Weekly global protein digest: HPAI advances globally, dairy world trade developments

Analyst Jim Wyckoff shares an update on the USDA reports and global protein news
calendar icon 23 December 2022
clock icon 11 minute read

HPAI infections advance in US commercial egg layer flocks

USDA’s Animal and Plant Health Inspection Service (APHIS) confirmed new cases of highly pathogenic avian influenza (HPAI) in three commercial table egg layer flocks since Dec. 14 totaling nearly 4 million birds. Dec. 14 confirmations included commercial egg layer flocks in Franklin County, Washington (1,015,500 birds) and Moody County, South Dakota (1,332,100 birds), Dec. 16 in Weld County, Colorado (1,400,000 birds). This brings total birds affected by HPAI this year to 57.53 million birds in 47 states, including 301 commercial flocks and 401 backyard flocks. The most recent confirmations in commercial operations have continued to be in turkey and commercial egg layer flocks, ones where populations of birds are older.

China’s pork imports rise in November but still below year-ago

China imported 180,000 MT of pork in November, up 20,000 MT (12.5%) from October but 11.1% below year-ago. For the first 11 months of this year, China imported 1.56 MMT of pork, down 56% from the same period last year.

Avian influenza continues to ravage poultry globally

The virus has reached five South American countries since October and wiped-out half of the U.K.’s free-range turkeys for Christmas.

USDA wants to continue case-control study on HPAI in turkeys.

USDA’s Animal and Plant Health Inspection Service (APHIS) is seeking to continue a case-control study on highly pathogenic avian influenza (HPAI) in turkeys that was started in 2022. APHIS is proposing to continue the study “to generate up-to-date information for determining current risk factors for infection with this environmentally hardy foreign animal disease pathogen. The information gathered comes from a multi-question survey administered to commercial turkey producers. USDA wants to continue the study for three more years.

Comments on the plan are due by Feb. 14. USDA noted in the Federal Register notice seeking the extension that over 70% of all affected commercial farms in the U.S. are turkey farms. The study is needed to try and mitigate future infections, APHIS said, noting that evidence so far signals the 2022 infections have been “due to independent wild bird introductions.”

USDA annual dairy market and trade report

USDA this week reported that so far in 2022 record exports- on a value basis- are being set across all dairy commodities, driven by strong international dairy product prices. Through October, dairy export values are up 25 percent, with robust growth across the major product groups including skim milk powder (NDM/SMP), whey, lactose, cheese, and butter; however, from a volume perspective, average export growth across commodities is a more modest 5 percent. Nowhere is this dichotomy more prevalent than with NDM, where export quantities have fallen 8 percent over this period while export values have increased 27 percent. For the current year, NDM exports are forecast to fall about 8 percent to 819,000 tons due to slowing shipments to China where consumption of SMP has shifted to whole milk powder (WMP) in response to higher prices and higher domestic WMP production. NDM/SMP exports are expected to rebound in 2023 to 836,000 tons as higher milk production drives production higher for a number of dairy products.

Through October, whey and cheese exports saw similar activity with volume growth of 7 percent and 13 percent, respectively, while values grew 38 percent and 26 percent, respectively. Butter was the one major dairy product where export volume growth has outpaced export value growth, reflecting significantly lower unit values to Mexico and Canada.

World trade developments

In Argentina, milk output is forecast to rebound in 2023 after dry weather conditions in the summer and a cold autumn impacted yields in 2022. Milk production is expected to grow by 1 percent in 2023 reflecting a return to normal weather conditions, improved availability of inputs (mainly concentrates, fertilizers and fuels for feedstuffs production), and investments in comfort-related technology and more efficient husbandry practices, which have been key to maintaining milk production growth.

Milk production in Australia is expected to decline 1 percent in 2023. The overall outlook for production conditions in 2023 is favorable with record milk prices, low hay prices, and easing feed grain prices. Above average rainfalls across the major dairy farming regions have provided ample fodder and low-cost water for irrigation. Traditionally, these conditions would cause producers to boost dairy cow numbers and lead to higher milk production. However, dairy farms continue to face labor shortages which will prevent expansion in cow numbers. Furthermore, energy and fertilizer costs have soared, causing dairy farmers to scale back cow numbers and either partially or fully convert to beef cattle production. These enterprises require less labor and may be more profitable with beef prices near record highs. For 2023, there is unlikely to be any substantial price relief in imported nitrogen fertilizer prices, which have grown upwards of 3-4 times since January 2021, or electricity costs (milking parlors on dairy farms use substantial amounts of electricity). As fertilizer and energy prices are expected to remain high, there will be continued pressure on dairy farmer profitability.

In China, raw milk production is expected to reach 42.1 million tons in 2023. The growth in China’s raw milk production can be attributed to government policies supporting dairy production, large-scale investments by dairy companies, and the importation of over 1.2 million head of high-quality cattle during the last 5 years. It is estimated that approximately 80 percent of cattle imports, which have come predominantly from New Zealand and Australia, are for dairy production. Dairy processors are expected to process much of this year’s seasonal surplus raw milk into WMP.

In the European Union, despite continued year-on-year increases in milk productivity, the decline in cow numbers has eroded EU cow milk production, which is forecast for 2023 at 143.0 million tons. The planned implementation on January 1, 2023, for the new Common Agricultural Policy (CAP) and the accompanying Farm to Fork Strategy (F2F), will likely add uncertainty for the dairy sector in the coming year. The EU-wide drought in 2022, which persisted all summer, hindered 2022 fodder production and has depressed milk production as higher production costs for energy, fertilizer, and feed negated higher farm-gate milk prices. Non-cow milk production, mostly concentrated in Mediterranean member states, has fared better, driven by consumer demand for dairy products like goat cheeses or mozzarella buffalo, as well as local milk production for niche products protected by a geographical indication (GI).

However, farmers in France and Italy that produce milk for GI products faced shortages of fodder and halting production as they could no longer met the feeding standards for their GI production. • Despite relatively high milk prices, New Zealand milk production is forecast to decline marginally in 2023 to 21.0 million due to a smaller dairy herd and slightly lower milk per cow yields. Cow yields are forecast to be impacted by a third consecutive La Niña weather pattern, as well as a smaller feed base, impacted by a cold and wet winter slowing spring pasture growth coupled with a smaller winter forage crop from prolonged dry conditions in the first half of 2022. Cow numbers are forecast to decline 0.3 percent to 4.9 million head, continuing the trend of herd contraction since peaking at 5.2 million head in 2014.

In New Zealand, 2022, milk production is forecast at 21.1 million tons, down 4 percent from 2021. At the start of the 2022 year, most dairy production regions encountered a prolonged dry period, symptomatic of the La Niña weather pattern. The prolonged dryness in the first half of 2022 coincided with an upsurge in COVID-19 cases which initially had a major impact at farms. Surging cases led to a slowdown at slaughter facilities due to lack of workers and resulted in many cull dairy cows being delayed and held on farm. These cows then utilized feed that would have typically been prioritized for the milking herd. Producers were also hampered by rising input costs with a range of industry estimates putting on-farm inflation for dairy farms at 16-17 percent as of mid-2022. New Zealand dairy farms are reliant on imports for farm inputs such as agrichemicals and nitrogen fertilizer from China, which saw global supply chain disruptions from COVID-19 disruptions. In addition to feed costs, fuel and electricity prices have also been rising for dairy farms.

China to investigate ‘excessive’ hog price decline

China’s state planner said on Wednesday it called a meeting of hog industry experts to ensure stable prices after recent excessive declines. According to experts the slump was due to a “temporary” period of weak consumption, it said, adding that there is no oversupply.

USDA weekly dairy report

CME GROUP CASH MARKETS (12/16) BUTTER: Grade AA closed at $2.8550. The weekly average for Grade AA is $2.7860 (-0.0510). CHEESE: Barrels closed at $1.7400 and 40# blocks at $1.9775. The weekly average for barrels is $1.8135 (-0.1240) and blocks, $2.0630 (-0.0295). NONFAT DRY MILK: Grade A closed at $1.3500. The weekly average for Grade A is $1.3510 (-0.0210). DRY WHEY: Extra grade dry whey closed at $0.4550. The weekly average for dry whey is $0.4530 (+0.0085).

BUTTER HIGHLIGHTS: In the Northeast and West, cream is available to meet year-end production needs. Some butter makers in the West say lower cream multiples have contributed to them utilizing higher volumes internally, in lieu of selling on the spot market. In the Central region, cream availability is mixed as some production facilities are, reportedly, full, while managers at other locations see steady availability compared to prior weeks. Butter makers are running active schedules in all regions. In the Central and West regions, retail demand is softening as purchasers have had their holiday ordering needs met. Food service demand is also slowing in the Central region, though contacts in the Northeast and West report steady demand. In the Northeast, retail demand remains strong, though some contacts suggest new orders are starting to slow. Bulk butter purchasers in the Northeast and West are limiting their orders as they are trying to avoid purchasing at higher price levels. Spot butter inventories are growing in the West. Butter inventories are relatively tight in the Northeast but are growing. Bulk butter overages range from 5 to 15 cents above market, across all regions.

CHEESE HIGHLIGHTS: Milk is available in all regions, and cheesemakers in the Northeast and West say this is enabling them to run busy production schedules. In the Midwest, cheesemakers are operating moderate to busy production schedules, though some plant managers report downtime for maintenance and/or the upcoming holidays. In the Midwest, demand for cheese curds is soft and some contacts expect similar demand until the early weeks of 2023. Contacts in the Northeast say retail demand is softening, while food service sales are steady. In the West, steady interest is present from retail and food service customers. Export demand is mixed in the West, as some stakeholders say purchasers in Asian markets are steadily ordering loads. Meanwhile, others in the West, as well as contacts in the Northeast, say lower prices for internationally produced cheese are contributing to softer export sales. Spot loads of cheese are available to purchase in the Northeast and Midwest. Some Central region cheddar and Italian-style cheesemakers report inventories are somewhat tight and anticipate this to be the case through the end of the year.

FLUID MILK: Eastern and Midwestern Class I orders have reportedly heightened in the weeks prior to the yearend holidays. Some reports from the West point to softer Class I intakes. Regardless, milk production continues to move higher in most areas of the country, as processors are reporting milk offers are coming in regularly. Midwestern spot milk prices were reported from $6 under to Class III. Discounted spot milk offers are not expected to dissipate in the upcoming weeks. Condensed skim supplies are reportedly growing, seasonally. Cream availability is also seasonally increasing. Some butter makers say they are full on cream and are not able to add extra spots to their already busy churning schedules. Ice cream production is, and has recently been, noted as slow. F.O.B. cream multiples are 1.20-1.35 in the East, 1.16-1.27 in the Midwest, and 1.00-1.26 in the West.

DRY PRODUCTS: Dairy powders, for the most part, are under some bearish pressure. Low/medium heat nonfat dry milk (NDM) prices are lower across the regions. NDM demand remains sluggish. Buttermilk powder prices slipped nationwide. Some contacts suggest lower prices could spur buying interest, but likely not until the next quarter. Dry whey prices moved lower in the Central region, but were mixed in both the Northeast and West. Some contacts suggest whey prices are in a “comfort zone” for both buyers and sellers. Whey protein concentrate 34% markets are under some pressure, particularly for interchangeable volumes. Dry whole milk prices slid again this week, but contacts expect a quiet market moving into the final weeks of the trading year. Lactose prices were steady to lower, while contacts suggest Q1 2023 contractual agreements are comparable to Q4 2022 pricing. Rennet and acid casein prices were steady. Acid casein is reportedly somewhat firm, but rennet casein trading has been somewhat quiet most of this quarter.

ORGANIC DAIRY MARKET NEWS: This period, corn sold 34 cents lower FOB, up $1.42 from the same period last year. The bulk of trade activity occurred in the spot market, with moderate forward contract activity for corn to be delivered Q4 2022 through Q2 2023. Organic feed soybeans trade activity is moderate on good demand, with the bulk of exchanges in the spot market. Feed soybeans are seeing adjustment on last year's crops, trading $1.01 lower delivered elevator, and $4.11 lower than this period last year. Buyers say this is due to the number of imports entering the U.S. from South America and Africa. Organic dairy retail ads declined 27 percent across the country. As such, organic fluid milk generated 57 percent of total organic retail ads by commodity; organic butter followed with 13 percent and organic cottage cheese was next at 9 percent of total organic ads by commodity. Total organic milk ads declined 54 percent, when compared to last week's number. Organic gallon size milk containers drove that decline, as retail store ads slumped 78 percent.

NATIONAL RETAIL REPORT: Conventional dairy ads increased by 21 percent this week, while total organic dairy ads decreased by 27 percent this week. Conventional ice cream in 48 to 64- ounce containers continues to be the most advertised dairy product, with a weighted average advertised price of $3.63, up 20 cents from last week. Ads for conventional butter jumped 38 percent this week, with a weighted average advertised price of $3.89, down 56 cents from last week.

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