Weekly global protein digest: China’s strict Covid lockdowns risking serious ag, food shortages, US meatpacking study underway

Analyst Jim Wyckoff shares highlights from the global protein market.
calendar icon 8 April 2022
clock icon 13 minute read
Jim Wyckoff Commentary -  TheCropSite

US pork sales post solid gains; beef slips again

USDA Thursday reported US beef net sales of 14,000 MT for 2022 were down 39 percent from the previous week and 43 percent from the prior 4-week average. Increases were primarily for Japan (6,500 MT, including decreases of 400 MT), South Korea (3,900 MT, including decreases of 800 MT), Mexico (800 MT), Taiwan (700 MT, including decreases of 100 MT), and Hong Kong (500 MT). Exports of 19,300 MT were down 5 percent from the previous week and 18 percent from the prior 4-week average. The destinations were primarily to Japan (5,400 MT), South Korea (5,400 MT), China (3,400 MT), Taiwan (1,500 MT), and Mexico (900 MT).

US pork net sales of 41,200 MT for 2022 were up 49 percent from the previous week and 44 percent from the prior 4-week average. Increases primarily for Mexico (13,200 MT, including decreases of 300 MT), China (13,000 MT, including decreases of 400 MT), Japan (5,100 MT, including decreases of 600 MT), Colombia (2,300 MT), and South Korea (2,300 MT, including decreases of 1,000 MT), were offset by reductions for Chile (100 MT). Exports of 29,000 MT were down 5 percent from the previous week, but up 2 percent from the prior 4-week average. The destinations were primarily to Mexico (13,500 MT), Japan (3,800 MT), China (3,600 MT), South Korea (2,300 MT), and Canada (1,400 MT).

USDA grants funds for meatpacking industry study

A professor at the University of Nebraska-Lincoln (UNL) received funding from USDA to study various factors that have affected the meat supply chain since the Covid-19 pandemic began. Azzeddine Azzam at UNL received the USDA funding via the National Institute of Food and Agriculture to study industry conduct during the Covid-19 plant shutdowns and evaluate the economic developments from expanding local meat processing through the start of small packing operations. “When we add more regional or local capacity to the industry, either through opening new plants or expanding the capacity of existing plants, that is going to restructure the industry,” Azzam said. “The questions that I will address are: Will the restructuring make the industry more resilient to capacity disruptions in the event of another pandemic? What are the short-term and long-term consequences for the cattle feeding industry?”

China’s zero-Covid policy risks causing agricultural crisis and food shortages

China’s strict Covid lockdowns are exacerbating serious shortages of fertilizer, labor and seeds, just as many of the country’s biggest agricultural provinces prepare for their crucial spring planting season, reports the Financial Times. According to official data, as many as a third of farmers in northeastern Jilin, Liaoning and Heilongjiang provinces have insufficient agricultural inputs after authorities sealed off villages to fight the pandemic. The three provinces account for more than 20% of China’s grain production. According to the Jilin provincial government, about one-third of farmers did not have enough fertilizer at the end of March — only about three weeks before they were supposed to begin planting. Farmers and factory managers have blamed the disruption on China’s uncompromising zero-Covid policy, under which authorities have adopted tough controls ranging from traffic bans to local business shutdowns. An executive at Genliduo, a leading fertilizer producer in Hebei province, said his firm was having “lots of difficulty” shipping to customers and securing raw materials. The executive added that the problem was industry-wide and many smaller producers had suspended operations.

U.S. pork producers to press lawmakers on public policies

Preparing for and preventing foreign animal diseases, addressing an agricultural labor shortage, and increasing pork exports are the top public policy issues pork producers will lobby their congressional lawmakers on over the next two days. During the spring Capitol Hill fly-in of the National Pork Producers Council (NPPC), nearly 100 producers from across the country are expected to participate — in person for the first time in two years — in NPPC’s Legislative Action Conference.

Producers will urge lawmakers to support additional funding for foreign animal disease prevention and preparedness efforts, particularly around African swine fever (ASF). Last July, ASF was detected in the Western Hemisphere for the first time in more than 40 years. NPPC is requesting funding for fiscal 2023 for additional U.S. Customs and Border Protection agricultural inspectors; for the National Animal Health Laboratory Network, which provides disease surveillance and diagnostic support in cases of large-scale animal disease outbreaks; and for additional staff for the USDA Animal and Plant Health Inspection Service’s Veterinary Services.

To address an ongoing labor shortage, producers will ask Senate and House members to expand the H-2A visa program to year-round agricultural workers, including packing plant employees. Currently, the visa only allows for temporary, seasonal farm laborers. The pork industry also supports providing a pathway to legal status for foreign-born agricultural workers already in the United States.

Pork producers also will lobby lawmakers on the importance of trade to the industry, urging the Biden administration to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The 11-country CPTPP has almost 500 million consumers and $13.5 trillion of GDP. The United States was part of a previous agreement, the Trans-Pacific Partnership (TPP), but President Trump withdrew from the TPP before it became effective. Producers also will request that the administration negotiate a more ambitious Indo-Pacific Economic Framework deal, one that includes agriculture and addresses nontariff barriers to U.S. products, including pork.

Canada beef herd contraction to continue

USDA reports the ongoing contraction of the Canadian cattle herd is expected to continue in 2022. Canadian live cattle exports are forecast to decline on a smaller calf crop. High feed costs and limited availability will see live exports outpace 2021 through the first half of 2022.

Imports of US feeder cattle will decline in 2022 following five years of record imports. Feed availability in Western Canada and competition for feeder animals due to contraction in the US cattle herd will drive this trend. Following significant processing disruptions due to labor issues in 2021, the Canadian swine sector will see slaughter levels recover somewhat in 2022. However, closure of the slaughter line at a Quebec facility will result in increased exports to the United States as market ready hogs in Ontario and Quebec are displaced. Disease impacts will see a slightly smaller pig crop in 2022 amidst higher losses. The United States will remain the top trade partner for both imports and exports of beef and pork.

USDA formally publishes final rule of origins of livestock relative to organic dairy

USDA today (April 5) published in the Federal Register a final rule on the origins of livestock under the National Organic Program relative to dairy animals. USDA said the action is based on public input to a proposed rule the agency previously released. Under the final rule, “organic milk and milk products must be from animals that have been under continuous organic management from the last third of gestation onward, with an exception for newly certified organic livestock operations.”
The rule becomes effective June 6, 2022, and all certified organic operations have to comply with its provisions by April 5, 2023.

Upshot: USDA acted via the final rule to address what it said were “inconsistencies” in how the transition of animals from conventional dairy production to organic production was being handled.

Restaurant groups pushing for aid extension

The US congress should pass an extension of the Restaurant Revitalization Fund (RRF) this week, according to the National Restaurant Association (NRA). The House may consider legislation this week that would replenish the fund designed to help restaurants slammed by Covid-19. Some $28 billion of economic relief was provided to more than 101,000 restaurants but another 177,000 establishments have not been able to receive any funding.

USDA formally launches ELRP effort

USDA on this week published a notice of funding availability on the Emergency Livestock Relief Program (ELRP) in the Federal Register, formally launching the effort which will automatically generate payments to livestock producers who have faced increased supplemental feed costs from forage losses due to a qualifying drought or wildfire in calendar 2021. Phase 1 of the program will use data already provided by affected producers under the Livestock Forage Program (LFP). ELRP payments will be based on the number of animal units, limited by available grazing acreage, in eligible drought counties. USDA said it was using LFP data to make the payments quickly even though there is not a “direct correlation to the increased feed costs incurred.” LFP payments were calculated as being $18.71 per month per animal unit for drought while there was not a single rate calculated for fire.

ELRP will pay 90% of that amount ($16.84) per animal unit per month for “historically underserved farmers and ranchers” while all others will receive 75% of that amount ($14.03) per animal unit per month. There is a $125,000 payment limit for a person if their average farm adjusted gross income (AGI) is less than 75% of their average AGI for tax years 2017, 2018 and 2019; if 75% of more of their average AGI is from farming, then the limit per person is $250,000. FSA will issue ELRP Phase 1 payments as 2021 LFP applications are processed and approved and are expected to total $577 million; any additional payments under ELRP will be covered under a Phase 2 effort.

Avian influenza continues to spread in the U.S., threatening Chicken exports

A deadly strain of avian influenza that’s been raising egg prices ahead of Easter was discovered in five new US states Wednesday, and the virus increasingly is threatening American poultry exports.

Highly pathogenic avian influenza (HPAI) was discovered at a commercial poultry farm in Johnston County, North Carolina, and in backyard flocks in Massachusetts, North Dakota, Ohio and Wyoming, USDA said. Since mid-January, it’s been found in 23 states in flocks totaling nearly 17 million birds.

Countries have been temporarily banning imports from U.S. states where bird flu is present as a result, according to USDA. Top buyers such as Mexico, China and Cuba could bring in less poultry following the discovery in North Carolina, a major producer of chicken and turkeys, said Jim Sumner, president of the USA Poultry & Egg Export Council. Avian influenza will also make eggs relatively scarce for the Easter holiday, with production still below levels seen prior to the Covid-19 pandemic. Under Organization for Animal Health (OIE), member countries are called on to not impose bans on international trade of poultry commodities in response to notifications in non-poultry or backyard flocks. However, some have opted to make such restrictions.

USDA’s Animal and Plant Health Inspection Service (APHIS) has relaunched their site which tracks HPAI cases. APHIS said the new page uses the same data previously made available, “but in a more visual and easy-to-navigate format.”

The 118 flocks in 24 states now affected include 72 commercial flocks and 46 backyard flocks totaling 22,851,071 birds. The new data also includes an entry for when locations with cases have been released from the control area and movement control restrictions. The 10-kilometer control area and movement control restrictions are in place until at least 14 days have elapsed since the initial virus elimination of the last infected premises and negative results of all surveillance activities. New cases in commercial poultry operations April 3 confirmations in North Dakota (86,000 commercial turkey meat birds in Dickey County).

USDA weekly dairy market report

CME GROUP CASH MARKETS (4/1) BUTTER: Grade AA closed at $2.7100. The weekly average for Grade AA is $2.7155 (-0.0795). CHEESE: Barrels closed at $2.2525 and 40# blocks at $2.2950. The weekly average for barrels is $2.2110 (+0.0360) and blocks, $2.2310 (+0.0105). NONFAT DRY MILK: Grade A closed at $1.8500. The weekly average for Grade A is $1.8415 (-0.0235). DRY WHEY: Extra grade dry whey closed at $0.6100. The weekly average for dry whey is $0.6715 (-0.0745).

CHEESE HIGHLIGHTS: Demand notes remain positive for most cheesemakers in the country. Western contacts relay Asian customers are beginning to lock in Q4 and Q1 2023 shipments. Cheese inventories are more balanced nationwide, but Western contacts also relay spot inventories are available due to persistent port problems. Milk is available, and due to limited staffing at plants where management continues to shift their focus from cheese production to updates/maintenance in the Central region, there were some discounts reported as low as $4 below Class. That said, in the upper Midwest, most reported prices were near Class or even just over (the high was $.50 over Class III this week.) Although early in the week, market prices slipped some, there is little near-term concern over a bearish market based on supply versus demand tones.

BUTTER HIGHLIGHTS: Cream costs are ticking up, and supplies are tighter but still accessible to butter makers. Cream cheese and ice cream production are ramping up, and cream availability is not expected to loosen any for butter churns in the near term. Despite staffing issues, butter production is busy. Some inventories are expanding. However, seasonal demand is also growing, albeit later in the season than some market participants had anticipated. Food service sales are level to higher as job growth, and eatery re-openings, are noted from the sector. Retail sales are steady to stronger as grocers prepare for spring holidays. Export demand is firm as U.S. butter is priced competitively on international markets. Across the country this week, bulk butter overages range from 5 to 15 cents above market.

FLUID MILK: Farm level milk production is climbing throughout the country, though the volume increase varies. Mid-Atlantic producers say that favorable weather is having a positive impact on production. Meanwhile, contacts in the upper Midwest are concerned that late week snowfall may negatively impact some preparatory fieldwork. Class I demand is mixed. In some areas educational institutions are purchasing less in preparation for spring breaks, while in others demand has increased following spring break. In the Northeast, cheesemakers are purchasing healthy volumes of Class III milk. In the Midwest, prices have been reported as low as $4 under Class, but most are reported closer to Class. In the mountain states of Idaho, Utah, and Colorado, increased spot availability and labor shortages have contributed to milk loads selling from $3 to $5 under Class IV. Ice cream production is increasing, contributing to higher cream demand. Stakeholders in the East and West report that cream inventories are tightening. Cream multiples for all Classes are 1.3000 – 1.4000 in the East, 1.2500 – 1.3500 in the Midwest, and 1.0500 – 1.3000 in the West.

DRY PRODUCTS: The price ranges for low/medium heat nonfat dry milk (NDM) held steady across the country this week. Meanwhile, the mostly price series saw some downward movement. Low/medium heat NDM demand is steady in the East. Contacts in the West report that domestic demand is steady, but that export demand has been declining. High heat NDM inventories are tight nationwide. The top of the dry buttermilk price range slid lower in the Central and East regions, meanwhile all facets of Western prices moved higher. Contacts in the West say that strong demand is pulling at tightening regional spot inventories. Dry whole milk prices are unchanged nationwide, as spot availability is limited. In the Northeast and West, -

INTERNATIONAL DAIRY MARKET NEWS: WESTERN EUROPE: The unifying concern among Western European dairy sources, processors and producers is that there is not enough milk being produced to comfortably meet demand. One reason in Western Europe has been a trend of declining cow numbers in some of the top producing countries, which is another current factor in higher costs for inputs.

EASTERN EUROPE: Sources have reported that several Eastern European countries are experiencing increased cow herd sizes. Mentioned are Slovenia, Cyprus, and the Czech Republic. ZMB reports that cow numbers in Hungary are up 13.9 percent over a year ago. Some of these countries are seeking to expand dairy imports to help in feeding refugees from Ukraine.

AUSTRALIA: Strong demand for dairy products facing weak supply have helped maintain profitability in the Australian dairy industry. However, inflationary pressures and cost impacts are increasingly being noticed as factors reducing profit margins at the farm level. Some processors seem less affected as a large Australian dairy cooperative is reporting solid profitability. NEW ZEALAND: February 2022 New Zealand milk production on a tonnage basis, 1,773,000 MT, declined 8.2 percent from February 2021 and decreased 5.4 percent from February 2020 according to DCANZ and CLAL. February 2022 milk solids production in New Zealand on a kg basis, 160,430 kg, decreased 7.2 percent from February 2021 and decreased 4.4percent from February 2020.

SOUTH AMERICA: Dairy farmers are hopeful for continued seasonal improvements regarding weather throughout major parts of the milk producing region. Undoubtedly, February estimates from off-the-farm milk production have shown improvements from a very hot/dry late 2021/January 2022. There remain a number of challenges outside of the climate, such as across-the-board increases in operating costs, namely for feedstuffs and fuel. The Russia/Ukraine situation is, at least partly, to blame, as Ukraine is a notable grain supplier globally. Processors of cheese, butter, and powders are hopeful for continued climactic improvements, as global demand of dairy commodities is expected to remain hearty.

US RETAIL DAIRY REPORT: Total conventional dairy advertisements decreased 20 percent, while organic ads increased 9 percent in this week’s supermarket circulars. Conventional ice cream, in 48-to-64-ounce containers, was the most advertised dairy item. The weighted average advertised price for ice cream in 48 to 64-ounce containers was $3.51, compared to $3.22 the previous week. Conventional butter, in one-pound packages, held a weighted average advertised price of $3.90, up 29 cents from last week.


TheCattleSite News Desk

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