Good day and welcome to Sanderson Farms’ Second Quarter 2021 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.

Thank you. Good morning and welcome to the Sanderson Farms second quarter conference call. We published second quarter results this morning announcing net income of $96.9 million, or $4.34 per share for our second fiscal quarter of 2021. This compares to net income of $6.1 million or $0.28 per share during last year's second quarter. Results for this year's second fiscal quarter reflect an accrual for a probable ESOP contribution and the negative impacts related to the winter storms that affected our operations during the quarter. Mike will discuss both of those in more detail later. Before we continue, I will ask Mike to give the cautionary statement regarding forward-looking statements.

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 most recent annual report on Form 10-K, our quarterly report on Form 10-Q filed this morning with the SEC and our press release that we published this morning. These documents are all available at our website at sandersonfarms.com. You should not place undue reliance on any forward-looking statements we make this morning. Each such statement 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 costs, 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 may be very different from our view a few days from now.

Thank you, Mike. The past 14 months have been challenging for Sanderson Farms. We continue to navigate through a pandemic and faced historic winter ice storms, periods of political and social unrest, a global recession and volatile grain and poultry markets. During our second quarter call last May, we spent most of our time discussing the extraordinary resilience and dedication of our employees and the steps we were taking to protect their health and safety. A year later, I remain so very grateful for the work and dedication of everyone associated with Sanderson Farms. I believe we are emerging from this challenging time as a stronger company thanks to their efforts. Sanderson Farms operated very well during the second quarter of fiscal 2021 in all areas of our business. Improved poultry markets more than offset feed grain costs that were significantly higher compared to last year's record fiscal quarter, resulting in increased operating margins. Improvement in the poultry markets was largely driven by higher demand from food service customers as consumers slowly returned to restaurants and several quick-serve restaurant chains featured chicken sandwiches on their menus. In addition to improved domestic demand for chicken, export demand also improved during the quarter as a result of higher crude oil prices, improved liquidity as a result of currency valuations and some relief from COVID-19 related restrictions. Prices paid for corn and soybean meal increased significantly during the quarter compared to last year. The USDA updated its 2021 grain balance sheets and published its first look at projected of 2021-2022 crop balance sheets on May 20 -- May 12 2021. The report confirmed the supplies of both corn and soybeans relative to expected demand remained tight in the United States and the world. The 2020-2021 corn balance sheet reflects estimated carryovers next year at 1.3 billion bushels. For next year, the USDA assumed trend yields, combined with 83.5 million harvested acres to get to an ending stock projection of 1.5 billion bushels at the end of the 2022 marketing year, expect the supplies of soybeans are even tighter. The ending stock estimate for the 2020-2021 year was just 120 million bushels and that represents a 2.6% stocks to use ratio. For the 2021-2022 year, the estimated stock to use ratio moved to 3.2%. While the USDA's estimates for next year would if realized somewhat easy supply constrains, those estimates don't mean too much today, especially given current weather concerns in both the United States and Brazil. We have priced all of our soy meal basis through October and most of our corn basis through September. We have also priced all of our soy meal needs for the balance of the fiscal year

all of our corn for June and July and half of our corn needs for August and September. Given where futures prices closed yesterday on the Chicago Board of Trade, had we priced our remaining needs through the end of the fiscal year at yesterday's close, cash corn and soybean meal prices during fiscal 2021 based on our fiscal 2020 volume, would be $367.6 million higher than a year ago. These higher costs would translate into an increase in feed cost of approximately $0.075 per pound of chicken processed for the year, compared to fiscal 2020. Our actual feed cost per pound of chicken processed through the first half of the fiscal year averaged $0.292 per pound. Had we priced our remaining needs yesterday, feed cost per pound would be approximately $0.3531 per pound in Q3 and $0.3451 per pound in Q4. In addition to our costs, we will be closely watching the chicken markets and production numbers. Weekly egg sets, as reported by USDA, have hovered just under 240 million eggs per week for 11 weeks. While egg sets are well ahead of last year's COVID-effected numbers, the number of chicks placed for the past several weeks, imply a hatch rate below 80%. In addition to low hatchability, broiler livability is also lower than historical averages. These live production issues are translating into fewer pounds than one might expect given the size of the layer flock. The current USDA forecast is for the United States broiler production during calendar 2021 to increase by approximately 0.4% compared to calendar 2020 and by 1.2% in 2022 compared to the 2021 estimate. We expect total production during our third and fourth fiscal quarters to decrease by 0.6% and 2.3% respectively, compared to the same quarters in fiscal 2020, primarily because we lowered our target live weight at our Hazlehurst, Mississippi plant to better meet demand from our retail grocery store customers. In April 2020, we began reducing production at our big bird plants by 5% in response to lower food service demand at the onset of the pandemic. In response to improved customer demand we will start returning those plants to full production in June, and we will be back to full production at all but two of our big bird plants by early September. Our balance sheet is strong and we are well positioned to execute on our strategic organic growth plan. We're in the final stages of vetting the site of our next new poker complex. We hope to announce the site soon but won't announce a construction schedule until we get better visibility on the 2021 grain crops and are reasonably sure of adequate feed grains and perhaps see some normalization of construction commodity costs such as lumber, steel, and concrete. At this point, I'll turn the call over to Lampkin for a more detailed discussion on the market and our operations during the quarter.

Thank you, Joe and good morning everyone. As Joe mentioned, overall market prices for poultry products were higher during the quarter when compared to our second quarter last year. Realized prices for chicken products sold to retail grocery store customers increased on price and mix improvements compared to last year's second quarter and tray pack demand has remained strong as many customers continue to cook more of their meals at home. Realized tray pack pricing during the second quarter was up by $0.062 per pound compared to last year's second quarter and was higher by $0.027 per pound sequentially. Bulk leg quarter market prices were higher for the quarter compared to last year's second quarter averaging $0.0353 per pound during our second quarter this year compared to $0.314 per pound last year. As Joe mentioned, many of our export partners have more liquidity and demand should increase as COVID-19-related restrictions are eased. In addition the supply of leg quarters available for export decreased as domestic food service demand or debone finally increased. That said, no leg quarter showed up on the market in May. We believe this could be the result of labor shortages as more labor is required to produce deboned dark meat as opposed to bulk leg quarters. Market prices for jumbo wings were significantly higher during our second quarter than last year's second quarter. Jumbo wings averaged $2.64 per pound up 88.9% from the average of $1.40 per pound during last year's second quarter. Prices for jumbo wings have spent much of calendar 2021 in record territory. Quoted market prices for jumbo boneless breast moved significantly higher during our second quarter. Today the Urner Barry quote for jumbo boneless is $2.24 per pound. Overall, market prices for jumbo boneless breast were higher on average by 60.4% when compared to the second quarter a year ago. The overall result of these market price changes was an increase of $0.223 per pound in our average sales price per pound of chicken sold compared to last year's second quarter. We sold 1.2 billion pounds of fresh and frozen poultry during the second quarter, an increase from the 1.18 billion pounds sold during last year's second quarter. We processed 1.2 billion pounds of dressed poultry during the quarter, up 3.4% from the 1.181 billion pounds we processed during last year's second fiscal quarter; 46.2% of the pounds we processed at our tray pack plants; 53.8% at our big bird plants. We now expect to process approximately 4.83 billion pounds of fresh chicken this fiscal year, a decrease of approximately 0.3% compared to fiscal 2020. We estimate we will process approximately 1.22 billion pounds in our third quarter and 1.23 billion in the fourth quarter. These estimates reflect our decisions to return our big bird plants to full production starting in June. Weather, bird performance, and other factories could affect these estimates. We sold 45.7 million pounds of further processed chicken at our prepared chicken plant through the first half of this year compared to 48 million pounds through the first half of last year. The average sales price through the first half of the year was lower by 0.6% compared to last year. Demand from our food service customers for prepared chicken was significantly affected by the pandemic in March and April last year and we had several weeks when the plant operated only a few days. Orders improved, as states opened up, especially from customers with drive-through capabilities. We removed the IQF line from the plant during the first fiscal quarter of this year, and replaced that line with the par-fried cook line. We now have the capacity to prepare 2.6 million pounds of par fried products each week. And believe, this move will help us better meet our customers' demand, for par-fried, partially-cooked chicken products. At this point, I'll turn the call over to Mike.

Thank you, Lampkin. Net sales for the quarter of $1.13 billion were higher than the $844.7 million last year and reflect a slight increase in pounds sold and higher selling prices. The $109.7 million increase in our cost of goods sold for the quarter ended April 30, as compared to the same months last year was the result of higher non-feed-related cost and increase in pounds of poultry products sold of 20.7 million pounds or 1.8% and the higher feed cost per pound. Non-feed related COGS during Q2 were $0.437 per processed pound. And that's up $0.8 per pound or 1.9%, compared with last year's second fiscal quarter. The increase in non-feed related COGS includes increases in labor, packaging, fixed cost, grower pay and chick costs. We spent $8.6 million on direct COVID-related expenses during Q2, of that total $3.7 million is included in COGS and $4.9 million in SG&A. We estimate that COVID-related expenses will be $6.75 million during Q3 and $5 million during Q4. The $8 million increase in SG&A expenses for Q2, compared to last year's second quarter, reflects higher legal costs attributable primarily to litigation higher administrative salaries, $4.9 million in COVID-related expenses and an accrual of $6.5 million for a probable ESOP contribution. We expect SG&A of $58 million in Q3 and $60 million in Q4 but those estimates do not include an ESOP accrual. We'll consider, an accrual, as we move through the balance of the year. And that accrual will be somewhere between 4% and 4.5% of pre-tax income. Based on our results for the first half of the fiscal year management has not yet determined that it is probable, that the company will meet the $12.02 per share, earnings per share target, that is the threshold requirement under the company's bonus award program. Accordingly, our Q3 and Q4 estimates do not include accruals to bonuses. That is also true for the portion of the bonus award paid based on performance in our benchmarking. Although, our managers today, would earn a bonus based on year-to-date performance. We've not yet determined that, it is probable that that will be the case at year-end. In addition to the ESOP accrual, results for the second fiscal quarter reflect uninsured losses of $2.75 million or $0.09 per share net of income taxes, associated with the winter storms that affected the company during the quarter. This amount represents our deductible and retention, under our property and casualty policies. We booked $4 million in covered expenses above that deductible, as an insurance receivable during the quarter. The company's results for the second quarter were also negatively affected, by business interruption losses related to the storm. While we expect to recover some portion of those business interruption losses, we are subject to a seven-day waiting period deductible, under our applicable policy. We continue to work with our insurers, the adjusters, the accountants. And we will continue to refine the calculation of losses stemming from the storms, as well as any amount of those losses that will be recoverable outside the deductible period. And we'll book a receivable, when we reach an agreement with our insurance partners. We want to say, once again, as we did in February, that the hard work and resourcefulness of our employees, contract poultry producers, vendors, contractors and customers during those unprecedented few days allowed the company to significantly mitigate possible losses and protect the company's assets, during the storm. We remain very grateful to everybody associated with Sanderson Farms for their efforts. Our balance sheet and liquidity position are very strong. We ended the second quarter with $55 million drawn on the revolver and $122.9 million in cash. We actually paid-off that outstanding balance this morning. Our net debt to cap was negative and our total debt to cap was 3.5%. We now have $974.8 million available to us under the revolver after today's payment and we're very comfortable with our balance sheet and the liquidity we have available to us as we navigate through the pandemic. We were pleased to report that on April 23, the company executed an extension of this $1 billion unsecured revolving credit facility for another five years. Having that credit available to us, together with the strength of our balance sheet, gives us confidence that we can navigate industry cycles and unforeseen circumstances while at the same time continuing our strategic growth plan. We now expect to spend approximately $191.9 million on capital projects during the fiscal year. Of that total, we expect to spend $10.1 million to complete – actually it's complete, the new hatchery in Mississippi, $46.4 million on building and equipment upgrades and $13.3 million on trucks and trailers that in prior years we've leased. The balance of $122.1 million is for regular maintenance items. We intend to use cash on hand. cash flows from operations and as needed our revolver to fund these capital budget items. Our depreciation and amortization during the first half of the year was $81.6 million and we expect approximately $170 million for the full fiscal year of 2021. Finally before we answer the questions, I want to mention the Sanderson Farms is schedule to host its annual investor conference in New Orleans this fall. The conference if it happens in person will open with dinner on Thursday Night, October 14 and the conference will start at 8

00 Friday morning, October 15. The conference will be at the Windsor Court this year and the dinner on Thursday night will be the same place as always. We hope we're able to host the conference live and that many of you will join us in New Orleans. If we're unable to host the conference in person, we'll certainly host a virtual conference. You will find the information regarding the conference on our website and will add the registration and hotel information soon. But for now please save the date for the conference. And if you think, you might attend the conference consider getting your reservation sooner than later. The New Orleans Gas Festival, which is normally held in the spring has moved to the fall and will be held on weekend following our conference. Hotel rooms will be hotter than the jumbo wing market. Ally that completes our prepared remarks this morning and you can open up the call for questions.

We will now begin the question-and-answer session [Operator Instructions] Our first question today comes from Ken Goldman with JPMorgan.

Hi, good morning. Thank you.

Good morning.

Good morning. I wanted to ask – you guys have obviously had a very strong tone for a while now about fundamentals with good reason. It looked like in Urner Barry – breast meat did peak in Urner Barry. Urner Barry seemed to have a tone of "Okay, the great times are over. We've hit peak." I'm just curious, do you have any forecast or any thoughts around where breast meat will go from here over the next month or two, just in relation to where it peaked in Urner Barry? Just – I know it's impossible to be exact on that. Any thoughts would be helpful though.

Sure. We think we're right at the end of the month and breast meat might be soft for a few days. But we think for the summer, we're going to see a pretty strong market as states continue to open up, restaurants continue to open up. And we feel pretty good. I don't know if it's going to stay over $2 a can, but we think it's going to stay pretty strong. And we think boneless dark meat is going to do the same thing as more and more restaurants open back up and more and more restaurants are built. We feel pretty good about that.

Okay. Thank you for that. And then Mike what can you tell us about what -- you're looking for from your cost of goods sold from a non-feed basis going forward. If I look at it -- it declined obviously by over 100 basis points as we look at it quarter-to-quarter. Just trying to think about whether we're on an absolute basis or on a percentage basis. Do you have any thoughts about how we should be modeling that for the back half of the year?

I would model it flat. The items that make up -- that labor is going to be steady for the rest of the year. I don't see any reason for packaging and fixed cost and grower pay and chick cost. The big items in that are baked in for the balance of the year, Ken. I would model something similar to what you saw in Q2.

So just to be clear it was $504 million when you exclude feed and prepared chicken COGS. Are you talking about something close to $500 million each quarter going forward, or is that on a percentage of sales basis you were saying is flat?

Yes. No, no that's good. That's good.

Okay. Great. I will let it go there. Thank you.

Thank you.

Our next question comes from Ben Theurer with Barclays.

Hi. Good morning. Congrats on those strong results.

Thank you.

Thank you, Ben.

So just following up a little bit on the pricing side. So legs continue to be a little behind the curve, I would say on the price increases. What are you seeing on the demand side for leg quarters into the more shorter term just to stay with Ken's question around it? Were you expecting here -- I know it's difficult but clearly it's an important piece just to put together. So what we could basically think about the entire bird price realized just considering that you've just said breast likely to stay over $2. So what do you think about leg quarters and wings in particular as well from a pricing perspective for the next couple of weeks?

We don't think we're going to see any -- a lot of movement in leg quarters. Leg quarters were very strong in April. And we think because of labor situations in some plants or the lack of labor more leg quarter showed up in May for export. Actually the price dropped maybe a $0.05 a pound for May shift. And if there is some resolution of some of the labor situations leg quarter should go up. But right now there's a tremendous incentive to debone the leg quarters. Boneless dark meat is trading for $1.82 to $2 a pound. So there's a tremendous incentive to do more boneless dark meat. And if people could get to labor -- and that might occur with some of these states not taking the federal supplement for unemployment, the federal unemployment benefit. And I can't tell you all the states South Carolina, Georgia, Mississippi, Texas and most of that's going to come out in June. If that occurs, there may be some more labor available in the plants. You could see leg quarters go up and you might see boneless dark meat go down, as a result of that. I don't see anything happening to leg quarters until that occurs.

Okay. And then, just sticking with labor, you've said for the new plant, you would need to see some grain supply clarity and to be like comfortable with the supply of grain and obviously the cost of grain. How comfortable are you with the availability of labor? Because it's -- I mean an industry wide issue and we've had many companies talk about the shortage of labor, which clearly partially is related to the unemployment benefits you've just talked about. But in general, it seems there is some sort of labor shortage and obviously considering if you were to build a new plant, you would need an entire new staff. So how do you think about the labor shortage also in light of those plants for the new facility?

The area, where we are looking has ample labor. I can't give you the statistics. I don't recall the labor pool, but it's big. It has -- there's plenty of labor there. And it's resembled some of our other -- the numbers are similar to where we are in some of our other areas. So, we don't go to a place where there's not ample labor. We are -- we have been able to stay pretty close to our product mix and take care of our customers at our other plants because, we're tight on labor. No question about it. We have more absentees and we could hire a bunch of people right now. But we think some of that's going to resolve later in the summer. But the new place we're looking has ample labor that's one of the things. If we don't see that at the beginning, we walk away from next buyer immediately. But this place we're looking right now has plenty of labor.

Okay. Okay. Good stuff. Thank you, very much and congrats again.

Thank you.

Thanks, Ben.

Our next question comes from Ben Bienvenu with Stephens.

Hey thanks. Good morning everybody.

Good morning, Ben.

Good morning.

So I want to ask about kind of a two-part question. As it relates to the bonus expense and just your outlook for the remainder of the year, I know it's still early in the third quarter, but things look like they have strengthened pretty materially in the business. The supply demand set up I think, you all would characterize it as pretty favorable through the balance of the year. So, I was a little surprised to hear you say that the bonus expense accrual is subject to a degree of certainty around earning $12 a share this year. Is that hesitancy to make that call just a function of how early it is in the year still, or is there something else that's in that calculus for you all?

No, Ben. It's strictly because of where we are in the year. If you look back historically, when we paid a bonus, last time was 2017. We don't accrue that until third quarter. We're just -- it's got to be probable. It's certainly possible, but probably is a little bit higher standard. So, we'll get into the third quarter or into May, June as we moved through the third quarter and make that call.

Okay. That makes sense. As a follow-up to that, and I don't want to put words in your mouth, but in light of what seems to be a really strong environment, you guys could find yourself with quite a bit of cash at the end of this year. You've paid off your debt. You said Mike this morning -- I think you said, you've got intentions to build a plant, but it sounds like that might be a little ways out. Is that money going to burn a hole in your pocket, or what are you going to do with all that cash do you think?

It will not burn a hole in my pocket. It will be a good -- it would certainly be a good position to be in. You know historically that after a special year, our Board considers special dividends. That's always a possibility. Joe just said that he's not quite ready to put a shovel in the ground yet, until we resolve some of these contingencies out there, but move with all deliberate speed to continue with our growth strategy has worked. And hopefully -- I don't know about commodity prices in lumber and steel and what --

The biggest thing about building a complex right now, concrete or steel or high price, there's an embargo on steel coming into the US. So that has driven up the price of steel. And a lot of people are building stuff and so country is at right. But the main thing that would cause you to pause is a price of lumber. Our chicken houses, we have to build 400, 425 chicken houses for pullets and hens and growers. And the price of lumber has tripled in the last 18 months. So if you go and build a complex right now and you have to build those 425 houses or whatever the number is, you're going to have to -- we try to guarantee a certain return to our growers. You're going to have to bake in -- and it would put to guarantee that return to our growers, you would bake in a return on grower pay, put them all out of sync with all our other growers. Right now, all of our growers across centers and farms from North Carolina to Texas make the same pay. And this run-up in lumber has happened over the last 18 months, because everybody in the world is building a house because of low interest rates. And my heart tells me, build a plant, right now. My head tells me to be patient. And so, I'm going to be patient. We need a plant. We need -- we have sales right now for that plant. And it takes us 18 months to build a plant, but this is not a good time to build a plant. We can make a double-digit return on that plant. But if you go build a plant right now, you're going to cook in some costs into that plant. And we built it for 50 years. We don't build it for the next two years, three years, four years; we build it for 50 years. And you're going to bake in some cost in that plant, a complex is gong to be way too high. I didn't mean to go off on you but --

No, it’s great. It makes perfect sense to me. Congrats and have a happy World Day weekend.

Thank you. Thanks. You too.

Our next question comes from Peter Galbo with Bank of America.

Hey, guys. Good morning. Thank you for taking the question.

Good morning, Peter. You bet.

Lampkin, I was just hoping to get a little bit more detail on the production plan for the third and fourth quarter, just the split of big bird versus tray pack, kind of, how you're thinking about it?

Hey, Peter. This is Mike. So we think you can see we're going to process 1.2 billion plants in Q3. 661 million of those are big bird plants, 559 million are tray pack plants. The 1.23 billion pounds in Q4, 679 million of those are big bird and 550 million are the tray pack plants.

Our tray pack plants are full. We've been able to run full production into tray pack plants. We've cut back at the big bird deboning plants going back to last spring, but we're restoring those cuts now at all, but two plants. It will just make those -- some of them will come back online middle of the summer, and some of them in August, and some of them after Labor Day.

Got it. No, that's helpful. And then maybe just to switch it to tray pack, you saw a nice price mix improvement at least in the quarter. And I think a fair amount of that was maybe mix. Just is that expected to kind of continue into the back half? I know you had taken on some incremental business. So maybe just any color you can give us there on how that's going so far? Thanks very much guys.

I think the improvement will continue. I don't know if it will be that much. A lot of the tray pack prices are not going up as Urner Barry goes up. The mix -- yes, the mix will continue to improve.

So that mix -- what's happening in the tray pack is that you're not having ads, and so that helps your price go up. You took on a bunch of new business.

New business. New.

So I don't think you'll see the percentage increase in the next quarter that you saw in this quarter.

Yes. I agree with that.

It will be some, but it won't be to the same extent. What should pick up end of the second quarter, we'll see some of that in the third quarter.

Yes.

Our next question comes from Eric Larson with Seaport Global.

Yes, thanks guys. Thanks for the question. So the first question I have is in your CapEx for the second quarter, how much did you spend on wheelbarrows?

We've bought two.

Well, the wheelbarrow wouldn't do it either you need a semi truck. Like you already have some of those that you can use right?

Yes.

So in all seriousness a good quarter, great quarter really nice -- good to -- great to see your execution is so strong, Joe. So the question that I have is we've talked about this I think before. Labor has been an issue really for several years now, and it looks like it could be something that goes on for a while, and we had talked about how automation at your deboning plants is. It was kind of breakeven probably a couple of years ago and now with the rising labor cost it's probably that automation would probably pay for itself. So where do you sit with automating some of your more labor-intensive pieces of your plants? And if you were able to do that in full scale, let's say, convert all of your plants, what is the capital requirement for that type of thing to take place?

$5 million per plant for what we do, which is the white meat, which is 50% of the plant.

Yes. We -- it's not -- it's $5 million per plant. We have automated three of our -- this is white meat debone. All of our dark meat debone is already automated. We have automated three of our tray pack plants for white meat. And we were -- in July, we're going to automate this one of our big bird deboning plants and test it. It has not been done successfully anywhere that we know about, but we're going to try one and sit on the floor. I've done this before with a eviscerating machine. I remember clearly as a bell when was working as a plant manager at Laurel back in '70s. And we sat on the floor and watched it operate and had the manufacturer in and they modified it. And we told them what it was doing right and what it was doing wrong. And over a period of time, they modified the spoons on that evisceration machine. So we were doing a better job. And that's what's going to happen with this automatic deboning machine, we're going to put in one of our plants. And it may take six months to get it right. But we're going to try it in one of our deboning up plants. But it's not -- it's $5 million a plant. It's not that big a deal. And that machine -- and the hard part about it is it eliminates 75 people roughly. Payback is quick. But the cost that you absorb is -- what you're trying to do is not lose yield. And a $2 breast meat it's very expensive if you put that thing in there and lose yield out of it. And breast meat is $1.25, it's still 1% yield loss is still serious. So we've got to put it in, get it modified and get it right. And that's going to take some time.

Okay. Yeah

It's not the capital expense. It's getting machines right where you don't lose anything.

Yes, right. I knew that the yield was the issue in the past as one of the major constraints. And it sounds like it probably still is and there's some work to do on that. The second piece to follow-on to that question, of course is, if you could solve some of that labor problem -- those labor issues the amount of labor that you need, would that then allow you to have more choices, strategic choices to put your plant. I mean maybe closer to some of your grain sources in the south that would lower your cost not only of transportation, but on the basis and everything else? Maybe there's a secondary benefit to that that we're not looking at?

No. We're -- when we locate a plant, I guess, they're about -- there are 50 boxes we have to check and there are five or six that are all equal and one of them is water. All of our growers have to be able to drill a well where they have water. One of them is labor. We all -- we have to have plenty of labor because deboning is not the only thing we do in our plants. We have a lot of other jobs and you have to have growers. So there's got to be a lot of growers. You can tell that from -- you can tell that from some -- and I'm not going to tell you all of them, but there are 50 things we have to check out, but we will -- we will never go to a place where there's not a lot of labor. I'll give you an example. St. Pauls, North Carolina to the north of us, the county Fayetteville and there's a county I'm talking, I can't take the name of county there, there are 300,000 people 10 miles to the north and there are 150,000 10 miles to the south. There's plenty of labor. Now we're having trouble right now with labor at that plant that's because of the federal unemployment benefit. But we know the labor is there, plenty of labor. And -- so I'm not going anywhere where there's not a lot of labor. There -- we're always going where there's labor.

Our next question comes from Ken Zaslow with Bank of Montreal.

Hey. Good morning, guys.

Good morning, Ken.

So I just have two questions. Do you think the capital investments that you made on deboning and the opening of the trade to China with the chicken paws could make this chicken margin environment better than what you've seen historically?

What?

Does this environment feel like our margins can be better than historical -- better than historical cycles?

Yes. Because of the investment that you put in with cloning as well as the chicken paw environment that we really never saw really before.

Right now, today, if you just look at right now and not look at -- we have no clue what the next five months are going to be June, July through October. Today -- no?

No go ahead. I'm sorry.

You are at historical margin.

Yeah you are. And we built -- we ran a model just last week Ken where we took five year average margins and look at that very question. And if you look at five year average margins, you've got three years that didn't include chicken feet. So you have to add chicken feet back to that. And then we – yes, we did also do an adder for the additional margins that we're going to earn on dark meat deboning. Now I'll be honest, I did not assume $2 a pound dark meat deboning. But it was a nice addition to the five year average model.

But what -- if you look at just what you're doing right now, but you don't know what you're going to do in June, July, August, September, October. But if you look at today, you are at historical margin.

Okay. Then just going on the other part of it the duration. 2014 to 2017 was a nice period back then. If I remember correctly, it was a woody breast issue. Today, we have a rooster that doesn't do as well maybe in the market that maybe -- and it sounds like there's not a lot of production increases. So is there a lot of -- can you make a comparison between 2014 and 2017 to today in terms of duration, or are there parallels to that in terms of the longevity of this? I know you said that you don't know what's going to happen in four or five months. But kind of not the next week, but kind of bigger picture with production and demand things like that. Can you talk to that?

There are two or three things, I'll comment about production. If you look at the pullets going down at least I don't know what percentage of the pullets are going down, but at least half of those in my opinion are going down without an antibody. And it's because people using the males, the byproducts, the brothers of the pullets in a no antibiotic program. And so if they're using the byproduct brothers of the pullet with -- in a no antibiotic program, they're not given the pullet an antibiotic. So the pullet livability is poor. And the productivity of that pullet once she gets into production at 25, 26 weeks is not as good and the pullet livability is not as good. So you may see 8.2 million pullets go on the ground and everybody is assuming 8.2 million pullets is going to mean a lot of eggs and we're going to expand. That is not going to happen. Pullet mortality it is excessive right now. And then there's another, the rate of lay is poor and it doesn't matter about which male. We -- you've heard one of our competitors talk about their male and they were switching. And -- but it doesn't matter, if it was their male or the male that we use. You all recall, I talked about this three, four, five or six years ago, we had overfed some males and they wouldn't breed. And -- but you have to be very careful feeding any of these males that you have that are bread to produce breast meat high-yield males. We've kind of figured it out. We screwed it up every now and then on one flock. But our production people have done a great job. And our hatchability runs normally 5% higher than the industry average. And you can get this from the USDA you can see it every week. The industry average on the USDA is running about 80%. When we run it normally, we run it about 5% higher than that and that's because of our live production people. They have figured it out. And now we'll screw up a flock every now and then. We'll either underfed it or overfeed it but it's -- that's not our norm, but you got to watch them all the time. But look at the livability of the pullet look at the hatchability and then look at the livability of the broiler. The broilers are not making it to the plants because they're being raised without antibotics. So the pullets -- you see pullet placements you have to subtract 3x for the mortality of the pullet, the performance, the rate of lay of the pullet and the livability and mortality of the broilers. So that's why I don't think there's going to be a big production increase in those three things. They may try to put eggs in machines but that does not -- I didn't mention heat. I don't think there's going to be a lot more pounds on the market just so.

So I know you're not forecasting pricing, but how does this environment that's strong change if production is kind of muted and demand seems reasonable? Is this something that could last like a 2014 to 2017 type of episode, or do you think it's very short lived, or just -- and I'll leave it there if that's okay.

Yes. I don't think it's short lived, but what I do think is there is a limit to everything at some point, $3.25 wings somebody's going to figure out some way to substitute for that. But $2 breast, I don't think is a big -- I think people can buy that and make money. Tenders, I think people can buy that and make money on it. $2, boneless dark meat, I think people can buy that and make money on it. Particularly in light of the price of pork and beef. Those prices are very -- are relatively higher right now compared to where they were a year ago. So chicken prices are not that high compared to our competing proteins.

As always Joe, I appreciate it. Thank you.

Thank you. Thank you, Ken.

Our next question comes from Michael Piken with Cleveland Research.

Yes, good morning.

Good morning, Mike.

Good morning. Just wanted to talk a little bit more on the tray pack side. I know you mentioned that you're going to be moving a couple of your plants back to the big bird side. I'm just wondering, I mean do you have the capability to meet all the orders of your tray pack customers, or how are you going to handle that until the next facility is ready?

I didn't understand that.

Yes actually at the end Mike I think I understood what you're saying.

Just like what are the mix back to deferred. So I'm just wondering do you have enough capability to meet all your tray pack demand?

Yes, got it. No, we're not moving Hazlehurst back. Hazlehurst is going to remain in a tray pack size bird for the foreseeable future to help us meet that demand. The plants going back to full production are the food service plants, the big bird plants that we took down last year during the pandemic by 5%. And we're just restoring those cuts. But Hazlehurst, will stay, tray-packed size bird probably until we get that next plant open, because we need it to meet demand from our customers.

Got it, okay, that make sense.

And I also tell you that, we're going to run all of our plants Memorial Day, two shifts to meet demand. We -- look, we have great demand with no ads, next week, at both food service accounts and retail accounts for next week.

That's our new chicken special.

Okay. That's helpful. So, I guess, how are you thinking about the tray-packed side of the business? I know that, there's been obviously a lot of increase in prices on the big bird side of the business. And one of your competitors talked recently about, having some success renegotiating some year on contracts. I mean, how do you sort of see, the tray-packed side of the equation and the profitability of that going forward? And is there room for upside on that side maybe as the big bird, breast meat and wing prices maybe drop-off a little bit in the coming months?

We -- we made an agreement in the fall, with -- primarily in the fall not without every one of our retail account, some of them happened during the year. We don't go back to our customers when the price of corn goes up. And the price of meat goes up. We made a deal with them, just like, we did with all of our customers that, buys from our prepared foods plant. We've price that off -- we've priced all of them off of what we thought boneless breast and tenders were going to be. And we priced all that in the fall, when we went to market with them. And you can imagine how badly we missed that deal. Our prepared foods plant is not looking so supportive right now. But we don't go back to those people and say, hey, -- and one of the reasons we don't do that, is because corn and soy go down. I don't really want them coming to me and say, "Hey, prices are down, let's look at my formula." So I kind of think that's our job to deal with corn and soy and it's, not their job to deal with that. And so we're not trying to re-price anybody. We'll deal with that in the fall, when we -- if corn and soy prices are higher in the fall. When we re-price our contracts, we'll take that into account then.

We have renegotiated a few tray-packed in March and April …

Yeah.

…And we were able to get more money for that.

Yeah.

Our next question comes from Adam Samuelson with Goldman Sachs.

Hi. Thanks. Good morning everyone.

Good morning, Adam.

Good morning. A lot of ground has been covered so, a couple of just quick clean-ups. And Joe, Lampkin, Mike, just thinking about the kind of bringing the big bird plants back to full rate, do you have any early sense on what that implies on your fiscal 2022 production? Obviously, you're not going to have any new production capacity, in terms of the new plant next year, so it's really just the operating rates in the facilities that you own.

Well, as you know, absent event like, the pandemic that caused us to reduce production at those big bird plants, we would anticipate, fiscal 2022, to run our plants normally. And normally means, we cut back, November, December. And then, we run full from New Year's Day, through Halloween 100%, except for being down of course the holidays. And that's what we would plan to do in 2022. I don't have that pounds number in front of me right now. And I know it's on our -- in our investor presentation, which is on our website, so you can look at it there, but that's what we would anticipate. And that translates to a 97% utilization rate for the full year.

Okay. And I guess in that kind of along those lines, I mean what do you think at the industry level? I mean you took -- you slowed down your big bird facilities. Do you think that there is any other kind of latent kind of capacity for others in the industry? Just given the margin environment that we're in even with grain, it would seem that people should be trying to do that if they can't, given kind of where pricing is.

I would think not so much big bird. I think maybe there's some others in other market segments, not big words. But there might be some others in other market segments that might not be enjoying. I think big bird people or de-boners are probably...

They're probably running everything.

They probably running everything they can do that. And I think it's in other market segments.

All right. Fair enough.

We don't know what other people are doing.

Yes. We don't know. Yes.

We know what we're doing.

Yes. No, fair enough. I appreciate the color. I’ll pass it on. Thank you.

Thank you, Adam.

Thank you, Adam.

Our next question comes from Robert Moskow with Credit Suisse.

Hi. Thanks. Just a quick detail. Your production came in higher than what you originally forecasted. Is that just good productivity and yield at the plants during the quarter? And then secondly, can you just speak more broadly about what the impact on your business and the industry has been from the challenges that the industry leader has had this past year? Is there -- we're talking about like an industry issue, but is there anything more specific that you could point to? Thanks.

What about our production came in heavier?

Yes, we had heavier birds in Texas after the storm.

After the storm.

We had some heavier live weights than we had previously guided to. And our head processed was right on what we anticipated. That was all bird weight, Robert. We had a little bit heavier birds than we anticipated, because of cleaning up and right and better yields. Our yields were about 1% above what we had estimated. No comment on others in the industry.

We don't have any insight on that.

Yes.

Okay. Thanks very much.

Thank you.

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

Good. Thank you all for spending time with us today, and we look forward to reporting our results in August to you. Thank you.

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