Weekly global protein digest: Argentina's beef price controls, world bird flu accelerating at faster pace, ASF in Hong Kong

Analyst Jim Wyckoff shares an update on global protein news
calendar icon 18 February 2023
clock icon 19 minute read

Weekly USDA beef, pork export sales

USDA Thursday reported US beef net sales of 28,100 MT for 2023 were up 72 percent from the previous week and 34 percent from the prior 4-week average. Increases were primarily for Japan (8,600 MT, including decreases of 500 MT), South Korea (6,800 MT, including decreases of 500 MT), China (6,100 MT, including decreases of 100 MT), Mexico (2,200 MT, including decreases of 100 MT), and Hong Kong (1,000 MT, including decreases of 200 MT). Exports of 16,700 MT were up 8 percent from the previous week and 2 percent from the prior 4-week average. The destinations were primarily to South Korea (4,300 MT), Japan (4,300 MT), China (3,100 MT), Mexico (1,700 MT), and Taiwan (1,300 MT).

Pork: Net sales of 45,000 MT for 2023 were up 56 percent from the previous week and 30 percent from the prior 4-week average. Increases primarily for Mexico (18,800 MT, including decreases of 200 MT), Japan (11,500 MT,

including decreases of 100 MT), South Korea (4,400 MT, including decreases of 700 MT), China (4,100 MT,

including decreases of 100 MT), and Colombia (1,200 MT), were offset by reductions for Nicaragua (100 MT).

Exports of 30,500 MT were unchanged from the previous week, but down 4 percent from the prior 4-week average. The destinations were primarily to Mexico (13,400 MT), China (4,100 MT), Japan (3,500 MT), South Korea (2,600 MT), and Canada (2,300 MT).

China to strengthen regulation of hog production

Part of China’s No. 1 document, the blueprint for agricultural policy, includes strengthening regulation of its hog production capacity, mainly for breeding sows. Details of the new regulations are lacking, though following the African swine fever outbreak, China has pushed more production to major hog farms and tried to eliminate smaller backyard herds.

Argentina announces price controls for beef cuts

Argentina’s economy ministry announced a price control program to bring down the cost of popular beef cuts amid ongoing high inflation. An economy ministry official said some popular cuts of meat would see prices drop around 30%. The ministry said the program has been applied to seven different types of meat and will be in effect until March 31, when a smaller price cut of 3.2% will come into play until June 30.

World bird flu toll accelerating at faster pace than last year

About 100 million poultry died or were culled due to avian influenza between the start of October and Feb. 3, according to the World Organization for Animal Health. That’s more than triple the number in the same period a year earlier, which ended with record losses from the disease. Farmers and officials face a significant challenge in reining in the deadly virus.

Coops across Europe and North America have suffered severe outbreaks, and cases are escalating in South America — including Bolivia, which borders major chicken producer Brazil. “The more the virus circulates in animals, the higher is the risk for humans,” the World Health Organization’s Sylvie Briand said.

Hong Kong reports ASF case

Hong Kong reported an outbreak of African swine fever (ASF) on a farm near the border with mainland China, the World Organization for Animal Health (WOAH) said. Five pig farms within three kilometers of the farm were inspected and no abnormalities were found. Movement of pigs on these farms was also suspended and samples from pigs will be tested, WOAH said.

China speeds up clearing of Aussie beef shipments

China’s ports have been clearing cargoes of Australian beef within one or two weeks since the start of this year, much faster than the months taken during the last two years, according to an Australian trade body. “Australian beef distributors are reporting much faster processing times recently at Chinese ports,” Andrew Cox, Singapore-based general manager for international markets at trade body Meat & Livestock Australia (MLA), told Reuters. Australia is one of China’s top suppliers of beef but import volumes have plunged since 2020 when Beijing suspended six Australian beef plants, citing labelling irregularities and other technical issues.

USDA Livestock, Dairy, and Poultry Outlook: February 2023

Retail Prices per Gram of Protein Trending Higher for Selected Livestock, Poultry, and Egg Products

The monthly retail prices per gram of protein content across selected livestock, poultry, and egg products from January 2019 to December 2022 is trending up. While retail prices respond to various economic factors, including inflation, the protein content estimate per gram is fixed. Absent major product-specific disruptions, the relative ranking of the selected products in terms of cents per gram of protein trended higher and was mostly unchanged for the period observed, with egg prices surging in 2022. Historically, eggs and chicken legs have been the two lowest-cost sources of protein among livestock, poultry, and egg products. Between 2019 and 2021, eggs were the cheapest source of protein in 20 out of 36 months.

However, during 2022, successive High Pathogenic Avian Influenza outbreaks adversely impacted the egg supply. The associated supply shocks, combined with a strong egg demand, pushed the retail egg prices to record-high levels. As egg prices escalated through 2022, on a gram basis, eggs as a protein source were competitively priced with boneless chicken breasts and pork chops (starting in October), and ground beef (in December).

Poultry/Eggs: Broiler production in 2023 is reduced on recent hatchery data. Projected 2023 broiler imports are adjusted down on recent data, while projected 2023 exports are unchanged. Broiler prices are adjusted down in 2023.The first-quarter table-egg production forecast is revised down based on softer-than-expected laying flock indicators. Consequently, the wholesale egg price first-quarter forecast is revised upward. The 2023 egg import forecast was revised up following strong December data.Turkey production totaled 5.222 billion pounds in 2022, and the projection for 2023 is unchanged at 5.56 billion pounds. Projected 2023 turkey exports are decreased on recent data and continued export challenges. Turkey prices are adjusted up on continued price strength in the start of the new year.

Beef/Cattle: Based on slaughter data through early February, the pace of cattle slaughter is faster than expected from last month. However, winter weather appears to have impeded performance of feedlot cattle as well as taken a toll on cow and bull weights. A temporal shift in fed cattle marketings into the first quarter and an outlook for higher cow slaughter more than offset a decline in expected dressed weights. Projected beef production in 2023 is raised 50 million pounds to 26.5 billion pounds. Fed cattle prices in 2023 are raised on firm demand and lighter carcass weights. The import forecast for 2023 is raised on early Customs and import inspection data to 3.4 billion pounds. Export projections for 2023 are unchanged at 3.1 million pounds.

Sheep/Lamb: The January 2023 sheep and lamb inventory report showed a 1-percent decline in the sheep inventory relative to 2022. Last month’s forecasts for 2023 commercial lamb and mutton production implied a 2-percent decline; commercial production forecasts for 2023 were increased to imply a 1-percent decline in 2023. Lamb prices this year have been lower than expected, so lamb price forecasts have been lowered this month.

Dairy: The milk production estimate for 2023 is lowered from last month due to lower expected dairy cow inventory. Dairy export volumes are projected down after reaching some record highs in 2022. Forecasts for 2023 have been lowered for Cheddar cheese, dry whey, and NDM to $1.860, $0.365, and $1.225 per pound, respectively, based on recent downward trends In dairy product prices and weaker-than-expected demand in the domestic market. The butter price forecast remained unchanged at $2.330 per pound. With lower dairy product prices expected across the board, Class III and IV milk price forecasts for 2023 have been lowered to $17.90 and $18.25 per hundredweight (cwt), respectively. The 2023 all-milk price estimate is lowered to $20.70 per cwt, down $0.90 per pound from the previous month’s forecast.

Pork/Hogs: January hog slaughter and pork production was higher than expected, although anticipated lower dressed weights are expected to mitigate the effect of the higher numbers on quarterly production. First-quarter pork production is reduced 32 million pounds to 7.010 billion pounds, 1.5 percent higher than production a year ago. First-quarter hog prices are reduced $5 per hundredweight (cwt) to $58 per cwt on general weak demand for pork cuts. Pork exports for 2022 wrapped up at 6.3 billion pounds, 9.8 percent lower than shipments in 2021. Exports are forecast at 6.35 billion pounds in 2023, up fractionally from last year.

Recap of the 2022 Dairy Situation

The U.S. dairy industry experienced several unusual developments in 2022. For example, the average all-milk price was highest on record, but input prices such as feeding costs were also high. Dairy export volumes reached records on both the milk-fat and skim-solids milk-equivalent bases due to strong international demand. Butter prices reached elevated levels in the second and third quarters of 2022 as some butter processing plants continued to undergo labor shortages that negatively affected production. Cheddar cheese 500-pound barrel prices averaged above 40-pound blocks for most of 2022. In addition, further domestic shortages of infant formula and U.S. Government policies fueled higher imports of infant formula. In 2022, the weekly average wholesale prices for butter reported in the National Dairy Product Report (NDPSR), were above Cheddar cheese prices for the entire year. Butter prices reached a peak of $3.2445 per pound the week ending October 22, as shown in the chart below. After that, the wholesale price for butter started to decline but remained above the cheese price. In 2022 the price spread between 40-pound blocks of Cheddar cheese and 500-pound barrels (adjusted to 38 percent moisture) was remarkably close. The Cheddar cheese 500-pound barrel price rose above 40-pound blocks for around 30 weeks, from April through November 2022. However, during December a market correction likely occurred when barrel prices adjusted below blocks, which is the typical trend in the cheese market. Prices for nonfat dry milk (NDM) and dry whey were less variable week to week than butter and cheese. In 2022, wholesale prices for NDM were strong through the first half of the year but declined in the second half.

The all-milk price in 2022 averaged $25.56 per hundredweight (cwt), $7.03 higher than 2021, an increase of 38 percent from 2021. While the prices that dairy farmers received in 2022 were higher than in 2021, profits in 2022 were not remarkably high due to high input costs, with surging feed prices being a significant contributor. As evidence, the average annual dairy feed value used by USDA, National Agricultural Statistics Service (NASS) to calculate the milk-feed ratio increased by 25 percent from 2021 to 2022. As reported by NASS in the Agricultural Prices report, the all-milk price in December 2022 was $24.7 per cwt, up $3.00 from December 2021. The December 2022 corn price was $6.58 per bushel, up $1.11 from December 2021. The price for alfalfa hay was $269 per short ton, up $52 from December 2021. The 5-State weighted-average price for premium alfalfa hay was $327 per short ton, $67 higher than December 2021. The soybean meal price (reported by USDA, Agricultural Marketing Service) was $462.85 per short ton in December, up $66.33 from December 2021. The milk-feed price ratio reported by NASS was 1.84 in December, down 0.12 points from December 2021.

Dairy Forecasts for 2023

In the following forecast analysis, any changes discussed are adjustments from the previous month’s forecasts unless otherwise specified. Based on the latest information of lower inventory of heifers for replacement, active dairy cow culling, relatively high forecast for feed costs, and weaker expected milk prices, the average number of milk cows is projected lower in 2023 at 9,380 million head (-25,000 head). In 2023, projection for the average milk yield is lowered by 25 pounds to 24,345 pounds per cow. The milk production forecast for 2023 is 228.3 billion pounds, 0.9 billion lower than last month’s forecast. Based on recent data and lower expected global demand for dairy products, lower exports quantities of cheese, skim milk powder, and other products is expected in 2023. On a milk equivalent milk-fat basis, the dairy export forecast for 2023 is 13.1 billion pounds, 0.2 billion lower. On a skim-solids basis, the 2023 dairy export forecast has been decreased by 0.5 billion pounds to 52.1 billion. Exports on both milk-equivalent bases are expected to decline from the robust levels of 2022. Dairy import projections for 2023 have been increased. On a milk-equivalent milk-fat basis, the dairy import forecast for 2023 is 7.3 billion pounds, up 0.1 billion pounds. On a milk-equivalent skim-solids basis, the 2023 forecast for imports is 6.4 billion pounds (+0.1 billion). Based on higher-than-expected imports in December 2022, imports of cheese and milk protein-based products are projected higher for 2023. Based on relatively low domestic use in the fourth quarter of 2022 and expectations of lower demand for dairy products in 2023, projections for domestic use in 2023 have been lowered. The forecast for 2023 domestic use on a milk-equivalent milk-fat basis is 221.2 billion pounds (- 0.1 billion). On a skim-solids basis, the forecast for domestic use is 181.1 billion pounds (-0.9 billion). The recent decreases in dairy product prices, weaker expected demand, and strong international price competition have put downward pressure on the 2023 price forecasts for dairy products. The 2023 price forecasts for have been lowered for Cheddar cheese, dry whey, and NDM to $1.860, $0.365, and $1.225 per pound, respectively, while the butter price is unchanged at $2.330 per pound. With lower dairy product prices expected across the board, Class III and IV milk price forecasts for 2023 have been lowered to $17.90 and $18.25 per cwt, respectively. The all-milk price 2023 forecast has been decreased by $0.90 to $20.70 per cwt.

January US Pork Production Above Expectations

When all was said and done, the estimated January federally inspected (FI) hog slaughter came in at a larger-than-anticipated 11.1 million head, a volume almost 7 percent higher than that of January 2022.7 Timewise, the January 2023 FI estimate largely comprised the December 1 heavyweight category of the December Quarterly Hogs and Pigs report. January’s FI slaughter volume turned out to also be somewhat larger than what the report implied for the heavyweight hog category. Part of that divergence may have been due to the adverse weather in several pork producing regions of the country during December that affected slaughter schedules. Consequently, hog slaughter was reduced prior to Christmas, backing up hogs, but then jacked up in January to reduce the backup. Weekly January dressed weights declined, however, compared to same-period weights last year, ending the month averaging about 219 pounds, unchanged from a year ago. The January 2023 dressed-weight scenario is likely a sign that the processing industry has been working through any earlier backed-up hog situations.

Processors paid lower prices for larger supplies of hogs in January. Prices of live equivalent 51- 52 percent lean hogs averaged $53.82 per cwt, almost 4 percent lower than prices averaged in January 2022. The larger January hog slaughter translated into larger supplies of pork—2.4 billion pounds, up more than 6 percent year over year—for which pork wholesalers paid hog processors lower prices. The January wholesale carcass cutout averaged to $81.03, down 10.52 percent from a year earlier. Disaggregating the cutout to its primal components indicates that bellies accounted for the largest share of the year-over-year decline of the carcass value; the belly primal declined almost 39 percent from $148.14 per cwt in January 2022 to $90.94 per cwt last month. With the break in belly prices since the fourth quarter of 2022, it is not surprising that ending stocks for December 2022 (the last data point for cold stocks currently available) shows belly stocks largely recovered to pre-pandemic levels. The deep discount in January 2023 belly prices compared to past years may create incentives to further increase stock volumes in early 2023

First-quarter pork production is reduced fractionally to 7.010 billion pounds on expectations of lower averaged dressed weights, a volume still about 2 percent higher than production in the same period of 2022. Succeeding quarterly production forecasts are unchanged. Quarterly production forecasts for 2023 total to about 27.4 billion pounds, 1.6 percent higher than production in 2022. Prices of first-quarter live equivalent 51-52 lean hogs are expected to average $58 per cwt, almost 12 percent lower than a year earlier. Second-quarter prices are reduced to $71 per cwt, about 6 percent lower than same-period prices last year. For 2023, quarterly hog price forecasts average to about $67 per cwt, almost 7 percent below average prices last year.

Pork Exports Finish 2022 Down 10 Percent for the Year

Although fourth-quarter pork exports had a solid finish—shipments of almost 1.7 billion pounds were about 1.6 percent higher than a year earlier, mostly on the strength of year-over-year larger shipments to Mexico and China—total U.S. exports ended 2022 at 6.3 billion pounds, about 10 percent below volumes in 2021. Most of the shortfall in 2022 was due to lower shipments to China\Hong Kong, for reasons attributable to recovery in the Chinese pork sector as well as to disruptions in the Chinese economy throughout the year, both of which had the effect of reducing demand for foreign pork. Chinese Government data indicate that China’s 2022 pork imports declined by more than 50 percent, with all major pork exporters absorbing part of the steep reduction.

A warning about China’s hog industry

“U.S. hog farmers look at the pictures of those farms in China, and they just scratch their heads and say, ‘We would never dare do that.’” — Brett Stuart, founder of the research firm Global AgriTrends, is worried about disease risks from China’s high-density pig farms, which in some cases pack the animals into tower blocks, according to a news report from the New York Times.

Weekly USDA dairy report

CME GROUP CASH MARKETS (2/10) BUTTER: Grade AA closed at $2.4125. The weekly average for Grade AA is $2.3980 (+0.0535). CHEESE: Barrels closed at $1.5750 and 40# blocks at $1.8625. The weekly average for barrels is $1.5800 (-0.0145) and blocks, $1.8585 (-0.0185). NONFAT DRY MILK: Grade A closed at $1.2650. The weekly average for Grade A is $1.2455 (+0.0535). DRY WHEY: Extra grade dry whey closed at $0.4250. The weekly average for dry whey is $0.4250 (+0.0630).

BUTTER HIGHLIGHTS: In all regions cream supplies are readily available for production. Cream multiples are holding somewhat steady in the Central region, while moving lower at the top end in the West. In the East, increased Class II production may be contributing to the rising regional cream prices. Butter makers throughout the country are operating busy production schedules. Butter inventories are outpacing demand in the West, though steady export demand for unsalted butter is keeping unsalted inventories tighter than salted. Spot butter availability varies throughout the East, as some processors in parts of the region are focusing on freezing butter in bulk. Demand for butter is steady to strong in the East from both retail and food service customers. Contacts in the West report soft retail sales for butter and some say demand is well below previously forecasted levels. Bulk butter overages range from 0 to 10 cents above the market, across all regions.

CHEESE HIGHLIGHTS: In the Northeast and West, cheese makers are running busy production schedules as they work through available milk supplies. Spot milk prices as much as $10 under Class III were reported again in the Midwest this week, and cheese production remains active. Some stakeholders in the Northeast expressed concern that milk availability may be impacted by a recent cold front that swept through parts of the region. Domestic demand for cheese is mixed in the West: some contacts report steady sales while others relay a decline in recent weeks. In the Northeast, retail demand for cheese is softening, and food service sales are mixed. Northeast pizza makers say pizza sales are strong ahead of the professional football championship game. Demand has shifted from steady to strong for retail cheddar and some Italian style cheeses in the Northeast. Meanwhile, sales of curds and barrels in the region are steady to slower. Cheese inventories are growing in the Northeast, and stakeholders say loads are available for purchasing in the West. Some western contacts report barrel inventories are greater than block inventories and suggest this may be contributing to the current block barrel spread on the CME.

FLUID MILK: In the Midwest and East, milk output is steady. Areas in the Northeast and Midwest experienced extreme cold temperatures and wind chills, though production was largely unaffected while some hauling obstacles and delays were noted because of ice and precipitation accumulation. In certain locales in the West, milk output is steady to higher, but certain areas in northern California are still reeling from the effects of recent extreme rainfall and milk output is mixed. Mud has persisted, therefore impeding cow comfort. Overall, Class I sales are steady in all regions as school orders are strong. In the Midwest, spot milk prices are $10 under Class III prices. Supply and demand of condensed skim is strong in all regions. Cream is readily available and in demand in all regions, though increased Class II manufacturing has kept multiples steady. F.O.B. cream multiples are 1.17-1.27 in the East, 1.15-1.27 in the Midwest, and 0.95-1.15 in the West.

DRY PRODUCTS: Price changes for dairy powder commodities were mixed this week, with renewed market activity for certain commodities and stagnancy for others. In the Central and East regions, both the low/medium heat nonfat dry milk (NDM) price range and mostly series expanded this week, while high heat NDM prices only moved higher at the top of the range. In the East, demand for NDM was reportedly more active this week than in recent weeks. The price range for West low/medium heat NDM increased at the bottom end of the range but decreased at the top end. The West high heat NDM price series expanded. Central and East dry buttermilk demand increased, with brand preferred loads fetching prices at the top end of the range. Prices were unchanged from last week. West dry buttermilk demand is unchanged, and the price range and mostly series slightly decreased. Dry whole milk prices moved lower on the top of the range. For the Central region, the dry whey price range expanded due to scattered availability. East dry whey prices dropped at the top end of the range. The West dry whey price range contracted. Whey protein concentrate 34% prices moved lower. Lactose markets remain bearish and prices dropped for the range and mostly price series. Rennet casein markets remain quiet and prices were unchanged, but acid casein markets remain busy and the prices slipped lower on both ends of the range.

ORGANIC DAIRY NEWS: This week, trading has been active on organic feed corn. The bulk of trades were spot market exchanges, trading 11 cents lower delivered elevator. The forward contracts are mostly for Q1-Q2 2023. Trade activity and demand is mostly moderate in the organic feed soybeans market. Bushels traded $1.96 lower, delivered elevator, compared to the previous period. There were fewer forward contracts on organic feed wheat. Trading has been inactive on all other organic grains. Meanwhile, total organic ads declined 44 percent when compared to the previous week's number. As a percentage of total organic ads by commodity, organic milk and organic cheese posted the bulk or organic ads, 43 and 42 percent, respectively. Regionally, organic dairy ads increased 82 percent in Alaska, 75 percent in Hawaii, and 50 percent in the Northwest.

NATIONAL RETAIL REPORT: Total conventional dairy advertisement numbers increased 17 percent from week five. Conventional ice cream, 48 to 64 ounce containers, was the most advertised dairy item during week five, followed by conventional cheese in six to eight ounce blocks. Total conventional butter ads increased 39 percent week to week. The weighted average advertised price of butter in one pound packages was $4.49, compared to $4.37 last week. Conventional milk ad numbers, in half gallon containers, more than doubled from last week, as gallon milk ads increased just six percent. Organic milk, in half gallon containers, had a weighted average advertised price of $5.51, up from $4.28 last week. Conventional cheese advertisement totals increased 31 percent, whereas organic cheese ad totals declined 41 percent. There were weighted average advertised price decreases across the board for conventional cheeses.

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