Weekly global protein digest: China’s meat imports sluggish, New Zealand to tax sheep, cow burps

Analyst Jim Wyckoff shares an update on the US futures market, USDA reports and global cattle news
calendar icon 17 June 2022
clock icon 12 minute read
Jim Wyckoff Commentary -  TheCropSite

US pork export sales improve, beef near steady

USDA Thursday morning reported US pork net sales of 27,600 MT for 2022 were up 65 percent from the previous week and 1 percent from the prior 4-week average. Increases were primarily for Mexico (14,700 MT, including decreases of 200 MT), China (3,800 MT, including decreases of 200 MT), Japan (3,700 MT, including decreases of 200 MT), Colombia (2,400 MT), and South Korea (1,700 MT, including decreases of 200 MT). Exports of 27,800 MT were up 14 percent from the previous week, but down 7 percent from the prior 4-week average. The destinations were primarily to Mexico (12,800 MT), China (3,700 MT), Japan (3,500 MT), South Korea (2,700 MT), and Colombia (1,500 MT).

US beef net sales of 17,400 MT for 2022 were down 2 percent from the previous week and 12 percent from the prior 4-week average. Increases were primarily for Japan (5,200 MT, including decreases of 600 MT), China (4,600 MT, including decreases of 100 MT), South Korea (3,500 MT, including decreases of 600 MT), Mexico (1,900 MT), and the Netherlands (400 MT). Exports of 19,800 MT were up 14 percent from the previous week and 7 percent from the prior 4-week average. The destinations were primarily to Japan (5,100 MT), South Korea (5,000 MT), China (4,000 MT), Taiwan (1,100 MT), and Canada (1,000 MT).

Food prices to keep rising

Price increases show few signs of slowing down. Some of the biggest U.S. food suppliers and restaurants, such as Kraft Heinz Co. and some McDonald’s Corp. franchises say they plan to keep on raising prices to offset starkly higher costs, the Wall Street Journal reports. The food industry has been hit by cost increases for labor, packaging, ingredients, energy and transportation. Besides raising consumer prices, the companies have tried selling smaller packages, raising the per-unit price and improving their operations’ productivity.

Ag commodity prices “are going to decline, but input prices are going to stay up for a while"

“They always do and that's going to a cost-price squeeze,” said Texas A&M Ag Economist and Co-director of the Agricultural and Food Policy Center (AFPC) Dr. Joe Outlaw. “At the end of the day, it’s not what you bring in, it’s the margin you’re left with, and I have tremendous concerns about where we’re headed right now,” said Glenn Thompson of Pennsylvania, the senior Republican on the House Agriculture Committee. “It will only take some softening of prices before producers may be underwater.”

Economists suggested some moves they said could help make Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) better deal with lower prices, including providing farmers with the higher payment, if any, from either program, rather than making them elect coverage from one. Updating PLC reference prices was also suggested so they can more adequately reflect the impact of higher input prices.

Another suggestion: margin coverage like what currently is in place for dairy via the Dairy Margin Coverage (DMC) program. This would account for changes in both commodity prices and input costs. The dairy margin program issues payments when feed costs are too close to milk prices. There is a $100-a-year fee for the base level of coverage. Farmers can buy higher levels of protection. Thompson, in line to chair the committee if Republicans win a House majority in the Nov. 8 elections, asked how a margin protection plan for row crops would compare to the current crop subsidy programs, which are triggered by low market prices. “Well, clearly, the benefit is that it would take into consideration both the cost side and the revenue side,” said Dr. Joe Outlaw of the Agricultural and Food Policy Center at Texas A&M. The dairy margin program needed repeated revisions, so it would be best to test the idea with a pilot project, he said. “On the cost side, fertilizer and clearly fuel and labor — and there’s a whole lot of things that would matter for a certain set of crops that might not matter for another set of crops, so we’d have to be really careful to make sure we did it balanced. But it would be worth looking at, for sure.”

Rep. Al Lawson (D-Fla.) asked about suggestions to create a permanent disaster program. Outlaw and Joe Janzen of the University of Illinois said taxpayer-subsidized crop insurance generally was sufficient. “There’s going to be natural disasters,” said Outlaw, and it would be helpful for farmers to “understand what kind of help they might get.”

The rice grower situation was also addressed because they are already facing a cost squeeze because of relative flat prices as input costs surged. Outlaw urged lawmakers to consider targeted assistance to rice producers, noting that without some sort of aid soon, the U.S. could face the loss of producers and infrastructure across the rice sector.

“Most of my suggestions require additional resources that may be difficult to secure but are necessary,” said Outlaw in written testimony.

China’s meat imports remain sluggish

China’s meat imports in May were virtually unchanged from the previous month at 590,000 MT, though that was down 24.7% from last year. China doesn’t provide a breakdown of meat imports by category in its preliminary data, though the sharp year-over-year reduction was due to reduced pork imports. Through the first five months this year, China imported 2.85 MMT of meat, down 34.2% from the same period last year.

New Zealand announces plan to tax sheep and cow burps

This matter addresses one of its biggest alleged sources of greenhouse gases. The country had been criticized for not including agriculture in its emissions-trading scheme, when almost half of its emissions, mainly methane, come from the sector, some reports note. New Zealand is home to 5 million people, but 26 million or so sheep and 10 million cattle.

Atlas buys Foster Farms

Private equity firm Atlas Holdings purchased family-owned Foster Farms, a California chicken processor, and hired Donnie Smith as chief executive, the same job he held at Tyson Foods from 2009-16.

Weekly USDA dairy report

CME GROUP CASH MARKETS (6/10) BUTTER: Grade AA closed at $2.9750. The weekly average for Grade AA is $2.9790 (+0.0740). CHEESE: Barrels closed at $2.2425 and 40# blocks at $2.2550. The weekly average for barrels is $2.2585 (-0.0209) and blocks, $2.2730 (+0.0199). NONFAT DRY MILK: Grade A closed at $1.8550. The weekly average for Grade A is $1.8720 (+0.0057). DRY WHEY: Extra grade dry whey closed at $0.5425. The weekly average for dry whey is $0.5370 (-0.0093).

CHEESE HIGHLIGHTS: Cheesemakers across the country say that milk supplies are available for production facilities to run active schedules. Some Midwest contacts relay that production schedules are limited by labor shortages. These shortages as well as delayed deliveries of production supplies are causing some cheesemakers in the West to run below capacity. Meanwhile, a few barrel cheese plant operators in the Midwest are reporting some maintenance related downtime this week. Domestic demand for cheese has, reportedly, begun to soften across both food service and retail markets in the West, though sales are fairly stable with some hints of softening in the Northeast. Midwest cheese orders are stable and/or meeting seasonal expectations. Contacts in the Northeast and West say that strong interest is present from purchasers in international markets and that spot inventories are available in both regions.

BUTTER HIGHLIGHTS: Across all regions, cream inventories are tightening. Despite this, some contacts in the Northeast report that cream is more available than is typical at this time of year. In the West, some stakeholders say that they are receiving inquiries from cream purchasers in other regions. Slower butter sales and higher cream multiples, in the Northeast, are contributing to some reduced butter production schedules and increased cream sales. In the Central region, some butter makers indicate that they are increasing their micro-fixing. Plant managers in the region have been reporting staffing shortages for months, and some are concerned with the additional employees needed for micro-fixing. Butter makers in the West say that labor shortages and delayed deliveries of production supplies have caused output to fall below expectations for the last few months. In the Northeast and West, consumer demand for butter at both retail and food service markets has softened. Some purchasers in these regions are, reportedly, selecting lower-priced private label brands of butter due to higher retail prices. Loads of butter are available in the Central and West regions, though availability has tightened in the Northeast. Across all regions, bulk butter overages range from 5 to 15 cents above market.

FLUID MILK: Milk production is mixed across the nation and, in some cases, within the same region. Northeast contacts report three different levels of milk output: lower, steady, and higher. Midwestern contacts say milk is relatively sideways, as weather has yet to warm up enough to dissipate output. Western contacts report a mixture of milk levels, from steady to higher in the Rocky Mountain area to lower in the southwest states like Arizona and New Mexico. Bottling is seasonally slower throughout the country. Cheesemakers are clearing milk loads from $3 under to flat Class in the Midwest. Cream availability is tightening up in the Midwest and mixed in the West. Condensed skim availability/offers have increased. Haulers, or a lack thereof, remains a concern in all regions. Western cream haulers are inhibited by a shortage of drivers, and reports are similar from Northeastern contacts. F.O.B. cream multiples are 1.28-1.40 in the East, 1.28-1.34 in the Midwest, and 1.05-1.31 in the West.

DRY PRODUCTS: Low/medium heat nonfat dry milk (NDM) prices continued increased in all regions. Demand has strengthened prices, as availability is reportedly tighter. Dry buttermilk prices moved higher in the Central/East, while they shifted slightly lower in the West. All said, buttermilk powder is tight and trading is quiet due to supply reports ranging from snug to unavailable. Dry whole milk prices moved higher on the bottom of the range, as limited inventories continue to keep spot activity quiet. Dry whey prices are mixed this week. Some contacts say markets are in a correction pattern, and working to stabilize. Whey protein concentrate (WPC) 34% prices moved higher at most points this week. WPC 34% production has increased throughout the first half of the year, but still lags previous years’ levels. Lactose prices were steady to higher, as demand is mixed. Quarter 3 negotiations are underway. Rennet and acid casein prices are unchanged, despite a very firm near-term market tone, based on global demand and notably tight supplies.

INTERNATIONAL DAIRY MARKET NEWS: WESTERN EUROPEAN OVERVIEW: Western European milk production continues to trail off seasonally and fall behind previous year levels. Initial projections for April milk deliveries in the major dairy countries of Germany, France, the Netherlands, and Ireland all fall short of milk delivery levels of April 2021. In addition, industry contacts note that milk components have been lower than normal. As such, dairy manufacturers are faced with tight milk intakes and rising costs for labor and energy. The squeeze has supported dairy product prices and has kept inventories of manufactured dairy items tight. Manufacturers are hesitant to let extra loads of dairy ingredients go for fear of needing them later in the year to fulfill contract obligations.

EASTERN EUROPEAN OVERVIEW: Several Eastern EU27 countries continue to see year over year milk production increases, including Poland and the Baltic States, however preliminary reports suggest that the difference between this year and last year is narrowing. According to CLAL data made available to USDA, April 2022 raw cows' milk delivered to dairies in Poland was 1.082 million ton, down 1.1 percent from April 2021. Year-to-date milk deliveries through April 2022 in Poland, 4.283 million ton, increased 2.4 percent compared to year-to-date milk deliveries through April 2021.

OCEANIA DAIRY MARKET OVERVIEW: NEW ZEALAND: In New Zealand, milk production volumes continue a downward course along the seasonal trend. Unfavorable warm dry conditions have had an immense impact on milk output in some of the key milking regions. Market sources note that the amount of feed used to get through poor pasture conditions has been expensive and diminished farmers' feed supplies. As a result, some producers are employing actions to compensate for the depletion by limiting daily milking to sustain available feed and drying off half their herds earlier than normal. Meanwhile, sources note that the upcoming milk production season will likely involve poor pasture conditions in the winter and early spring, which will impact milk production volumes. AUSTRALIA: Australia's monthly milk production continues to decline around smaller herd sizes, hikes in packaging cost along with feed and other input costs all driving lower milk output. Milk collections for Australia were 7.9 million kgMS in April 2022, down 2.0 percent compared to April 2021. Milk prices are expected to track higher as bullish tones become evident in the market. Sources suggest that commodity prices will follow suit, as milk supplies tighten both in Australia and the global market. Meanwhile, a recent report shows that Australia dairy exports increased 26.5 percent in March. WMP, SMP, and cheese exports sparked strong interest.

US RETAIL REPORT: June is dairy month and retailers responded this week by increasing their dairy advertisements. Total conventional dairy ads increased 44 percent from last week, and organic dairy ads jumped 297 percent. The most advertised dairy item is conventional ice cream in 48 to 64-ounce containers. The national weighted average advertised price for ice cream in 48 to 64-ounce containers is $3.27, up 20 cents from last week. Conventional 1-pound butter is featured in 212 percent more ads this week, with a weighted average advertised price of $4.33, up $0.51 from last week. Total conventional milk ads went up 19 percent, and organic milk ad numbers jumped 501 percent from last week. Milk in half gallon containers is the most advertised organic item this week, with a whopping 1,573 percent increase in ad numbers. The national weighted average advertised price for organic milk half gallons is $4.60, compared to $2.25 for conventional milk half gallons, providing an organic price premium of $2.35.

China’s sow herd increases in May

China’s sow herd at the end of May was larger than in April, its first monthly increase in a year, an ag ministry official said. The sow herd rose 0.4% in May to 41.92 million head but was still 4.7% smaller than a year ago. Chinese hog producers have been liquidating sows over the past year amid poor production margins.

China to buy more pork for state reserves

China will buy 40,000 MT of frozen pork for state reserves on June 17. Beijing has been stockpiling pork via weekly purchases to boost hog margins.

Largest pork processor in US is culling its production operations

Smithfield Foods is closing a large plant in Southern California and shrinking the size of its hog herd in the region, the Wall Street Journal reports, citing high costs that include the outsize regulatory demands for operating in the state. The plant is one of 46 that Smithfield operates in the U.S. and the closure reflects in part the volatile economics across the food business over the past two years. Food suppliers are dealing with rising costs across their supply chains, including higher prices for transportation, packaging and livestock feed. Smithfield also points to taxes, utility costs and labor costs that are far higher in California than at its plants in other states. Experts say the supply of hogs in the U.S. remains constrained and that high costs for farmers are likely to keep head counts down.

TheCattleSite News Desk

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