Sanderson Farms Inc (SAFM) Q2 2021 Earnings Call Transcript

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Sanderson Farms Inc (SAFM)
Q2 2021 Earnings Call
May 27, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you. Good morning and welcome to 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 a 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'll ask Mike to give the cautionary statements 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, our Quarterly Report on Form 10-Q filed this morning with the SEC, and also in our press release that we published this morning.

These documents are available on our website at sandersonfarms.com. You should not place undue reliance on forward-looking statements we make this morning. Each 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 cost, 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.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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 our 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 one grain balance sheets and published its first look at projected 2021, 2022 crop balance sheets on May 12, 2021. The report confirmed that supplies of our corn and soybeans relative to expected demand remain 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 start projection of 1.5 billion bushels at the end of the 2022 marking year.

Expected supplies of soybeans are even tighter. The ending stock estimate for the '20-2021 year was just 120 million bushels and that represents a 2.6% stocks to use ratio. For the 2021-'22 year the estimated stock to use ratio moves to 3.2%. While the USDA's estimates for next year would have realized somewhat eased supply constraints, 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 soybeans basis through October and most of our corn basis through September. We have also priced all of our soybean needs for the balance of the fiscal year.

All of our corn for June and July and half of our corn age for August and September given where futures price 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 cost 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 fee cost per pan of chicken processed to the first half of the fiscal year averaged $0.292 per pound.

Having we priced our remaining needs yesterday, fee cost per pound would be approximately $0.3531 per pound in Q3 and $0.3551 per pound in Q4. In addition to our costs, we will be closely watching the chicken market 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 affected numbers, the number of chicks placed for the past several weeks imply hatch rate below 80%. In addition to low hatchability, broiler visibility is also lower than historical averages. These large production issues are translating into fewer pounds than one might expect given the size of the labor force.

The current USDA forecast is for United States broiler production during calendar 2021 to increase by approximately 0.004% of a percent compared to calendar 2020 and by 1.2% in 2022 compared to the 2021 estimate. We expect total production during our third and fourth -- 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 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 word 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 poultry complex. We hope to announce the site soon but won't announce the 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 of the market and our operations during the quarter.

Lampkin Butts -- President and Board Member

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 saw the 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 keep 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 $0.353 per pound during our second quarter of 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 lake water is available for export decreased as domestic food service demand for debone family increased. That said more lake water showed up on the market in May.

We believe this could be the result of labor shortages as more labor is required to produce debone darkly as opposed to bulk lake waters. Market prices for jumbo wings were significantly higher during our second quarter than last year's second course. 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 [Indecipherable] 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 results of these market price changes was an increase of $0.223 per pound in our average sales price per pound in 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 pound sold during last year's second quarter. We processed 1.2 billion pounds of breast poultry during the quarter, up 3.4% from the 1.181 billion pound we processed during last year's second fiscal quarter.

46.2% of the pounds were process 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 pounds in the fourth quarter. These estimates reflect our decision to return our big bird plants to full production starting June, whether big bird performance and other factors 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 for the first half of last year.

The average sales price to 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 to 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 capability. We removed the IQF lounge from the plant during the first fiscal quarter of this year and replaced that line with a [Indecipherable]. We now have the capacity to prepare 2.6 million pounds of poultry products each week and believe this move will help us better meet our customers' demand with [Indecipherable] cooked chicken products.

At this point, I'll turn the call over to Mike.

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

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 pound 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 month last year was the result of higher non-feed related cost, an increase in pounds of poultry products sold of $20.7 million pounds or 1.8% and the higher fee cost per pound. Non-feed related COGS during Q2 were $0.0437 of processed pound and that's up $0.008 per pound or 1.9% compared with last year second fiscal quarter.

The increase in non-feed related COGS includes increases in labor, packaging, fixed costs, grower pay [Indecipherable] cost. We spent $8.6 million on direct COVID-related expenses during Q2. Of that $3.7 seven is included in COGS and $4.9 million in SG&A. We estimate that COVID related expenses will be $6.75 million in 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 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 is not yet determined that it is profitable that the company will meet the $12.02 per share earnings per share targets. That is the threshold requirement under the company's bonus reward program. Accordingly our Q3 and Q4 estimates do not include accruals for 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 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 were 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. If warrants say it 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 allow 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 capital 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 its $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. 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 is complete the new hatchery in Mississippi, $46.4 million on building and equipment upgrades and $13.3 million on trucks and trailers than 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 2021. Finally before we answer your questions, I want to mention that Sanderson Farms is scheduled 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 the 14 and the conference will start at 8 O' Clock Friday morning October the 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'll find the information regarding the conference on our website and we'll add the registration and hotel information soon. But for now please save the day for the conference and if you think you might attend the conference consider getting your reservation sooner than later. The New Orleans Jazz Festival which is normally held in the spring has moved to the fall and will be held the 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 call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Ken Goldman with J.P. Morgan.

Ken B Goldman -- J.P. Morgan Securities LLC -- Analyst

Hi. Good morning and thank you.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Good morning.

Ken B Goldman -- J.P. Morgan Securities LLC -- Analyst

Good morning. I wanted to ask you guys obviously had a very strong tone for a while now about fundamentals with good reason. It looked like in Urner Barry breast meat -- breast meat did peak in Urner Barry. Urner Barry seem to have a tone of OK, 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?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Sure. We think we're right at the end of the month and breast meat might be solved for a few days, but we think for the summer we're going to see a pretty strong market at -- 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 can, but we think it's going to stay pretty strong. And we think boneless dark meat is going to the same thing as more and more restaurants open back up. And more and more restaurants are built. We feel pretty good about that.

Ken B Goldman -- J.P. Morgan Securities LLC -- Analyst

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 a 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?

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

I would model it flat. The items that make up that labor is going to be -- it's going to be steady for the rest of the year. I don't see any reason for packaging and fixed cost and roll pay and check 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.

Ken B Goldman -- J.P. Morgan Securities LLC -- Analyst

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 if it was.

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

Yeah. That's good. That's good.

Ken B Goldman -- J.P. Morgan Securities LLC -- Analyst

Okay, great. I'll let it go there. Thank you.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you.

Operator

Our next question comes from Ben Theurer with Barclays.

Benjamin Theurer -- Barclays Capital -- Analyst

Hey, good morning. Congrats on those strong results.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you.

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

Thank you, Ben.

Benjamin Theurer -- Barclays Capital -- Analyst

So, just following up a little bit on the pricing side. So, let's continue to be a little behind the curve I would say the price increases. What are you seeing on the demand side for like quarters into the more shorter term just to stay with Ken's question around it. Were you expecting to hear, 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 to realize just considering that you've just suppress likely to stay over $2. So when you think about leg quarters and wings in particular as well from a pricing perspective for the next couple of weeks?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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 would think because of labor situations in some plants are the lack of labor. More leg quarters showed up in May for export. Actually the price drop maybe a nickel of pound for May ship and if -- it's there 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 thigh meat is trading for a $1.82 to $2 a pound. So there's a tremendous incentive to do more boneless dark meat. And if people could get the 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 states, South Carolina, Georgia, Mississippi, Texas and -- most of that's going to come out in June. If that occurs there may be more labor available in the plants. You could see a leg quarters go up, you might see bonus dark meat go down as a result of it.

Benjamin Theurer -- Barclays Capital -- Analyst

Okay, got you.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

So I don't see anything happening to leg quarters until that occurs.

Benjamin Theurer -- Barclays Capital -- Analyst

Okay and then to stick with labor is that you've set 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 an 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 -- 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 offer in life of those plants for the new facility?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

The area where we are looking has handful of labor. I can't give you the statistics. I don't recall the labor pool. But it's be -- and there is plenty of labor there and it resembles some of our other numbers are similar to where we are in some of our other areas. So we don't go to a place where there is not ample labor. We have been able to stay pretty close to our product mix and take care of our customers and our other plans because we're tired on labor and 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 leg. That's one of the things, if we don't see that it's a beginning. We walk away from [Indecipherable] immediately. But this place we're looking right now has plenty of labor.

Benjamin Theurer -- Barclays Capital -- Analyst

Okay, OK. Yeah, thank you very much and congrats again.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you.

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

Thanks, Ben.

Operator

Our next question comes from Ben Bienvenu with Stephens.

Ben Bienvenu -- Stephens, Inc. -- Analyst

Hey, thanks. Good morning everybody.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Good morning.

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

Good morning.

Ben Bienvenu -- Stephens, Inc. -- Analyst

So I want to ask about kind of 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 sort of I think you would characterize it as pretty favorable for the balance of the year. So I'm 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 it something else that's in that calculus for you all?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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

Ben Bienvenu -- Stephens, Inc. -- Analyst

Okay. That makes sense. As a follow up to that 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?

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

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

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

The biggest thing about building a complex right now concrete and steel are high price -- there's a there's an embargo on steel coming into the U.S., so that is driving up the price of steel and a lot of people are building stuff and so concrete is high priced. But the main thing that would cause you to pause is the price of lumber. Our chicken houses we have to build 400, 425 chicken houses for [Indecipherable] hens and [Indecipherable] 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 that -- to guarantee that return to our growers you would bake-in a return on grower pay.

Put them all out of sync with all of our other growers. Right now all of our growers across Sanderson Farms from North Carolina to Texas make the same pay. And this run up in the lumbers 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 all be patient. We need a plant, we need -- we have sales right now for that plant. It takes 18 months to build a plant. But this is not a good time to build plant. We can make a double-digit return on that plant. But if you go and build a plant right now you're going to cook in some cost into that plant. And if we build it for 50 years we don't build it for the next two years, three years, four years. We built it for 50 years. And you're going to bake-in some cost in that plant, a complex. It's going to be way too high. I didn't mean to go off on you but.

Ben Bienvenu -- Stephens, Inc. -- Analyst

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

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you. Thank you too.

Operator

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

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

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

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Good morning, Peter.

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

Hey, Peter.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

You bet.

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

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 big bird versus tray pack kind of how you're thinking about it?

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

Hey Peter, this is Mike. So we -- Lampkin said we were going to process 1.2 billion pounds 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 that's tray pack plants.

Lampkin Butts -- President and Board Member

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

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

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've taken on some incremental business so maybe just any color you can give it there on how that's going so far? Thanks very much guys.

Lampkin Butts -- President and Board Member

I think the improvement will continue. I don't know if it'll be that much. There's a lot of tray pack prices are not -- they're not going up as [Indecipherable] goes up. The mix, yes, the mix will continue to improve.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

And what's happening in tray packs because you're not having ads, and so that helps the price go up. You took on a bunch of new business [Indecipherable]. So, I don't think you will see the percentage increase in the next quarter that you saw in this quarter.

Lampkin Butts -- President and Board Member

Yeah, I agree with that.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

There'll be some. But they won't be to the same extent. What you've picked up in the second quarter, you'll see some of that in the circle.

Lampkin Butts -- President and Board Member

Yeah.

Operator

Our next question comes from Eric Larson with Seaport Global.

Eric Larson -- Seaport Global Securities LLC -- Analyst

Yeah. 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?

Lampkin Butts -- President and Board Member

We've bought two.

Eric Larson -- Seaport Global Securities LLC -- Analyst

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

Lampkin Butts -- President and Board Member

Yeah.

Eric Larson -- Seaport Global Securities LLC -- Analyst

So, in all seriousness, good -- great quarter. Really nice. Good to see -- 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 was kind of breakeven probably a couple of years ago and now with the rising labor cost is probably -- 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're able to do that in full scale for -- let's say convert all of your plants, what is the capital requirement for that type of thing to take place?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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

Lampkin Butts -- President and Board Member

Its $5 million per plant. We've automated three of our -- this is white meat -- all of our dark meat debone is already automated. We've automated three of our [Indecipherable] plants for white meat and we were in July we're going to automate 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 I was working as a plant manager at Laurel back in the 70s and we sat on the floor and watched it operate and had to manufacture 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 to where it did a better job. And that's what's going to happen with this -- our deboning machine we're going to put in one of our plans. And it might take six months to get it right. But we're going to try it. And one of our deboning plants. It's $5 million a plant. It's not that big a deal. And that machine and the hard 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 $2 breast meat is very expensive if you put that thing in there and lose yield out of it. And breast meat $1.25 is still 1% yield loss is still serious. So with that clarity in, get it modified it and get it right and that's going to take some time.

Eric Larson -- Seaport Global Securities LLC -- Analyst

Okay.

Lampkin Butts -- President and Board Member

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

Eric Larson -- Seaport Global Securities LLC -- Analyst

Right. Yeah, 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 lessen and there's some work to do on that. The second piece the follow-on to that question of course is if you could solve some of that labor problem all of those labor issues that the amount of labor That you need would that then allow you to have more variable -- or more choices strategic choices of work, put your plants I mean maybe closer to some of your grain sources in the South that would lower your costs 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.

Lampkin Butts -- President and Board Member

No. We're -- we located 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 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 and you can tell that from -- and I'm not going to tell you all of them but there are 50 things we have to check out.

But we will never go to a place where there's not a lot of labor. I'll give you an example. St. Paul's, North Carolina to the north of us, the county [Indecipherable], and the county I'm tracking to take the name of the 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. We're having trouble right now with labor at plant, which 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. They -- we are always going to where there is labor.

Operator

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

Kenneth B Zaslow -- BMO Capital Markets -- Analyst

Good morning, guys.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Good morning, Ken.

Kenneth B Zaslow -- BMO Capital Markets -- Analyst

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 products could make this chicken margin environment better than what you've seen historically?

Lampkin Butts -- President and Board Member

Well, now, does this environment feel like our margins can be better than historical, better than historical cycles.

Kenneth B Zaslow -- BMO Capital Markets -- Analyst

Yeah. Because of the investment that you put in with deboning as well as the chicken pot environment that we really never saw really before.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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.

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

No, go ahead.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

You are a historical margin.

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

Yeah. You are and we've built a -- we ran a model just last week Ken, where we took five year average margins and looked at that very question. And if you look at five year average margins we've got three years that didn't include chicken feed. So you have to add chicken feed 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, and I'll be honest, I did not assume $2 a pound dart meat deboning that it was a nice addition to the five-year average model.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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

Kenneth B Zaslow -- BMO Capital Markets -- Analyst

Okay. Then just going on the other part of it, the duration 2014 to 2017 was a nice period that 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 compare -- can you make a comparison between 2014 to 2017 to today in terms of duration or are there parallel 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 in the next week, but kind of bigger picture with production and demand, things like that. Can you talk to that?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

There are two or three things common about production. If you look at the pullets going down, at least I don't know what percentage of the pullets 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 and there are no antibiotic program. And so, if they're using the background the brothers of the pullet, we're in a no antibody program. They are not given the pullet antibody. So pullet livability is poor. And the productivity of that pullet once it 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's assuming 8.2 pullets to go mean a lot of eggs and we're going to expand that is not going to happen. Pullet mortality is excessive right now. And then there's another the right of delay is poor and it doesn't matter about which male -- you've heard one of our competitors to talk about their mail and they were switching. And -- but it doesn't matter if it was their mail or the mail that we used. You all recall I talked about this very four, five, six years ago, we had over fetch the mails and they wouldn't breed. And -- but you have to be very careful fading any of these may offset you either have that or they're bred to produce breast meat high yield mild.

We've kind of figured out, we screwed up every now and then one flock. Our production people have done a great job and our hatchability runs normally 5% higher than the industry average. And you can get just from the USDA. You can see it every week. The industry average on the USDA is running about 80%. We run -- normally we run about 5% higher than that. And that's because of our [Indecipherable] production people, they have figured it out. And now we will screw up a flock every now and then we'll either undefeated or over defeated, but 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 brawler.

The brawlers are not making it to the plants because they are being raised without antibiotics. So the pullets, you say pullet placements. You'd have to subtract three times the for the mortality of the pullet, the performance, rate of delay of the pullet and the livability and mortality of the brawlers. So that's why I don't think there's going to be a big production in -- those three things. They may tray put eggs in machines, but there's not enough -- I did mention 8 pounds there's going to be a lot of more pounds from the markets just shown.

Kenneth B Zaslow -- BMO Capital Markets -- Analyst

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

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Yeah. 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 wins somebody will 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 and 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 relatively high right now. Compared to where they were a year ago. So chicken prices are not that high compared to our competing proteins.

Kenneth B Zaslow -- BMO Capital Markets -- Analyst

Great. As always Joe, I appreciate it. Thank you. Be well guys.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you. Thank you, Ken.

Operator

Our next question comes from Michael Piken with Cleveland Research.

Michael Piken -- Cleveland Research Co. LLC -- Analyst

Yeah. Good morning.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Good morning, Mike.

Michael Piken -- Cleveland Research Co. LLC -- Analyst

Good morning. I just want to talk a little bit more on 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 and just wondering I mean do you have the capability to meet all the orders for your tray pack customers or how are you going to handle that until the next facility is ready.

Lampkin Butts -- President and Board Member

I didn't understand that.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Yeah, ask that again Mike. I think I understood what you're saying.

Michael Piken -- Cleveland Research Co. LLC -- Analyst

Mix back to deferred, so I'm just wondering do you have enough capabilities to meet all your tray packing?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Oh, yeah, got it. No, we're not moving Hazlehurst back. Hazlehurst is going to remain at a tray pack sized 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 about 5%. And we're just restoring those cuts. But Hazlehurst will stay, tray pack sized bird, probably till we get that next plant open because we need to meet demand from our customers.

Michael Piken -- Cleveland Research Co. LLC -- Analyst

Got it. Okay. That makes sense.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

I'll show to you -- we're going to run. We're going to need -- we're going to run all of our plants on Memorial Day two shifts to meet demand. Look, we have great demand with no edge next week at both foodservice accounts and retail accounts for next week.

Michael Piken -- Cleveland Research Co. LLC -- Analyst

Okay, that's helpful. So I guess you know how are you thinking about the tray pack size of the business, I know that there has 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 your contracts and how do you sort of see the tray pack side of the bill, the equation and the profitability of that going forward and is there room for upside on that side maybe as the big bird, pressed meat and wing prices maybe drop off a little bit in the coming months.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Well you know we've made a -- we made an agreement in the fall with primarily in the fall not with all -- every one of our retail accounts, some of them happened during the year. But we would -- we don't back to our customers when the price of corn goes up and price of Mayo goes up. We made a deal with them just like we did with all of our customers buys from our prepared foods plant. We priced that off -- we 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 sporty right now. But we don't go back to those people and say. And one of the reasons we don't do that is because corn soy 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 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 reprice anybody. We'll deal with that and fall when we -- if corn and soy prices are higher in fall when we reprice our contracts, we'll take that into account then.

Lampkin Butts -- President and Board Member

We have renegotiated a few tray pack in March and April. And we were able to get more money for that.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Yeah.

Operator

Our next question comes from Adam Samuelson with Goldman Sachs.

Adam L Samuelson -- Goldman Sachs & Co. -- Analyst

Yes, thanks. Good morning everyone.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Good morning Adam

Adam L Samuelson -- Goldman Sachs & Co. -- Analyst

Good morning. A lot of ground has been covered. So a couple of just quick cleanups and Joe, Lampkin and Mike just thinking about the kind of bring the big bird plants back to the full rate, do you have any early sense on what that implies on your fiscal '22 production, obviously, not going to renew production capacity in terms of a new plant next year. So it's really just the operating rates in the facilities that you own.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Well absent an event like the pandemic that causes to reduce production of 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 Year day through Halloween, 100% I don't have that 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. I know we've shown 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 four year.

Adam L Samuelson -- Goldman Sachs & Co. -- Analyst

Okay. And I guess in that kind of along those lines I mean what do you think of the industry level. I mean you took -- you slow 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?

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

I would think not so much big bird. I think maybe there are some others and other market segments not big bird, but there might be some others in other market segments that might not be enjoying, I think big bird people or deboners are probably.

Lampkin Butts -- President and Board Member

They're probably running everything.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

They're probably running everything they can do right now. I think it's in other market segments.

Adam L Samuelson -- Goldman Sachs & Co. -- Analyst

All right. Fair enough.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

We don't know what other people are doing.

Lampkin Butts -- President and Board Member

Yeah. We don't know.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

We know what we're doing.

Adam L Samuelson -- Goldman Sachs & Co. -- Analyst

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

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you Adam.

Operator

Our next question comes from Robert Moskow with Credit Suisse.

Robert Moskow -- Credit Suisse -- Analyst

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.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

A little about our production came in heavier. We had heavier birds in Texas after the storm. We had some heavier lab weights that we had previously gotten to in. And our head processed was right on what we anticipated when it was all bird weight, Robert, we had a little bit heavier birds than we anticipated and better yields. Our yields were about a 1% above what we had estimated. No comments on others in the industry, we don't know. We don't have any insight on that.

Robert Moskow -- Credit Suisse -- Analyst

Okay. Thanks very much.

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

Thank you.

Operator

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

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Joe F. Sanderson Jr. -- Chief Executive Officer, Chairman of the Board

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

Lampkin Butts -- President and Board Member

Ken B Goldman -- J.P. Morgan Securities LLC -- Analyst

Benjamin Theurer -- Barclays Capital -- Analyst

Ben Bienvenu -- Stephens, Inc. -- Analyst

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

Eric Larson -- Seaport Global Securities LLC -- Analyst

Kenneth B Zaslow -- BMO Capital Markets -- Analyst

Michael Piken -- Cleveland Research Co. LLC -- Analyst

Adam L Samuelson -- Goldman Sachs & Co. -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

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