Sanderson Farms, Inc. (SAFM) Q4 2020 Earnings Call Transcript

Sanderson Farms, Inc. (NASDAQ: SAFM) Q4 2020 earnings call dated Dec. 17, 2020

Corporate Participants:

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Lampkin Butts — President and Board Member

Analysts:

Ken Goldman — JPMorgan — Analyst

Peter Galbo — Bank of America Merrill Lynch — Analyst

Ken Zaslow — BMO Capital Markets — Analyst

Pooran Sharma — Stephens Inc — Analyst

Michael Piken — Cleveland Research — Analyst

Ben Theurer — Barclays — Analyst

Adam Samuelson — Goldman Sachs — Analyst

Robert Moskow — Credit Suisse — Analyst

Eric Larson — Seaport Global Securities — Analyst

Presentation:

Operator

Good day, and welcome to Sanderson Farms Incorporated Fourth Quarter 2020 Conference Call. [Operator Instructions]

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Joe Sanderson. Please go ahead, sir.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you. Good morning and welcome to Sanderson Farms fourth quarter and fiscal year-end conference call. This morning, we reported net income of $27.9 million or $1.26 per share for our fourth fiscal quarter of 2020. During the fourth quarter of last year, we lost $22.9 million or $1.05 per share. For the year ended October 31, 2020, we reported net income of $28.3 million or $1.27 per share. For fiscal 2019, we reported net income of $53.3 million or $2.41 per share.

If you did not receive a copy of the release and accompanying financial summary they are available on our website at www.sandersonfarms.com.

Before we continue, I will ask Mike to give the cautionary statement regarding forward-looking statements.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Thank you, Joe, and good morning to everyone. This morning’s call will contain forward-looking statements about the business, financial condition and prospects of the company. The actual performance of the company could differ materially from that indicated by the forward-looking statements, because of various risks and uncertainties. These risks and uncertainties are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020, which was filed with the SEC this morning and in our press release published today. These documents are available on our website at sandersonfarms.com.

You should not place any undue reliance on forward-looking statements we make this morning. Each such 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 might be very different from our view a few days from now.

As stated in our 10-Q this morning, the risks and uncertainties for our business created by the COVID-19 pandemic include continued or worsening absentee rates at our facilities, labor shortages, the possible closure of one or more of our facilities, and inability of our contract producers to manage their flocks, supply chain disruptions for feed grains, further changes in customer orders due to shifting consumer patterns, disruptions in logistics and the distribution change for our products, liquidity challenges, and a continuing or worsening decline in global commercial activity, among other unfavorable conditions.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you, Mike. Our financial results for the fourth fiscal quarter and year ended October 31, reflects the extraordinary challenges caused by the COVID-19 pandemic and the unprecedented social and economic impact the buyers continues to have on the United States. These conditions have resulted in weak market prices for Boneless breast meat and other products produced at our Big Bird food service plants.

On the positive side, market prices and demand or chicken products sold to retail grocery store customers remained strong through the end of fiscal years, as more consumers continued preparing meals at home, given the limited options for away from home dining. Overall realized prices for poultry products increased during our fourth fiscal quarter, compared to last year, but prices decreased for the year, compared to fiscal 2019. Feed cost and broilers processed were lower both during the fourth quarter, compared to the year ago and for the year, compared to last year.

Despite the enormous challenges we and the nation faced during this past year, the company performed well — very well in most respects. Our net sales for fiscal 2020 were $3.564 billion and our net income was $1.27 per share. We showed record 4.805 billion pounds of poultry products. This is a testament to the hard work up and down the land by all of our employees at Sanderson Farms.

Throughout the last several months, we worked diligently to implement protocol to keep our teams and communities safe, and we’ve been able to shift production to the highest demand areas. Our team and our operations have continued to perform well and have helped to feed American families and maintain the US food supply during the pandemic. We sincerely thank our employees, our contract poultry producers, our customers, our vendors, the consumers, who buy our products and the communities and states in which we operate for their hard work, dedication and perseverance during these unprecedented times. I am so very grateful for everyone associated with Sanderson Farms for raising to the challenges of 2020.

As we look ahead, we will continue to focus on executing our strategic plan and delivering the highest quality products and the best service to our customers safely. We’re confident in our ability to continue to execute our organic growth strategy and continue to enhance value for all of our stakeholders.

With that introduction, I’ll ask Lampkin and Mike to provide details on the quarter. And I will return after they finish to discuss our focus during our — during fiscal 2021 and then answer your questions.

Lampkin Butts — President and Board Member

Thank you, Joe, and good morning everyone. As Joe said, overall market prices for chicken were lower during the fiscal year, compared to fiscal 2019 and our feed cost per pound for the year were lower than last year. Tray Pack market prices during our fourth quarter and fiscal year continued to reflect strong demand from our retail grocery store customers and from consumers, who continue to cook most of their meals at home.

For the year, our Tray Pack market prices were slightly lower, compared with fiscal 2019, but with the $0.0186 per pound improvement in our mix, we realized an increase of $0.0156 per pound in our overall average realized price for Tray Pack products. For the fourth quarter, realized Tray Pack sale prices were higher by $0.0239 per pound, compared with the fourth quarter of 2019.

Sequentially, realized market prices were essentially flat. We remain constructive on our outlook for the Tray Pack markets during 2021. We added new Tray Pack customers over the past six months, which should allow us to continue to improve our mix.

Bulk leg quarter market prices were approximately 42.8% lower during the quarter, compared to last year’s fourth quarter and for the full-year were lower by 20.6%, compared to 2019. Our Urner Barry quoted market prices for leg quarters averaged $0.195 per pound during the fourth quarter and $0.266 for the fiscal year.

Total [Technical Issues] for the calendar year through October was up slightly, compared to 2019, but many export markets have been under pressure as a result of the pandemic. That said, the overall tone for export leg quarters has improved in recent weeks and pricing has moved higher. Demand from traditional markets such as Mexico, Vietnam, Kazakhstan and Cuba has improved and that demand is supporting our prices. Product demand in China remains strong.

Market prices for boneless breast during our fourth quarter were higher by 2.8%, when compared to the fourth quarter a year ago, but were lower by 4.3% for the year, compared to 2019. Quoted market price for boneless averaged $0.97 per pound during the fourth quarter and $1.01 per pound for the fiscal year. Boneless prices remain under pressure as a result of lower demand from and the change in mix of our food service customers. The change in mix for food service customers has also reflected in jumbo wing prices.

During our fourth quarter, quoted jumbo wing prices averaged $1.89 per pound, which is up 9% from the average of $1.73 per pound during last year’s fourth quarter. For the year, however, jumbo wing prices were lower by 6.6% from an average of $1.72 per pound during fiscal 2019 to an average of $1.61 per pound during 2020. The current Urner Barry quote for jumbo wings is $2.10 per pound.

Our average sales price for poultry products during the full-year was lower by 0.25% [Phonetic] per pound, compared to last year, decreasing point four — 0.004% for the year ended October 31, 2020, when compared to the year ended October 31, 2019. For the full fiscal year, feed cost and broilers processed were lower by just under a $0.01 per pound or 3.4%.

For the fourth quarter, our overall cash costs for grain delivered to our feed mills were higher than last year’s fourth quarter, prices paid for corn delivered during our fourth quarter were lower by 15.2%, compared to last year’s fourth quarter, while soybean meal prices were higher by 4.7%. Our feed cost per pound in broiler flocks processed, however, were lower by $0.03 or 11.8% during this year’s fourth quarter, compared to a year ago.

During this year’s fourth fiscal quarter we processed 1.259 billion pounds of breast poultry and sold 1.252 billion pounds. We processed 8.842 billion pounds during fiscal 2020 and sold 4.805 billion pounds. Looking ahead at to fiscal 2021, we currently expect to process 4.863 billion pounds of dressed poultry during 2021, which would represent 1.5% increase in pounds processed, compared to 2020. Approximately 2.72 billion pounds or 56% would be processed at our Big Bird food service plants and 2.14 billion pounds or 44% would be processed for Tray Pack customers.

If we run our plants as expected those pounds would be processed as follows: 1.127 billion in Q1; 1.215 billion in Q2; 1.265 billion in Q3 and 1.256 billion in Q4. These estimates reflect our intent to keep our Big Bird plants below full production at least through the first calendar quarter of 2021, as we expect food service demand to remain under pressure until markets return to some semblance of order [Indecipherable].

These estimates also reflect lower Bird weights at our Hazel Harsh, Mississippi plant as we ship product at that plant from foodservice to Tray Pack. Of course, as always these estimates are subject to change as a result of weather, changes in target lab weights, market conditions and other factors. Like Joe, I’m grateful for everyone associated with Sanderson Farms, our employees, growers, customers and vendors and look forward to the new year.

At this point, I’ll turn the call over to Mike for a discussion of the quarter’s financial results.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Thank you, Lampkin, and good morning again. Net sales for the fourth fiscal quarter totaled $940 million and that’s up from $906.5 million for the same quarter during fiscal 2019. The increase in net sales for the quarter reflect an increase in realized prices for poultry products of 6.5%, offset by 1.1% decrease in pounds of poultry sold, compared to last year.

Our cost of sales of poultry products for the quarter ended October 31, decreased 3.2%, reflecting the slight decrease in pounds sold and the lower cost of feed and broilers processed during the quarter, offset by an increase of $0.0258 per pound and non-feed-related COGS.

For the fiscal year, net sales totaled $3.56 billion, up $3.6 billion from $3.44 billion a year ago. Our cost of sales for the year increased 6.7%, compared to a year ago and totaled $3.37 billion. The average cost per pound in our poultry business increased $0.0172 or 2.7%, compared to last fiscal year, reflecting higher non-feed related costs offset by lower feed costs.

Non-feed related COGS were $0.4272 per pound during fiscal 2020, up $0.275 per pound, compared to fiscal 2019. Non-feed-related lab costs were 0.75% per pound higher, compared to fiscal 2019 on higher chick cost and lower [Indecipherable] returns.

Labor cost in our processing plants were higher by $1.26 — excuse me, $0.0126 per pound, fixed costs were higher about 0.75% [Phonetic] a pound and other costs were higher by $0.0013 per pound primarily as a result of $23.7 million booked to COGS for COVID-related expenses. We sold 31.2 million fewer pounds of prepared chicken during our fiscal year, a 24% decrease, but our sales price averaged $0.0168 per pound higher, which was almost a 1% increase.

SG&A expenses for fiscal 2020 were lower by $5.4 million, compared to ’19, due primarily to a decrease in trainee expenses and start-up costs associated with our Tyler facility, offset by increases in professional expenses, administrative salaries and $12.7 million in COVID-related expenses booked to SG&A.

For fiscal 2021, we’re modeling $220 million for SG&A that estimate does not include any accruals for bonus compensation plans or the ESOP, both of which depend on profitability and we’ll consider whether or not to add accruals for that as we move through the year. We estimate SG&A expenses at $51 million in Q1; $53 million in Q2; $56 million in Q3 and $60 million in Q4. We’ve included in these estimates $6 million each quarter for continued COVID-19-related expenditures, which relate primarily to our home site medical clinics and our continued deep cleaning of all of our facilities.

At the end of the fiscal year, our balance sheet reflected stockholders’ equity of $1.419 billion and net working capital of $354 million. For the year, we spent $202.4 million on capital improvements and paid $31.1 million in dividends.

For Fiscal 2020, interest expense was $5.2 million, an increase from the $4.2 million of interest expense last year. We had $25 million in long-term debt on the balance sheet at the end of the year. Our effective tax rate was 273%, and I know that sounds strange, but as I explained last quarter, we had discrete income tax benefits due to the COVID-related CARES Act. Absent those discrete income tax benefits, our effective tax rate would have been 21.3% and going forward for fiscal 2021 we’re modeling a 24% tax rate, and that will be exclusive at any discrete items.

We continue to be well capitalized, enabling us to invest in our business and pursue organic growth opportunities to drive value for our company. We expect our capex for construction, maintenance and special projects during 2021 to be approximately $163.8 million and to be funded by cash on hand, internally generated working capital, cash flows from operations and as needed liquidity under our revolving credit facility.

Of that total $10.1 million is for the new hatchery in Jones County, Mississippi that we’re building to replace and expand the hatchery that’s currently serving more — excuse me, $12.4 million for vehicles, $28.5 million for large-scale equipment and building upgrades at multiple facilities and $112.8 million for annual maintenance. The company has a $1 billion unsecured revolving line of credit, of which $949.8 million was available at October 31, 2020.

Our depreciation and amortization during 2020 was $156.8 million and we expect approximately $172 million for fiscal 2021 and we’re breaking that down and modeling $41.3 million in depreciation in Q1; $43 million in Q2; $43.8 million in Q3 and $43.9 million in Q4.

With that, I’ll turn the call back over to Joe comments on grain and thoughts about 2021.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you, Mike. Our feed cost per pound during fiscal 2020 were lower by just under $0.01 per pound, compared to the previous years, and this represented the eighth straight year of lower or relatively flat feed cost. However, given the current estimates regarding the supply of feed grains and increased export demand for both corn and soybeans, we now expect that trend to end in 2021.

If we had locked in prices for all of our needs for fiscal 2021, including what we had — have already priced at current values, that is, if using the Chicago Board of Trade contract prices for current and future needs as it closed last night, our cash cost for grain during fiscal 2021 will be $193.2 million higher than during fiscal 2020 based on 2020 volumes. USDA’s estimates for the carry-out of both corn and soybeans for the 2020-’21 crop year have both tightened considerably since August, as a result of challenges with the 2020 crops in the United States.

Corn and soy meal basis values have also moved higher. We have our basis for both corn and soya meal bulk through March. And we have priced our corn and soya mean needs through December. As always on this year and call, I’ll share a few things we’re watching closely as we start the new fiscal year. First, we’ll keep an eye on the South American corn and soybean crops. As of today expectations for those crops in Brazil and the rest of South America are cautious, as there are pockets of dry hot weather in South America. It is still early, but we will keep an eye on those crops. Of course a challenge those crops will affect export demand for domestic suppliers.

Second, we will watch United States planning intention reports next March. USDA’s current estimates is at corn acres will be essentially flat at 90 million acres in 2021, while soybean acres will increase 7% to 89 million acres, if realize these acres would be the second highest acreage on record and would be consistent with strong export demand, lower ending stocks and higher prices.

Third, we will watch chicken production numbers. USDA estimates that the industry will produce approximately 1% more pounds of chicken during calendar 2021, compared to 2020. Looking at egg sets, chick placement, pullet placements and the size of the hen flock, we believe the USDA’s estimate is reasonable. We will of course also be watching chicken markets. Market prices for boneless breast meat produced at our Big Bird plants for the foodservice market have moved counter-seasonally higher over the past few weeks. The same is true for dark meat prices.

However, we expect demand from foodservice customers to remain under pressure until the COVID vaccine is widely distributed and consumers feel comfortable going out to eat again in large numbers. We will also be watching global markets as export demand continues to face pressure in key markets; such as China. That said, we are encouraged by reports of a chicken sandwich war in 2021 in the QSR market and we wish all the participants much success.

As Lampkin said, we feel good about retail grocery demand going forward. Volumes during 2020 reflected the shift in consumer demand away from foodservice and toward cooking home and we expect that trend to continue. We start fiscal 2021 in good shape. Our balance sheet is strong, our operations are performing very well, our sales team has done an outstanding job placing new business and continues to do so and we are well positioned to continue to execute our strategic growth plan.

As noted, we have a high degree of confidence in our strategy, our financial position and our ability to continue to deliver shareholder value. Our result — our Board of Directors recently increased our annual cash dividend by $0.48 a share and extended our share repurchase plan. We continue to evaluate a site for our next phase of growth, so we are optimistic we will be able to announce that site and start work on that project during 2021. While we never try to predict the chicken markets, there are reasons for optimism as we move into calendar 2021.

Hopefully, consumers will feel more comfortable dining out once the COVID vaccines become widely available and demand will begin to rebound. That together with announced plans for a large QSR participant to push the chicken sandwich should support higher bonus breast meat prices during the New Year. Regardless of foodservice demand, we expect good retail grocery demand to continue into 2021. As Lampkin mentioned, we picked up some new business to the summer and fall, and that will improve our sales mix as we move into the new calendar year.

I want close by again thanking our employees and contract producers for their work during this past year. Their resilience, dedication, commitment to their responsibilities, as essential workers and their performance under challenging conditions is nothing short of remarkable. It is my honor to be on their team. And they provide reason to be optimistic as we move into the new year and continue to grow this company.

With that, we will now take your questions.

Questions and Answers:

Operator

Thank you. We will begin the question-and-answer session. [Operator Instructions] First question is from Ken Goldman from JPMorgan. Please go ahead.

Ken Goldman — JPMorgan — Analyst

[Technical Issues] everybody. Thank you.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Good morning.

Ken Goldman — JPMorgan — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Ken Goldman — JPMorgan — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

No, there was a cutback. Well, I can’t remember my numbers now, let me check, they’re very small, they’re putting it up on the screen for me and they’re so small I can’t read them. But if you look at to February chick placement for the US total, they were running a 190 million to 191 million chicks a week in February and March. And then in August, I’d tell you more recently they’re running 187 million, 188 million, but in March, they were cut back to 186 million. So that’s the cutback we have, but I’m not disappointed and have no idea what the industry is going to do and the industry is going to respond to profitability and demand.

My guess is that tray packers and fast food people have not cut it all and the people who did cut were Big Bird de-boners that are selling boneless breast for $0.77 a pound right now and we’re selling leg quarters — and leg quarter prices were up, like they’ve been selling leg quarters for $0.18 a pound — $0.17, $0.18 a pound, they’re up substantially for January. Lampkin will report that in a minute, but I’m not disappointed.

Ken Goldman — JPMorgan — Analyst

Great. Thanks, Joe.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you very much.

Operator

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

Peter Galbo — Bank of America Merrill Lynch — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

You bet.

Peter Galbo — Bank of America Merrill Lynch — Analyst

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

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Be in the second quarter.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Be in the second quarter.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

You will have a blended…

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

That’s right.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Peter Galbo — Bank of America Merrill Lynch — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Our weights?

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Yes. You know, yes, and there is a number that Lampkin threw out, we modeled our target lab weights. It’s always subjects to weather and fluctuation and last year’s first quarter was extraordinarily mild and we did have higher Bird weights across the industry, one that’s [Technical Issues]

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Yes.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

It was everybody.

Lampkin Butts — President and Board Member

You don’t weight flocks though. Trying to remember what have — I can’t remember last year.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Yes, I think Lampkin’s numbers are as good as we can do Peter, but they’re always subject to fluctuations.

Lampkin Butts — President and Board Member

Say that is, is that first quarter is he talking about?

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

I don’t — they’re right on the money right now. Lab weights are right on the money.

Peter Galbo — Bank of America Merrill Lynch — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you. You too.

Operator

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

Ken Zaslow — BMO Capital Markets — Analyst

Hey. Good morning, everyone.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Good morning, Ken.

Ken Zaslow — BMO Capital Markets — Analyst

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

Lampkin Butts — President and Board Member

Huge, I mean all of it. Restaurants closed, distributor orders down 60% when it started and then — in December they’re still down 28% to 30%. And if you look at the items that the distributors buy, boneless breast, wings and tenders, boneless breast right now is up 31% in volume, wings and cut wings are only up 6% — 14%. So not only is there more pressure on — there’s pressure on all of the foodservice products, because of the restaurants are closing, but also you got more demand for wings and tenders than you do for boneless breast. It got better this summer, but right now, you’re in the midst of more bone wings [Phonetic] in different parts of the country, it’s not.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

New York is [Speech Overlap] they’re almost — they can’t serve in the street anymore. California is [Speech Overlap]

Lampkin Butts — President and Board Member

California is closed for three weeks.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

[Speech Overlap] closed and it’s all of COVID, every bit of it is COVID.

Ken Zaslow — BMO Capital Markets — Analyst

Do you think that pricing would be well into the $20, $30 without if COVID came back, if we get the vaccine and everything, kind of, goes back to normal, is that a fair expectation?

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

There is no way to know what it would be, I mean, if we didn’t have COVID, it’d be better than what it is now. But no telling what it would be, there’s still a lot of beef and pork and chicken out there. But without COVID, it would certainly be better than what it is.

Ken Zaslow — BMO Capital Markets — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you. We are — we would not be able to move Hazel Harsh back into Big Bird, because of — right now, we need that product in our Tray Pack plants. Lampkin and the sales people have sold some additional Tray Pack products this fall. And as of right now, we need that product and the Tray Pack plants. We can add back and we would add back — we’re in a reduced level and selling around 1,300,000 birds a week at our deboning plants, we’re at a 1,200,000. So we would immediately take those back to normal production levels. And that would be the first step we’d do, I don’t believe we could take Hazel.

Lampkin Butts — President and Board Member

No way. As long as we keeping saying the customers.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Right, right. We need that — and we need that product Hazel Harsh at our Tray Pack plants.

Operator

The next question is from Ben Bienvenu from Stephens Incorporated. Please go ahead.

Pooran Sharma — Stephens Inc — Analyst

Hey, guys. Good morning. This is Pooran from Stephens on for Ben.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Good.

Pooran Sharma — Stephens Inc — Analyst

I just wanted to get your thoughts on freight costs. What are you thinking about freight costs for FY ’21 at the moment? Do you think this is something that we need to be mindful of as a cost pressure potentially?

Lampkin Butts — President and Board Member

I don’t think so.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

We’ve got [Speech Overlap] it’s a little bit, it’s not a lot. We are quantifying that, but it’s not a huge amount. We checked on that after the third quarter call and it was not a huge issue. It was [Indecipherable] say it, our logistics.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Yes, I mean they are bidding now. I don’t think that…

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Yes, we’re up for bids right now on…

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

If you look at…

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

The 2021 it’s for our carriers. And so I don’t know what we’re going to see, but she didn’t think it was going to be our Manager of Logistics did not think it was going to be a huge increase.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Yes. To answer your question, I don’t think it’s anything to be concerned about, maybe pay attention to it, but we were flat with 2019 on a unit basis for 2020 and of course it was up in ’19, compared to ’18, but it’s not going to be a big number.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

No, we don’t expect to see a huge increase in freight, that thing can drive in line with the drivers help improve and driver availability we have. We will be through with our dealers and we’ll be able to quantify that set of volume in the first quarter call.

Pooran Sharma — Stephens Inc — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

We have our doubts about the September pullet placement number. We believe that is a five-week number instead of a four-week number, which it normally is. And matter of fact, we know that one of the primary breeders reported a five-week period instead of a four-week period, that’s the largest number that’s ever been published. We don’t think there is enough pullet housing out there to — in the industry to house in four-weeks 9.7 million pullets. So we — that’s the only one I had any doubt, but the rest of them, I think are pretty accurate, but that 9.7 September number is not, I don’t think right. The next, October, when I’m comfortable with that one.

But if you go back and take these and look at deliverability of the pullet, pullet mortality is running very high and that’s because the pullet should not have been vaccinated and they are not using antibiotics only on the pullets, because the — half of the breeder flocks are male and people are taking those males and using them as in their grow out division and if there are no antibiotic problem, they don’t want those males to have any antibiotics. So as — because of that they’re not using on the pullet. So you’re getting a heavy mortality on the pullet. And so I think there is an element of placing more pullets, because a lot of them are dying.

Pooran Sharma — Stephens Inc — Analyst

Got it. Thanks for the color. I appreciate it guys. I’ll get back into queue.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

You bet. Thank you.

Operator

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

Michael Piken — Cleveland Research — Analyst

Yes, good morning. I just want to get a little more detail on your proposed new facility in terms of — is it going to be a Big Bird plant or Tray Pack, I would imagine. And how do you ultimately in light of COVID or whatever do want to have a different long-term mix between retail and foodservice?

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Michael Piken — Cleveland Research — Analyst

Okay, great. And then in terms of your long-term mix like do you want to get close to the 50-50 or historically you’ve been close to like 60-40 between Big Bird and Tray Pack. Do you have sort of an ideal mix you’re targeting and you think we’re going to see kind of more people eating at home even after vaccine or is this just, because of COVID in your estimation?

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

No, we think — we don’t — we still believe people are going to go out to eat when they feel comfortable doing that. We’re just in a period right now after 2014, ’15 and ’17, all of the people in the protein business, beef, pork and chicken made a lot of money. And a result of that, they all expanded — all three industries expanded as a result of that profitability. And so we’re in a period right now in ’18, ’19 and ’20 of expansion.

So you got lot of protein, which will resolve at some point. And we believe that when people are vaccinated and feel comfortable going back out to eat, they’re going to go back out to eat. They are not going to stay home. I want to go back out to eat. I want to go back into New York and go to two and three restaurants up there that I like to eat, where I like to eat. I’m not going to call them now — you all know where I like eat up there.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

You know, Mike, based on the numbers that we’re running right now and that Lampkin described, we have a mix of 56% Big Bird and 44% Tray Pack. If you build a new Tray Pack plant and move Hazel Harsh back to Big Bird, there are a lot of ifs in this statement, but if you did that, you’re really out and your mix is then going to move to 43% — excuse me, 45% — 43% Tray Pack. It’s just not going to be a big shift, because you’re going to move Hazel Harsh back to the Big Bird. It was built to be a Big Bird plant, it’s got to grow out for Big Bird plant. So if we ultimately moved it back and build a new Tray Pack it’s not to move the mix so far.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

And we are comfortable that Big Bird has been a deboning and has been the most profitable segment for ’20 since the mid-’90s, that’s 25 years. And so we’re very comfortable that still going to be the case. And — but we need to be in two market segments. We can’t just be a player in one and right now Tray Pack is excellent and we are in the right mix.

Michael Piken — Cleveland Research — Analyst

All right. Thank you.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you.

Operator

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

Ben Theurer — Barclays — Analyst

Hey, good morning, Joe, Mike, Lampkin.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Good.

Ben Theurer — Barclays — Analyst

Hope you’re doing well. So just a quick one, could you elaborate a little bit on what’s driving your SG&A outlook up by 7% next year and particularly the spike into 3Q and 4Q. That cost you assumed that’s going to be related for the new plant, which you want to announce in the first fiscal half and then basically start up — to see some start-up costs during the second half or what’s driving that significant increase?

Lampkin Butts — President and Board Member

There won’t be any start-up cost.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

No, I mean, you’re looking at 2021, compared to 2020. I’m not sure, I’m following what your question was, but in the first quarter, we are estimating $50 million in 2021, we had $49.5 million last year. So it’s not a big move there. And for the year, you’re up $14 million, but most of that is COVID — $11 million of that is COVID. And then we’ve increased our travel, once COVID — once the vaccine in place, we’ll start moving around a little bit. Our travel…

Lampkin Butts — President and Board Member

It’s all COVID.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Yes. It’s almost all.

Lampkin Butts — President and Board Member

It’s all COVID.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

$11 million out of $14 million.

Ben Theurer — Barclays — Analyst

Okay. Okay that is basically incremental COVID, there was already COVID last year, but still upon it. Okay. That’s okay. And then you’ve talked about it export markets and wanted to follow-up, if you could elaborate a little bit on what you’re thinking of the impact from HIPAA in Europe and Asia is — that’s having on the export demand, because you’ve said there has been relatively positive signs that one of the check of that’s related to some of the issues in Europe and Asia?

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

We think those issues could create some opportunities in 2021. We really haven’t felt that directly — any demand from that directly. The…

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Tell him what you got booked in January.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Our price — in November our export products got as low as $0.21 delivered per quote. And $0.20 and below it will be a plant shipping into Mexico. And those prices have improved — they improved to $0.24, $0.25 in December. And we are beginning to quote higher than that for January — January shipments. Our export people believe it is a mixture of things, it’s the dollar — the dollars are little weak and that always helps exports. For some reason right now, demand in Mexico is better. And then most Big Bird de-boners are cutback to the holidays, so you’ve got less — a little less supply and it’s been that way for half of December and going into New Year and so you got a little less supply and improved demand in some of the export markets we ship to Cuba, Mexico and even China and China was still in the mix. So the…

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Had any books in $0.26 January?

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Yes.

Ben Theurer — Barclays — Analyst

Okay.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Well, I hope that answers your question. We are still benefiting from China by dark meat today that last year they ain’t bad at all and that’s really the only thing we’re feeding, but other than this what’s going on in Europe with [Indecipherable] it should be a plus for us next year.

Ben Theurer — Barclays — Analyst

And you’ve seen some more demand out of Cuba correct?

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

Yes.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Yes.

Ben Theurer — Barclays — Analyst

Okay. Perfect. Well, that’s it. Thank you very much. Congrats and happy holidays.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you. Same to you.

Operator

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

Adam Samuelson — Goldman Sachs — Analyst

Yes, thanks. Good morning, everyone.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Hey, Adam.

Adam Samuelson — Goldman Sachs — Analyst

Hi. So I guess first I just wanted to hone in a little bit on the non-feed costs part of COGS and you’re thinking feel a bit better handle how you’re thinking about that specifically with some of the lower utilization in the Big Bird plants in the first part of the year?

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

So the non-feed — your plant costs are going to be up a little bit low, because you got two things happening, we’ll have labor and wage increases in our plants effective January 1. And then by not running full, we will have increases [Technical Issues]. What’s your depreciation? Have you calculated depreciation in purchase?

Lampkin Butts — President and Board Member

Yes. So [Technical Issues] 30% a pound.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

30% a pound for the year?

Lampkin Butts — President and Board Member

Yes, the [Indecipherable]

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

No, I’m talking about ’21. So if you calculate ’21 yes. Well if you — everything — and what about your labor in ’21, you calculated it. Okay. Well it’s going to be up some, your labor is going to be up, your depreciation going to be up until we get back to around 1.3 million.

Adam Samuelson — Goldman Sachs — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

What do you have in there. I just saw you have $11 million increase…

Lampkin Butts — President and Board Member

In SG&A, yes.

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

SG&A. Is that the cleaning and the nurseries and the nursery stations. That’s going to be the whole year. [Speech Overlap] We put that nursery stations, we already had nurses at plants. We’ve put an additional physical nursery station at every plant to screen new employees coming to the plant, for bad flu shots, we’re screening for Coronavirus and flu for new employees coming to work, we’re providing flu shots for everybody and we are preparing hopefully to give COVID vaccinations when that becomes available, we think in March or April.

We had — we were less than 10% of our employees took the flu shot. We’ve been — now we’ve had a problem where they — all of our employees have been — had a doctor on video and on app on their telephone explain, there were a lot of misconceptions we determined by interviewing our employees why they didn’t take flu shot. So we had a doctor address those misconceptions. So now we’ve had another 700 or 800 people takes flu shot. We do not want that to happen with the COVID vaccine, so we’ve built these nursery stations and we hope more than that will take this COVID vaccination. So that’s the source of — somebody noted our SG&A was up 14 — yes, that’s part of it.

Mike Cockrell — Treasurer, Chief Financial Officer, Chief Legal Officer and Board Member

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

Adam Samuelson — Goldman Sachs — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

You too, Adam. Thank you.

Operator

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

Robert Moskow — Credit Suisse — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Robert Moskow — Credit Suisse — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

We’ll do really well — we are operating very well, but we — you had the headwind of Turkey and Hams at Thanksgiving and Christmas and we hadn’t hit it yet, we’re going to have the headwind of these power grain prices. And this quarter is always our most challenging quarter. We’re not going to — we are operating well, labs grow out good, the plants are running well, we are — as this, nobody has asked this, but I’ll report it. As these COVID cases rise in the United States and as they become more numerous in Texas, Mississippi, Georgia, Carolina, Louisiana, we’re having more and more cases in our employee base.

We’re still running and we’re still running at our capacity, but there have been more instances of absentees now than we had all summer or back in the spring. And it’s becoming more of a challenge for us right now than it has been since this pandemic started. Right now we’re okay, but we haven’t had any break out at any plant, but we are having more absentees than we’ve had since this pandemic began.

Robert Moskow — Credit Suisse — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Thank you.

Operator

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

Eric Larson — Seaport Global Securities — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Eric Larson — Seaport Global Securities — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Eric Larson — Seaport Global Securities — Analyst

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

Good. Thank you, Eric. Appreciate it. You too.

Operator

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

Joe F. Sanderson — Chief Executive Officer and Chairman of the Board

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

Operator

[Operator Closing Remarks]