What do you need to look for the milestones and I'll leave it there and be well guys.

[Joe Sanderson:]

Thank you. We would not be able to move Hazel Hertz back into Big Bird but the cause of right now we need that product in our tray pack plants. Lampkin and the sales people have sold some additional tray products this fall and as of right now, we need that product in the tray pack plants. We can add back and we would add back – we're in the reduced level and so have 1,300,000 birds a week at our plants were 1,200,000. So we would immediately that goes back to normal production levels and that would be the first step we do. I don’t believe we could take Hazel Hertz as long as we keep serving customers.

[Mike Cockrell:]

We made that product Hazel Hertz at our plant.

[Operator:]

The next question comes from from Stevens Incorporated. Please go ahead.

[Unidentified Analyst:]

Good morning. This is from Stevens on for Ben. I just wanted to get your thoughts on freight cars? What are you thinking about freight costs for FY '21 at the moment? Do you think this is something that we need to be mindful as the cost pressure potentially?

[Joe Sanderson:]

It's up a little bit, it's not a lot. We are quantified that, but it's not a huge amount. We checked on that after the third quarter call and it was not a huge issue. It was do you remember what Brittany said?

[Mike Cockrell:]

They're bidding now.

[Joe Sanderson:]

They are way out for bids right now on just 2021 for our carriers and so I don't know what we're going to see but she didn't think it's going to be -- our manager of logistics did not think it was going to be a huge increase.

[Mike Cockrell:]

To answer your question, I don’t there is anything to be concerned about, Maybe pay attention to it, but we were flat with 29 on an unit basis for 2020 and of course it was up at 19 to compared to 18, but it's not going to be a big number.

[Joe Sanderson:]

The issue was not fuel, it was the age of the drivers and the availability of the drivers was the issue and we contract hours up for the year. So we don’t use spot drivers. So we don’t run into.

[Mike Cockrell:]

We don’t expect to see a huge increase in price that way drivers appeal improves and we'll be free and we'll be able to contract with that party on the first quarter call.

[Unidentified Analyst:]

Okay. Great. Thank you and just wanted to ask about there is some supply indicator that we're seeing. Just wanted to get your thoughts on the placement numbers, which have been up quite a bit. We're particularly interested just given the fact that weekly egg numbers are declining. Do you think it's fair to characterize what went on kind of more short-term in nature just given that production is still expected to be up next year?

[Mike Cockrell:]

We have our doubts about the September put placement number. We believe that is a five week number instead of a four week number, which it normally is. As a matter of fact we know that one of the primary breeders reported a five week period instead of a four week period. That's the largest number that's ever been published. We don't think there's enough housing out there in the industry to house in four weeks 9.7 million pillets. So we -- that's the only one I have any doubt but rest of them I think they're pretty accurate but that's 9.7 September number is not -- I don't think right. The next October when I am comfortable with that one, but if you go back and take these and look at the liverability of the pillets, pillet mortality is running very high and that's because the pillets have been vaccinated and not using antibiotics only on pillets because half of the breeder pots are male and people are taking those males and using them as in their grow out division and that's where if there are no antibody program they don’t want those males to have any antibody. So because of that they're not using own pillets. So you’re getting a heavy mortality on the pillets and so I think there's an element of placing more pillets because a lot of them die.

[Operator:]

The next question is Michael Piken from Cleveland Research. Please go ahead.

[Michael Piken:]

I just want to get a little more detail on your proposed new facility in terms of if you can be a big bird plant I would imagine and how do you ultimately in light of COVID or whatever, do you want to have a different long-term mix between retail and food service?

[Joe Sanderson:]

It will be a retail plant. We will incorporate some of the things we've learned about COVID in it, ventilation being one of them, air exchange some spacing employee separation spacing in some areas where we don't have that now and those kind of things, but it will be a treck back plan.

[Michael Piken:]

And then in terms of your long term net plan, do you want to get close to the 50-50 or historically you’ve been close to the like 50-40 between big bird and tray pack? Do you have sort of an ideal mix you're targeting and do you think we're going to see more people eating at home even after that thing or just because of COVID in your estimation?

[Joe Sanderson:]

No, we think we still believe people are going to go out to eat when they feel comfortable doing that. We're just in a period right now after 2014, 2015 and 2017 all of the people in the protein business be pork and chicken made a lot of money and the result of that, they all expanded, all three industries expanded as a result of that profitability and so we're in a period right now '18, '19 and '20 of expansion. So you got a lot of protein which will resolve at some point and we believe that when people are vaccinated and feel comfortable going back have to eat. So they are going to stay home. They're going to go back have to eat. I want to back into New York and go to the two or three restaurants up there that I like to eat where I like to eat and they're going to call them out over where I like to eat.

[Lampkin Butts:]

My face on the numbers that we provided right now and that Mike described, we have a mix of 56% big bird and 44% try pack. If you build the new try pack plan and move Hazel Hertz back to big bird, there are a lot in this cycle, but if you did you're really out of your mix and then it's going to move the 43% trail pack. It's just not going to be a big shift because you're going to move Hazel Hertz back to big bird. It was build to be a big bird plant. It's got the grow out plan. So we ultimately moved it back and build the new trial pack. It's not to move at some point.

[Joe Sanderson:]

And we're comfortable that big bird has been the most profitable segment for '20, since mid '90s, that's 25 years and so we're very comfortable that that's still only the case but we need to be in two market segments. We can't just be a player in one. Right now trail pack is excellent and we're in the right niche.

[Operator:]

The next question is from Ben Theurer from Barclays. Please go ahead.

[Ben Theurer:]

So just a quick one, Could you elaborate a little bit on what's driving your SG&A outlook up by 7% next year and particularly the spike into 3Q and 4Q that cost you assume that's going to be related for the new plant which you want to announce in the first fiscal half and then basically start up to see some start up cost there in the second half or what's driving that significant increase?

[Joe Sanderson:]

There won't be any start up cost.

[Mike Cockrell:]

If you're looking at 2021 compared to 2020, I am not sure I am following what your question was but in the first quarter we are estimating $50 million in 2021. We had $49.5 million last year. So it's not a big move there and for the year you're up $40 million, but most of that is COVID.$11 million of that's COVID and we've increased our travel. Once the vaccine is in place, we'll start moving around a little bit. Our travel…

[Ben Theurer:]

Okay. So it's basically incremental COVID or where already COVID last year but it's still on the planet and then you've talked about it export markets and wanted to follow-up if you could elaborate a little bit on what you're taking of the impact from both AI and Europe and Asia is having on the export demand because you’ve said that there is being relatively positive signs that one of the chicken that's related to some of the issues in Europe and Asia.

[Mike Cockrell:]

We think those issues could create some opportunities in 2021. We really have our sales pack directly any demand from that directly any demand from that directly. Tell him what you’ve got booked in January.

[Joe Sanderson:]

Our price in November our export pillets got as low as $0.21 delivered for and $0.20 and below FOB a plant shipping into Mexico and those prices have improved. They improved to $0.24, $0.25 in December and we're beginning to quote higher than for January shipments. Our export people believe it's a mixture of things, The dollar is a little weak and that always helps exports. For some reason I have demand in Medico is better and then most and then most big bird debones are cut back for the holiday. So you got a little less supply and it's been that way for half of December going into new year. And so you got a little less supply and improved demand in some of the export markets we ship to Cuba and Mexico and even China and China is still in the mix.

[Mike Cockrell:]

And then we had booked some $0.26 in January. I hope that answers your question. We're still benefitting from China but I doubt that they, lastly they didn’t buy at all and that's really the only thing we're seeing, but other than what's going on in Europe with Hog and AI it should be a plus for us next year.

[Ben Theurer:]

And you're seeing some more demand out of Cuba, correct?

[Mike Cockrell:]

Okay. Perfect. Thank you very much and happy holidays.

[Operator:]

The next question is from Adam Samuelson from Goldman Sachs. Please go ahead.

[Adam Samuelson:]

So I guess first I just wanted to hone a little bit on the non feed cost part of the COGS and just thinking about that specifically with some of the lower utilization in the big bird plants in the first part of the year?

[Mike Cockrell:]

Your plant cost are going to be up a little bit because you got two things happening. We'll have labor and wage increases in our plants effective January and then by not running full you don’t have increases to your depreciation a good capitalized depreciation in purchase. Third of a pound for the year. Oh you calculate '21 year, everything we heard about labor in '21. That's going to be up some. Your labor is going to be, your depreciation is going to be up until we get back to earn $1.3 million

[Adam Samuelson:]

Okay. And is that offsets by maybe a little bit lower COVID related costs as we get into the spring so on a full year basis, you can kind of hold the line or just hold non-feed kind of bucket still...

[Joe Sanderson:]

What do you have in there. I just saw you had $11 million increase in SG&A.

[Adam Samuelson:]

Is that the cleaning and the nurseries and the nursery stations. That's going to be the whole year.

[Joe Sanderson:]

We put nursery stations -- we already had nurses at the plants. We've put in an additional physical nursery station at every plant to screen new employees coming to the plant for bad flu shots we're screening for Corona virus and flu for new employees coming to work. We're providing flu shots for everybody and we are preparing hopefully to give COVID vaccinations when that becomes available, we think in March or April. Less than 10% of our employees took the flu shot. We've been -- now we've had a problem where all of our employees have been -- had a doctor on video and on app on their telephone to explain there were a lot of misconceptions we determined by interviewing our employees why they didn't take flu shot. So we had a doctor address those misconceptions. So now we've had another 700 or 800 people take flu shot. We do not want that to happen with the COVID vaccine, So we've built these nursery stations and we hope more than that will take this COVID vaccination. So that's the source of -- somebody noted that our SG&A was up -- yeah, that's part of it.

[Mike Cockrell:]

The depreciation is going to be up for the year, $15 million in 2021 compared to 2020.

[Adam Samuelson:]

Okay, okay that's all -- that's all incredibly helpful. I'll stop there. I hope you all have a happy holidays and Happy New Year.

[Operator:]

The next question is from Robert Moskow from Credit Suisse. Please go ahead.

[Robert Moskow:]

Hi, thanks. Couple of quick ones, I think you said there is some counter seasonal price behavior going on right now at retail also. Should I expect retail pricing to stay kind of flat in the current quarter sequentially? Does your tray pack pricing typically go down sequentially in first? Maybe you help me with that and I had a quick follow-up.

[Joe Sanderson:]

Yes. And they will go down. I haven't see anything, but I would not be surprised if November, December, I don't know about January, January where they go up, but November, December for two weeks each of those months. The week before Thanksgiving and week up Thanksgiving, week before Christmas and week up Christmas. They were cutback a week -- a day but it wouldn't surprise me if prices are down for two weeks each of those two months. We just don't have any say on that, January it might be different, thereby wants to run chicken after person.

[Robert Moskow:]

Right. Consensus has you still below breakeven for first quarter and I just want to -- this quarter was such a positive surprise because of the mix, I'm just trying to get roughly like take into account that your feed costs are probably higher and there's seasonal impact on pricing, do you think you'll be close to breakeven in the first quarter?

[Joe Sanderson:]

We'll do really well -- we are operating very well, but we -- you have the headwind of Turkey and Hams at Thanksgiving and Christmas and we hadn't hit it yet, We're going to have the headwind of these higher grain prices and this quarter is always our most challenging quarter. We're not going to -- we are operating well, Labs grow out good, the plants are running well, We are -- as this, nobody has asked this, but I'll report it, as these COVID cases rise in the United States and as they become more numerous in Texas, Mississippi, Georgia, Carolina, Louisiana, we're having more and more cases in our employee base. We're still running and we're still running at our capacity, but we're having more instances of absentees now than we had all summer or back in the spring. And it's becoming more of a challenge for us right now than it has been since this pandemic started. Right now we're okay, but we haven't had any break out at any plant, but we are having more absentees than we've had since this pandemic began.

[Robert Moskow:]

Okay. I'm sorry to hear that. All right, well thank you very much.

[Operator:]

The next question is from Eric Larson from Seaport Global Securities. Please go ahead.

[Eric Larson:]

Yeah, thanks guys. Happy holidays to you and hope you have a good season here. So my question is, Joe, you guys always lock in your basis at the beginning of the year. So what is your basis on corn and beans for '21?

[Joe Sanderson:]

We locked it in through March. It was not available past March. We locked it in early. And right now it looks really good compared to what is out there now. Basis has strengthened considerably from where we purchased it. I hadn't gotten a quote -- we get a quote every week just to see where it is, but it's much higher than where we priced it. It's -- soy basis is a little bit higher than a year ago, corn is a little bit lower than a year ago where we bought it. But now it's much higher than where we bought it and it's higher than it was a year ago.

[Eric Larson:]

Okay. So you took advantage of some good market opportunities. I mean, that's great. So will your second half be more at this point do you think negatively impacted by grain cost versus, let's say, your first half?

[Joe Sanderson:]

It depends on the South American crop. If China -- historically they've started buying out of South America in January, February, March when those crops become available. It also depends on currency exchange rates, the real versus the dollar. And there are a lot of moving parts, that Brazil -- the crop in Brazil right now looks okay. The crop in Argentina is a little more challenged right now and next two weeks look fine for Brazil. There is a lot of new event going on in the Pacific and that's what calls in the weather questions and it can be spotty, it's just not as -- it doesn't doom the crop it's just causing not to reach their full yield potential.

[Eric Larson:]

Sounds good. I know we're short of time. Thanks guys. Have a great holiday season.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Sanderson for any closing remarks.

[Joe Sanderson:]

Good. Thanks everyone for being with us today. And on behalf of everyone at Sanderson Farms, we wish you all Happy Hanukkah, Merry Christmas and a Happy and safe New Year.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.