Sanderson Farms, Inc. (NASDAQ:SAFM) Q1 2016 Earnings Conference Call - Final Transcript

Feb 25, 2016 • 11:00 am ET

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Sanderson Farms, Inc. (NASDAQ:SAFM) Q1 2016 Earnings Conference Call - Final Transcript

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Executive
Joe F. Sanderson

acres in 2016 will be up 2 million acres to 90 million, and that acres planted in soybean would be down slightly to 82.5 million acres. Both estimates were in line with market expectations. It is not unusual for the USDA to significantly revise its outlook before the March 31 planting intentions report, so we will be watching for that report.

Farmers remain reluctant sellers at current values, expanded on farm storage capacity has allowed them to hold on to grain. But projected carry out ratios for both corn and soy support current market prices. We have bought a portion of our soybean meal through September and corn through March based on our cost through the first fiscal quarter and what we have priced so far, when combined with prices we could have locked in to the balance of the year. At yesterday's close, our grain costs for fiscal 2016 would be approximately $61.4 million less than during fiscal 2015. This total decrease in prices paid for grain and lower estimated basis in fiscal 2016 would translate into a one and a half cent per pound decrease in our cost per process pound of poultry.

At our annual shareholders meeting two weeks ago, I told our shareholders we're focused on several things as we start fiscal 2016. As I just mentioned, we are watching the quality and the quantity of the South American crop. And we will be watching the March 31 planting intentions report.

We will of course watch chicken production numbers and consumer spending behavior. The USDA is projecting that our industry will produce 2% to 2.5% more chicken during calendar 2016 than last year. Pullet placements have trended higher than this but we believe eggs from some of these breeders are in mark from Mexico. Export markets continue to face the same headwinds they have faced since January 2015. Including Avian influenza related bans a strong US dollar, low oil prices and politics. While some countries have lifted AI related bans, and exports have improved, some products that might normally be sold in the export market, or instead still being sold domestically, and the food service market is over supplied.

Finally, we will focus our efforts on our growth. Palestine is up and running and we will move that plant to full production by the fourth fiscal quarter of 2016. We will also continue construction of our newest plant in St. Paul's. I remain optimistic about 2016. I believe grain markets will it worse to benign, the trade pack environment remains strong and supply and demand for trade back product seems balance.

Food Service and export demand are the wildcard for 2016. Lower gasoline prices help consumers but recent stock market volatility and uncertainty about the global economy are hampering food service demand. The restaurant associations, restaurant performance index, fell sharply in December and still below 100 for the first time since February 2013, which signifies contraction in key industry indicators. The contraction continued in January, as