Weekly global protein digest: US probe into price gouging, dairy payments, egg smuggling

Analyst Jim Wyckoff shares an update on the USDA reports and global protein news
calendar icon 27 January 2023
clock icon 11 minute read

US lawmaker urges FTC to probe egg companies for price gouging

US Sen. Jake Reed (D-R.I.) asked the Federal Trade Commission (FTC) to launch an investigation into major U.S. egg producers for potential “price gouging and other deceptive practices” due to volatile egg prices. Citing U.S. inflation data and other data for egg prices in Rhode Island, Reed noted egg prices were up 138% in December compared with the previous year while the largest egg producer in the U.S. — Cal-Maine Foods — reported record profits of $323 million in their most recent quarter, a shift from a loss of $16.8 million during the same period one year ago. The company’s profit margin shifting from negative 2.4% to 22.3% from the prior quarter “could be an indication of gouging.” While highly pathogenic avian influenza (HPAI) has hit the U.S egg laying flock, Reed said USDA data shows the layer flock is only 6% below normal levels. He also noted small producers have kept their prices “under control.” A group called Farm Action also called on FTC to investigate the situation and testified at an open FTC meeting.

USDA announces more US dairy payments, including coming organic dairy effort

USDA will make an additional round of payments to dairy farmers under the Pandemic Market Volatility Assistance Program (PMVAP) for production not originally covered under the effort with payments to total nearly $100 million. The initial phase of PMVAP payments totaled around $250 million and covered production up to 5 million pounds of sales, with payments covering 80% of revenue losses on fluid milk sales from July-December 2020. The next round will cover fluid milk sales between 5 million pounds and 9 million pounds.

USDA will soon introduce the Organic Dairy Marketing Assistance Program (ODMAP)

The program is aimed at smaller organic dairy producers to help them deal with challenges and higher costs they have faced in the last few years. Payments will cover up to 75% of marketing costs for 2023 and up to $100 million has been allocated. Final outlays will depend on enrollment and the projected production for each producer. Funding will come via the Commodity Credit Corporation (CCC) via monies left over from early pandemic aid efforts. Payments will cover up to 5 million pounds of a producer’s expected production and will be based on a national per-hundredweight payment.

Timing of the announcement again came when a dairy industry confab is underway in Orlando, Florida. USDA Secretary Tom Vilsack has a clear pattern of making such announcements during key industry meetings.

High prices are driving an increase in attempts to smuggle eggs into the US from Mexico

This is according to border officials. "The San Diego Field Office has recently noticed an increase in the number of eggs intercepted at our ports of entry," director of field operations Jennifer De La O said in a tweet. "Failure to declare agriculture items can result in penalties of up to $10,000," she said. The rise in attempted egg smuggling can be attributed to the spiking cost of eggs in the U.S., a Customs and Border Protection specialist told CNN. A massive outbreak of deadly avian flu among American chicken flocks has caused egg prices to skyrocket, climbing more than 11% from November to December and nearly 60% annually, according to the Bureau of Labor Statistics.

The WSJ reports the relentless nature of the avian outbreak has frustrated efforts to keep the virus from affecting U.S. egg prices and supply. Deaths of hens and turkeys are being counted in the millions across a swath of the country and the virus has been spreading even as farms have replaced entire flocks. The impact is straining consumer markets. Wholesale prices of Midwest large eggs surged to a record $5.46 a dozen in December before retreating this month. Egg supplies are strained, with an industry group estimating there are about 6% fewer hens laying eggs than normal nationwide. Buyers are seeking other sources, but experts say the problem won’t be solved until the virus runs its course.

“One of the challenges is that we don’t know why it has been able to thrive for so long, says Maggie Baldwin, Colorado’s state veterinarian, on bird flu.

USDA’s latest Cattle on Feed Report: Neutral

USDA has estimated there were 11.682 million head of cattle in large feedlots (1,000-plus head) as of Jan. 1, down 355,000 head (2.9%) from year-ago but 30,000 head more than the average pre-report estimate implied. December placements dropped 8.0% from year-ago, while marketings declined 6.1%. All three categories were a little on the negative side of the average pre-report estimates, but not enough to move the market. From an underlying standpoint, the data is bullish as feedlot supplies declined from year-ago for a fourth straight month.

USDA sets proposal on cattle/bison electronic ID tags

USDA published a proposed rule which would amend U.S. animal disease traceability regulations to require eartags in cattle and bison that are both visually and electronically readable — electronic identification (EID) tags. Some changes have been made to a prior APHIS plan, including now the agency using the term EID tags instead of radio frequency identification (RFID) tags. APHIS said that is to accommodate the potential for future technologies other than RFID relative to the tags. The EID system is aimed at helping the U.S. cattle industry deal with the emergency response to animal disease events, with APHIS concluding that while foot and mouth disease (FMD) and other diseases have been largely excluded from the U.S., “exclusion of every high impact disease through every pathway of introduction is likely an unachievable task.”

Under the proposed rule, APHIS would require tags to be used that are both visually and electronically readable for interstate movement of cattle and bison six months after a final rule is published in the Federal Register. Comments on the APHIS proposed rule are due Mar. 20. There is not yet a definitive date when the plan will finally be in place.

Weekly USDA dairy report

CME GROUP CASH MARKETS (1/20) BUTTER: Grade AA closed at $2.3225. The weekly average for Grade AA is $2.3581 (-0.0689). CHEESE: Barrels closed at $1.5800 and 40# blocks at $1.8350. The weekly average for barrels is $1.6581 (-0.1134) and blocks, $1.9569 (-0.1731). NONFAT DRY MILK: Grade A closed at $1.1750. The weekly average for Grade A is $1.2019 (-0.0776). DRY WHEY: Extra grade dry whey closed at $0.3250. The weekly average for dry whey is $0.3300 (-0.0270).

BUTTER HIGHLIGHTS: Across all regions, cream is available for processing. In the West, cream multiples moved higher at the lower end with volumes being sold flat to market this week. Butter makers are utilizing available cream to run busy schedules. Some Central region contacts say they are currently catching up on their micro-fixing needs. In the East, butter makers say they are freezing bulk butter ahead of increased demand in the coming months. Retail demand for butter is strong in the region, and contacts note steady food service sales. Demand for butter is meeting seasonal expectations, in the Central region. Butter makers in the West report steady demand, though some say there is a hesitation from buyers to book loads further out than the current quarter. Spot loads of butter are available in the West, though contacts note unsalted butter inventories are tighter than salted. In the East, spot butter availability is tighter, as butter that isn’t being frozen is primarily being produced to meet contract needs. Central region contacts say more butter is becoming available, due to increases in cream availability and churning. This is, reportedly, contributing to softening bulk butter prices.

CHEESE HIGHLIGHTS: Milk is available for cheese production throughout the country. In the Northeast and Midwest, spot loads of milk are being offered below Class prices, and some cheesemakers are reporting prices as low as $10 under class for the fourth week in a row. Throughout each region, cheesemakers are utilizing available milk to run busy production schedules. In the Northeast and West, stakeholders say retail and export cheese sales are steady, but football playoffs are contributing to increased mozzarella demand from pizza makers in food service markets. Demand for cheese varies in the Midwest: some contacts say demand remains quiet, while others, particularly retail cheddar and Italian/pizza style cheesemakers, are reporting an uptick in cheese sales. Contacts in the Northeast and West report loads of cheese are available for spot purchasing. Western stakeholders relay cheese barrel inventories are currently larger than blocks. Market tones for cheese are mildly uncertain, as Midwest cheesemakers note there is a lot of milk available and heavy cheese production, but demand for cheese varies across different plants.

FLUID MILK: Farm milk production is moving higher, following seasonal patterns. In the East, the northern portion of the region is seeing an average increase alongside active Class I bottling demand. In the Midwest, milk production is consistently moving higher week to week and supports a Class III milk discount that is ten dollars under Class. In the western states, milk output ranges steady to higher. However, there are instances of lighter output in northern California, resulting from milk processors having to adjust to the heavy rainfall. In Arizona, milk production is steady to higher. Demand for all Classes is steady. Warmer than usual temperatures in the Pacific Northwest supports the steady to higher milk production. Meanwhile, favorable conditions are keeping steady to higher milk output going in the mountain states of Idaho, Utah, and Colorado. Bottled milk requests from several market channels vary in every region of the country. Condensed skim is readily available in all regions with most of the volumes clearing into dryers. Heavy cream supplies continue clearing into churns. Spot cream demand from butter makers is light. This week, cream multiples for all Classes range 1.10-1.20 in the East; 0.95- 1.24 in the Central; and 1.00-1.20 in the West.

DRY PRODUCTS: Markets for low/medium nonfat dry milk (NDM) are weaker this week. Manufacturers’ dryers are seasonally active, while demand is light. Dry buttermilk prices are lower across the range in all regions. Inventories are adequate and building on steady production. Demand is light. Dry whole milk prices are steady to lower. Stocks are adequate for near-term needs. The spring baking season should bring some added interest. The dry whey price range is lower to higher across the country. Dry whey production is active behind strong seasonal cheese output. Spot loads are available. Whey protein concentrate 34% prices are unchanged this week, in an unsettled market. Buyer interest only appears at low price levels. Lactose prices are mixed this week as spot prices eased. Prices for both acid and rennet casein varieties were unchanged this week. China’s limited import interest is expected to pressure the market.

International Dairy Market News: European dairy market overview

WESTERN EUROPE: European dairy contacts state that milk is abundant. The prices for manufactured dairy products that had been propped up by tight milk supplies and reasonable demand through much of the 2022 summer are falling. Because of market uncertainties and economic challenges, demand for dairy products has weakened and their availability has increased. Through the course of the summer, tight milk supplies prompted milk cooperatives to increase pay prices to farmers. However, spot milk prices are starting to fall, leading some industry analysts to predict that farmer milk pay prices may not be far behind. Some market participants think how soon and how much pay prices drop will depend on the scope of the 2023 spring milk flush, whether summer drought conditions develop once again in Europe, and the extent of possible demand improvement from China.

EASTERN EUROPE: Provisional year to date milk production numbers across parts of Eastern Europe suggest production has grown there through the course of 2022 despite decreasing milk production in parts of Western Europe. Poland, the Check Republic, Slovakia, and Lithuania within the EU registered positive year to date milk production growth through November 2022 compared to the previous year. The Ukraine agriculture ministry estimates that 51 million tons of grain will be harvested, down from a record 86 million ton harvest in 2021.

** UPDATED** OCEANIA DAIRY MARKET OVERVIEW: NEW ZEALAND: In New Zealand, improved pasture conditions have provided a bit of confidence for some farmers with regards to the January milk production report. Industry representatives expect a positive milk production forecast, following several months of less than desirable milk output. For the 2023-2024 season the milk price rests at $9/kg. Meanwhile, with the support of dairy products, New Zealand export values rose 18 percent. Export values of milk powder increased 2.3 percent, while butter rose 67 percent, as cheese increased 64 percent. AUSTRALIA: Reports show that the lack of milk supplies out of Australia prompted a decline in the country's November 2022 dairy export activities. Meanwhile, drier conditions have supported winter crop harvesting in the west, while showers benefited summer crops in the east. In the western half of the country, known to be the biggest producer of wheat supplies, seasonal grain harvest is pushing for a record yield for the 2022-2023 period. Farmer are optimistic that the events in general could add competitive pricing when it comes to New Zealand domestic spot contracts. On another note, it is being reported that Australia's export shipping ports are fully booked, which is in some cases pushing buyers' purchases well beyond the March-April wheat shipment period.

SOUTH AMERICA DAIRY MARKET OVERVIEW: The drought that has plagued the Southern Cone, in some areas for as long as three years, continues to stress soil conditions and feed crop production in the area. Current milk output levels are far from ample and near term expectations are not bullish in regards to milk output throughout much of the continent, and specifically the dairy-centric portions. Dairy demand from parts of northern Arica, the Middle East, but namely within the continent, have helped offset some of the dairy export slowdowns into both China and Russia. NATIONAL RETAIL REPORT: The total number of conventional dairy ads grew by 4 percent, but total organic dairy ads decreased by 8 percent this week. The most advertised conventional dairy item was ice cream in 48-64-ounce containers, after appearing in 72 percent more ads this week. Conventional cheese in 8-ounce shred packages appeared in 27 percent more ads this week. This replaced conventional 8-ounce block cheese as the most advertised conventional cheese product, which appeared in 7 percent fewer ads. There were no organic cheese ads appearing in this week’s survey. The weighted average advertised price for organic milk in half gallon containers dropped by 49 cents to $3.60. This represents an organic premium of $1.02.

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