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Sanderson Farms Inc (SAFM) Q3 2019 Earnings Call Transcript

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Sanderson Farms Inc (NASDAQ: SAFM)
Q3 2019 Earnings Call
Aug 29, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Sanderson Farms, Inc. Third Quarter Fiscal 2019 Conference Call. [Operator Instructions]

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

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

Thank you. Good morning, and welcome to Sanderson Farms third quarter conference call. Lampkin Butts and Mike Cockrell, are with me this morning. We reported net income for our third fiscal quarter of $53.4 million or $2.41 per share. This compares to net income of $11.5 million, or $0.50 per share, during last year's third quarter. Net income during the quarter reflects the accrual of probable liability for a contribution to our ESOP of $2.7 million before income tax, or $0.10 per share net of income tax.

I will begin this morning's call with a few general comments, before turning the call over to Lampkin and Mike. Before making any further comments, I will ask Mike to give the cautionary statement, regarding forward-looking statements.

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

Thank you, Joe, and good morning, everyone. This morning's call will contain forward-looking statements about the business, financial condition and prospects of the Company. Examples of forward-looking statements include statements of our beliefs, about future grain and fresh chicken prices, consumer demand, production levels, the supply of fresh chicken products, our economic conditions, and our expansion plans.

The actual performance of the Company could differ materially from that indicated by the forward-looking statements, because of various risks and uncertainties. Those risks and uncertainties are described in our annual report on Form 10-K for the fiscal year ended October 31, 2018.

I caution you not to place undue reliance on forward-looking statements made this morning, as each such statement speaks only as of today. We undertake no obligation to update or revise forward-looking statements. External factors affecting our business such as feed grain cost, market prices for poultry meat, and the overall health of the economy, among others are volatile, and our view this morning might be very different from our view a few days from now.

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

Thank you, Mike. Similar to last year's third fiscal quarter, this year's third fiscal quarter results reflect significant counter-seasonal weakness in market prices for boneless breast meat produced at our plants, processing larger birds for food service customers. Fortunately, market prices for other products produced at our food service plants were higher than last year, and reflected good demand during the quarter.

Average market prices for dark meat, jumbo wings and chicken tenders were all higher than averages of the same period a year ago. Realized prices for tray pack products produced for retail grocery store customers were slightly higher than a year ago, and continued to reflect balanced supply and demand dynamics.

Overall, poultry market prices were higher by $0.06 per pound sold or 8.5% compared to last year's third fiscal quarter. While the overall supply of big bird boneless breast meat is up only slightly, demand is weak. We believe the counter-seasonal decline in market prices for the second straight year is due, at least, in part to an abundant supply of competing proteins. We normally expect strong chicken demand during our third quarter. And while we have seen some promotional activity for chicken and food service, it wasn't enough to support boneless breast meat prices at historical levels.

Market prices for tray pack products sold at retail grocery stores held up better during the quarter. And while we saw more promotional activity than last year, we haven't seen the volume of feature activity we normally see during the summer months. On the other hand, export demand has been good. And demand for wings, held up well during the summer. As a result, market prices for the other product produced at our food service plants averaged higher than last year.

Our chicken supply outlook for the balance of this calendar quarter is consistent with USDA's estimate of 1.7% increase in chicken production, during calendar 2019. Through June, the USDA reports that fewer than 1% more head were processed. Lab weights were up 0.003% from a year ago, and total ready-to-cook pounds were up 1.1%. With respect to calendar -- to the next calendar year, our view is in line with the USDA's estimate of 1.1% more chicken production, during calendar of 2020.

The USDA published a highly anticipated supply and demand report for grain on August, 12. Given the weather, delayed planting season in the United States, most were expecting the USDA to significantly lower estimate that -- its estimate of planted corn acres, and to increase soy acres. Instead, 82 million harvested acres estimated for corn was actually higher than its previous estimate.

When applied to an estimated 169.5 bushel per acre yield, production of corn is estimated to be just under 14 billion bushels. And when offset by lower demand estimates, the stocks to use ratio at the end of the new crop year, actually increases to 15.4%. Market prices for corn fell following the report, and future prices are now trading off this report at levels similar to fiscal 2019.

The USDA took down its estimate of soy acres, but maintained its estimate yield of 48.5 bushel per acre, because of the near record highest class soy from last year, the estimated stocks to use ratio at the end of the new crop year remains very comfortable at 18.8%.

We have priced our grain needs for the balance of this fiscal year. Based on these purchases, we expect our grain cost to be approximately $32 million lower this fiscal year than last fiscal year. These lower costs will translate into relatively flat feed cost per pound of chicken processed, this fiscal year compared to last fiscal year. We have priced only a very small portion of our fiscal 2020 needs at this time.

Looking solely at the Chicago Board of Trade prices for grain, we could actually price 2020 needs at Board prices, very similar to 2019. Soy meal basis is also very close to 2019 values. However, corn basis quotes are currently $0.20 per bushel higher than what we paid for corn basis in 2019.

My view is that farmers are reluctant to sell their new crop at current values, when they are convinced that USDA supply estimates are inflated. Until they become more willing sellers, corn basis quotes are going to remain higher. Our progress continues in Tyler, where we have reached 50% capacity, and we expect to reach full capacity during the second fiscal quarter of 2020.

At this point, I'll turn the call over to Lampkin for a more detailed discussion of the markets, and our operations during the third quarter.

Lampkin Butts -- President, Chief Operating Officer and Board Member

Thank you, Joe, and good morning, everyone. Overall, market prices for poultry products were higher during the quarter, compared to our third quarter last year. Average retail chill pack prices during our third quarter were slightly higher when compared to our third quarter of 2018, as a result of improved mix.

Sequentially, prices were lower by a $0.003 [Phonetic] per pound. Pricing is -- pricing continues to reflect a relatively balanced supply demand environment for chicken in retail grocery stores. Market prices for production at a big bird plants were higher.

Bulk leg quarter prices were up for the quarter compared to last year's third quarter, increasing 17.1%. Through the first half of the calendar year, overall industry exports of broiler meat were up 1% in volume, compared to the same period last year. Quoted bulk leg quarter prices averaged $0.398 per pound during our third quarter versus $0.34 per pound during last year's third quarter. The current quarter Urner Barry frozen bulk leg quarters is $0.40 per pound.

Prices for jumbo wings were higher during our third quarter. Jumbo wings averaged $1.77 per pound. And that's up 37.6% from the average of a $1.29 during last year's third quarter. Urner Barry quote is currently $1.76 per pound.

Boneless breast prices were lower during our third quarter, decreasing by 3.2% compared to the third quarter a year ago. This year's third quarter average Urner Barry price of a $1.14 cents per pound, compared to an average of a $1.18 per pound during last year's third fiscal quarter. Today the Urner Barry quoted market for boneless breast is $1.01 per pound.

The overall result of these market price changes was an increase of $0.06 per pound in our average sales price per pound of poultry products sold, compared to last year's third quarter. In addition to our overall average sales price for poultry products being highest during the third quarter compared to last year, our feed cost were slightly lower.

Our average feed cost per pound processed during the third quarter was $0.2505 per pound, down from $0.2606 per pound during last year's third quarter. We sold 1.15 billion pounds of poultry during our third fiscal quarter, a 2.3% increase from the 1.12 billion pounds sold during last year's third quarter. We processed 1.19 billion pounds of dressed poultry during the quarter. That's up 2.9% from 1.15 billion pounds we processed during last year's third quarter. But fewer pounds than we estimated.

We ran fewer head than we estimated at all of our plants around Memorial Day and July 4th holidays, because orders were lighter-than-expected. For the first nine months of the year, we sold 3.27 billion pounds of poultry products, compared to 3.3 billion for the same period last year, and processed 3.33 billion pounds this fiscal year, compared to 3.34 billion last year.

We expect pounds processed during our fourth fiscal quarter to be approximately 1.24 billion pounds, up compared to the same quarter last year by 6.9%. We now expect to process 4.57 billion pounds this year, an increase of approximately 1.5% compared to the 4.5 billion pounds processed during fiscal 2018. We sold 35.6 million pounds of prepared chicken products during the quarter, up from 31.3 million pounds last year. Our average sales price at that facility decreased 3.5%.

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

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

Thank you, Lampkin. Good morning, again. Net sales for the quarter totaled $945.2 million, and that's up 10.9% from the $852.4 million, during the same quarter last year. The increase was a result of higher average sales prices and higher volumes described by Joe and Lamp.

Our cost of sales for the three months ended July 31, 2019 as compared to the same three months last year increased 5.4%, a result of the increase in pounds of poultry products sold and an increase in non-feed related cost of goods, offset by the lower feed cost per pound processed. Non-feed-related cost of goods increased $0.034 per pound or 8.9% compared to last year's third quarter. Feed cost in flocks processed decreased $0.011 per pound compared to last year.

The increase in non-feed-related COGS was due primarily to a $0.01 per pound increase in labor cost, a $0.005 per pound increase in freight, as a result of an accounting change, and a $0.005 per pound increase in fixed cost. Inefficiencies at Tyler cost us $0.0145 per pound processed.

As Joe mentioned, we have priced all of our grain needs for the balance of the year, and we estimate our feed cost per pound processed will be approximately $0.259 per pound during Q4. That's up 43 points from Q3 feed cost.

SG&A expenses for the third quarter of fiscal 2019 were $52.2 million compared to $55.8 million for the same quarter last year. Year-to-date SG&A expenses include $2.7 million accrued for the ESOP contribution, compared to $2.4 million accrued through the first nine months last year. We expect to accrue approximately $900,000 for the ESOP during our fourth quarter, and all of the ESOP is booked as SG&A expense.

Year-to-date start-up expenses at Tyler were higher by $2 million [Phonetic] compared to last year. Legal fees were higher by $4.8 million, and administrative salaries were higher by $2.4 million. Trainee cost on the other hand were lower by $1.7 million, and advertising costs were lower by $15.3 million.

The Company's effective tax rate during the quarter was 20.7%, but that reflects a $2.3 million discrete income tax benefit related to certain state income tax credits. For the balance of the year, exclusive of any discrete items, we expect a 24.2% rate. We spent $210.9 million on capex through the third quarter, which includes $62.7 million in Tyler, and $9.4 million related to a progress payment that we made on our new company aircraft.

We now estimate our capital expenditures for the full fiscal year will be approximately $288.4 million, which includes $65 million in Tyler, $9.4 million on the progress payment for the aircraft, $70.5 million for large scale equipment upgrades, and corresponding building improvements at various processing plants, and $143.5 million for maintenance and other one-time -- smaller one-time projects.

Our depreciation and amortization was $97.8 million year-to-date, and we expect $135 million for the year. We also declared $21.3 million in dividends through the first three quarters of the year. As of today, approximately $21.6 million in letters of credit are outstanding under our $1 billion permitted revolver. And we had $55 million in loans outstanding under the revolver. Our shareholders equity at July 31, was $1.5 billion. Our net debt to cap was negative, and our total debt to cap was 2%.

Before opening up the call for questions, I'd like to remind everyone that the Company will host an Investor Conference in New Orleans at the Ritz-Carlton on Friday morning, October 18, 2019. We'll host dinner at Acme Oyster House, the night before Thursday, October 17. And the conference will start at 8:00 sharp, Friday morning. We'll end by noon on Friday. We hope many of you will join us in New Orleans, and I encourage you to go ahead and register and make your hotel reservations. The deadline for making hotel reservations is September 10, and you'll find that information on our Investor Relations page of our website.

Savanna, that concludes our remarks and, you can open up the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instruction]

And we will take our first question from Ben Bienvenu with Stephens Inc. Please go ahead.

Ben Bienvenu -- Stephens Inc. -- Analyst

Thanks, good morning, everybody.

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

Good morning, Ben.

Ben Bienvenu -- Stephens Inc. -- Analyst

I want to ask around your commentary on your production outlook for next year, which you said aligns with USDA's outlook. Joe, if I recall, when we saw some bigger pullet placement gross numbers earlier in the year, you said you thought they were too high, and they might be revised back lower and the impact were. I'm just curious to get your take on the July pullet placement number that we just saw, if he thought it might be revised lower? And if your comments about next year supply growth kind of reflects that expectation?

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

I do expect the July to be revised lower. We've actually spoken with one of the primary breeders and they -- when I saw these three months in a row at 8.7 million pullets, we questioned the ability, frankly, of the primary breeders to produce that many. And so some of our people called, and we believe that we were told that they reported five weeks of placements instead of four. And so I do expect July to be reduced by a week, and so that will go back to about a 105%, when it's restated.

Ben Bienvenu -- Stephens Inc. -- Analyst

Very helpful, thanks. And then I want to ask around the demand outlook for breast meat, in particular. You said that demand has been a little bit softer. We've talked in the past about some of the factors that play for weaker breast meat demand. I'm curious, to what extent do you think we'll see any improvement in demand? Could you talk about what Labor Day looks like from a feature standpoint? And then your outlook into the fall?

Lampkin Butts -- President, Chief Operating Officer and Board Member

Well, this is Lampkin. We don't typically think of post Labor Day as our peak demand season. Our peak demand season is this summer. We have features for Labor Day at retail grocery stores, but their every feature is full of other proteins, it's not -- they're not featuring chicken and nothing else, they're featuring beef, pork and chicken. And some of our customers do not have chicken in the feature. Most of them do, but there are couple that don't. But we're competing against a lot of other protein.

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

It's not -- we're running all, but one plant right now, Saturday before Labor Day. And then we're not running in Labor Day. It is not unlike, in the script, we said we did not have a lot of demand around Memorial Day and July 4, we had birds to process, but we did not have the demand. This is -- we do need to run Saturday to fill orders for the Labor Day, but it's only at only grocery stores, not for food. So, we're running -- already we're running Saturday at a big bird plants is, [Indecipherable] down Monday.

Ben Bienvenu -- Stephens Inc. -- Analyst

Okay. Thanks. Appreciate it. Best of luck.

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

Thanks, Ben.

Operator

And our next question will come from Benjamin Theurer with Barclays. Please go ahead.

Benjamin Theurer -- Barclays -- Analyst

Hey, good morning, Joe, Lampkin and Mike. Thanks for taking my question. I wanted to elaborate a little bit on the grain cost volatility. And obviously now and you've mentioned that the prices have come down significantly, back to the levels beforehand and -- but you haven't priced much into 2020. What's your expectation behind on pricing? What do you think corn's going to turn out into fiscal 2020 for you? And what do you think could -- the whole trade dispute with China have a little bit impact when it comes to planting and the ultimate outcome for soy, which obviously used to be very important when it comes to shipment to China, but it has come down significantly. So also the prices down. Just a little more color on your feet cost outlook, that would be great.

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

Yes. There are a lot of variables left. The deal with China would change our outlook with one -- I don't know how much China is going to need with African swine fever. I don't know how many -- with a good portion of their hog herd gone, they will not need as much. Now, I don't know. I don't know -- I don't know, they'll need some, but they won't need as much soy. And there was ethanol used down, there won't be as much corn being ground in the US. So, you have those two factors. You also with this late crop, you have to be aware of an early frost. And so that's a factor as well. And so with all those caveats, right now our contacts are telling us and I would not have -- the reason we price through October is, because I thought we were going to have a bad crop. And frankly, we priced a little early on our corn, board's come down significantly from when we priced our corn. We're pretty much close on our soy, but I was thinking with this very light plant and probable yield drag, corn was going to -- the board was going to run away from us. And but it has not. They've had excellent weather, since the crop was planted. And everybody is telling me that the yields are going to be decent, not 178 [Phonetic], but 165 plus. And the crop is getting better every week. And with maybe an exception in Ohio and Indiana, and maybe Missouri. But Missouri got a little bit better, Illinois got a lot better last week. So right now we're looking -- what we're looking at is corn and soy meal being up right now, I could price it at same price that 2019. And I don't think that's going to change, unless there's China deal or an early frost.

Now, the basis for corn, we frankly, we bought soy basis through March, and we got it at basically the same price we bought in 2019. And I could go, book my soy right now, and have the same price I had at -- in 2019. But we think it might get a little bit cheaper. Soy crop got better last week. And right now, the carryout is substantial. And so I don't see any reason to be booking soy right now. The thing -- the two things are early frost or the China deal might change the outlook on that. But there's a lot of soy all over the world, all over the globe. So I don't -- we don't see any need to be hasty about that. And there's a lot of corn. And so we feel comfortable. I think when this harvest begins on this corn, there's 2 billion bushels that has to come to market from last year. And we think maybe the basis will start moving back favorably toward us when that occurs. So I'm -- I don't think grain prices are going to be the issue, I think, abundant protein is more of a challenge than grain prices are.

Benjamin Theurer -- Barclays -- Analyst

Thank you. That brings me actually to my follow-up question. So abundant protein, what you just said during the quarter, still a lot of fact because of competition from competing protein coming, I guess mainly pork, but also beef to a certain degree. With your expectation now of growth into next year on chicken just 1.1%, what are you seeing on the competing proteins? And what are your expectations there on the supply outlook? I mean, obviously, a many moving pieces, again, with African swine fever, and then trade disputes and so on. But considering just the 1% increase in chicken into next year versus what was a couple of months ago still expected to be more than double that for 2020. How do you feel about the competing protein environment into your fiscal 2020?

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

A lot of that would -- we believe this African swine fever is going to affect that in 2020, more so than it has this year. Although there's -- China has banned pork from the United States right now, even with the heavy tariffs, we think they'll buy more of it if there's a trade deal. And -- but even if there's not, the US is going to backfill somewhere pork and poultry when -- in someway to fill this void in China, this protein void in China. Now, I think it'll be more dramatic, if there is a trade deal and the US ships protein to China. But the timing of that and -- how it works exactly -- the US is going to benefit indirectly [Technical Issues] because African swine fever, it would be directly and more dramatic if there's a trade deal made. And I think it will [Technical Issues] in 2020.

Benjamin Theurer -- Barclays -- Analyst

Okay. Perfect. So net net, you think it's going to be positive. And also the fact that there was not that much more chicken coming into 2020 should help a little bit on the price?

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

Yeah, US is 1%. It's going to be more than 1% increase in production in 2020. I believe, I said 0.7%.

Benjamin Theurer -- Barclays -- Analyst

Okay.

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

It'll be somewhere around 1.7% is what we think.

Benjamin Theurer -- Barclays -- Analyst

1.7%, OK. Okay, thank you very much.

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

Good. Thank you, Ben.

Operator

And our next question will come from Eric Larson with Buckingham Research Group.

Eric Larson -- Buckingham Research Group -- Analyst

Yeah, good morning, everyone.

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

Good morning, Eric.

Eric Larson -- Buckingham Research Group -- Analyst

Thanks for taking the question.

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

You bet.

Eric Larson -- Buckingham Research Group -- Analyst

So obviously, we know the white breast pricing has been pretty weak, but now fairly consistently over the last three, four weeks, periodically we're seeing either -- we're seeing kind of the dark meat pricing go down as well. Is it -- again, I think it's, you've probably already answered it with competing meat, but what else clear this out for us, Joe?

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

Well, nobody is losing any money right now. There are no. Everybody is making money, and until -- a trade deal with China would help. Somebody losing some money would help, Getting past the holidays will help. Like we did last year, just turning the cycle, we're five years into the beef cycle, and that's normally a 10-year cycle. And we're about five years into the pork cycle. And that's a shorter cycle normally. This has to badge your time, you never know what will make it turn. But no lives lost any money yet just because, and it'll turn naturally at some point.

Eric Larson -- Buckingham Research Group -- Analyst

Yeah, it definitely will. So I think probably one of the things that you thought, maybe you'd get a little bit of benefit from the summer, which doesn't seem to have materialized. It's been a lot cooler summer. So you've -- are your weights still running? Are your weights running higher too? Because you just didn't get the heat that you normally do. Or am I mistaking you on that?

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

No. The industry weights, and over the last three months have actually increased. They decreased January, February, March, and they started increasing in about April. And for the last three months, they have increased. And our -- we had heat here in August.

Lampkin Butts -- President, Chief Operating Officer and Board Member

We have heat in Texas right now.

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

Yes, we have heat in Texas right now. But it's not -- we hadn't lost any weight in Mississippi or Georgia or Carolina, like we normally do in the summer. It has not been as hot as we normally see.

Eric Larson -- Buckingham Research Group -- Analyst

Yes, I mean, I definitely saw that. And that probably has a little bit of a contributing factor to kind of some of the recent weakness, I'm guessing.

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

Well, it is. Normally we get a little bump in July, because weights go down. And we didn't get that at all this summer. Weights did not go down. I had not seen the July USDA have we seen that yet? Is that up there?

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

Yes, that's flat.

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

Yes. Well, they were flat. June and July were flat. Weights were unchanged, but they were up substantially from a year ago, up 10 points from a year ago. And have reversed a trend that we saw in January and February.

Eric Larson -- Buckingham Research Group -- Analyst

Okay. Okay, good. And then finally, Joe, I mean, one of the issues that you've highlighted that kind of you've got your -- I believe you've said before, you have a 50 point check off sheet that you need to check off, the check marks to start a new plant. And one of the biggest constraints here, again, has been the labor. I'm assuming you haven't seen any relief on that side yet. That still continues to be an issue?

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

That's correct. There is -- if you look -- if you -- there is no place right now where you could look and say there is ample labor. And to locate and build a complex, we don't know of any place where there's ample labor. And the other thing you wouldn't want to build a plant, well, there's tariffs on steel and aluminum, and the economy is just hot there. Contractors are not readily available right now. There are too many things. They're not favorable for construction or hiring or any of the things you look at that we have on our check list. It's not a good time. We are looking and we kind of know where, but it's not a good time to be thinking about building a complex right, just a minute.

Eric Larson -- Buckingham Research Group -- Analyst

Okay. Good. Well, thanks. Looking forward to hearing your presentation next week at Barclays too.

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

Thank you. (Speech Overlap) See you there, Eric.

Operator

Our next question will come from Heather Jones of Heather Jones Research. Please go ahead.

Heather Jones -- Heather Jones Research -- Analyst

Good morning.

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

Good morning, Heather.

Heather Jones -- Heather Jones Research -- Analyst

So going back to BSB, I'm wondering if you could give me a sense of how much you'll think production is up year-on-year, because some -- you have had a shift in production to a larger bird with some of the big bird plants, that have come in and are ramping. So do you have an estimate of how much you think boneless skinless production is up for this year?

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

1.5% maybe.

Heather Jones -- Heather Jones Research -- Analyst

1.5%.

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

Let me see, if we can get a chart here. Hang on, just. Do you have -- can you

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

One moment. 2% for June.

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

Did you get boneless skinless?

We can get that. (Speech Overlap)

Heather Jones -- Heather Jones Research -- Analyst

Okay. I can follow up on that.

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

You don't have the [Technical Issues] new is the one plant in North Carolina. That's the only thing we had new divisional.

Heather Jones -- Heather Jones Research -- Analyst

[Speech Overlap] Okay. I can follow-up on that. Then going back to the export question. So we have seen -- started to see a softness in dark meat pricing. So wondering if you could flush out like what specific markets you're seeing some sequential softening in? If you have have any color on that?

Lampkin Butts -- President, Chief Operating Officer and Board Member

Heather, Mexico has been good, continues to be good. Cuba is good. Iraq was closed for about 30 days. But they're not a huge volume country. But they were closed for 30 days. We are seeing a little more production. We're seeing a little more leg quarter product out there. There are some plants that are struggling to deboned dark meat. So we're packing leg quarters instead. So we're seeing a little more competing leg quarters out there.

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

We began with the rage in Mississippi, the ICE raids, and then it spread into Alabama and Georgia. People not coming to work because they were fearing ICE raids. And so there's less deboning of dark meat, and more production of leg quarters. And that is why we think the export markets softened a couple of months earlier than normal.

Heather Jones -- Heather Jones Research -- Analyst

Okay. Okay. And sticking with that, Joe, you mentioned nobody's losing any money and all. I mean, is this thing that's going to cause the abundant or ample protein supply you mentioned to tighten up. Is it just when we start to see this increased demand? Whether backfilling or direct to China is that one, we will start to see this tighten up?

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

That's what I think. I think there are plenty of -- yes, that's what I think. And I think you'll start with pork. I mean, if you go back and look and see what lean hogs were down the features were trading for in April, May. The August features were at $100. And they're $65 -- $60 and $61 today. And they were $100 in April, May, and that was all speculation on a China deal, and African swine fever. And today they've lost that much value.

They've lost $30 -- at least $30, and more than that, $35. And that's what they can move unless they can move, and then the volume leaves and goes to China. China's ban, I saw it the other day. China's ban US pork right now, and pay in a huge tariff on it. If they didn't have that tariff, they buy a lot more.

Heather Jones -- Heather Jones Research -- Analyst

Okay, Okay. On the retail side, you mentioned that y'all are competing with other proteins. I mean, how much is it your sense that is ample protein availability, and do you think there's any -- is ASF playing a role in that in the sense of retailers wanting to feature pork because of concerns that they may not be able to feature it next year. I mean, is that playing a role at all in retailer decisions, in your view?

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

No, I have not heard that. I don't.

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

Yes. We have one customer did say that. That was off the cuff. But they're looking at the same thing, other people are saying, we're going have this deficit next year, and -- but they're like us, they don't know.

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

And they also, I mean, beef prices going up dramatically in the last two or three weeks.

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

That's right, that's right.

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

We might be a little bit more [Technical Issues].

Heather Jones -- Heather Jones Research -- Analyst

Okay. Okay. Thank you so much.

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

Thank you, Heather.

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

Thank you, Heather.

Operator

And our next question will come from Michael Piken with Cleveland Research. Go ahead.

Michael Piken -- Cleveland Research -- Analyst

Yes. Good morning. I wanted to dig a little bit deeper into the ICE raids that took place. And just trying to understand a little bit in terms of what the industry might be doing, in terms of maybe moving toward automation? Or are there things that can be done with line speeds? Any updates there, just in terms of how you guys can work in a tight labor situation and potentially grow your volumes?

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

We've been -- the $70 million that Mike mentioned during his presentation about some of our capital expenditures, all of that was automation. That all of our big bird deboning plants and couple of our tray pack plants, we automated the front end of -- I can't remember -- all of our big bird deboning plants are now made into the front end --

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

And one tray pack.

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

-- and one tray pack plant. And then we put in dark meat deboning at five of our seven big bird deboning plants, and we will -- we've done that this year. And we will complete this in --

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

February.

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

-- in February. We have two big bird plants to go, and three tray pack plants to go. And we will complete all of our plants with all the automation that we know of. But we didn't have anything do with ICE raids. It was just labor saving devices and converting our -- increasing our capacity for dark meat deboning with -- to increase margins.

Michael Piken -- Cleveland Research -- Analyst

Great. Can you quantify roughly how much that might save you by the time you put in all those automation? How much we might say on a per pound basis, the type of savings you're looking at?

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

It was different every plant. [Speech Overlap] Somehow we had to add building to, and when you had building it's --

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

it's a longer pay back.

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

-- longer pay back.

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

The ones, the newer plants that had room for it, it was less than a year pay back.

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

Yes. I don't want to give away all of my secrets. But it was a good pay back. It increased our margins. And then we also raised our wages in June, $15 an hour for employees than it was a year [Phonetic].

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

90 days.

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

I mean, 90 days. So we've got a lot of balls up in there.

Michael Piken -- Cleveland Research -- Analyst

Okay. That's helpful. And then shifting gears, so you don't have to give any -- too many trade secrets, but just curious, on the boneless skinless thigh meats been almost trading at a premium to boneless skinless breast. I mean, do you think that there's been a major shift in terms of the taste preferences among the US public toward dark meat in a way from boneless skinless breast meat? And if so, like how do you think the genetics may play out next year? Are we going to continue to breed for more breast meat yields? Or how do you see that evolving over the next few years?

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

We have not sat down with primary breeder and told them to breed bigger thighs yet or a bigger legs.

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

They won't be able to do that next year. That's a long --

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

That's a long selection process. But, right now, they're trying to select to get rid of woody breast. And that's a five-year deal. They told us to get rid of woody breast. And --

Lampkin Butts -- President, Chief Operating Officer and Board Member

They've been selecting for bigger breast meat for so long.

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

But, It wouldn't -- we will have a conversation with our primary breeder this fall and our process and people. What they could do is, select for better legs to go along with this heavier breast, and in fact made a bigger leg, that might be better.

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

Might be good. But Michael we do see, I don't know about a drastic shift in demand, but we do see, I mean this boneless family, boneless dark meat is very popular.

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

We're doing, when we get finished with all our deal, I mean pounds of boneless breast meat that we produce in the --

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

16 million.

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

And then how many -- then we're going to be doing about 5 million pounds of boneless dark meat. So you are still doing a lot more boneless breast than you're doing boneless dark meat. And, while, the demand has absolutely increased for the boneless dark meat, there is still -- the demand for the boneless white meat is still triple what it is for the dark meat.

Michael Piken -- Cleveland Research -- Analyst

All right, thank you.

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

Thank you, Michael.

Operator

Our next question will come from Adam Samuelson with Goldman Sachs. Go ahead.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes. Thank you, good morning, everyone.

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

Good morning, Adam.

Adam Samuelson -- Goldman Sachs -- Analyst

So I was hoping to talk a little bit more on the export side. And really just trying to evaluate, you talked about some of the weakening and -- or softening of late, and that being partly a function of just the less deboning and more leg quarters just on the market. More broadly, though, with African swine fever and a lot more global protein starting to get redirected toward China, are you finding new markets, new customers? And even new forms of poultry outside of leg quarters, that you're getting increase for offshore demands?

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

We have shifted some -- when we were doing this dark meat deboning, we're producing more drumsticks and some of those are going export, and they're going to a different location than we have traditionally shipped leg quarters to -- into the Caribbean, Cuba.

Lampkin Butts -- President, Chief Operating Officer and Board Member

Cuba.

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

And we're actually shipping some boneless dark meat export a little bit. Whats it's -- I know, I got it, I got it now. I'd rather not divulge where that's going. But yes, there are a few new markets that we'd never have shipped before that I think other people may have shipped to, but we never had. That is for boneless dark meat and for drumsticks that popped up when we started deboning. And actually there was an -- we had an inquiry back in the spring, when we thought that were going to be a China deal, that they wanted whole legs, they did not want leg quarters, and we think they were going to take them over there and deboning themselves. And they have a -- this company has a history of bringing lean hog carcasses into China, and breaking them down in China rather than bringing cut parts. And so we're pretty sure that we're going to deboning also legs in China. So that that would mean a something different.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay. That's helpful color. And then kind of shifting gears on the non-feed production costs. I mean, you've had -- some of it's more temporary with some of the fixed costs under absorption on Tyler versus some of the other inflation and accounting changes that you guys have. Maybe this is for Mike. This is we -- as we're thinking about next year at a high level, I mean, how much of the non-feed cost inflation per pound is a bit more transitory versus kind of it is going to stay in the base?

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

Yes, well, $1.40 -- excuse me [Indecipherable] of it is Tyler. And when Tyler will be running for by next spring, and you're going to get that back, the 50 points or excuse me the $0.005 on tray, that's baked in, freight would've been flat, absent that. So all of that is because of the accounting change, and that's there for -- in the non-feed-related COGS, but that's just moving money around. And then --

Lampkin Butts -- President, Chief Operating Officer and Board Member

Training costs is going to -- continue to go down.

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

SG&A. And the $0.01 a pound for labor is, that's permanent. That's the $15 an hour, we think will be able to offset that with efficiency and yields. We've -- we know we've offset some of that already. And we're confident as we were when we put that in place of -- that is -- that we'll get that back, but all of Tyler, you'll get back.

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

Your legal fees are going to stop at some point. They're gonna decline. It probably won't be in 2020, it's maybe in 2021. But you're peaking out this year and next year on your legal fees, we think and what was other? There were three things.

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

SG&A. In SG&A, you had [indecipherable] the legal fees, the labor coming, the advertising --

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

Not advertising.

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

There was three things. That was [Speech Overlap].

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

Plant start-up, legal fees and one more.

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

Administrative salaries.

Lampkin Butts -- President, Chief Operating Officer and Board Member

And then training.

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

Training, yes. Those three things are going to go away.

[Speech Overlap] Yes, OK. Go ahead.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes. That's very helpful. I appreciate it. Thank you.

Operator

Our next question will come from Ken Zaslow with BMO Capital Markets. Please go ahead.

Ben Teo -- BMO Capital Markets -- Analyst

Hello, everyone. This is Ben Teo [Phonetic] stepping in for Ken today. Yes, so I know you discussed a lot regarding 2020. Just wondering if you could frame 2020 in terms of past cycles?

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

That's hard, Ben. If you think about so many moving parts, Joe said in his prepared remarks, we're looking at a cost environment that's very similar to 2019. And so how 2020 looks versus, is going to depend on your outlook for chicken prices and protein deficits in the world, and so many moving parts there.

Joe always says, he said the beginning of this year and he turned out to be exactly right. And not every -- every year is different. Every cycle is different. We've made -- the highest margins we've made at our tray pack plants over the last six years, at a time when grain cost was the highest in that period of time. So the fact that we kind of know looking today or -- and guess what grain's going to be doesn't help inform completely where you think that cycle is going to be. That's a long way of saying, I don't -- we don't know. I don't know.

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

It depends on what you -- how you think the time is going to fly. And how fast that's going to hit, and how it's going to hit is going to be direct or indirect. And how that's going to work out. And that -- to me that's going to be the market factor for 2020, and that's going to be the deal on what we sell chicken for.

Ben Teo -- BMO Capital Markets -- Analyst

All right. Thank you very much, guys. That's it from me.

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

You bet.

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

Thank you, Ben, good question. Thanks for asking it.

Operator

And there's no further questions. I'd like to turn the call back to Mr. Joe Sanderson for any additional or closing remarks.

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

Good. Thank you all for joining us today. And we look forward to reporting our year-end results for you in December.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

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

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

Lampkin Butts -- President, Chief Operating Officer and Board Member

Ben Bienvenu -- Stephens Inc. -- Analyst

Benjamin Theurer -- Barclays -- Analyst

Eric Larson -- Buckingham Research Group -- Analyst

Heather Jones -- Heather Jones Research -- Analyst

Michael Piken -- Cleveland Research -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Ben Teo -- BMO Capital Markets -- Analyst

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