Weekly global protein digest: Japan halts poultry imports, cold storage & dairy reports

Livestock analyst Jim Wyckoff shares an update on global protein markets
calendar icon 28 July 2023
clock icon 22 minute read

Japan halts poultry imports from second Brazilian state

Japan temporarily suspended imports of chicken meat from Brazil’s Santa Catarina state after confirmation of a highly pathogenic avian influenza (HPAI) case in a backyard chicken flock, Brazilian meat lobby ABPA said. Japan halted purchases of poultry from the Brazilian state of Espirito Santo last month after HPAI was confirmed at non-commercial farm there. Santa Catarina is Brazil’s second largest chicken meat processor after Parana.

USDA July Cold Storage Report

The report showed that as of June 30, total U.S. beef stocks were at 411.9 million pounds, implying consumer demand for beef remained robust last month. While domestic cattle slaughter and beef production declined substantially from year-ago levels, the indicated 13.8 million pound reduction in beef stocks exceeded last year’s 9.3 million-pound drop, as well as the five-year average decline of 5.7 million pounds. The latest total is 105 million pounds below the year-ago total and 29 million under the five-year average. It also represents the lowest total since August 2019.

Ending U.S. June pork stockpiles tumbled 42 million pounds from May to 490.2 million pounds. The decline compares to year-ago and five-year average June reductions of 4.0 million and 20.3 million pounds, respectively. This latest total represents a 35 million-pound drop below the 5-year average. The low total and large monthly reduction highlight the vigorous consumer demand apparently driving the ongoing hog market rally.

June 30 broiler stocks at 861.4 million pounds marked a 27 million-pound increase from May and an 87.2 million-pound rise from one year ago.

USDA forwards final rule on Transparency in Poultry Grower Contracting and Tournaments

The rule goes to the Office of Management and Budget (OMB) for evaluation. This submission marks the completion of amendments the USDA has been undertaking since it pulled back a draft rule on the ranking systems for poultry competitions in November 2021. The proposed legislation had been reviewed in two OMB gatherings. As of the morning of July 25, there are no scheduled meetings at the OMB concerning the rule, but it is anticipated that there will be discussions in the future regarding the final plan.

USDA dairy policy hearing

In response to petitions from the dairy industry, USDA announced that it will hold a hearing on Aug. 23 to discuss potential revisions to the Federal Milk Marketing Order (FMMO) system that determines the price farmers receive for fresh milk. The hearing, which will take place in the Indianapolis suburb of Carmel, Indiana, could potentially result in the first significant reform of milk marketing orders since 2000.

In a Federal Register notice, USDA's Agricultural Marketing Service outlined six subjects for testimony, including suggestions to increase the “make” allowance accorded to processors to offset the expense of converting milk into products like cheese or butter. The American Dairy Coalition has praised the comprehensive nature of the hearing and indicated strong support for a change in the price setting formula for milk intended for retail sale. Specifically, the proposal to use the “higher of” rather than the current “average of” pricing method.

Following the hearing, the USDA will publish a recommendation that will be open for public feedback. After a period of comments, there will be a final decision. Following this, a referendum will be held for producers to vote on whether to accept the proposed changes.

The FMMO system, established in 1937, covers 11 regions that represent the majority of U.S. milk production, spanning most, but not all, of the 50 states. Witnesses at the hearing will be given an hour to provide testimony, and the USDA has identified 19 proposals to modify the marketing orders. Dairy farmers may provide testimony in person at any time during the hearing or give virtual testimony via Zoom on Fridays for 15 minutes each starting Sept. 1.

USDA Secretary Tom Vilsack announced a series of investments last Friday, July 21, to support urban farming and enhance market access for local producers. Key initiatives include establishing 17 Urban Service Centers and ten new urban Farm Service Agency (FSA) county committees to offer critical services to urban growers.

The announcement also includes an allocation of nearly $11 million towards the Patrick Leahy Farm to School Program, which connects schools with local farms and food producers. An expansion of the Healthy Food Financing Initiative was also unveiled, aiming to increase access to nutritious food in underserved areas.

USDA also plans to roll out a new initiative, the Local and Regional Healthy Food Financing Partnerships, with an available funding of $30 million. This plan is designed to encourage and develop local and regional food systems.

The American Rescue Plan will contribute an additional $40 million to be invested in partnerships with community-based organizations. This will principally aim to improve assistance in terms of outreach, education, and technical help for urban producers.

In a future-oriented move, USDA has also communicated plans to identify ten more cities for the expansion of additional urban FSA county committees next year.

Latest USDA cattle reports

Cattle Inventories tighter than expected: Last Friday’s USDA report showed most categories tightening more than expected, with cattle in feedlots down 700,000 (2.6%) from year-ago. With inventories of steers down 3.5%, other heifers down 5.2% and calves under 500 lbs. down 2.6%, feedlot inventories will continue to shrink. This gave the report a bullish tone and could signal a run to new all-time highs in cattle futures this week.

Cattle on Feed Report: Marketings higher than expected. USDA estimated there were 11.204 million head of cattle in large feedlots (1,000-plus head) as of July 1, down 201,000 head (1.8%) from year-ago. June placements increased 2.7% from last year, while marketings declined 5.0%. As a result, the feedlot inventory didn’t drop quite as much as anticipated, but this still marked the 10th consecutive month of year-over-year-declines. While this report had a bearish tone overall, the tightening inventory report should limit any price pressure.

USDA world dairy markets and trade report

U.S. dairy exports to Southeast Asia1 have been weak to start 2023. Resilient global milk production, currently on a 10-month streak of annual gains on a monthly basis dating back to last July, has put downward pressure on prices of manufactured dairy commodities. Through May, exports of dairy products on a value basis to Southeast Asia have totaled $561 million, down 33 percent from the same period last year. There have been broad declines across multiple commodities, including skimmed milk powder, whey and cheese. This is coming in a period where SMP prices are down 37 percent and whey prices are 52 percent from the peak in February 2022. 

As the world enters a post-COVID lockdown world, governments are now under pressure to reign in fiscal spending and combat high food inflation, which have reached an all-time in high in many countries in the region, typically done via higher interest rates. In the Philippines, food inflation reached 11 percent, driven by increases in dietary staples like vegetables. Increasing food costs have forced consumers to reduce discretionary spending (a category which includes spending on dairy products which are not a major part of traditional diets). Lower discretionary spending is impacting both the restaurant industry and retail purchases.

Demand for whey and lactose has also fallen in several countries. In Vietnam, swine herds continue to recover from African swine fever, reducing demand for whey and lactose for feed use (export volumes to Vietnam for both products are down 11 and 23 percent, respectively). In the Philippines, another market that has been impacted by ASF, exports of whey and lactose have fallen 26 and 9 percent, respectively. There also continue to be regulatory pressures in Southeast Asia hindering U.S. dairy exporters this year, specifically halal certifications processes. 

The development of dairy exports on the global market has been one of the biggest success stories for U.S. agriculture over the last 2 decades. Growth in the Southeast Asia market has been an important factor in expanding exports from $1 billion in 2003 to $9.5 billion in 2022 (dairy exports to Southeast Asia totaled $1.7 billion in 2022, the third largest regional market in the world for dairy exports behind North America and East Asia).

U.S. dairy exporters have captured sizeable market share, but stiff competition continues from Oceania and the European Union, which benefit from long-standing trading infrastructure in the region and tariff advantages granted in free trade agreements. The recently established Indo-Pacific Economic Framework for Prosperity (IPEF) is a potential avenue to gaining similar advantages for U.S. agriculture in the region.

In Argentina, milk production is forecast to decline 3 percent as severe drought has resulted in poor forage conditions and expensive, poor-quality hay. In addition, significant peso depreciation continues to hover over dairy production. In the past, strong depreciation in the peso has corresponded with declines in milk production because most inputs, mainly concentrates, are dollar denominated, and their prices are set by the open market. Meanwhile, the price of milk, of which nearly 80 percent is destined for domestic use, can take several months to adjust to the new dollar value and compress margins in the near term for producers.

Milk production in Australia is forecast to decline to 8.2 million tons for 2023. Extreme Spring rains resulted in a shortage of hay supplies and strong beef prices in recent years continues to incentivize dairy farmers to shift to beef production, with the dairy herd size forecast to shrink 0.7 percent to 1.325 million cows. Producers are also still grappling with labor shortages that stem from COVID-related border crossing restrictions in 2020 that reduced the number of visa approvals for holiday and backpacking travelers, a historical source of on-farm workers. 

Since Australia has re-opened its borders, finding on-farm labor has become easier, but on-farm labor has not returned to pre-pandemic levels. To make up the gap in fewer employees, dairy operations have turned to different production practices that naturally depress milk output, including decreasing daily milkings from three to two or converting to ten milkings per week. As a result, milk yields are forecast to fall 2.3 percent. These factors offset otherwise favorable conditions for milk production including strong milk prices, improved water availability, and high quality, affordable domestic feed.

European Union milk production is forecast relatively unchanged, marginally declining to 144.0 million tons. Milk production grew during the first 5 months of the year due to year-over-year increases in productivity, despite a decline in the milk herd of over 100,000 cows. However, newly implemented environmental and animal welfare policies introduced in many EU member states have contributed to herd size reduction and have stressed growth in yields that have previously helped continue to grow the milk pool.

Milk production is expected to decline in the Netherlands, which capped nitrogen usage for pasture production and banned farmers from spreading manure on fields as fertilizer. Complying with the new regulations puts producers in a dilemma: either invest large amounts of capital to adopt new production processes or shift production to beef and increase slaughter. 

Declining EU farmgate milk prices and increasing cost of production –higher feed, energy, and labor costs – have also accelerated exits from the dairy sector. Narrowing margins have driven closures in small and medium-sized operations in Spain, France, Germany and Poland, and is expected to continue to weigh on production as the year goes on.

In New Zealand, milk production is forecast at 21.5 million tons, up 2 percent from 2022. Wet conditions in December and January and improved soil moisture have been greatly beneficial for summer pasture growth in key dairy regions in the North Island. As a result, milk production in the first 5 months was 3 percent higher compared to 2022. The outlook through September is promising as rainfall is expected to be average or above average in many key dairy regions in the North and South Island. 

Warmer-than-average sea temperatures should help reduce intense cold winds in the South, which should benefit milk production during the winter. The farmgate milk price continues to be strong this year, though down from 2022. Fonterra listed its outlook for the upcoming year at a range from NZ$7.23 to NZ$8.75 per kilogram milk solids compared to the range from last year at NZ$8.78-NZ$10.25 per kilogram milk solids.

Lower prices and rising farm input costs due to inflation and higher interest rates will lead to a decrease in profitability, smaller herd sizes and reduced use of imported feed. Some dairy farm operations will be impacted by the ban on live animal exports that went into effect on April 30. Live animal exports to China provided a reliable revenue stream for some dairy producers as prices ranged from NZ$1,600-NZ$2,000 USD per cow; however, the 2-year transition period granted by the government after passage of the new legislation has now expired. Trade data indicates that 280,000 live cattle were shipped to China from April 2021-April 2023.

European Union cheese production is expected to rise by 1 percent despite declining milk production. Stronger relative prices to other dairy products will see processors allocate a larger portion of the milk pool to cheese production. Growing domestic retail demand for cheese and growth in the hospitality and tourism sectors are expected to support further cheese production. Exports were flat to start the year, reflecting weaker global demand for commodity cheeses, particularly in the United States and Japan. While tighter milk supplies and higher prices, may negatively impact the competitiveness of commodity cheeses, specialty cheeses remain popular and expected to support growing exports. Through May, shipments to the United Kingdom (+3 percent) are more than offset by weaker shipments to the United States (-9 percent) and Japan (-12 percent).

Australia cheese exports are revised down to 120.0 million tons, reflecting a weak start to the year that saw exports decline 22 percent through May compared to last year. Shipments to large export markets in East and Southeast Asia have been weak across the board. The industry believes that buyers have shifted to purchasing on an “as-needed basis” while global commodity prices have been high. Shipments are expected to moderately improve in the second half of the year as economic conditions improve in some of Australia’s larger markets (especially China) but import demand across other East and Southeast Asian markets is forecast to remain weak through the end of 2023.

Butter production in New Zealand is forecast to increase to 530,000 tons, in part reflecting better returns for manufacturing skimmed milk powder (SMP) shifting larger allocations of the milk pool to butter and SMP. Exports are forecast to increase 5 percent, reflecting price competitiveness against major exporters of butter, notably the European Union. Through May, exports are up 11 percent over year-ago levels, with strong growth to Mexico (more than doubled), Australia (+80 percent), Saudi Arabia (+49 percent), and the United States (more than tripled). Growth in these markets more than offsets weaker shipments to China (-4 percent).

Butter imports by China are forecast to reach 135,000 tons, a decline from last year as sustained high import prices weigh on demand from bakeries, the food processing sector, and retail consumers. Despite heavy investment in dairy production in country, imports account for 55 percent of butter consumption.

SKIM MILK POWDER (SMP): Australia exports of SMP are forecast to decline 16 percent due to the combination of lower production and lower beginning stocks. Exports through May have slowed significantly compared to the same period in 2022. During January-May, overall exports fell by 21,000 tons (29 percent), led by slower shipments to Indonesia (down 8,500 MT or -53 percent), Vietnam (down 5,000 MT or -89 percent) and Malaysia (down 3,200 MT or -86 percent). Shipments to China have been strong this year, up 4,500 tons (+15 percent), and continue to account for half of Australia SMP exports as Chinese import demand for SMP has grown in response to lower global SMP prices. • European Union SMP production is forecast down 1 percent from 2022 reflecting tighter milk supplies. However, global demand for EU SMP has been strong through May, as attractive prices have supported EU competitiveness on the global market. Shipments have grown in each of the top seven markets, primarily in Africa, Middle East, and Southeast Asia. Exports to the two largest markets historically, China and Algeria, have more than doubled.

Although United States SMP is being competitively priced on the global market, exports are forecast to decline 1 percent from 2022 to 823,000 tons. Contributing to the lower SMP export forecast is slow exports to Southeast Asia, which has been an important market for growing SMP exports, as food inflation and regulatory issues in those countries impact demand for dairy products. Through May, exports have been 2 percent below 2022 in the same period, with shipments to the Philippines (-43 percent), Indonesia (-16 percent), Vietnam (-41 percent), Malaysia (-52 percent) and China (-39 percent) all significantly off last year’s pace. Growth in exports to Mexico (+43 percent), the largest export market for U.S. SMP exports, offsets the decline in Asian demand, as improving economic conditions drive consumer discretionary spending and higher processor demand for raw materials for processed dairy products.

WHOLE MILK POWDER (WMP): New Zealand WMP production is forecast at 1.45 million tons in 2023, a 4-percent increase from 2022, but still below the five-year average. Higher returns for whey, protein concentrates and SMP have seen processors shift milk production away from WMP. That said, WMP production still accounts for more than half of all milk processed for factory use on a milk-equivalent basis and remains the top exported dairy product on a value basis. Through May, exports are 7 percent higher than 2022 with strong demand from Algeria (shipments have more than doubled) and the United Arab Emirates (+33 percent). Continued demand from these markets will support year-over[1]year gains while exports to China and Indonesia moderate.

WMP production in China is forecast to increase to nearly 1.2 million tons due to strong growth in domestic milk production. Milk supplies have outpaced processing demand, prompting local governments in major dairy production regions to allocate funds to subsidize whole milk powder production. Given small capacity for butter and cheese production and high domestic demand for milk powders due to longer shelf life, dairy Foreign Agricultural Service/USDA 8 July 2023 Global Market Analysis companies generally purchase raw milk and process it into milk powder for storage in accordance with the “Fresh Milk Purchase and Sales Contract.” Rising domestic WMP production, combined with continued high import prices, has driven a significant decline (-34 percent) in imports of WMP year-over-year, exacerbated by the General Administration of Customs of the Peoples Republic of China announcing that New Zealand, traditionally the dominant supplier of WMP, was poised to exhaust its preferential quota for 2023 and that safeguard measures would be implemented as built into the free trade agreement between both nations. Imports from New Zealand are down 45 percent through June.

Organic milk producers seek recognition from USDA

Producers want their product to be distinct from traditional milk in accordance with federal law. They are specifically asking for an exemption from Federal Milk Marketing Orders (FMMO). These orders mandate that all milk producers contribute to an industry-wide fund, designed to support conventional farmers in attaining the minimum prices set out by regulatory schemes. This plea was voiced in a letter to Secretary Vilsack on July 13, brought to attention by Politico. The organic dairy farmers emphasized the need for consideration of an organic exemption in any forthcoming federal order hearing, citing the current system as untenable for their industry.

Adam Warthesen, representing Organic Valley, explained that this change would add minimal costs to conventional producers — three cents per hundredweight — but could result in substantial savings for the organic dairy industry, amounting to millions.

The letter highlighted the fact that organic dairy is already exempted from programs like the commodity checkoff; this program extracts fees from farmers to fund research and promotion of a particular commodity.

An expected federal hearing on dairy industry issues is set to commence before the end of July. Such hearings, which typically run for six to eight weeks, can lead to sweeping changes that impact farmers' and milk processors' earnings. This hearing will be the first in 17 years and has already led to divisions amongst the largest dairy co-operations and key industry trade groups in the nation.

China’s pork imports slowed a little in June but still well ahead of year-ago

China imported 130,000 MT of pork in June. While that was down 7.1% from May, it was up 4.5% from June 2022. Through the first half of 2023, China imported 940,000 MT of pork, up 16.5% from the same period last year.

USDA weekly dairy report

WEEK OF JULY 17-21, 2023 | VOLUME 90, REPORT 29 CME GROUP CASH MARKETS (7/21) BUTTER: Grade AA closed at $2.5825 The weekly average for Grade AA is $2.5595 (+0.0480). CHEESE: Barrels closed at $1.6550 and 40# blocks at $1.7825. The weekly average for barrels is $1.5140 (+0.1135) and blocks, $1.6335 (+0.1475). NONFAT DRY MILK: Grade A closed at $1.1200. The weekly average for Grade A is $1.1080 (+0.0165). DRY WHEY: Extra grade dry whey closed at $0.2525. The weekly average for dry whey is $0.2465 (+0.0125).

BUTTER HIGHLIGHTS: Cream availability for butter churning is declining across the country. Contacts in the East and Central regions note ice cream makers are pulling on supplies, while warm weather is having an impact on cream supplies in the Central and West regions. Some butter makers in the Central region say they are churning lighter schedules due to scheduled maintenance in recent weeks. In the East and West, butter makers are running steady production schedules. Butter inventories are growing in the West, though availability varies by location and butter types. Inventories are steady in the East, while bulk butter buyers in the Central region relay tightness in the market. Demand for butter is steady from retail and food service customers in the East. Central region contacts report an uptick in food service sales and say retail buyers are active. In the West, domestic demand is solid, but interest is light from international purchasers. Bulk butter overages range from 0 to 10.5 cents over market value.

CHEESE HIGHLIGHTS: Cheesemakers in the Northeast say milk volumes are tightening as hot, humid weather, and heavy rain are having a negative impact on milk production and cow comfort. In the Midwest and West, contacts note declining milk production, though cheesemakers say volumes are available for cheesemakers to run steady production schedules. Some cheesemakers in the Midwest say plant downtime is contributing to spot availability, as milk is trading between $7 and $3 under Class. Cheese inventories are strong in the Northeast, and contacts in the West say spot loads are available to meet current market demands. Cheese availability varies in the Midwest, though some cheesemakers say they are rapidly selling any extra loads produced. Contacts report somewhat strong demand for cheese in the region. In the Northeast, contacts report steady demand from retail and food service purchasers. Higher restaurant menu prices are, reportedly, deterring some potential customers.

FLUID MILK: While milk production is decreasing across most areas of the United States, milk output is somewhat steady in the mountainous areas of the Pacific Northwest. In the East, flooding and drought reinforces reductions in farm level milk output. And in parts of the Central and West regions, cow comfort levels are drastically affected by scorching summer temperatures, above 100 degrees. As for now, most processors throughout the country can find milk supplies to run sufficient operating schedules. Class I demand is steady and continues to feel the impact from the summer breaks being held at educational institutions. The Midwest Class III spot milk price is reportedly offered as low as $7 under class this week. In general, cream supply availability is tightening. Regionally, cream multiples for All classes are reported 1.30 - 1.40 in the East; 1.25 - 1.34 in the Midwest; 1.05 - 1.28 in the West region.

DRY PRODUCTS: In general, low/medium heat nonfat dry milk (NDM) prices dipped lower this week. In the Central and East region, interest is sluggish, moving prices lower at the top of the range. Inventories are available for spot sales. West region NDM prices adjusted lower at both ends of the price range, as domestic demand is light, and inventories are ample. Export interest is active. High heat NDM prices are steady in the Central and East, while steady to lower in the West. The dry buttermilk price range is unchanged in the Central and East. West dry buttermilk prices moved lower in the price range. Demand is light. Inventories are adequate. Dry whole milk prices are steady this week. Inventories are adequate. Dry whey prices are lower in the Central, West, and East regions. Domestic market and international demand are light. Production is steady. Whey protein concentrate (WPC) 34% prices are steady to lower in the range. Spot inventories are plentiful. The Lactose price range adjusted steady to lower. Interest is light in both domestic and international markets. Inventories are strong. Rennet and acid casein price ranges are steady on quiet trading this week.


EUROPEAN DAIRY MARKET OVERVIEW: WESTERN EUROPE: Western European milk production continues to track along seasonal patterns. Although weekly milk collections are trending lower, recent cooler temperatures and rain have aided cow comfort and improved pastures, slowing the decrease of milk output in some regions. Northern European industry contacts say good weather there has provided farmers with first and second forage cuttings that are of good quality and quantity. However, much of southern Europe is contending with summer heat and dryness that has kept milk flows and forages more limited. Dairy markets are quiet as many Europeans take their summer holidays. With more than expected milk collections, hefty stocks of most dairy products, and relatively quiet market demand, industry participants are looking toward the end of the summer holidays before the dairy prices can regain a more normal market support.

EASTERN EUROPE: Eastern European milk collections are easing back along seasonal patterns, but some countries still have growth year over year. Although UN officials worked to keep the Black Sea grain deal alive, Russia pulled out of the deal on July 17. Russia indicated they would reconsider the deal if their demands to remove obstacles impacting financial transactions through the Russian Agricultural Bank and Russian shipments of grain and fertilizers were met.

OCEANIA DAIRY MARKET OVERVIEW: NEW ZEALAND: In New Zealand, dairy farmers are struggling to break even considering the lower-than-expected milk payouts. Some co-ops decreased their projected milk payout price to start the new season, amid slowed demand from China and declines in dairy commodity auction prices. With the volatile market conditions, New Zealand is paying close attention to China as some stakeholders expect WMP exports from New Zealand to China to continue lagging the previous year until early 2024.

AUSTRALIA: The recently established, May 31, Australia-United Kingdom free trade agreement is expected to provide Australian exporters access to dairy free quotas. As July marks the start of the new milk season, some farmers are enjoying higher farmgate milk prices as major processors offer pay prices near last year's record prices, according to the Australian Bureau of Statistics. With less than ample milk supply to meet local demand, market sources note that at the end of May 2023 the national milk pool declined 5.3 percent, while higher milk pay prices have been passed along to consumers as substantial spikes occur at the retail level.

SOUTH AMERICA DAIRY MARKET OVERVIEW: As Argentina and Uruguay farmers continue to struggle due to the lingering effects of the drought years, Brazilian crops are expected to set new records regarding both output and exports. Less dramatically, milk output volatility in the region is following a related trend to crop output. Brazil's internal milk output has continued to grow, despite some drought and/or flooding affecting areas there. Uruguay, Argentina, and Chile are still contending with the crop/feed limitations despite improving climactic conditions. Despite the milk limitations in recent months and years, globally ample dairy commodity and milk powder volumes are putting pressure on South American dairy markets.

US NATIONAL RETAIL REPORT: There was a 4 percent decrease in total conventional dairy ads this week, but ad totals for organic dairy items increased 11 percent. Conventional cheese was the most advertised dairy commodity category this week, followed by conventional ice cream. On the organic aisle, organic milk was the most advertised commodity category. Conventional milk ad numbers decreased by 33 percent week to week, while total organic milk ads increased 150 percent. Yogurt ad totals decreased on the conventional and organic aisles, declining 7 and 66 percent, respectively.

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