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Weekly global protein digest: EU dairy report, weather, war

01 July 2022
Jim Wyckoff Commentary -  TheCropSite

Analyst Jim Wyckoff shares an update on the US futures market, the latest USDA reports and global protein news.

US pork, beef export sales improve in latest week

USDA Thursday reported US pork net sales of 32,300 MT for 2022 were up 27 percent from the previous week and from the prior 4-week average. Increases were primarily for Mexico (20,700 MT, including decreases of 200 MT), Japan (3,700 MT, including decreases of 100 MT), Australia (2,700 MT), Canada (1,400 MT, including decreases of 400 MT), and South Korea (1,100 MT, including decreases of 200 MT). Total net sales reductions of 100 MT for 2023 were for
Australia. Exports of 27,700 MT were down 4 percent from the previous week and 1 percent from the prior 4-week average. The destinations were primarily to Mexico (12,200 MT), China (4,300 MT), Japan (4,000 MT), South Korea (2,400 MT), and Canada (1,300 MT).

US beef net sales of 17,000 MT for 2022 were up 52 percent from the previous week and 6 percent from the prior 4-week average. Increases primarily for South Korea (5,100 MT, including decreases of 1,100 MT), China (4,500 MT, including decreases 400 MT), Japan (2,000 MT, including decreases of 1,000 MT), Taiwan (1,700 MT, including decreases of 100 MT), and Indonesia (1,000 MT), were offset by reductions for Chile (100 MT). Exports of 19,800 MT were up 4 percent from the previous week and 5 percent from the prior 4-week average. The destinations were primarily to South Korea (5,700 MT), Japan (5,000 MT), China (3,800 MT), Taiwan (1,100 MT), and Canada (1,000 MT).

War and weather imperil global food supplies

That’s according to US agriculture officials and executives as rising food prices drive shortages and protests around the world. The pressures are playing out this year as conflict in Eastern Europe disrupts exports from Ukraine, one of the world’s top crop producers, and drought and poor weather afflict major crop-growing regions. Rising food prices are prompting unrest, as disruptions in the flow of crops from Ukraine compound existing stress on global supplies of grains and other goods.

The head of the United Nations World Food Program has warned outright food shortages are possible in 2023 if Russia continues to block Ukraine’s crop exports. Up to 323 million people worldwide are at risk of starvation due to the pandemic, climate change, global economic woes and warfare including Russia's invasion of Ukraine, said the leaders of the world's leading democracies. The Group of Seven committed an additional $4.5 billion on Tuesday "to protect the most vulnerable from hunger and malnutrition."

The situation is less grim in Asia. Thank rice, the WSJ reports. Following successive bumper crops, rice has emerged as a rare food commodity that has generally been cheaper this year than it was last year. That’s great news for the billions of people who live across the swath of Asia where the grain is a popular staple, from India to Thailand, Vietnam and Japan. The region encompassing South, Southeast and East Asia produces and consumes more than 80% of the world’s rice.

African swine fever outbreak in Poland

In June 2022, Poland reported four new outbreaks of African Swine Fever (ASF) on hog farms, The outbreaks were located in ASF restricted areas that have a high concentration of ASF infections in wild boars. Additional outbreaks on farms are expected as the disease is more prevalent in the summer. With no new areas in Poland infected with ASF virus, the pork industry situation remains stable. Before the June reports, Poland’s last outbreak was in December 2021.

July 4 cookouts will cost $10 more this year

The average cost of a summer cookout for 10 people is now $69.68, up about 17% or $10 compared to last year, according to a new survey from the American Farm Bureau Federation. Driving up prices: Ongoing supply chain problems tied to the pandemic, the war in Ukraine and the broader jump in inflation. The spike in ground beef prices is the biggest contributor. The survey found that two pounds of ground beef now costs $11.12, a 36% leap from last year. Two-and-a-half pounds of homemade potato salad is up 19%, while hamburger buns are 16% pricier.

US food prices forecast by USDA to rise by most in more than 40 years

US food price inflation is now forecast by USDA at 7.5% to 8.5% in 2022, the highest since food prices rose 8.6% in 1980. The latest rise marks a fifth straight monthly increase in the forecast, according to USDA’s Economic Research Service (ERS). Food at home (grocery) prices are expected to rise 8.5% to 9.5% for the highest level of grocery price inflation since an increase of 10.8% in 1979. Food away from home (restaurant) prices are looked to increase 6% to 7%, unchanged from last month, but still the biggest rise since an increase of 9% in 1981.

USDA semi-annual European Union dairy report

Note: Effective January 1, 2021, the United Kingdom (UK) completed its departure from the European Union (EU), including trade between both entities. In this report if it is not indicated otherwise, the EU means the current EU27 (without the UK).

Cow numbers in the EU27 have decreased by more than 1.4 million head since 2016, including a loss of 800,000 head since 2019. Continued year on year increases in milk productivity are unable to compensate for this loss of dairy cows and the EU27 cow milk production forecast for 2022 is now 144.6 million MT (MMT), a decrease of 434,000 MT compared to 2021 and 836,000 MT down from 2020. EU dairy industry experts expect EU milk production to decline further in 2023 and after, when the new Common Agricultural Policy (CAP) and the accompanying Farm to Fork Strategy (F2F) conditionalities require EU dairy farmers to adjust their production systems.

The increase in production of non-cow milk remains strong as consumers’ appreciation for goat and ewe derived dairy products, mainly cheeses, continues to increase. Drinking milk consumption in the EU may decrease again in 2022 as people drink less liquid milk in the working place, after a spike in 2020 and 2021 when COVID19 kept people home. This should allow additional milk for dairy processing to marginally recover after a decrease in 2021 because of the reduced milk production.

Cheese production is the preferred EU27 milk factory use, and this trend is expected to continue as several new cheese plants have emerged in recent years, mainly to produce industrial mozzarella for the food processing industry. EU27 cheese production for 2022 is forecast to increase to 10.6 MMT, an increase of 50,000 MT over 2021 and almost 240,000 MT higher than production in 2020. EU cheese consumption continues to increase year after year and this should continue through 2022, but at a slowing pace due to increasing prices. The consumer appetite for Geographical Indicator (GI) and local cheeses, including goat cheeses, is growing more strongly, with higher returns for processors and local farmers alike. The slowing increase in cheese production led to lower EU27 cheese exports in 2021, but the forecast is that exports should mostly recover in 2022. The EU butter market is growing more slowly and may well start to contract in 2022, as the aging population is looking for healthier eating patterns.

Butter production decreased by 2 percent in 2021 compared to 2020 and is forecast to decrease slightly further in 2022. After a decrease at the onset of the COVID-19 crisis in 2020, EU27 domestic consumption partly recovered in 2021, to continue its decreasing trend in 2022. EU27 butter exports for 2022 is now forecast to further decrease in response to the surge in prices, after a 16 percent decrease in 2021 compared to 2020.

Non-Fat Dry Milk (NFDM) or Skimmed Milk Powder (SMP) production in the EU is the residual product from EU butter and cream production. Consequently, its production follows butter production. Therefore, EU27 2022 NFDM production is forecast to further decrease after a 4 percent dip in 2021, compared to 2020. More than half of EU NFDM production is exported. The proximity of Northern Africa and the Middle East make this region top export destinations for EU NFDM, but exports to South-Asian countries increased significantly in 2021 as a result of high demand and decreased exports from Oceania. Domestic consumption is led by feed consumption for veal production, but commercial stocks may conceal actual consumption.

Whole Milk Powder (WMP) production is usually the residual EU milk processing use and a lack of milk is forecast to further decrease production in 2022, after a 10 percent decrease in 2021 compared to 2020. The decrease in production led to a decreased consumption by the EU food industry in 2021 and is expected to continue in 2022. Similarly, EU WMP exports decreased in 2021, with a further decrease in 2022 anticipated. From a policy perspective, as the impact of Brexit and COVID-19 on European dairy markets are mostly behind us, the implementation of the new CAP and F2F initiatives in 2023 will dominate the EU dairy sectors’ concerns. Strengthening EU environmental and climate mitigation policies will only deepen those concerns. As dairy experts anticipate a new wave of dairy farmers potentially quitting the sector, the major industry players are already adapting their corporate plans and strategies, as they adjust to these new EU policy realities. Available milk supplies are redirected towards their most profitable and strategic domestic and export market interests.

USDA quarterly US hogs and pigs report

United States inventory of all hogs and pigs on June 1, 2022 was 72.5 million head. This was down 1 percent from June 1, 2021, and down slightly from March 1, 2022. Breeding inventory, at 6.17 million head, was down 1 percent from last year, but up 1 percent from the previous quarter. Market hog inventory, at 66.4 million head, was down 1 percent from last year, and down slightly from last quarter. The March-May 2022 pig crop, at 32.9 million head, was down 1 percent from 2021. Sows farrowing during this period totaled 2.99 million head, down 1 percent from 2021. The sows farrowed during this quarter represented 49 percent of the breeding herd. The average pigs saved per litter was 11.00 for the March-May period, compared to 10.95 last year.

United States hog producers intend to have 3.02 million sows farrow during the June-August 2022 quarter, down 1 percent from the actual farrowings during the same period one year earlier, and down 7 percent from the same period two years earlier. Intended farrowings for September-November 2022, at 3.01 million sows, are down 1 percent from the same period one year earlier, and down 5 percent from the same period two years earlier. The total number of hogs under contract owned by operations with over 5,000 head, but raised by contractees, accounted for 50 percent of the total United States hog inventory, up 1 percent from the previous year.

Revisions All inventory and pig crop estimates for June 2021 through March 2022 were reviewed using final pig crop, official slaughter, death loss, and updated import and export data. The revision made to the March 2022 all hogs and pigs inventory was 0.6 percent. The revision made to the December 2021-February 2022 pig crop was 0.4 percent. The net revision made to the December 2021 all hogs and pigs inventory was 0.3 percent. A net revision of 1.2 percent was made to the September-November 2021 pig crop.

Weekly USDA dairy report

CME GROUP CASH MARKETS (6/24) BUTTER: Grade AA closed at *$2.9150.* The weekly average for Grade AA is $2.9413 (-0.0147). CHEESE: Barrels closed at $2.1475 and 40# blocks at $2.0900. The weekly average for barrels is $2.1644 (-0.0151) and blocks, $2.0975 (-0.0730). NONFAT DRY MILK: Grade A closed at $1.7900. The weekly average for Grade A is $1.8013 (-0.0152). DRY WHEY: Extra grade dry whey closed at $0.4750. The weekly average for dry whey is $0.4875 (-0.0205).

CHEESE HIGHLIGHTS: Cheesemakers are running busy schedules across the country as Class III milk supplies remain widely available. Labor shortages and delayed deliveries of production supplies are causing some Western cheesemakers to run below capacity. Cheese inventories are available for spot purchasing. Contacts in the Northeast and West report that domestic demand in both retail and food service markets is softening. In the Midwest, interest for barrels and curds is strong, while other cheddar is seasonally quiet. Across the country, cheese inventories are available for spot purchasing. Cheese markets, reportedly, are experiencing some downward pressure. Contacts in the West relay that softening domestic demand and increased spot availability are contributing to this.

BUTTER HIGHLIGHTS: Cream is available throughout all regions, though contacts in the Northeast and West note that availability is declining seasonally. Strong demand for cream is present in the West, but contacts report that high transportation costs and limited tanker availability are causing most loads to stay local. Butter makers in the Northeast are running lighter schedules due to higher cream multiples and softening demand. Meanwhile, contacts in all regions relay that staffing shortages are limiting their ability to run full schedules. Demand for butter is declining in the Northeast and West. Central region demand for butter is soft, following seasonal trends. Across all regions, bulk butter overages range from 4 to 16 cents above market.

FLUID MILK: Warmer temperatures are affecting farm-level milk production output levels throughout the U.S. In the East region, milk declines are being reported in most areas as a downswing also occurs in the Central region milk. In the West, milk production is level to moderately elevated, otherwise, volumes are declining in Arizona and New Mexico. Overall, Class I bottling sales are seasonally slower. Sluggish demand is clearing milk loads, supporting the production needs of processors. Cheesemakers in the Central region are clearing spot milk at a substantial discount. Condensed skim spot availability is mixed. Supplies are tighter in the East, but handy in the West. Cream availability varies as the summer heat chips away at milkfat levels in some areas of the country. Countrywide, the f.o.b. cream multiple for all classes ranges 1.32 - 1.43 in the East; 1.26 - 1.35 in the Midwest; and 1.05 - 1.33 in the West.

DRY PRODUCTS: Central and East low/medium heat nonfat dry milk (NDM) prices are generally stable as prices in the West mostly declined. At current prices, end users are reluctant to acquire spot loads beyond their immediate needs. Mexico reduced their NDM orders this week. Prices for dry buttermilk held steady in the Central and East. Dry buttermilk spot supplies are constrained, as ice cream production surges while churning declines. The West dry buttermilk price is weaker, with the increased availability of inventory. Dry whole milk prices, and the market tone in general, are steady. Inventories are adequate. Dry whey prices adjusted mostly lower in all regions. Supplies are growing amid less-than-expected sales in the Asian export markets. Whey protein concentrate 34% (WPC 34%) markets are steady to higher. WPC 34% for specific demand needs is tight, causing upward pressure on prices. The lactose range price is unchanged, on steady trading. As it stands, sources project a strong second half of 2022. Rennet and acid casein market prices are steady to higher this week as bullish sentiment lingers.

INTERNATIONAL DAIRY MARKET NEWS: WESTERN EUROPEAN OVERVIEW: Milk production throughout Western Europe is lagging 2021 levels, while overall output is declining seasonally. Some contacts note that there are concerns about the rising costs of fuel and the impacts that will have on the industry. Trading activity for dry dairy products has been calm as some sellers and buyers are waiting to see how the market may change in the coming months. Milk production has declined in the UK when compared to 2021. In Italy, drought conditions have contributed to increased purchasing of fluid dairy products.

EASTERN EUROPEAN OVERVIEW: Milk production data published by CLAL and made available to the USDA shows mixed output throughout the Eastern EU27 countries, when compared to the first four months of 2021. In Poland, the Baltic States, and the Czech Republic year to date output is up. Meanwhile, milk output through the first few months of this year has declined in Hungary, in comparison to last year.

AUSTRALIA: Strong demand for dairy products facing weak supply has helped profitability in the Australian dairy industry. However, inflationary pressures and cost impacts are increasingly being noticed as factors reducing profit margins at the farm level. Continuing farm and plant labor shortages are cited by sources as constraining dairy production growth. Some processors are less affected as a large Australian dairy cooperative reports profitability.

NEW ZEALAND: New Zealand pastures are showing signs of recovering, with a turnaround that supports numbers that are in line with year ago pasture growth levels. Hence, some market representatives have an optimistic outlook for the country's milk production as the new dairy season begins. The export market's appetite for milk protein and milk fats drives the effort, as New Zealand's dairy export revenue tracks a 13 percent growth rate over the previous year.

TheCattleSite News Desk

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