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Weekly global protein digest: USMCA, Biden goes after meatpackers, Prop 12

07 January 2022
Jim Wyckoff Commentary -  TheCropSite

Market analyst Jim Wyckoff shares highlights from this week's activities in the global protein market.

USMCA panel sides with US in dispute with Canada over dairy

Canada did not live up to terms of the U.S.-Mexico-Canada Agreement (USMCA) by giving its dairy industry preferential treatment relative to tariff-rate quotas (TRQs) for dairy products into the Canadian market, but Canada insists the dispute settlement decision still shows Canada can maintain a supply management system. The verdict could allow American dairy farmers to increase sales to Canada by more than $200 million annually. Dairy exports to Canada have climbed by about $56 million, compared with when the USMCA took effect, according to Trade Data Monitor, which compiles global import and export data. This was the first-ever use of a new dispute resolution panel established by the USMCA.

The USMCA panel was requested by the U.S. in May 2021 and determined Canada was not living up to the deal by reserving most of the in-quota quantity in its dairy tariff-rate quotas (TRQs) — 80% to 85% — for the exclusive use of Canadian processors. A statement from U.S. Trade Representative (USTR) Katherine Tai welcomed the finding. “This historic win will help eliminate unjustified trade restrictions on American dairy products and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA to market and sell U.S. products to Canadian consumers,” Tai said.

Background. Under the USMCA, Canada was allowed to maintain 14 TRQs on milk, cream, skim milk powder, butter and cream powder, industrial cheeses, cheeses of all types, milk powders, concentrated or condensed milk, yogurt and buttermilk, powdered buttermilk, whey powder, products consisting of natural milk constituents, ice cream and ice cream mixes, and other dairy. USTR said that Canada had published notices in October 2020 and May 2021 that set aside a percentage of the quota for processors and for so-called “further processors,” USTR said, which was contrary to Canada’s USMCA commitments.

USTR said the action undermined the value of the dairy TRQs for the U.S. dairy industry. The USMCA dispute settlement panel agreed that Canada setting aside a percentage of each TRQ specifically for Canadian processors was counter to Canada’s USMCA commitments. They further determined there is no distinction between initial processors and further processors which means that the restriction applies to all processors.

JBS investigation urged by U.S., European lawmakers

US Senate Foreign Relations Committee Chairman Bob Menendez, U.K. House of Commons MP Ian Liddell-Grainger and European Parliament Committee on Agriculture and Rural Development Chair Norbert Lins called for a coordinated investigation into Brazilian-owned company JBS, its parent company J&F Investimentos and subsidiaries in Europe and the United States. “We also encourage our governments to scrutinize JBS’ antitrust and anticompetitive practices and assess whether the company’s abuses could permanently damage food supply chains,” the lawmakers said in a statement.

Biden to fight meatpackers on inflation

President Joe Biden promised to “fight for fairer prices” for farmers and consumers yesterday as he announced plans to combat the market power of the giant conglomerates that dominate meat and poultry processing. “Capitalism without competition isn’t capitalism, it’s exploitation,” Biden said. “That’s what we’re seeing in meat and poultry.” Biden joined USDA Secretary Tom Vilsack and Attorney General Merrick Garland to meet virtually with ranchers and farmers to hear complaints about consolidation in the industry, ratcheting up a campaign blaming anti-competitive practices in the industry for contributing to surging food inflation.

US wants tighter labelling standards for Product of USA meat products

This would hurt large producers and processors that rely on imports in their production process and could fuel tensions with exporters of meat to the U.S. who have often complained of barriers to access the U.S. market. “Under current labelling rules, meat can be labelled ‘Product of USA’ if it is only processed here — including when meat is raised overseas and then merely processed into cuts of meat here. We believe this could make it hard for American consumers to know what they are getting,” the White House said on Monday.

Biden, Vilsack meet with independent producers on concentration in US meat industry

President Biden, USDA Secretary Tom Vilsack and Attorney General Merrick Garland are announcing “the Biden-Harris Administration’s Action Plan for a Fairer, More Competitive, and More Resilient Meat and Poultry Supply Chain,” the White House said in a media advisory. The announcement will take place during an online meeting that the White House said will be held “with family and independent farmers and ranchers to discuss his administration’s work to boost competition and reduce prices in the meat-processing industry, where corporate consolidation has led to rising prices for consumers and lower earnings for farmers and ranchers.” The White House said, “The meat producers will talk about the challenges they have faced as large conglomerates have absorbed more and more smaller processors.”

“The attorney general and the secretary of Agriculture will also attend and explain the steps the administration is taking to increase processing options for farmers and ranchers and to create fairer and more competitive markets. Vilsack will continue his aggressive work to tackle the causes of the higher prices American families have been facing.

“The president will explain that under his July Executive Order on Promoting Competition in the American Economy, the administration has been focused on tackling the lack of competition in agricultural markets. A small handful of meatpackers control the majority of the markets for beef, pork, and poultry, enabling them to squeeze farmers and ranchers while also raising prices on consumers.”

Bottom line: Antitrust actions remain in focus. Agriculture remains one of the focal points for the Biden administration on this front, with today’s virtual meeting aimed at discussing the administrations’ efforts to boost competition and reduce prices in the meat processing industry. The officials will listen to complaints about consolidation in the industry, while launching a new portal to allow farmers and ranchers to report unfair trade practices by meatpackers.

Pricey chicken puts thighs on restaurant menus

Winston Churchill once mused about “the absurdity of growing a whole chicken to eat the breast or wing.” Now, short supplies and escalating costs of chicken breasts and wings are leading restaurants to add thighs and other dark poultry meat to menus and entrees, the Wall Street Journal reports. Poultry producer Perdue Farms Inc. has seen a 15% increase in boneless thigh sales in 2021 and a 20% increase in ground chicken, which is made of mostly dark meat, the company said. Products like thighs have two advantages for restaurants struggling with the high cost and tight supplies of breasts and tenders: they are cheaper and easier to get, industry officials said. “Chicken thighs are all about flavor,” said Nick Kenner, Just Salad’s chief executive. He said more customers are now choosing the product rather than the New York City-based chain’s chicken breast offerings.

California law on animal cruelty to impact US pork industry

California’s Prevention of Cruelty to Farm Animals Act, also known as Proposition 12, took effect on Saturday that is expected to have major impacts on the pork industry and product prices. The law establishes minimum space requirements for farm animals and prohibits the sale of meat from animals raised in housing that doesn’t meet its specifications. Sources note a petition by NPPC and Farm Bureau on Prop 12 is scheduled for a Supreme Court conference on Jan. 7. “There is a high likelihood they [Supreme Court] will have an initial discussion in conference on Jan. 7, then wait until Jan. 14 to make a final decision on taking the case or not. If they do that, we would find out likely at about 9:30 am ET on Tuesday, Jan. 18,” a contact detailed. “The court isn’t deciding the case, they are merely deciding whether to take the case up.”

China’s sow herd up 4.7% from last year

China’s sow herd at the end of November was 4.7% higher than the previous year at 42.96 million head, the country’s ag ministry reported, though down 1.2% from October. China slaughtered 235.9 million hogs in the first 11 months of 2021, up 66.1% from the same period the previous year, amid rapid expansion of the hog herd after the African swine fever outbreak. Rising output and oversupply have caused pork prices to plunge this year and pushed hog margins to negative territory.

USDA issues ‘public health alert’ for undetermined quantity of foods from China
USDA’s Food Safety and Inspection Service (FSIS) has issued a public health alert for an “undetermined amount of imported meat and poultry products from China,” but no recall has been issued as FSIS has not been able to identify and contact the importers. “The total amount of ineligible product is undetermined because the investigation is ongoing,” FSIS said. The products do not identify an eligible establishment number on the packaging and were not presented for import reinspection. “These products are ineligible to import into the US, making them unfit for human consumption,” FSIS said. There have been no confirmed reports of any adverse reaction to consuming the products.

US Dairy Markets at a Glance

CME GROUP CASH MARKETS (12/31)

BUTTER: Grade AA closed at $2.4525. The weekly average for Grade AA is $2.4075 (+0.2387).

CHEESE: Barrels closed at $1.7100 and 40# blocks at $1.9800. The weekly average for barrels

is $1.6835 (+0.0460) and blocks, $1.9500 (+0.0837).

NONFAT DRY MILK: Grade A closed at $1.6550. The weekly average for Grade A is $1.6575

(-0.0125).

DRY WHEY: Extra grade dry whey closed at $0.7500. The weekly average for dry whey is

$0.7500 (+0.0150).

CHEESE HIGHLIGHTS: Milk availability has grown, as is a holiday season expectation. Despite the current discounted spot milk prices ($4 to $2 under Class in the Midwest), the milk access narrative has changed since last year during the final week of the year, when milk prices nadired at $10 under Class. Food service cheese sales have softened over the final weeks of the year, as Omicron variant remains an unknown factor, but retail cheese demand is noted as steady to strong. Northeastern cheese contacts report stable availability for both spot and contractual needs. Cheese market tones are uncertain, primarily due to the relatively large block-to-barrel price difference. However, there is a bullish undercurrent, as some producers expect a demand rebound in early 2022.

BUTTER HIGHLIGHTS: Cream is available in all regions; contacts in the East feel that this will continue into the first week of the new year. Some cream deliveries are being limited, in the West, by severe weather and a shortage of truck drivers. In the Northeast,

purchasing of packaged butter is declining, seasonally. Butter demand is trending higher in the Central region, while holding steady in the West. Bulk butter inventories are tight across the country. Butter producers are running as much as possible, though churning is below capacity in the West. Stakeholders in the region say that shipping delays and labor shortages are limiting some production schedules. Spot butter prices have been climbing rapidly, on the CME, over the last two weeks. Bulk butter overages range from 5 to 18 cents above market across the country.

FLUID MILK: Farm level milk production is mixed across the country. Bottling sales are generally lower, as expected this time of year. Steady to stronger retail orders in some areas, though, are giving bottling sales a boost. Production is seasonally lower for egg nog and frozen desserts as the year comes to a close. Staffing shortages and transportation issues continue to burden dairy processors in the Southwest and other regions. Condensed skim markets have a stable undertone. Cream availability has loosened, for now, and demand is somewhat mixed as production schedules vary. Some butter makers are running aggressive churning schedules, but other cream-based manufacturers will close for the holiday. F.O.B. cream multiples for all classes are 1.10-1.30 in the East, 1.10-1.25 in the Midwest, and 1.00-1.27 in the West.

DRY PRODUCTS: Low/medium heat nonfat dry milk (NDM) prices are steady, although the Western mostly range shifted higher. Domestic demand is strong, but international demand is dropping. High heat NDM prices are mixed, and availability is limited. Dry buttermilk price ranges held steady in all regions, but the top of the mostly range inched up in the West. Spot trading has been quiet between holidays, but domestic and export demand are present. The dry whole milk price range is holding firm. Domestic demand is steady, and inventories are snug. Dry whey prices, and domestic and international demand, are steady to higher. Production is fairly steady, although some facilities are prioritizing drying higher protein blends. The whey protein concentrate (WPC) 34% price range is unchanged, but the mostly range pushed up. Inventories are tight, and production is hampered by stronger demand for WPC 80% and WPI. Lactose prices are steady. Production is active and inventories are heavy, but much of the supply is committed for 2022. Prices are unchanged for acid casein and rennet casein.

NATIONAL RETAIL REPORT (DMN): The final week of 2021 brought on fewer dairy retail advertisements, in totality, compared to week 51. Conventional ice cream, in 48- to 64- ounce quantities, is the most advertised dairy item across the board, while half gallon milk containers remain the most advertised organic dairy item this week. Organic half gallon milk held a weighted average advertised price of $3.69, which is an organic premium of $2.03 compared to conventional bottled milk.

TheCattleSite News Desk

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