Editorial


Behind the Scenes Diplomacy Over the Trade Dispute with China

11/15/2018

According to an informative article authored by Bob Davis and Ling Ling Wei in the Tuesday November 13th edition of the Wall Street Journal the Administration is conducting preliminary talks with China to end the impasse and de-escalate the ongoing trade conflict. On November 1st, President Trump held a telephone discussion with Premier Xi afterwards noting “I think we will make a deal with China.”

 

The intention is for the two leaders to meet at the G-20 Summit at the end of November in Buenos Aires, Brazil.  Although a definitive agreement is unlikely, at least the leaders can establish a framework for subsequent discussions. As with any complicated set of issues, the devil is in the details.

 

Secretary of the Treasury, Steven Mnuchin is continuing telephonic discussions with Vice Premier Liu He on the need for and the structure of talks at the G-20 Meeting.  America has invited China to present concrete solutions to the various points of contention including misappropriation of intellectual property, state support of companies competing with the U.S. and manufacturers in other nations and coercive interaction with American companies doing business in China. Predictably Chinese negotiators are reluctant to put forward any proposals before discussing an agenda since this may lock them into a disadvantageous negotiating position.

 

Over the next two weeks, it is anticipated that Mnuchin will make progress now that the mid-term election has passed and the financial impact of tariffs is becoming apparent both in the agricultural and manufacturing sectors of our economy.

 

Division within the Administration has been a consistent deterrent to establishing a coherent and common negotiating strategy.  Authorities in China have frequently complained that they are hearing conflicting messages from Washington.

 

U.S. Trade Representative Robert Lighthizer maintains that tariffs will ultimately bring China to the table – but at what cost?  Uber Hawk and Sinophobe Dr. Robert Navarro, the White House Trade Advisor appears to be the major opponent of any concession or reconciliation with China.

 

Navarro, speaking at the Center for Strategic and International Studies on November 9th, deprecated the efforts of prominent business leaders to “influence policy”.  He stated, “Consider the shuttle diplomacy that is now going on by a self-appointed group of Wall Street bankers and hedge fund managers between the U.S. and China.”  He added, “the mission of these unregistered foreign agents – that’s what they are, they are unregistered foreign agents – is to pressure this President into some kind of deal.”  These comments were countered on Tuesday November 13th by Larry Kudlow, Economic Advisor to the President noting that Navarro’s comments represented his personnel views which are not necessary shared by the Administration. Speaking on CNBC Kudlow opined “I think Peter badly misspoke—he was freelancing” It is understood that subsequent to his speech, Navarro will now be required to clear public comments with the White House.

 

Navarro’s comments were the subject of a caustic and uncomplimentary editorial in the November 13th edition of the Wall Street Journal.  Navarro was accused of attempting to treat China like the former Soviet Union, threating Americans that disagree with him as “boxing in his Boss and denying him the flexibility to do a deal.”  It would appear to be self-defeating to  criticize directly or by implication, business leaders such as Steven Schwarzman of Blackstone and former Treasury Secretary, Hank Paulson who have considerable experience both in the business world and in international relations.

 

Hopefully reason will prevail and negotiators on both sides can address the divisive issues most of which involve unethical and self-serving policies instituted by China.  Resolving the current crisis is necessary as tariffs have seriously impacted soybean and other agriculture exports. By the same token the economy of China has been adversely affected by tariffs on $250 billion of  exports to the U.S.  Premier Xi needs to expand his Nation’s economy to maintain political harmony.  President Trump also needs a growing economy in anticipation of a second term.  Perhaps a good starting point would be to place a moratorium over tariffs on the remaining $200 billion of goods still unaffected by the 25 percent imposition, and due to take effect on January 1st 2019. 

 

The threat of escalating tariffs should serve as leverage in negotiations with China.  If an accommodation is to be reached, some concessions on both sides will be necessary but it is imperative that the Administration speak with a single voice.


 

Egg Industry News


Export of Shell Eggs and Products January-September 2018.

11/11/2018

USDA-FAS data collated by USAPEEC, reflecting export volume and values for shell eggs and egg products are shown in the table below comparing January-September 2018 with the corresponding period in 2017:-

PRODUCT

Jan.-Sept. 2017

Jan.-Sept. 2018

Difference

Shell Eggs

     

Volume (m. dozen)

91.1

86.2

-4.9 (-5.4%)

Value ($ million)

87.9

95.9

+8.0 (+9.1%)

Unit Value ($/dozen)

0.87

1.11

+0.24 (+27.6%)

Egg Products

 

 

 

Volume (metric tons)

32,777

24,040

-8,737 (-26.6%)

Value ($ million)

85.6

85.9

+0.3 (+0.4%)

Unit Value ($/metric ton)

2,612

3,573

+961 (+36.8%)

U.S. SHELL EGG AND EGG PRODUCT EXPORTS IN JANUARY-

SEPTEMBER 2018 COMPARED WITH JANUARY-SEPTEMBER 2017

Source USDA-FAS/USAPEEC

SHELL EGGS

Shell egg exports from the U.S. during January-September 2018 decreased by 4.9 percent in volume but increased 9.1 percent in total value compared to January-September 2017. Unit value was higher by 27.6 percent or 24 cents per dozen for the comparison between 2017 and 2018. The top two importing nations represented 78.5 percent of volume and 74.3 percent of value.

Canada was the leading importer over nine months, with 34.1 million dozen representing 39.1 percent of volume and 41.1 percent of value of U.S. shipments of shell eggs with an average unit value of $1.15 cents per dozen. Shell eggs shipped to Canada represent the difference between domestic demand and production limited by a national permit system.

Hong Kong ranked a close second in imports during the first nine months of 2018 with 33.6 million dozen representing 38.9 percent of volume and 33.2 percent of value at $31.9 million with a unit value of $0.95 per dozen.

Mexico was a distant third in rank during the first nine months of 2018 with 5.2 percent of volume and 4.7 percent of value,

The Caribbean Region represented 6.2 percent of export volume in January-September 2018. This region was down 60.7 percent in volume and 26.6 percent in value compared with January-September 2017. The unit value of shell eggs exports to the Caribbean averaged $2.13 per dozen for the nine-month period in 2018 which appears inordinately high, warranting validation of USDA data or an investigation of the price discrepancy.

EGG PRODUCTS

The total volume of exported egg products during the first nine months of 2018 decreased by 26.7 percent but total value was higher by 0.4 percent compared to January-September 2017. Unit value increased by 36.5 percent to $3,573 per ton from $2,612 for January-September 2017, reflecting the relationship between World supply and demand. Export volume during 2017 was influenced by the fipronil crisis and by avian influenza in the E.U.

During January-September 2018, Japan represented 32.5 percent of the total U.S. export volume with 8,471 m. tons, a decrease of 4.3 percent over the first nine months of 2017.

Mexico continued as the 2nd-ranked importer with 3,495 m. tons representing 14.5 percent of volume and 11.5 percent of value at $9.9 million. Mexico decreased volume over January-September 2018 by 29.0 percent and total value decreased by 2.9 percent compared to the corresponding nine months of 2017. In September 2018 imports of egg products by Mexico fell by 29.1 compared to September 2017.

Canada ranked third among importers attaining 14.7 percent of volume and 10.0 percent of value exported.

For January-September 2018, the 4th-ranked E.U-28 imported 1,698 m. tons of egg products, representing 7.0 percent of the volume during the first nine months of 2017 and 35.0 percent less value compared with the first three quarters of 2017. Volume of 2,251 m. tons in 2017 was presumably influenced by shortages occasioned by HPAI. The transitory impact of fipronil contamination ceased in early 2018 as flocks were replaced in Holland and Belgium.

South Korea posted a 79.5 percent lower volume for January-September 2018 compared with the first nine months of the previous year. Value declined by 53.6 percent with a unit value of $4,841 per m. ton which is far in excess of the average value of $3,573 denoting a special product mix.

COMMENTS

Successful conclusion of NAFTA negotiations led to the trilateral USMCA announced on September 30th. Exports of shell eggs and egg products to our neighbors were valued at $74.7 million in 2017.

Prospects for long-term exports of shell eggs will be limited by the willingness of importers to accept the World Organization for Animal Health (OIE) principle of regionalization in the event of exotic Newcastle disease and isolation of H5 or H7 avian influenza irrespective of pathogenicity. This concern follows the early 2017 cases of North American-lineage H7N9 HPAI in broiler breeders and some backyard flocks. Most importing nations, with the noted exception of China, are now applying regionalization and permitting imports on a county or state-exclusion basis following H5 or H7 AI infection.

The recent diagnoses of END in over 170 backyard flocks in five counties in California should not impact exports since importers are complying with the OIE principle of regionalization. The outbreaks of LPAI in four organic turkey flocks in California and six commercial flocks in Minnesota should not impact export of eggs.

Generally pasteurized egg products should not be subject to any embargo imposed following reports of
 


USDA Weekly Egg Price and Inventory Report, November 14th 2018.

11/14/2018
  • Hen Numbers in Production increased 1.2 million to 322.4 million.
  • Shell Inventory Down by 4.5 Percent from Previous Week.
  • USDA Midwest Benchmark Generic Prices for Extra Large, Large and Medium Sizes up Respectively by 6.1, 6.3 and 12.7 Percent from Past Week.

OVERVIEW

Prices

According to the USDA Egg Market News Reports posted on November 13th the Midwest wholesale prices for Extra Large, Large and Medium sizes were up respectively by 6.1, 6.3 and 12.7 percent compared to the past week. The progression of prices during 2018 is depicted in the USDA chart reflecting three years of data, updated weekly.

The November 13th USDA Egg Market News Report (Vol. 65: No. 46) documented a USDA Combined Region value rounded to the nearest cent, of $1.19 per dozen delivered to warehouses week ending November 9th. This price lags current Midwest weekly values by one week. The USDA Combined range for Large in the Midwest was $1.10 per dozen. At the high end of the range, price in the South Central Region attained $1.25 per dozen. The USDA Combined Price last week was 5 cents per dozen below the three-year average and 3 cents per dozen above the corresponding week in 2017.


 

Updated USDA Projections for 2018 and 2019 Egg Production

11/15/2018

The USDA Economic Research Service issued an updated November 15 th 2018 forecast of egg production. The volume of eggs produced and per capita consumption in 2019 were increased by 1.7 and 0.2 percent respectively over 2018. Consistent with this disparity the benchmark New York price was reduced by 12.1 percent in unit value Production data reflecting 2016 and 2017 should be compared to 2015 which was impacted by the Spring outbreak of HPAI in the upper-Midwest. The latest data is reflected in the table below.

 

 

 

 

 

 

 

 

Parameter

2015

(actual)

2016

(actual)

2017

(actual)

2018 2019 Difference %

(projection) (forecast) 2018 to 2019

 

 

EGGS

       
 

Production (m. dozen)

6,938*

7,435

7,677

7,844 7,980 +1.7%

 

Consumption (eggs per capita)

255.8*

271.6

276.3

279.5 280.1 +0.2%

 

New York price (c/doz.)

182*

86

101

141 124 -12.1%

                   

 

Source: Livestock, Dairy and Poultry Outlook - November 15th 2018

*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.


 

WEEKLY COMMODITY REPORT

11/09/2018

According to the November 8th 2018 WASDE Report #583, 81.8 million acres of corn will be harvested in 2018 to produce 14.62 Billion bushels. The soybean crop is projected to attain 4.60 Billion bushels from 88.3 million acres harvested. The levels of production for the two commodities are based on revised projections of yield and acreage harvested. Ending stocks were revised based on anticipated domestic use and exports.

See the WASDE posting summarizing the November 8th USDA-WASDE Report #583 in this edition documenting price projections and quantities of commodities to be produced, used and exported from the 2018 harvest

Quarterly corn and soybean stocks were estimated by USDA in a release on September 28th to total 2.14 Billion bushels (14.7 percent of the 2017 harvest) and 0.44 Billion bushels (10.0 percent of 2017 harvest) respectively. Of the "old soy crop" 0.10 Billion bushels are held as on-farm storage, up 15 percent from the corresponding period in 2017. Off-farm storage is up 58 percent to 0.34 billion bushels. Disappearance from June to August was 0.78 Billion bushels, up 18 percent from the corresponding period in 2017. This reflects accelerated shipments in anticipation of increased tariffs imposed by China. Since August soybean exports to China have ceased.

The following quotations for the months as indicated were posted by the CME at close of trading on November 9th together with values for the corresponding months in parentheses confirmed a slight decline in prices after an upturn during the previous week.

COMMODITY

 

Corn (cents per bushel)

Dec.'18 369 (371)

March '19 380 (383)

Soybeans (cents per bushel)

Nov. '18 875 (874)

March '19 899 (899)

Soybean meal ($ per ton)

Dec. '18 306 (311)

March '19 311 (315)

Changes in the price of corn, soybeans and soybean meal were:-

COMMODITY CHANGE FROM PAST WEEK____________________

Corn: Dec. quotation down 2 cents per Bu. (-0.5 percent)

Soybeans: Nov. quotation up 1 cent per Bu. (+0.1 percent)

Soybean Meal: Dec. quotation down $5 per ton (-1.6 percent)

  • For each 10 cent per bushel change in corn:-

The cost of egg production would change by 0.45 cent per dozen

The cost of broiler production would change by 0.25 cent per pound live weight

  • For each $10 per ton change in the price of soybean meal:-

The cost of egg production would change by 0.40 cent per dozen

The cost of broiler production would change by 0.25 cent per pound live weight

Markets were essentially unaffected by release of the November WASDE. There is no immediate prospect of resolving the trade dispute with China before the 2018 harvest is completed. The Administration previously announced that negotiations are underway to arrange a meeting between President Trump and Premier Xi in late November at the G-20 Meeting but there has been no confirmation of a specific date or agenda. Markets fluctuate in response to conflicting messages from the White House concerning possible resolution of trade issues with China.

The financial future for row-crop farmers appears bleak despite the promise of $12 billion as "short-term" compensation. Recent comments from the USDA suggest that this value may be trimmed. Farmers will not be placated by the promise of a year-round E-15 blend since the logistic problems of delivery to consumers and legal challenges will delay any positive price benefit. The loss inflicted on farmers by the trade war with China is a gain for livestock producers who will benefit from lower feed costs. Of course the hog and poultry industries have experienced higher costs for a decade as a result of the RFS, a gift which keeps on giving. The RFS is a boon to Midwest politicians, corn growers and ethanol refiners at the expense of anyone in the U.S. who eats or uses any form of transport.


 

R-Calf in Montana Granted a Motion to Include 13 Other States in Lawsuit

11/09/2018

The Federal district court in Montana has granted a motion for R-Calf, the plaintiff in a lawsuit against the U.S. Department of Agriculture to consolidate 13 additional states in the action.

The USDA is under injunction not to compel cattle producers in Montana to pay the Montana Beef Council without obtaining consent from producers. According to a report in the Kansas Ag Connection on November 6th, cattle producers can individually decide if they want half of the mandatory assessments collected to be spent by the Montana Beef Council or alternatively all of their contributions to be assigned to the Cattleman’s Beef Board checkoff program under the control of the USDA-AMS.

R-Calf claim that the various state beef councils have been sending as much as $10 million in checkoff funds annually to the National Cattleman’s Beef association which serves as a lobbying group without the strict controls imposed on the Cattleman’s Beef Board.

For a number of years, discontent in the beef industry has been simmering, and the use of checkoff funds is an important consideration among producers belonging to industry groups administered by the USDA. Generally checkoff funds can be used for research, promotion of a commodity and educational purposes with the objective of ethical promotion of a product. Federal law disallows funds to be used for lobbying or promotion of commercial entities or brands or disparagement of products or companies.


 

Walmart Beats Amazon in Grocery E-Commerce Survey

11/13/2018

Matthew Boyle of Bloomberg recently reported on the survey conducted by Retail Feedback Group dealing with service provided by online retail groceries.  Walmart scored on the Click-and-Collect service deployed in 2,000 stores with an additional 1,000 to be added by the end of 2019.  Walmart also makes use of DoorDash and Deliv for home delivery against payment of a fee. 

 

Amazon offers grocery delivery from Whole Foods Market stores for Prime customers in 60 cities and has recently introduced in-store pickup.

 

Predictably the survey determined that perishable products including meat, seafood and produce are purchased preferentially in-store as consumers believe this ensures freshness


 

USPOULTRY Allocates $385,000 in Research Grants

11/13/2018

USPOULTRY Foundation has approved $385,000 for five research grants through the Comprehensive Research Program.

The projects as selected comprise:

  • Improving Cage Free Air Quality, Hen Welfare and Egg Quality with Artificial Turf and A Manure Removal System - Purdue University (made possible by a gift from Midwest Poultry Services)

  • Examining the Roles of Macrophages and Vascular Inflammation in Broiler White Striping University of California - Davis (with a grant from Simmons Foods)

  • Identifying the Contribution of Broiler Genetics on Gut Health and Immune Response When Challenged with Salmonella Typhimurium - University of Maryland (with a grant from Ingram Farms)

  • Investigating the Impact of Anthelmintic Resistance in Nematode Parasites of Poultry -University of Georgia (with a gift from Wayne Farms LLC)

  • Response of Broilers Fed Phytase Enzymes of Different Optimal pH Ranges Alone or in Combination - Mississippi State University (with a grant from Peco Foods)

In commenting on the awards, Tom Hensley of Fieldale Farms noted, "Research continues to be an important component of USPOULTRY and the Foundation as a service to the industry." He paid tribute to the Research Advisory Committee for its efforts in evaluating proposals and providing recommendations for funding.


 

Phibro Animal Health Reports Q1 Results

11/13/2018

On November 6, Phibro Animal Health reported results for the first quarter of Fiscal 2019 ending September 30th 2018.  The company posted net income of $16.3 million on sales of $200.2 million.  Net income and sales were both three percent higher than the corresponding first quarter of Fiscal 2018. 

 

In commenting on results, Jack Bendheim Chairman, president and CEO stated, “Our animal health business reported another positive quarter despite turbulence in currencies, economic conditions in certain countries and continued weakness in the dairy fundamentals.”  He added, “We are investing P & L expense dollars to develop future growth opportunities.  The spending is focused on expanding our portfolio of nutritional specialty and vaccine products and developing an entry into the companion animals segment.”


Jack Bendheim

 

Hendrix-Genetics Receives Grant for Africa Project

11/13/2018

The Bill and Melinda Gates Foundation has awarded a multi-year grant to Hendrix-Genetics to establish a breeding program to develop strains suitable for rural Africa supplying smallholder farmers.

 

The project entitled Sustainable Access to Poultry Parent Stock to Africa will provide improved dual-purpose breeds intended to perform under difficult conditions on the Continent.

Louis Berrault, General Manager of Sasso stated, “We are excited to use our extensive expertise in poultry breeding to benefit smallholder farmers in Africa.”  He added, “With the Foundation’s support we are committed to further build on a sustainable infrastructure to supply healthy parent stock across Africa.”

Randall Ennis, CEO of the World Poultry Foundation commented, “This project will give a huge boost in realizing how the Foundation’s mission of poultry as a solution for the hungry as it empowers farmers to build a better life with improved breeds to secure their income.”

 

Although improved genetics will be beneficial, restraints to achieving acceptable production at the smallholder level include adequate nutrition and disease.  A model which has proved successful in some nations involves distribution of started pullets to be housed under confinement in villages.  Distribution of day-old chicks without a support structure for vaccination and absent a supply of balanced feed is a worthless exercise.

 

In the context of urban demand in nations with an infrastructure of harbors, roads and domestic production of feed ingredients and a cold chain for distribution, using improved specialty breeds for eggs and broilers respectively, represents a greater benefit to the population based on superior performance especially in feed conversion.


 

Ahold-Delhaize Reports on Q3 FY 2018

11/15/2018

Ahold-Delhaize, Dutch-based parent of Food Lion, Stop& Shop and Peapod among other banners, reported sales of $17.9 billion for the third quarter of 2018. This was a 3.6 percent increase over the corresponding period in FY 2017. The Company posted net income of $519 million up 27 percent from Q3, 2017.

 

For U.S. operations the company achieved growth in same-store sales of 3 percent.


 

Organic Acids Suppress ASF Virus in Feed

11/15/2018

According to Dr. Tom Burkgren, Executive Director of the American Association of Swine Veterinarians, quoted in the November 15th edition of the Journal of the American Veterinary Medical Association, organic acids are efficient at suppressing African Swine Fever (ASF) and many other viruses in feed. Concern is raised over ASF which can survive in feed ingredients for up to 30 days suggesting that imported animal-protein ingredients could introduce infection. It is suspected that the extensive porcine epidemic diarrhea outbreak was introduced to North America in 2014 on contaminated feed bags.

The suggestion by Dr. Burkgren that imported additives including vitamins and amino acids from China may introduce a disease is highly speculative, is not supported by assays and is unlikely. Animal byproducts, however, could serve as a suitable vehicle of infection. Organic acids available commercially as Termin-8® and SalCurb® are approved feed additives and are

effective against non-spore forming bacteria and a wide range of viruses.


 

Connecticut to Install Third Digester for Biofuel

11/15/2018

AG-Grind Energy will install a digester with a capacity of 850,000 gallons to convert food waste and animal manure into biofuel to be converted to electricity with an output of 450 kW. The installation will be funded in part by a grant from the Natural Resource Conservation Service and an investment tax credit partner.

The project will be erected at a cost of $5 million and will sell electricity to farms and municipalities. Two other digesters operate in Connecticut, located in Southington and East Canaan respectively.

As with many projects to convert waste to biofuel, obtaining a satisfactory volume of substrate is critical to maintain throughput. The project will cooperate with Blue East Compost in Hartford to collect food waste. U.S. Senator Richard Blumenthal attended the ceremony announcing the project and he has inserted a provision for recycling food waste in the 2018 Farm Bill.


 

Novogen Celebrates 10th-Year Anniversary

11/15/2018

Novogen, part of Groupe Grimaud located in France, celebrates their 10th anniversary since founding by Mickael LeHelloco and Thierry Burlot, respectively, Managing Director and Director of Research and Development of the company.

LeHelloco commented “Our genetic program was the first to take an interest in societal expectations with regard to animal welfare.” Burlot stated “We didn’t only pick these criteria as a large number of our products are perfectly suitable for traditional farms, but a new research approach allowed us to be ahead of the game with regard to unexplored criteria including social behavior, laying time, time spent nesting and shell quality.”

Novogen products are distributed in 50 nations worldwide.

Novogen relies on the strength of the R & D and genetics programs of parent company Groupe Grimaud. Their platform includes genomics, the application of RFID chips and other innovative technologies.

Novogen is developing expertise in production management to assist customers in recognition that although a product is important, providing technical services is an important part of establishing a brand.


 

Seaboard Foods Settles with DHS

11/15/2018

Seaboard Foods has announced settlement of a long-standing claim by the U.S. Department of Homeland Security Immigration and Customs Enforcement Agency (ICE) over alleged errors in I-9 documentation. The company agreed to pay $1 million, but denies wrongdoing. The alleged discrepancies occurred between 2007 and 2012 and no criminal charges were filed.

In a statement issued by Seaboard, the company denied each and every allegation and explicitly emphasizes that the settlement is not an admission of liability. Darwin Sand, President and CEO of Seaboard Foods stated that he was pleased to have the matter resolved. He commented “Our company demands adherence to all laws, rules and regulations everywhere we operate and we take our compliance obligations seriously.” He added “in the settlement agreement, ICE and the State of Oklahoma employed company-wide compliance efforts both prior to and subsequent to the investigation.”

In many cases, regulations during the 2005 through 2010 period were vague and inadvertent non-compliance was common as evidenced by similar “no-wrongdoing” settlements by egg and broiler producers. These long-standing demands by ICE are thinly disguised shakedowns since the cost of defending civil actions and the need to divert executive time invariably justifies a settlement. On the basis of “you can’t fight City Hall”


 

Walmart Reports on Q3 of FY 2019

11/16/2018

In a press release dated November 15th Walmart Inc. (WMT) announced results for the 3rd Quarter of Fiscal 2019 ending October 31st 2018.

The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as $ x 1,000 except EPS)

3rd Quarter Ending October 31st.

2018

2017

Difference (%)

Sales:

$124,894,000

$123,179,000

+1.4

Gross profit:

$30,973,712

$30,794,750

+5.8

Operating income:

$4,986,000

$4,764,000

+4.7

Net Income

$1,710,000

$1,749,000

-2.2

Diluted earnings per share:

$1.08

$1.00

+8.0

Gross Margin (%)

24.8

25.0

-0.8

Operating Margin (%)

4.0

3.9

+2.6

Profit Margin (%)

1.4

1.4

nil

Long-term Debt: January 31st

$30,035,000

$36,015,000

-16.5

12 Months Trailing:

     

Return on Assets (%)

6.7

   

Return on Equity (%)

7.6

   

Operating Margin (%)

4.3

   

Profit Margin (%)

1.0

   

Total Assets

$226,583,000

$209,414,000

+0.2

Market Capitalization

$291,000,000

   

52-Week Range in Share Price: $81.78 to $109.98

Market Close: Wednesday 14th November $101.55. Post-release 11H00 Thursday 15th November $99.29

Forward P/E: 21.2 Beta +0 5

Segment performance for Q3 comprised:-

Walmart USA: Operating profit of $3.94 billion on sales of $80.58 billion with 3.4 percent comp.

Walmart Int: Operating profit of $1.18 billion on sales of $28.79 billion with a range of 2.2% comp. for China to 5.3% Mexico

Sam's Club: Operating profit of $0.38 billion on sales of $14.52 billion with 3.2 percent comp.

E-commerce increased 43 percent for Walmart.

In commenting on results Doug McMillon, president and CEO stated "We're pleased with the overall results we posted for the third quarter. We continue to see strong comp. store sales. Our results reflect not only value our customers are finding in our offer, and a lot of hard work from the team, but certainly some macro tailwinds as well, especially in the U.S." He added "each of our segments achieved solid sales growth. Excluding fuel, comp, sales at Walmart U.S. increased 3.4 percent against last year's most difficult comparison, and Walmart U.S. E-Commerce grew sales 43 percent. Sam's Club grew comps 5.7 percent, excluding fuel and tobacco. Outside of the U.S., comp. sales were positive in all our major markets, led by Mexico's 6.3 percent gain. We were also pleased to officially welcome Flipkart to the Walmart family when we closed that acquisition on August 18. Overall, we're encouraged by the momentum in our business and excited to be in a strong position to invest for the future"

WMT raised EPS guidance for FY 2019 to a range of $2.26 to $2.36 and projected same-store sales to increase by 3.0 percent


 

Commentary


California Adopts Proposition #12

11/13/2018

On Tuesday November 6th voters approved California Proposition #12 by a margin of 61 percent to 39 percent, effectively repealing Proposition #2 of 2008.  Effective 2020 Proposition #12 will ban confinement of egg- laying hens in cages and mandates at least 1 square foot of usable floor space per hen.  The Proposition incorporated the United Egg Producers’ 2017 Cage-Free Guidelines which define cage-free housing “as areas that provide 1.0 to 1.5 square foot of usable floor space per hen and allowing hens to move around inside the area”.

 

Proposition #12 was promoted by the Humane Society of the United States and an in-state organization, Prevent Cruelty California.  Proponents raised $13.1 million with a $4 million contribution from the Open Philanthropy Action Fund.

 

The proposal was opposed by the Humane Farming Association, People for the Ethical Treatment of Animals, and Friends of Animals who collectively regarded the proposal as not being sufficiently “animal-friendly” allowing barn and aviary systems.  Industry groups opposing the proposition included the Association of California Egg Farmers and the National Pork Producers’ Council.

 

California Proposition #2 in 2008 banned confinement of pregnant sows, calves raised for veal and hens under conditions that did not allow them “to turn around freely, lie down, stand up and fully extend their limbs”.  Considerable confusion as to the interpretation of the wording of Proposition #2 resulted in lawsuits with the Proposition sustained.  Effective 2014 any eggs marketed in California should have been derived from flocks housed in accordance with Proposition #2.

 

The official ballot summary for Proposition #12 included:

 

  • Establishes new minimum space requirements for confining veal calves, breeding pig and egg-laying hens
     
  • Requires egg-laying hens to be raised in cage-free environment after December
    31st, 2021
     
  • Prohibits certain commercial sales of specified meat and egg products derived from animals confined in non-complying facilities
     
  • Defines sales violations as unfair competition
     
  • Creates good-faith defense for sellers relying on written certification by suppliers that meat and egg products comply with new confinement standards.
     
  • Requires the state of California to issue implementing regulations. California Proposition #12 is termed the Prevention of Cruelty to Farm Animals Act.
     

The proposition as adopted would effectively ban enriched colony modules which were introduced as an alternative to conventional cages following passage of proposition #2 in 2008.  After adoption of Proposition #2 California producers reduced floor stocking density in conventional cages by removing partitions from conventional cages. This expedient will obviously not be permitted under Proposition #12.
 
The economic impact of Proposition #12 ranges from the HSUS estimate of “a penny per egg” to as much as $1 per dozen based on studies conducted by agricultural economists at the University of California-Davis.
 
Erecting aviary facilities to house hens costs in the region of $30 to $35 depending on selection of equipment and housing representing a considerable capital investment.  Currently California houses 14 million laying hens out of a U.S. total of approximately 320 million on commercial farms with over 30,000 birds.  California is not self-sufficient in eggs and relies on shipments from the Midwest states and more recently aviary units erected in Arizona.
 
At the present time there are 57.2 million non-caged laying hens representing 17 percent of a nominal 320 million U.S. flock in production but 25.4 percent of a presumed flock of 225 million housed for the shell-egg market.
 
Since the wording of Proposition #12 refers to products, it is presumed that hens producing eggs which are converted into pasteurized liquids will also have to conform to the statutory housing requirements.
 
The State of California has estimated an annual cost of $10 million to administer the Animal Welfare law but consumers will ultimately bear the cost of enhanced housing.  At the beginning of November, Midwest prices for generic Large delivered to stores range from $1.13 to 1.15 per dozen.  The price in Southern California for the same product was $1.51 to 1.58 per dozen.  Midwest cage-free eggs into a packing plant during October averaged $1.59 per dozen confirming the differential based on regional cost factors and housing. Evidently the “Pacelle Tax” has now been entrenched for all consumers of eggs and egg-products in California.


 

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Dr. Simon M. Shane
Simon M. Shane
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