Editorial

 

Mercy for Animals Releases Video

Jun 24, 2016

    

On June 22nd, Mercy for Animals (MFA) posted a video alleging deviation from acceptable production practices and welfare at an egg production complex in Washington State. In this instance, MFA unjustifiably implicated a nationally distributed brand since the owners of the complex are franchisees of the marketing cooperative.

  

The producer confirmed that no eggs destined for the brand were in fact derived from the flocks depicted in their clandestine video. The release of the video was accompanied on Wednesday morning June 22nd by a telephonic media event comprising a reading of a prepared statement by Matt Rice, Director of Investigations for Mercy for Animals.

The MFA allegations closely follow the claims relating to a similar intrusion using an agent on an egg production complex in Maine as reported in a June 17th posting on EGG-CITE. The principal thrust of the MFA complaint involved housing of flocks in cages. This is a standard objection by MFA despite the fact that hens were held in accordance with the 67 square inch stocking density as accepted by the U.S. industry. 

Alleged deviations from acceptable practices included birds entrapped in cages by loose wire, decomposing dead hens in cages and individual birds showing prolapse or visible external lesions. As with all intrusion videos the MFA allegations are not supported by any quantitative data regarding the prevalence rate of alleged abnormalities. Based on performing audits and providing consulting services to the U.S egg industry for over 30 years as a board- certified poultry veterinarian, individual hens are encountered with tumors, injuries and cutaneous lesions. These birds should be culled and humanely euthanized. It must be accepted that age-related feather loss, injuries to hens and mortality are not specific to cage housing but will be observed in non-confined flocks including barns and free-range systems.  In fact mortality due to aggression and predation are higher in flocks housed in alternatives to conventional cages.

The management of the farm in question has requested an evaluation by a UEP auditor and the farm will be visited by a poultry extension specialist affiliated to Oregon State University.

If determined to be valid and representative of the producer the allegations are clearly an aberration and not representative of the U.S. industry

The recent actions by MFA represent an intensification of their efforts to generate support for the cage-free initiative similar to California Proposition#2, which may be placed before voters of Massachusetts in a ballot in November, subject to ongoing litigation. It must be expected that press releases relating to alleged deviations from acceptable welfare and housing will be announced over the next few months instituted by the HSUS and its surrogates.

Producers would be well advised to review training and supervision of workers and above all concentrate on removing injured, sick or dead birds from cages.  Procedures associated with handling birds during transfer, placement in cages or depletion should be supervised.  Greater care should be exercised in vetting potential employees to identify and exclude agents of animal rights organizations responsible for deceptive video images which may reflect adversely on housing and management.  At the end of the day it is always possible to obtain an image of a sick or dead bird in any house containing upwards of 25,000 hens with the intention of creating the perception that a rare or occasional observation is reflective of the entire flock, farm or producer.

Based on websites maintained by so-called animal welfare organizations it is evident that they are pursuing a vegan agenda and their ultimate goal is to abolish all intensive livestock production.  The intent of animal rights activists and their ilk is to satisfy their own motivations and desires, without concern for the impact on production of food required by consumers, many of whom depend on low-cost protein from eggs and poultry.

The poultry industry and its customers represented by the National Restaurant Association, the National Association of Chain Restaurants and the Food Marketing Institute have committed to an orderly and extremely expensive transition to cage-free housing or enriched colony modules over the proximate ten years.  Manipulation of the mainstream media and posting of contrived, spurious or edited videos by animal rights organizations does a disservice to the responsible industry, their customers and consumers.

   

Egg Industry News

 

USDA Weekly Egg Price and Inventory Report, June 20th 2016

Jun 24, 2016

    

Midwest-wholesale prices for Extra Large and Large sizes soared 24 percent and 27 percent respectively, this past week although off a low base. During the previous week prices stabilized after declines of 3 percent, 13 percent and 20 percent respectively over the preceding three weeks.

The USDA Combined Region value for Large commodity eggs delivered to warehouses which lags the Midwest quotation by one week, held at $0.43 per dozen, compared to the 12-month trailing peak price of $2.77 in mid-August 2015.  The USDA Combined range for Large, remained at $0.38 per dozen in the Midwest.

  

In the South Central and South Eastern Regions, price also held at $0.44 per dozen. The current USDA Combined Range Price is $1.30 per dozen below the three-year average which is inflated by the rise in price during 2015, attributed to the HPAI epornitic.

The four-week trend suggests higher prices into the last week of June and early July preceding the Independence weekend. This is based on two sharply decreased weekly stock level. The National productive flock which excludes hens in molt, is still down by 5 million hens at approximately 294 million.

Older flocks were depleted following extremely low post-Easter prices and hens not required to supply contracts are being either depleted or molted. Young flocks commencing production have resulted in a disproportionately lower (8 percent) increase in the price of Mediums.

The market will respond to changes in availability of both shell eggs and breaking stock attributed to re-stocking, projected exports and cessation of imports of breaking stock from the EU.  

Cold storage stocks in selected regions on June 13th amounted to 2.679 million pounds, 0.9 percent below the stock of 2.654 million pounds during the week of June1st representing a slight increase in frozen stock.

The most recent monthly USDA Cold Storage Report issued May 23rd documented a 33.64 million pound total stock of frozen egg products on April 30th 2016. This was up 7.6 percent from April 30th 2015. Approximately 90.0 percent of inventory comprised the categories of “Whole and Mixed” and “Unclassified” in almost equal proportions. The June Cold Storage Report reflecting May 2016 will be released on Friday June 24th.

   
 

Status of 2016 Corn and Soybean Crops

Jun 24, 2016

        

The USDA Crop Progress Report for Monday June 20th indicated a continued favorable trend in planting soybeans in 18 states, expressed in the percentages in the table below:-

                                                                            WEEK ENDING

Crop

June 12th

June 19th

5-Year Average

Corn planted

98

100

100

Corn emerged

96

              100

            100

Soybeans planted

       92

  96

  93

Soybeans emerged

79

 80

84

 

Crop Condition:

Crop

V. Poor

Poor

Fair

Good

Excellent

Corn

1

3

21

60

15

Soybeans

1

4

22

61

12

The prospects for corn and soybean early growth depend on adequate soil moisture. USDA reported data for 48 contiguous states which does not differ materially from 2015, as shown in the table below:-

Moisture Classification (%) for Week Ending June 19th.  

 

V. Short

Short

Adequate

Surplus

Topsoil

5

21

65

 9

Subsoil

4

18

70

 8

                             

                                                           

 

 

   
 

SHAREHOLDERS SUE CHIPOTLE MANAGEMENT

Jun 23, 2016


    

MarketWatch reported on June 21st that a shareholders’ suit has been filed against the management of Chipotle Mexican Grill claiming insider trading and enrichment at the expense of shareholders.  The suit claims that buyback programs valued at $1.9 billion inflated the price of Chipotle stock.

The suit also alleges that “the company misrepresented its adherence to industry standards and that a majority of the Board of Directors and the super majority of the individual defendants engaged in lucrative insider sales reaping millions of dollars in net proceeds”. 

A review of insider share transactions shows that from February 19th 2015 through May 31st 2016, Steve Ells Founder and Chairman sold shares to the value of $85 million. 

  

Steve Ells

Most of the transactions involved sale of shares acquired through a stock option program at approximately $300 and sold at prices ranging from $700 down to $440. The lower prices followed negative publicity relating to multiple food borne disease outbreaks.

Montgomery Moran co-CEO sold shares to the value of $109 million from May through July 2015.  Again share allocations at approximately $270 were sold at prices in the region of $600 generating a significant profit.  On May 20th 2015 Moran sold $95 million of Chipotle stock and Ells $19 million followed by a $27 million transaction by Ells on April 21st 2015 prior to the public revelations of food borne infections.

The transactions are apparently both legal and consistent with the charter of the company but the magnitude, frequency and concentration of sales among officers and directors raises questions as to ethics and fiduciary responsibility.”Food with Integrity”-questionable but never “Management with Integrity!” based on public records.

   
 

KROGER EVALUATING HOME DELIVERY PROGRAMS

Jun 23, 2016

    

According to comments made by J. Michael Schlotman, CFO of the Kroger Company, designated stores are evaluating alternative home delivery programs. Speaking at the Jefferies Consumer Conference, Schlotman noted that a store in Chicago is using Instacart and in Washington DC, a Harris Teeter store is making use of Uber.  Company vehicles are used in Denver. In addition Kroger offers ClickLis® a store pick-up program which is now available in 60 locations.

  

The major question facing the supermarket industry is whether consumers are willing to pay an additional fee for convenience and if so whether a flat amount or a percentage would be appropriate. At the present time Kroger charges $4.95 per ClickList® order and there does not appear to be any resistance to the extra charge.

   
 

Maine Governor Enters HSUS Controversy

Jun 22, 2016

    

Governor Paul LePage has criticized the Humane Society of the United States for negative publicity alleging deviations from acceptable management and welfare at the Turner, ME. facility operated by Hillandale of Connecticut under lease from Jack DeCoster.

The Turner Complex has been in the crosshairs of many animal rights and welfare organizations since the revelations of mismanagement of flocks and abuse of workers surfaced in the 1980’s. This led to OSHA and Department of Labor citations in addition to civil lawsuits settled with compensation for the plaintiffs.

  

The Maine Department of Agriculture has apparently maintained ongoing surveillance over the operation in recent years, suggesting that the revelations by HSUS are either contrived or exaggerated.  Should deficiencies be confirmed, the State of Maine will lose credibility given their past assertions that the complex produced safe products under conditions approximating the standards of the industry. 

As noted in a June 17th posting on EGG-CITE, the HSUS may have engineered the intrusion and released videos purporting to show injured hens and dead birds in cages to influence a proposed ballot initiative in Massachusetts which closely resembles the 2008 California Proposition #2 initiated and promoted by the HSUS.

   
 

DELAYS IN SAFETY RECALLS HIGHLIGHTED

Jun 22, 2016

    

In a June 2016 release by the Food and Drug Administration, it was noted that the Office of the Inspector General (OIG) for the Department of Health and Human Services documented delays in recalling adulterated food products.

In the few cases cited, there was an elapse of months between issuing the recall notice and removing products from shelves.  The FDA is responding to the report by establishing a rapid-response team and the “introduction of new technologies to make the project even swifter”.

  

The OIG reviewed 30 recalls between 2012 and 2015 noting that in 2 cases, delays iof 81 days and 165 days elapsed between the FDA recall notice and action by the manufacturers concerned.

The report noted that the FDA did not have adequate policies and procedures to ensure that companies take effective action in initiating voluntary recalls.

The OIG correctly concluded that as a result of delays consumers remained at risk of illness for weeks after the FDA was aware of a potentially hazardous food product in the supply chain.

   
 

REVIEW OF ORGANIC FOOD PRICES

Jun 22, 2016

    

The U.S. Department of Agriculture- Economic Research Service recently concluded a survey of the prices of organic food products over the period 2004 through 2010.  Comparisons were made between USDA Certified Organic items and their generic counterparts.

The study disclosed an average Organic premium of 20 percent.  There was a wide range between organic and conventional products with individual vegetables such as spinach approximately 7 percent higher than generic but up to 82 percent for eggs in 2010.

  

The reason for the discrepancy relates to the high cost of production of eggs and milk due to the need to conform to USDA organic standards and requirements.  Products which contain only one ingredient generally have a lower price premium.  The report indicated that demand considerations may result in higher differentials with baby food cited as an example.

   
 

MECHANISM OF RELATIONSHIP BETWEEN THE INTESTINAL MICROBIOME AND OBESITY EXAMINED.

Jun 22, 2016

    

In a recent publication in Nature*, studies on rats disclosed a mechanism by which alteration of the intestinal microflora (microbiome) may result in obesity. 

It was demonstrated that when the composition of the microflora was altered by feeding a diet high in fat, elevated levels of acetate were produced in the intestinal tract leading to activation of the parasympathetic nervous system.  

This resulted in an increase in secretion of both insulin by the pancreas for fat deposition in adipose tissue and the hormone ghrelin which stimulates hunger.  The result was hyperphagia leading to obesity.

  

The study concluded that increase acetate production resulting from modification of the intestinal microflora has an effect on feed intake and metabolism. The question is now whether the results in rats are applicable to humans.

*Nature 2016, DOI:10.1038/nature 18309

   
 

INTENSIVE TRADING IN SOYBEAN MEAL FUTURE IN CHINA

Jun 22, 2016

    

The Friday June 17th Wall Street Journal reports on a potential bubble in trading soybean meal futures in China.  Contracts on the Dalian Exchange (analogous to the CME) amounted to 600 million metric tons in May, equivalent to nine times the total annual consumption of soybean meal by China.

Speculative trading in agricultural commodities follows a previous boom in iron ore futures which collapsed with the downturn in the economy.  Speculation is fueled by the anticipation of reduced soybean yields in Argentina following rains precipitated by the now-waning El Nino event and predictions of lower global ending stocks in mid-2017. 

  

The benchmark 3-month contract on the Dalian Commodity Exchange is up 40 percent during 2016. This not only an aberration of the market in China since the CME documented a 48 percent rise between January 1st ($272 per ton) to mid-June ($403 per ton) which will reflect adversely on the costs of U.S. egg and broiler production.

   
 

Nano Particles Combined with Lysozymes Offer Promise as an Antibacterial

Jun 22, 2016

    

Researchers at the University of Queensland, Australia, have created a combination of a silica nano- particle which combines with a lysozyme, a natural compound inhibiting bacteria. 

When the combination was evaluated against E. coli in an in vitro system multiplication of the pathogen was inhibited for three days.  In contrast unattached lysozyme was far less efficient in inhibiting bacterial growth.

Experiments are planned to determine whether the nano-particle combining silica and lysozyme can be commercialized as a feed additive to replace antibiotics.

  

   
 

WE WELCOME PMI NUTRITIONAL ADDITIVES AS A CO-SPONSOR.

Jun 21, 2016

    

PMI Nutritional Additives, a subsidiary of Land O’ Lakes Inc. manufactures and distributes feed additives for monogastric and ruminant species to enhance production and to replace antibiotics. 

Products are based on sound research and are subjected to both laboratory and field evaluation to deliver a positive benefit to cost ratio.  PMI Nutritional Additives will provide specialist consultation to nutritionists, veterinarians and producers on their products and will maintain an extensive distribution capability.

  

For further information contact Dr. Suzanne Petersen at stpetersen@landolakes.com or (651) 375-5552.

   
 

Position Announcement

Jun 21, 2016

    

FIELD SERVICE TECHNICIAN

MOBA a leader in the manufacture, installation, maintenance and repair of machinery and equipment used for grading, processing and packaging of both shell and liquid egg products.

We are currently searching for several Field Service Technicians to be strategically based in various geographic regions of the country to facilitate the servicing of our customer base.  Relocation may be required. 

  

Newly hired technicians will be trained to install and service the equipment in our product lines. They will be provided professional development training in the US and the Netherlands as well as career advancement opportunities. The job entails significant travel throughout the United States. Some worldwide travel is also possible. A valid driver’s license and U.S. passport are necessary.

We will give strong consideration to candidates with the following education and or skills:

  • Associate degree in electronics technology, or similar, or military training in this area.
  • Knowledge of AC and DC circuits and PC/PLCs; to include programming knowledge.
  • Knowledge of servo motion, servo controls and electro-mechanical relationships.
  • Working knowledge and understanding of industrial automation and robotics.
  • Ability to read and interpret schematic diagrams.
  • Ability to use test equipment and interpret results.
  • Prior work experience in maintaining production equipment; experience in a food processing or packaging environment.
  • Experience with food science, food safety, HACCP/SQF quality systems is a plus.
  • Troubleshooting and problem solving skills.
  • Literate, articulate and ability to write clear and concise reports.
  • Excellent computer knowledge and MS Office products, especially Word and Excel.
  • Good social skills and ability to work with peers and customers in demanding situations.
  • Ability to speak a foreign language is a plus. Spanish language skills would be an added plus.

MOBA offers competitive wages and an excellent benefits package as well as specialty and IT tools required to perform the job. Please send career resume and salary history to : careers@dma-group.com

We are an equal opportunity M/F employer.

   
 

CME Prices

Jun 20, 2016

    

At the close of trading on June 17th CME quotations for corn, soybeans and soybean meal with values for June 3rd in parentheses were:-

COMMODITY
Corn (cents per bushel)                       July   438      (424)       Sept    443       (428)       
Soybeans (cents per bushel)              July 1,159  (1,177)      Sept  1,155   (1,168)  
Soybean meal ($ per ton)                    July    409     (413)        Sept     407      (401)   

 NOTE:

  • July corn up 14 cents per bushel (3.3 percent) in past week
  • July soybean meal down  $4 per ton (1.0 percent) in past week

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

See posting on the June USDA-WASDE Report #554 for an update on quantities and price projections for commodities.

 

   
 

USDA - WASDE FORECAST #554, June 10th 2016

Jun 20, 2016

    

Overview

The June 10th USDA WASDE projections for the 2016-17 corn and soybean crops reflected actual  planting data and recent crop progress reports.

Harvest areas for corn and soybeans were unchanged at 85.9 million acres and 81.4 million acres respectively.

  

Corn

The corn harvest should attain a near record of 14,430 million bushels based on a yield of 168.0 bushels per acre. The “Feed and Residual” category was established to be 5,550 million bushels but the “Food and Seed” category was unchanged as documented in the subsequent tables. Diversion of corn to ethanol was projected at 5,300 million bushels or 32.8 percent of the increased availability despite projections of lower U.S. fuel demand. It is presumed that increased ethanol production will be exported. The corn “Exports” category was increased by 2.6 percent to 1,950 million bushels compared to the May WASDE Report. Residual corn stock was reduced to 2,008 million bushels. The projected USDA range in farm price retained the 60 cent per bushel spread but increased price by 15 cents per bushel on either end of the range compared to the May WASDE Report, attaining 320 to 380 cents per bushel.

The RFS for 2016 was belatedly determined to be 18.11 billion gallons by the EPA on November 30th 2015 (See Editorial in CHICK-CITE). The value was 4 percent higher than the May 2015 proposal of 17.4 billion gallons. The supply of ethanol exceeds the U.S. demand by about 7 percent, based on a 10 percent blend (“dilution”) rate, resulting in the need to export this commodity. Crude (WTI) oil ranged from $43 to $49  during May but stood at $49.71 at the close of trading on June 10th. The prevailing low oil price reflects a slowing of World economic activity and increased oil and gas production in North America coupled with unrestricted output from Saudi Arabia, lower production from Nigeria and Venezuela, resumption of supply from Iran, reduced impact of OPEC as contributory factors determining the balance between supply and demand.

At the close of trading on June 10th, CME quotations for July and September 2016 corn were 424 cents and 428 cents per bushel respectively.

   

Shane Commentary

 

FDA Warning Letter to Whole Foods Market

Jun 24, 2016

    

On June 8th, the Food and Drug Administration issued a warning letter, Reference CMS 492729, addressed to Co-Chief Executive Officers of Whole Foods Market, John Mackey and Walter Robb concerning the North Atlantic Kitchen in Everett, MA. Inspections carried out on February 10th and 16th 2016 disclosed numerous deficiencies relating to physical installations and operational procedures.  

  

The list of contraventions of Title 2, Code of Federal Regulations Part 110 ran to 3 pages. A major defect related to contamination of foods with ceiling condensate (although this was presumably non-GMO condensate!).  A number of other defects cited included failure by employees to apply accepted hygienic practices such as hand washing and separation of decontaminated soiled dishes and implements from clean utensils. In the present situation, Whole Foods Market should consider themselves fortunate that they are only dealing with the FDA and not in addition, the CDC following a disease outbreak.  The fact that the FDA was able to isolate non-pathogenic Listeria welshimeri from equipment suggests that there are deficiencies in decontamination with the potential to harbor and disseminate Listeria monocytogenes which has profound implications for public health.

As with Chipotle Mexican Grill, Whole Foods Market has generated a superior image of wholesomeness for their products, emphasizing organic and non-GMO as attributes reflecting quality.  Both companies have failed to understand the basic principles of food handling in relation to public health. A preoccupation with self-promotion and puffery has not been balanced by acceptable food preparation practices or ethical marketing.  Neither company saw fit to integrate experienced professional food scientists in their management ranks who would have been capable of compiling appropriate procedures and implementing training and supervisory activities.

Whole Foods Market was previously forced to recall chicken and pasta salad as a result of Listeria contamination emanating from the implicated Massachusetts facility which supplies 74 stores in New England and Mid-Atlantic states.

Apart from the responsibility to their consumers who pay over the going rate for products             based on perceptions of quality and wholesomeness, the Board and officers of Whole Foods Market have a responsibility to shareholders to maintain the integrity and image of the company.  The 52-week range in share price for Whole Foods Market has ranged from $41 to $28. Following the FDA release on June 8th WFM fell 11 percent erasing $1.1 billion from market capitalization. The significant drop in the share price of Chipotle (52-week range $759 to $385) should be a salutary lesson for all food companies, confirming the need for proactive control measures to prevent food- borne disease.

   
 

Hampton Creek Seeks Investment Capital

Jun 24, 2016

    

According to a May 24th 2016 article by Olivia Zaleski in Bloomberg Technology, Hampton Creek is negotiating with potential investors to raise $200 million. If successful this would value the company at $1.1 billion. The tone of the article suggest that this is highly speculative given the limited range of Hampton Creek products on the market coupled with as yet non-quantified demand for vegan meat and egg substitutes. 

  

Industry observers question whether Hampton Creek is in reality an innovator with the ability to develop new products or simply an opportunistic marketer relying on existing technology and manufacturers to provide products.  Hampton Creek has announced intentions to increase product offerings to more than 600 items and has aspirations to compete with major food producers. 

Although the investment community has favored food start-ups, Bloomberg notes that the food-tech sector attracted only $680 million during the first quarter of 2016 constituting the lowest level of funding since 2014.

Hampton Creek has stated that it wishes to erect a 95,000 square foot research and development laboratory. Why? Are there not adequate laboratories staffed by distinguished faculty and competent technicians at Land-Grant Universities?  Are there not any commercial contract facilities in operation? The comment that the “scientists will analyze over 960 plant samples per week” taken with previous statements relating to extensive databases on plants appear to be at variance with established industry practice.  In fact the comments by entrepreneurial founder of Hampton Creek and its previous iterations, Josh Tetrick raises images of an infinite number of monkeys sitting at an infinite number of typewriters in the hope that the exercise will produce a sonnet.

Hampton Creek has made use of existing technology, apparently supplied by a contract laboratory to produce an egg-free mayonnaise substitute now competing with a nationally branded product.  Hampton Creek also produces a range of plant-based substitutes for eggs in cookies and baking dough.

There has been little in the way of innovation and product development to date to justify previously claimed tranches of capital.  The disconnect between publicity relating to supplanting eggs and animal products and the reality to date is eerily reminiscent of Theranos which promised to be a “disruptor” of the industry providing clinical-pathology assays. The parallels include

  • A heavy emphasis on publicity featuring the founder,
  • The extravagant claims for innovative products unsupported by established publications in peer-reviewed food science journals,
  • The absence of endorsement of Hampton Creek technology by respected academics or industry figures
  • A high burn rate of funding with operating losses.

These should be warning signs to the investment community. 

   

Visit our Companion Website
www.Chick-Cite.com


Dr. Simon M. Shane
Simon M. Shane
Contact     C. V.

Industry Prices: Fri Jun 24
 Corn3.94 $/bu
 Soybeans10.79 $/bu
 Soybean Meal373.40 $/ton
 Eggs, Producer49  ¢/doz
 Eggs, Warehouse 46-49  ¢/doz