Weekly global protein digest: Taiwan fully open to Canadian beef, US pork sector in trouble

Analyst Jim Wyckoff shares an update on global protein news
calendar icon 2 June 2023
clock icon 15 minute read

US DOJ responds to comments on proposed settlement in poultry industry info sharing on worker wages

The U.S. Department of Justice (DOJ) has responded to public comments on a proposed final judgment regarding allegations that major U.S. poultry companies — Cargill, Inc., Wayne Farms, LLC, and Sanderson Farms, Inc. — conspired with the consulting firm Webber, Meng, Sahl and Company to share wage data on workers. The response was published in the Federal Register and has been filed in the U.S. District Court for the District of Maryland.

The DOJ stated that it believes the proposed remedies are in the public interest and address the harm alleged in the complaint. The final judgment prohibits the defendants from conspiring to assist their competitors in making compensation decisions, exchange current and future, disaggregated, and identifiable compensation information, and facilitate this anticompetitive agreement.

The DOJ received no comments regarding the consulting firm and five comments concerning the poultry companies. However, it noted that many comments addressed issues beyond the case and thus did not alter the DOJ's view on the final judgment. While acknowledging other significant issues in the poultry industry, the DOJ contends that the final judgment addresses the case at hand in the public interest.

USDA's forecasts an increase in food prices for 2023, but at a slower pace

The projected rise in the overall cost of food is now 6.2%, down from 6.5% in the April forecast. Grocery prices are projected to increase by 6.3% (down from 6.6%), while restaurant prices are expected to rise by 7.7% (down from 8.2%).

This updated outlook shows a narrowing price range for all food, with estimates ranging from 4.9% to 7.5% for all food, 4.5% to 8.1% for grocery store items, and 7% to 8.4% for food-away-from-home.

Of note: While the latest inflation data for April showed food prices rose by 0.2%, a rate higher than in March, the USDA still lowered their forecast for the increase in overall food prices for 2023.

Regarding individual food categories, pork prices are expected to decline by 2.5% in 2023, marking a decrease from the April forecast of a 2.2% decline. On the other hand, beef prices are projected to rise by 0.7%, overturning April's prediction of a 0.5% drop.

USDA projects a 16.6% increase in egg prices for 2023, compared to a 17.8% increase predicted in April. The category of "other foods", which includes soups, spices, seasonings, condiments, sauces, baby food, and other miscellaneous foods, is expected to increase by 8.8% in 2023.

While lower than prior forecasts, they still represent significant inflation in food prices. They are also considerably higher than the 20-year average increases of 2.8% for all food, 3.1% for restaurant prices, and 2.5% for grocery store prices. The anticipated increases follow a trend set in 2022 when all food prices rose by 9.9%, restaurant prices increased by 7.7%, and groceries cost 11.4% more compared to 2021. Even with some relief predicted for consumers at the grocery store in 2023, the expected price increases still represent substantial food price inflation, causing potential challenges for consumers.

Taiwan to fully open Canadian beef trade

Canadian beef exporters will have full access to the Taiwanese market in a few weeks, a Canadian government spokesperson said, after the countries’ top trade officials met at the Asia Pacific Economic Cooperation (APEC) meeting. Canadian Ag Minister Mary Ng met with Taiwan’s John Deng to discuss trade issues on Thursday.

France set to launch bird flu vaccination program

France confirmed its plan to launch a highly pathogenic avian influenza vaccination program in the fall after results from a series of tests on the vaccination of ducks showed “satisfactory effectiveness,” the country’s ag ministry said. France already launched a pre-order of 80 million vaccines last month, which needed to be confirmed based on final tests carried out by French health safety agency ANSES. The results of the tests demonstrated a good control of virus transmission in vaccinated mule ducks, a differentiation between infected and vaccinated animals, known as the DIVA principle, and a reduction in virus excretion by vaccinated birds, the test conclusions said.

The $54 billion U.S. pork industry is being whipsawed by supply and demand forces

Years of rapid expansion have left the sector oversupplied as demand is waning, costs are rising and new regulations are looming. The Wall Street Journal reports hog farmers are being squeezed and some are even being driven out of business as they lose money at the worst rate in decades. The impact is cascading through supply chains, as businesses from hog farms to processing plants scale back operations and meatpacking companies including Smithfield Foods, Tyson Foods and JBS wrestle with shrinking profits. The turbulence is the result of rapid changes in markets. Booming overseas demand led many producers to expand operations, particularly after hog herds in China were devastated by African swine fever. Trade wars cut into that business, and more recently the strong U.S. dollar has made U.S. pork more expensive abroad.

China’s sow herd declines in April but bigger than year-ago

China’s sow herd declined 0.5% in April to 42.8 million head, according to the country’s ag ministry. However, it was still 2.6% larger than last year.

Follow-up on California’s Prop 12 and pork

Following a recent Supreme Court ruling on California’s Prop 12 and pork, Massachusetts' local meat industry is concerned about a potentially significant increase in pork prices due to the possible enactment of a 2016 animal welfare law. This law could take effect as soon as mid-July and would mandate that all "whole pork" items sold in the state must comply with certain animal welfare standards.

Supreme Court Ruling: The Supreme Court upheld a Californian law requiring pork products sold in the state to meet certain guidelines concerning pig pen size. A similar law was approved in Massachusetts seven years ago, and it is now slated to come into effect.

Impact on Pork Products: The Massachusetts law covers all uncooked "whole pork" items like bacon, ham, chops, ribs, roasts, or cutlets made entirely of pork meat. However, combined pork products like hot dogs are not included. Local pork sellers anticipate a significant increase in pork prices as a result.

Roots of the Law: The Act to Prevent Cruelty to Farm Animals was overwhelmingly approved by Massachusetts voters in 2016. It set certain animal welfare standards for eggs, veal, and pork sold in the state. However, the pork regulations were delayed due to legal challenges to a similar law in California.

Challenge from the Pork Industry: Industry groups argue that meeting the new standards will increase the cost of production and hence the price of pork. Only 4% of U.S. pork currently meets the new Massachusetts and California standards, according to some estimates.

Jim Monroe, a spokesperson for Smithfield Foods, which slaughters 30 million hogs a year and is the country’s largest pork producer, said the company spent $360 million to convert its 400 corporate-owned farms to a so-called group-housing system that provides sows with more room, which debuted in 2017. While some animal rights groups hailed the Smithfield system as more humane, others contend gestational crates remain a significant part of Smithfield’s operations.

Massachusetts timeline: Local pork-sellers are waiting for guidance on how to proceed. The attorney general’s office said any petition for a rehearing on the California law would need to be filed by June 5, and if none is made, the high court will issue its final judgment the week of June 12. That would then trigger a 30-day deadline of July 12 for the pork regulations to go into effect.

A spokesman for Attorney General Andrea Campbell said her office is “reviewing the decision and will provide updates when we have more to say about next steps.” Lawmakers so far have been mum about any legislative fixes.

State Senator Jason Lewis, who sponsored the Massachusetts bill, said in a statement that he “is pushing hard for this law to go into effect and start being enforced as soon as possible.” But even as they await guidance, restaurants, grocery stores, and food banks are bracing for the impact.

Impact on Low-Income Households: The implementation of the law might result in a near doubling of pork prices, which could disproportionately affect people near or below the poverty line. Many immigrant populations and food banks rely heavily on pork, raising concerns about accessibility and affordability.

Response from Supporters: Supporters of the law argue that it reflects public sentiment against the inhumane treatment of farm animals. They acknowledge that there might be some price implications, but they believe that the voters were aware of this when they approved the measure.

Preparation for law implementation: Restaurants and food service industries in Massachusetts are preparing for the potential effects of the law, with some considering price hikes and changes to their menus. However, proponents believe that pork producers will need to adapt to these changes, as consumers increasingly demand ethically raised food.

USDA semiannual China dairy report

The forecasts and revised estimates provided in this report are issued by the FAS China office and are not official USDA data. Fluid milk: Total milk production in 2023 is forecast over 42 MMT, a 4 percent increase over 2022 from production efficiency gains and a larger cattle inventory. Fluid milk imports in 2023 are expected to slightly exceed 2022 levels, as the consumption recovers but domestic production weighs on imports.

Whole Milk Powder (WMP): WMP production forecast for 2023 is increased to nearly 1.8 MMT as excess raw milk is processed into WMP. WMP imports are reduced to 600 thousand MT (TMT) as some food processors increase usage of domestically produced WMP. Skim Milk Powder (SMP): In 2023, SMP production is forecast at 25 TMT, but imports are reduced to 330 TMT similar to 2022 due to higher domestic WMP production. WMP and SMP are considered interchangeable ingredients for certain products.

Cheese: Domestic cheese production remains minimal but is expected to increase to 25 TMT on lower milk prices. In 2023, cheese imports are forecast at 150 TMT higher than 2022 rates as cheese consumption in the hotel, restaurant, and institutional (HRI) sector rebounds.

Butter: The butter imports in 2023 are forecast higher at 140 TMT as domestic demand rebounds following the end of COVID-19 restrictions. However, high import prices could weigh on imports. Policy: At the end of 2022, the People’s Republic of China (PRC) ended its COVID-19 testing and disinfection measures on imported cold chain products. This is expected to improve importation and distribution of imported dairy products.

Pork sector, especially in Canada, facing a challenging road to profitability

This is due to several adverse conditions that include declining domestic demand, reduced export opportunities, and potential U.S. animal welfare regulations that could lead to lower prices. In this interview with RealAg Radio host Shaun Haney Christine McCracken, Rabobank's senior analyst for animal protein, says pork producers are currently incurring losses of $40 to $50 per head. Although there has been a slight improvement in feed costs, the high cost of production and price pressure could necessitate moves to reduce production.

The industry, after experiencing high demand during the Covid-19 pandemic, is now dealing with decreased consumption and oversupply in a post-pandemic environment. McCracken states that supply is currently outpacing demand and this imbalance will take time to correct.

Export markets do not seem to offer significant relief for the oversupply of pork, with McCracken doubting that consumers will switch their protein preferences significantly. Despite strong exports driven by reduced pork production in regions like China and Europe, global economic issues, such as inflation and economic slowdown, could reduce the demand for pork.

In addition, the recently upheld California's Prop 12 animal welfare initiative could disrupt domestic markets. The law, which sets space requirements for livestock in production systems, stipulates that all pork sold in California must be produced in compliance with its regulations. Given that a significant amount of current pork production is not compliant with these new rules, the industry could be flooded with excess pork that isn't eligible for export or for shipment into California. This could lead to additional challenges for producers.

Weekly USDA dairy report

CME GROUP CASH MARKETS (5/26) BUTTER: Grade AA closed at $2.4300. The weekly average for Grade AA is $2.4345 (-0.0165). CHEESE: Barrels closed at $1.4900 and 40# blocks at $1.4775. The weekly average for barrels is $1.5070 (+0.0490) and blocks, $1.5655 (+0.0555). NONFAT DRY MILK: Grade A closed at $1.1700. The weekly average for Grade A is $1.1620 (+0.0020). DRY WHEY: Extra grade dry whey closed at $0.2750. The weekly average for dry whey is $0.2685 (-0.0160).

BUTTER HIGHLIGHTS: Plenty of cream is widely available. A few manufacturers report lowering the amount of outside cream brought in due to planned maintenance in the coming month. Although some downtime for churn repairs was reported, butter production is strong overall. Churns are busy working through cream volumes before the upcoming holiday weekend, as some butter makers have indicated plant downtime with the holiday is scheduled. Retail butter demand is noted as strong to steady, while food service demand for butter is noted as strong to moderate. Inventory is available to accommodate current demand. Bulk butter overages range from 0 to 10 cents above market, across all regions.

CHEESE HIGHLIGHTS: Cheese inventories are mixed, but blocks are reportedly tighter than barrels in the Western region. Milk remains widely available. Spot milk loads were priced from $11 to $4 under Class III in the Midwest this week. Comparatively, spot milk prices during the same week last year were $2.75 under to $.75 over Class. Cheese production is trying to match milk availability, as more plants are back online following updates/maintenance. As market prices shift lower, some customers are adding to orders. Some cheesemakers reported being nearly oversold. National cheese markets, though, are under some bearish pressure as block and barrel prices both near the $1.50 mark.

FLUID MILK: Milk production volumes are steady to higher across the country as mild weather conditions, suitable for cow comfort, linger. The Nass Milk Production report noted that April 2023 milk production in 24 major states totaled 18.4 billion pounds, 0.5 percent above a year ago. Bottling demand is steady in the eastern region, but Class I sales are starting to feel the impact of schools preparing to let out for the summer. Class I demand is mostly steady in western states. Balancing plant managers are anticipating heavier milk intakes during the Memorial Day holiday period, with the closing of some Class II and III plants. Meanwhile, cream is widely available due to heavy milk production volumes. Butter churning is active, while demand from ice cream manufacturers and Class II, in general, improves. This week, cream multiples for all Classes range 1.19-1.32 in the East; 1.17-1.29 in the Midwest; and 1.00-1.23 in the West.

DRY PRODUCTS: : Low/medium heat nonfat dry milk (NDM) markets are steady in the East and Central regions. Production is steady with heavy availability of condensed skim leading into the Memorial Day holiday. Mexico’s interest remains good at current market prices. In the West, prices are steady to higher, with steady demand. Buyers’ purchases target immediate and near-term needs. Dry buttermilk prices are steady to lower in the Central and East regions, while steady to higher in the West. Production is mostly steady. Lighter dry buttermilk inventories have prompted the shift in prices in some regions. Dry whole milk prices are lower this week. Inventories are adequate. The market has bearish undertones. Dry whey prices are variable throughout the regions. Lower prices are seen in the East region, steady to lower in the Central region, and steady in the West. Dry whey dryer time is steady with available inventory. Whey protein concentrate 34% prices shifted lower through the range. Buyer spot interest has eased as loads move through contracts. Lactose prices are unchanged. Demand is weak as buyers wait for lower prices. Rennet and acid casein prices are steady in an unsettled market.


WESTERN EUROPE: Milk production across much of the northern portion of Western Europe is at or near peak for the year. Industry contacts say favorable weather has contributed to a relatively strong start to the milk season. That said, in some of the southern portions of the continent, heat and drought have kept milk volumes in check. With abundant milk supplies through the first few months of 2023, farm gate milk prices continue to ease back from the highs of last winter.

EASTERN EUROPE: Milk production in Eastern Europe is growing along seasonal patterns and is nearing the peak of the milk season. Officials from Ukraine, Russia, Turkey and the United Nations confirmed an extension to the Black Sea export deal for another two months. The extension will allow Ukrainian grain to continue to ship through three Black Sea ports. Ukrainian dairy exports are growing in part to the trade measures taken by the EU in June 2022 to reduce or eliminate tariffs for Ukrainian goods moving into Europe.

OCEANIA: NEW ZEALAND: Recent data from the 2023 April milk production report marked the month as the largest ever April milk production, while recognizing an increase of 7.3 percent on milk solids basis, with 154,060,000 kg generated for the month. With the 2023 New Zealand milk production season set to end on May 31, some sources expect total milk production to fall 0.5 percent compared to the 2022 season, while official totals are planned for release late next month. AUSTRALIA: In Australia, it continues to be a season that lags previous year's milk production levels. Factored by smaller herd sizes, hikes in packaging costs, feed and other input costs, all drive lower milk output. Market representatives expect other challenges for the 2023-24 milk season, including higher interest rates and availability of labor to add to uncertainty.

SOUTH AMERICA: A large industry-related conference took place last week in Sao Paolo, and contacts who attended say near-term sentiment was somewhat bearish regarding dairy commodities in the region. Prices have yet to noticeably slip on powders, but there are some expectations that quieter importing from Brazilian customers and recent milk output growth will put more whole milk and skim milk powders on the market. Algerian and other North African importers are signaling stronger interests, but as Brazilian and Chinese purchasing has quieted, some downward pressure is expected from a number of contacts.

NATIONAL RETAIL REPORT: Total dairy retail advertisements increased on the conventional aisle by 21 percent, from the previous week, while organic dairy ad totals increased 92 percent, compared to last week. As a percentage of total ads by commodity, conventional cheese and organic cheese led the way, 32 percent, and 54 percent, respectively. Ice cream in 48-64 -ounce containers was the most advertised conventional dairy retail item, while 6-8-ounce sliced cheese was the most advertised organic dairy retail item. Half gallon conventional milk posted a 73 percent decline in retail store ads, with a $2.08 weighted average advertised price. Half gallon organic milk ads posted a 135 percent increase, with a $4.18 weighted average advertised price. As a result, the market recognizes an organic premium of $2.10 this week.

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