Weekly global protein digest: Consumer Price Index up, record June beef stocks

Analyst Jim Wyckoff shares an update on the US futures market, USDA reports and global protein news
calendar icon 29 July 2022
clock icon 8 minute read
Jim Wyckoff Commentary -  TheCropSite

USDA cites food inflation

USDA raised its consumer food price forecast again, to 8.5% to 9.5% for 2022. The agency had initially predicted a 2% to 3% rise in the prices consumers pay for food this year and in February started lifting that outlook. Eggs, fats and oils, and poultry prices are making the biggest gains. In its first forecast for 2023, USDA sees inflation retracting to a 2.5%-3.5% range. The 20-year historical average for consumer food prices is a 2.4% rise.

The Consumer Price Index (CPI) for all food in 2022 at up 8.5% to 9.5% from 2021 is the highest rate of overall food price inflation since 1979, which saw prices rise 11%.

The biggest increase is for the fats and oils category, which is hiked to a 16.5%-17.5% range from a 14%-15% range. Other categories with big increases are poultry, dairy and cereals/bakery.

For food at home (grocery) prices, USDA now sees them rising 10% to 11%, the biggest rise since prices surged 10.8% in 1979.
Food away from home (restaurant) prices are expected to increase 6.5% to 7.5%, the biggest increase since the 9% hike in 1981.
This is the sixth consecutive set of monthly increases in forecasts for all food and grocery store prices, the first time that has happened based on monthly data from USDA dating back to 2003. USDA’s forecasts for restaurant prices have risen every month since January except for April and June.

For individual commodities or commodity groups, the July outlook was revised upward for 10 food categories and four aggregate categories versus forecast levels from June. Several saw no change.

Prices for eight food categories increased by at least 1%: food at home, other meats, poultry, dairy products, fats and oils, processed fruits and vegetables, sugar and sweets, cereals and bakery products, and other foods. Three of those categories were up 2%: other foods, cereals and bakery products, and fats and oils.

Annualized increases were seen in June for all food categories and in June with the smallest being for beef and veal at 4.1%. Double-digit increases were registered for all grocery store prices (12.1%) with the biggest percentage increase coming in eggs at 33.1%.
The big rise in egg prices was due to the highly pathogenic avian influenza outbreak. “This outbreak has contributed to elevated egg prices and increasing poultry prices as over 40 million birds in 37 states have been affected” USDA said.
Supply chain issues were also cited as factors for some of the food price increases. “Economy-wide factors including ongoing supply chain issues and higher energy, transportation, and labor costs, contributed to increases in prices across food categories,” USDA said.

As for 2023, this is the first outlook for food price inflation for the coming year. In 2023, food-at-home prices are forecast to rise between 2.0% and 3% with food-away-from-home prices predicted to increase between 3% and 4%. Overall food price inflation is forecast up from 2.5% to 3.5%. The 20-year average increase in food prices is 2.4% for all food prices, 2.9% for restaurant prices and 2% for grocery store prices.

Some industry contacts say USDA’s initial forecasts for 2023 appear too low.

Meanwhile, USDA’s own forecasting methodology is changing. “The Food Price Outlook forecasting methodology is being revised and will result in a revised data series,” USDA said. “A report describing the changes to the methodology is forthcoming and will be released before changes to the data series become effective.

Cold Storage Report: Record June beef stocks

USDA’s Cold Storage Report showed a June record 516.2 million lbs. of beef in storage. While that could imply sluggish demand, it may also be related to facilities building inventories due to ongoing strong exports. Pork stocks declined less than average during June to 541.0 million lbs., down 5.1 million lbs. from May.

USDA annual dairy report

Since the end of 2021, global milk supplies have tightened, propelling prices for manufactured dairy commodities higher. Among the major dairy exporting countries through May, only Argentina has seen milk output grow year-over-year (+1 percent) while Australia (-6 percent), the European Union (-1 percent), New Zealand (-6 percent), and United States (-1 percent) have all seen supplies come under pressure. Going forward, global supplies will likely remain tight as hot, dry conditions in the European Union (E.U.) increase cow discomfort and weigh on output per cow. Furthermore, diminishing producer profitability in Argentina will likely cause production growth to moderate. Tightening supplies in the E.U. and Argentina are expected to more than offset improving production in New Zealand, where pasture conditions have improved considerably since the start of 2022 and the short-term climactic outlook is positive. Similarly in Australia, favorable conditions and strong prices are expected improve production from the current year to date; however, producer caution is expected to keep expansion at a minimum in the short term and keep annual milk production totals lower than 2021. Meanwhile, relatively stable cow inventories and slowly recovering growth in milk per cow are expected to cause U.S. milk production to turn positive in the second half of the year, mostly offsetting earlier weakness.

In Australia, milk production in 2022 has been revised down 4 percent from the prior forecast to 8.73 million tons and is now expected to contract 3 percent year-over-year. Expectations for 2022 milk production are being negatively impacted as dairy farmers continue to exit the business. Higher property prices are reportedly spurring some dairy farmers to exit the business altogether while others are enticed into raising beef cattle by high prices in that sector and lower labor intensity. These exits have driven milk cow numbers lower; the difficulty of finding labor has been weighing on milk yields. These factors more than offset strong milk prices and good feed and water availability. The National Dairy Farmer Survey conducted by Dairy Australia indicates that producers are more inclined to invest recent profits in on-farm improvements instead of expansion, at least in the short term.

The milk production forecast for 2022 in the European Union has been revised down 3 percent from the prior forecast and production is now expected to contract 2 percent year-over-year. This will mark the second consecutive year of lower milk production as cow numbers continue to decline.

New Zealand milk production was tight to start 2022, declining nearly 6 percent year-over-year through May as dryness negatively impacted important production regions including Waikato and Southland. However, soil moisture has improved considerably over the past 2 months and the outlook through September2 suggests rainfall will continue to be normal to above normal, which should support some recovery in output per cow as the year progresses.

Australia cheese production is expected at 375,000 tons in 2022, nearly 3 percent below last year due in part to tighter milk supplies. However, processors continue to prioritize cheese over other manufactured commodities, particularly whole milk powder (WMP), leading cheese output to shrink more modestly than overall non-fluid use.

Despite falling milk deliveries, European Union cheese production is expected to rise nearly 1 percent year over year to 10.60 million tons as good export prospects and a firm domestic market cause dairy processors to continue favoring the cheese/whey stream over other dairy commodities. Furthermore, several new cheese plants producing industrial mozzarella for the food processing industry are expected to support production this year. Cheese exports are expected to rise 1 percent in 2022 after Brexit-related disruptions caused shipments to the United Kingdom to contract last year.

U.S. cheese exports are expected to climb nearly 8 percent year over year to 433,000 tons on strong shipments to top markets Mexico, South Korea, and Japan. In Mexico, U.S. cheese exports are benefiting from growing demand for specialty cheeses among middle and high-income consumers. Additionally, demand for commodity cheese among lower-income Mexican consumers has been resilient as high prices for meat cause substitution to other animal proteins. In South Korea and Japan, lower cheese production and high prices for Australia and New Zealand product have created opportunities for U.S. cheese exporters.

China’s hog herd down nearly 2%

China’s hog inventory fell 1.9% from year-ago at the end of June, according to the country’s ag ministry. It noted the sow herd dropped 6.3% from year-ago. The ag ministry didn’t provide specific numbers on herd size.

Antitrust settlement requires US poultry processors to reform tournament system

Two large US poultry processors agreed to guarantee a base payment to the farmers who raise their birds, a reform of the so-called tournament system that pits growers against each other for income, said the Justice Department on Monday. The reform was part of a proposed consent decree that would order the processors, Sanderson Farms and Wayne Farms, plus Cargill Inc., to pay $84.8 million in restitution for allegedly conspiring to hold down wages paid to processing plant workers.

Payments for US hog producers via SMHPP

USDA will issue around $62.8 million to eligible hog producers via the Spot Market Hog Pandemic Program (SMHPP) starting this week. SMHPP assists eligible producers who sold hogs through a spot market sale from April 16, 2020, through Sept. 1, 2020. While the program was originally funded at $50 million, USDA this week added $25 million to the effort. SMHPP payments are calculated by multiplying the number of head of eligible hogs, not to exceed 10,000 head, by the payment rate of $54 per head. The extra funds injected mean there will be no payment factor applied and eligible producers should receive 100% of their calculated SMHPP payment. There is no per person or legal entity payment limitation on SMHPP payments.

TheCattleSite News Desk

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