Weekly global protein digest: HPAI impact, food inflation & forecast

Analyst Jim Wyckoff shares an update on global protein news
calendar icon 1 May 2022
clock icon 13 minute read

Four additional US commercial flocks confirmed with HPAI

USDA’s Animal and Plant Inspection Service (APHIS) confirmed highly pathogenic avian influenza (HPAI) in four additional commercial flocks including one in Lancaster County, Pennsylvania (50,300 commercial broilers) and three in Minnesota — 27,300 turkey meat birds in Otter Tail County; 127,400 turkey meat birds in Swift County; and 46,000 turkey meat birds in Yellow Medicine County. USDA said that now 155 commercial flocks have been infected. APHIS also noted they have now released 34 farms.

HPAI impacts

Confirmation of highly pathogenic avian influenza (HPAI) in the US since earlier this year has had an impact—albeit modest—on egg prices, according to USDA. “Egg prices increased by 1.9% in March 2022, following a 2.2% increase in February,” USDA detailed. “An ongoing outbreak of highly pathogenic avian influenza could contribute to poultry and egg price increases through decreased supply or prices could be reduced by a drop in international demand for U.S. poultry.” USDA now sees egg prices rising 6% to 7% in 2022 versus 2021, a big jump from their month-ago outlook that egg prices would be up 2.5% to 3.5%. USDA initially expected 2022 egg prices to be down 0.5% to up 0.5%.

USDA: 2022 food price inflation forecasts already at 14-year high

USDA forecasts for consumer food price inflation were increased again this month, with all food prices now seen rising 5% to 6% (4.5% to 5.5% in March) and grocery store prices expected to rise 5% to 6% (4.5% to 5.5% in March) while the forecast increase in restaurant prices was held at 5.5% to 6.5%. Taking the midpoint of USDA’s forecast ranges, all food price inflation would be the highest since it was 5.5% in 2008 with food at home (grocery store) inflation also the highest since 2008 when it was up 6.5% from the prior year. The 20-year average for food price increases at 2.4% for all food, 2.9% for restaurant prices and 2.0% for grocery store prices means the current outlooks are for costs that are at least double those averages.

Changes versus month-ago levels. The Consumer Price Index (CPI) for all food increased 1% from February 2022 to March 2022, and food prices were 8.8% higher than in March 2021. The food-away-from-home (restaurant purchases) CPI was 6.9% higher than March 2021 while food at home (grocery store) prices were 10% higher than one year ago in March. Factors causing the increased food price inflation, according to USDA, will be upward price pressures from the Ukraine conflict but downward price pressure from recent increases in interest rates by the Fed. “The situations will be closely monitored to assess the net impacts of the concurrent events on food prices as they unfold,” USDA said.

Meat, other prices increase

While US wholesale beef prices decreased by 3.6% in March 2022, USDA noted retail beef prices increased by 1%. “Wholesale pork prices, along with port congestion, contributed to a 1.4% increase in retail pork prices in March 2022,” USDA said. Their outlook is for beef and veal prices to rise between 6% and 7% in 2022 (3% to 4% prior), with pork prices seen rising 4% to 5% (3% to 4% prior) and other meat prices are expected up 3.5% to 4.5% (2.5% to 3.5% prior). USDA initially expected beef and veal and pork prices to be up 2% to 3% in 2022. Retail poultry prices are seen up 7.5% to 8.5% in 2022 (6% to 7% prior) in part as cold storage data indicates historically low stocks of frozen poultry. USDA initially expected poultry prices up 1% to 2% in 2022. Fats and oils prices are predicted to increase between 8% and 9% in 2022, up from their prior expectation those prices would increase 6% to 7%. Those prices were expected to be up 1.5% to 2.5% in USDA’s initial outlook. Dairy prices are now seen up 6% to 7% in 2022 compared with 2021, up from 4% to 5% in March. USDA started its 2022 expectations for dairy product prices to be down 0.5% to up 0.5%.

More food price forecast hikes ahead

Given that food price inflation on a monthly and annual basis has not eased, look for USDA to continue increasing their forecasts ahead. In 2008, the last time food price inflation was as high as the midpoint of the current outlook, USDA increased their forecasts each month in March, April and May, with a final increase in August. Similarly, their outlook for grocery store prices increased in March, May and August.

For 2022, USDA has already increased its forecast for all food price inflation in February, March and April, after starting from a level of 2% to 3% in July 2021. For grocery store prices, the current 5% to 6% increase is from increases in February, March and April after the agency initially expected grocery store prices to increase just 1.5% to 2.5%.

For restaurant prices, USDA’s 5% to 6% forecast is up from an initial expectation for increases to be 3% to 4%, with the forecast range rising in January, February and March.

History suggests USDA may arrive at its final outlooks for all food and food at home prices in August. But that would depend on food price inflation data not continuing to build as we move through the balance of 2022. Typically, USDA’s forecasts for all food and grocery store prices stay steady in September-December. Restaurant prices, however, are subject to later upward revisions with the final increase coming in November or December.

USDA allows more packing plants return to faster line speeds

USDA’s Food Safety and Inspection Service (FSIS) on Friday announced it approved the Clemens Food Group pork packing plant in Coldwater, Michigan, to run faster line speeds under a one-year trial program. The agency now has let four plants operate with faster harvesting line speeds, which could increase packing capacity and alleviate supply issues in the face of strong pork demand, according to NPPC.

Background. FSIS established the line speeds program last November, after a provision in USDA’s 2019 New Swine Inspection System (NSIS) was struck down by a U.S. District Court in March 2021. Nine pork packing plants that had adopted the NSIS — six of which were operating with faster line speeds — were allowed to apply for the program, under which they need to collect data on the effects of the faster speeds on workers and share it with USDA and the U.S. Occupational Safety and Health Administration. The information could be used to formulate a new regulation for allowing plants to run faster line speeds. According to Iowa State University economist Dermot Hayes, if six plants are in the program, the aggregate impact on U.S. pork harvest capacity will be a 3.6% expansion. After one year, that would translate into an increase in live hog prices of 6%.

US pork exports improve, beef lags

USDA Thursday reported US pork net sales of 31,500 MT for 2022 were up noticeably from the previous week and up 19 percent from the prior 4-week average. Increases were primarily for Mexico (21,600 MT, including decreases of 300 MT), Japan (3,600 MT, including decreases of 100 MT), Canada (2,100 MT, including decreases of 400 MT), South Korea(1,500 MT, including decreases of 200 MT), and Colombia (1,100 MT, including decreases of 200 MT). Exports of 29,900 MT were up 6 percent from the previous week, but unchanged from the prior 4-week average. The destinations were primarily to Mexico (13,200 MT), China (3,800 MT), Japan (3,200 MT), South Korea (2,900 MT), and Colombia (2,000 MT).

Beef: Net sales of 11,400 MT for 2022 were down 24 percent from the previous week and 34 percent from the prior 4-week average. Increases primarily for Japan (4,100 MT, including decreases of 500 MT), China (1,500 MT, including decreases of 100 MT), South Korea (1,300 MT, including decreases of 600 MT), Mexico (1,000 MT), and Taiwan (1,000 MT, including decreases of 300 MT), were offset by reductions for the United Arab Emirates (100 MT). Total net sales of 100 MT for 2023 were reported for Japan. Exports of 17,600 MT were down 16 percent from the previous week and 11 percent from the prior 4-week average. The destinations were primarily to South Korea (4,400 MT), Japan (4,300 MT), China (3,200 MT), Taiwan (1,300 MT), and Mexico (1,300 MT).

China to buy more pork for state reserves

China will buy another 40,000 MT of frozen pork for state reserves on Friday to support domestic prices for hog producers saddled with poor margins. This will be the sixth round of pork buys for state reserves.

US Senate Ag Committee reviews two controversial cattle market proposals

Bill S 4030, the Cattle Price Discovery and Transparency Act of 2022, and S 3870 the Meat and Poultry Special Investigator Act of 2022.

S 4030 would require beef packers to buy more of their cattle in “open, competitive markets.” Its proponents believe a lack of competition due to heavy concentration in the meatpacking industry is giving packers too much market power, to the detriment of both consumers and farmers and ranchers. The measure (S 4030) now has a total of 19 co-sponsors in the Senate, including nine Republicans and 10 Democrats. The legislation is being spearheaded by Sens. Chuck Grassley (R-Iowa), Deb Fischer (R-Neb.), Jon Tester (D-Mont.) and Ron Wyden (D-Ore.).

“Today’s marketplace is more consolidated than it was in 1921, when this body passed the Packers and Stockyards Act. Rural America is drying up because we can’t get fair prices at the farmgate. Capitalism isn’t working, in this particular instance, because of concentration and consolidation in the industry,” said Sen. Tester.

Meatpackers currently acquire the majority of their cattle by contracting with individual producers. The Cattle Market Transparency Act would require more public disclosure of what packers are paying for their cattle and also require the packers to buy more cattle through competitive cash markets.

Packers argue there is nothing inherently wrong with cattle markets, attributing the price changes to natural supply and demand forces and market disruptions like the pandemic.

The North American Meat Institute in a statement urged members of the Senate Ag Committee to reject the Grassley-Fischer bill’s mandates and federal intrusion in the beef and cattle markets. “Leading agricultural economists have determined Grassley-Fischer bill’s latest draft remains costly to producers, especially producers in Texas, Oklahoma and Kansas where the majority of U.S. fed cattle are raised,” said Meat Institute President and CEO Julie Anna Potts. “Due to a shrinking herd and sustained consumer demand, cattle prices are at seven-year-highs without federal intervention in the market.”

Economists from the Agricultural and Food Policy Center at Texas A&M University found that the latest Grassley-Fischer bill, S 4030, could cost producers even more than an earlier estimate of $112 million over five years ($50 a head on 2.3 million head). The economists found the mandate would have regional disparities: the Texas-Oklahoma-New Mexico region, Kansas, and Nebraska would shoulder most of the costs, while the Iowa-Minnesota region would escape relatively unscathed (see chart).

In her testimony Potts said: “…applying the cash market mandate to only the largest packers reveals the proposed mandate for what it is: a punitive tool. Under the latest version of the bill, if a beef packer gets too large, they will be forced to buy a certain percentage of cattle on the cash market. Gone is the illusion that the cash market is somehow more virtuous than other means of marketing cattle; gone is the argument that the cash market is necessary for transparency and price discovery. Instead, the cash market mandate is just that: a government mandate designed to punish the largest companies and their suppliers. In this sense, the mandate is an antitrust tool that could be used in any industry. If a company gets too large, it will be punished with a government mandate directing how the company can purchase inputs. Such a government mandate should elicit opposition from anyone interested in protecting the free market.”

Sen. John Boozman (R-Ark.), ranking panel member, said under the proposed measure, the number of cattle marketed under alternative marketing agreements (AMAs) will decrease and the number of cattle sold in the cash market will increase. “For example, in Texas, Oklahoma and New Mexico, between 340 thousand and 2.5 million fed cattle will need to move out of formula contracts annually. In Iowa and Minnesota, it’s fewer than two thousand head a year.”

The hearings also heard from Andy Green, USDA’s senior advisor for market competition, Agricultural Marketing Service Administrator Bruce Summers, and a separate panel of ag economists and producers. Green said, “In general, we are intending to be as careful — input-driven, fact-driven — as we possibly can and take into account all the different viewpoints of a complex and complicated industry.”

“Today’s competition challenges in our cattle markets didn’t happen overnight; we’ve been at this a long time. These challenges have been decades in the making & didn’t just come about because the Holcomb fire in 2019 nor the Covid-19 pandemic,” said Sen. Cindy Hyde-Smith (R-Miss.).

The panel of producers — Shelly Ziesch from North Dakota, William Ruffin from Mississippi and Shawn Tiffany from Kansas who is also president-elect of the Kansas Livestock Association — and Dr. Stephen Koontz from Colorado State University had some clear divisions. Ziesch and Ruffin both back the legislation and Ruffin specifically said that he did not see a price downturn as a cow/calf operator when more negotiated sales took place in the region he is in. His often-stated response was that he lacked information on the basic market, leaving him unable to determine what is a fair market value for his cattle. Ziesch echoed that, saying that without more cash-market information, she is unable to determine that fair value. Tiffany, however, cautioned that he feared that premiums that are currently available to him and others that feed cattle via marketing agreements would disappear if more negotiated cash sales were mandated to take place. He explained that the decisions he makes are made perhaps years in advance of the cattle actually going to market. Koontz also cautioned against the provisions in the bill mandating cash sales by region. He, too, said his research and research he is familiar with conclude that it would lower cattle in general. He also pointed out that some of what is happening in the market is from the market being “out of balance — too many cattle and not enough capacity.” He said that was a marked change from what had been seen for an extended period where there was too much capacity and too few cattle.

Bottom line: There continues to be a lot of differences on this controversial measure, and it is murky whether supporters can find enough votes to get it through the full Senate. Meanwhile, it will be interesting to see if Farm Bureau and/or NCBA releases any statement on the topic, or release updated recommendations on the subjects at hand. The hearing underscored the differences that remain over this issue and why getting agreement on a single piece of legislation will be extremely difficult, also underscored by how long it took to generate the package which finally got to the point of having a hearing before the Senate Ag Committee.

African Swine Fever vaccine update

The U.S. pork industry has been focused on developing a vaccine for African swine fever (ASF), investing public and private funds to protect domestic herds from the deadly disease. Some updates, according to NPPC:

USDA announced an ASF vaccine candidate passed an important safety test required for regulatory approval as it does not revert to its normal virulence. This moves the vaccine candidate one step closer to commercial availability and testing in Vietnam.

NPB is investing $930,000 of Pork Checkoff funds in four different studies that include validating vaccine types, tracking efficacy or effectiveness, and ensuring viability for commercialization.

Genvax Technologies received a $145,000 grant from the Foundation for Food & Agriculture Research to develop a self-amplifying messenger RNA vaccine for ASF. Genvax contributed matching funds for a total investment of $290,000.

Purdue University received a $1 million grant to create a rapid test for ASF. The grant was awarded by the National Animal Health Laboratory Network and the National Animal Disease Preparedness and Response Program.

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