Weekly global protein digest: More US funding for HPAI, Vilsack on US poultry competition

Analyst Jim Wyckoff shares an update on the US futures market, government reports and global protein news
calendar icon 3 June 2022
clock icon 9 minute read

More US funding for HPAI

USDA’s Animal and Plant Health Inspection Service (APHIS) continues its efforts to respond to an outbreak of highly pathogenic avian influenza (HPAI) in the United States. To date, the virus has been confirmed in 35 states, affecting more than 37.9 million domestic birds. APHIS’ response efforts include working closely with animal health officials in affected states to quickly identify and address new cases of HPAI. To help ensure APHIS can continue to provide critical rapid response activities, USDA Secretary Tom Vilsack approved the transfer of $400 million from the Commodity Credit Corporation (CCC) to APHIS to directly support the response efforts.

Poultry competition

USDA wants to create more new and better markets for farmers, the beginning of a process on the Packers and Stockyards Act. “We start with the poultry tournament rule,” USDA Secretary Tom Vilsack explained, adding there are two components. The first is an effort to try to create greater transparency between integrators and producers, providing additional information to the producer before they enter into contracts.

It's modeled after the FTC franchisee disclosure efforts, Vilsack reveals, saying it is “really designed to help producers be able to better value the costs and risks that they're taking in entering into a contract with an integrator. It allows them to manage that risk by knowing a bit more about who they're doing business with. We're requesting that they — the integrators — provide information concerning the number of placements and the stock density, a history of payments under prior tournaments so that folks can understand and appreciate where they might be in the process… A bit of information about the background of the integrator, whether they've been in bankruptcy at any point in time, whether they're involved in litigation. And the ability of producers to be able to share that information with their financial advisors and those who are providing them legal assistance, so that they're in the best possible position to understand and appreciate the risk.”

Vilsack said there will be an exemption for very small live poultry dealers in this proposal. In addition, he said, USDA has provided additional disclosures concerning the inputs that a farmer is receiving, both at the time of placement and at the time of settlement.

“We want the farmer to be able to understand the breed, the fact -- the facility that was breeding the stock that they're being provided, the sex, the flock age, health issues that may have cropped up. And essentially at the time of the settlement, understanding the distribution of inputs, the housing specifications, feed disruptions that may have impacted and affected the rankings.” All of this is designed, Vilsack said, “to avoid deception and to provide farmers with the ability to understand precisely what they're getting into. A 60-day comment period… we believe from our analysis that the benefits of transparency and additional disclosure exceed the costs.”

Vilsack also revealed that USDA will be filing a study that was done on competition in the retail and seed area.

USDA chief: Transforming US food system by improving supply chains

That topic was be discussed by USDA Secretary Tom Vilsack during a speech at Georgetown University Wednesday. The over $2 billion government package includes previously announced funding to expand meat and poultry processing and to finance new infrastructure such as cold storage facilities, but there $600 million in new aid to support food supply chain infrastructure outside meat processing. The plan also includes $400 million for regional food business centers, up to $300 million for a new organic transition initiative and $75 million to support urban agriculture. The initiatives are funded through the American Rescue Plan that was enacted in March 2021 and other relief legislation. On Thursday, Vilsack will be in Ohio with Democratic Rep. Marcy Kaptur to visit a full-service grocery store in central Toledo called Market on the Green.

The package includes $650 million in funding and loan assistance for meat and poultry processing projects, including $275 million to help entrepreneurs who have had trouble getting credit. Another $100 million would go toward training workers in meat processing. Another $600 million is earmarked for improving food supply chain infrastructure, including cold storage and refrigerated trucks, outside of meat and processing.

Other funding in the plan:

  • $200 million to help fruit and vegetable growers comply with food safety regulations.
  • $400 million to create regional food business centers that will provide coordination and technical assistance and other support to small and mid-size businesses involved in processing, distribution and aggregation.
  • $155 million to expand USDA’s Healthy Food Financing Initiative, which is aimed at reducing food deserts.
  • $90 million to prevent and reduce food loss and waste.
  • $60 million farm-to-school programs that increase markets for smaller-scale farmers through child nutrition programs.

Supermarkets and distributors are pushing back on higher prices from food makers, as escalating inflation drives more consumers to rethink their spending. The Wall Street Journal reports that Kroger Co. and other grocery chains said they are asking brands to prove why higher prices are necessary before accepting them, and warning manufacturers that they will stop carrying products if food companies won’t negotiate prices. Some companies said they are switching to new meat suppliers with cheaper products and are delaying price changes for items like canned goods. Retailers generally have been passing price increases along to consumers, and executives have said that for months shopper demand has remained strong. Industry executives said that is starting to change, as consumers increasingly look for ways to stretch their dollars.

Meat processing expansion

USDA has announced a $200 million effort to try to help existing meat and poultry facilities. It's an intermediary loan program. It's going to provide grants to co-ops, other nonprofit organizations, public agencies, to create revolving loan funds to assist and help those facilities to remain in business, USDA Secretary Tom Vilsack explained. USDA also announced a $25 million effort to try to expand workforce through NIFA programs. “We think this is an opportunity to expand capacity. This goes along with the additional opportunities that we announced, in terms of additional processing capacity. We received 263 applications for the $150 million grants that are available,” he detailed. “It totals about $895 million of interest; 46 states, 111 beef applications, 33 poultry applications, 69 pork applications, 25 lamb, and 14 goat. The projected cost of all these projects, roughly $5 billion. So, there's obviously great interest in this program.” Vilsack also said USDA saw “great interest” in the Climate-smart Agriculture and Forestry Product Partnership Initiative. “We received 450 applications, $18 billion in requests from all 50 states. A diverse pool of applicants, nonprofits, cooperatives, for-profit organizations, government entities, commodity groups, forest groups, tribes, universities, small and large corporations. A wide range of commodities involved. This is the first of two application deadlines. June 10th is our small application deadline, about $8 billion of additional leverage.”

McDonald's investors reject pig proxy

McDonald's shareholders roundly rejected activist investor Carl Icahn's effort to elect two board members to the fast-food chain's board. All 12 McDonald's nominees were elected to the board, while Icahn's two nominees received about 1% of the votes, according to preliminary results released by the company. Icahn had accused the fast-food giant's suppliers of mistreating pigs in an "egregious" fashion by continuing to use "gestation stalls" despite committing to end their use by now. McDonald's has acknowledged "challenges" but said "we remain committed to phasing out the use of gestation stalls for housing pregnant sows in the U.S. by the end of 2024."

USDA’s latest weekly dairy report

CME GROUP CASH MARKETS (5/27) BUTTER: Grade AA closed at $2.8775. The weekly average for Grade AA is $2.8825 (+0.0865). CHEESE: Barrels closed at $2.2950 and 40# blocks at $2.2800. The weekly average for barrels is $2.3115 (-0.1015) and blocks, $2.3160 (- 0.0580). NONFAT DRY MILK: Grade A closed at $1.8600. The weekly average for Grade A is $1.8365 (+0.0735). DRY WHEY: Extra grade dry whey closed at $0.5225. The weekly average for dry whey is $0.5025 (+0.0040).

INTERNATIONAL DAIRY MARKET NEWS: WESTERN EUROPEAN OVERVIEW: Western European milk production is nearing the seasonal peak, and industry sources indicate that the weekly milk collected by dairies increased once again last week. However, year to date milk production in the large dairy countries, Germany, France and Netherlands, is still lagging behind last year's production numbers. Some Western European countries that have been realizing year to date milk production increases include Italy, Belgium, Austria, Denmark and Spain.

EASTERN EUROPEAN OVERVIEW: For Eastern EU27 countries, several countries are seeing year over year milk production increases, including, Poland, the Baltic States and Hungary. Market analysts note that while more milk is being delivered to dairies than in previous years, the difference between this year and last year is narrowing.

NEW ZEALAND: New Zealand's year to date milk production is 3.9 percent lower, on a milk solids basis, compared to the same period last year. April's milk production fell 5.2 percent compared to April a year ago, on a milk solids basis. Market representatives note the effect of poor pasture conditions, feed prices and availability, and staff shortages in key milk producing areas continue to downgrade milk production volumes. Foreign Agriculture Service (FAS) notes, while dry conditions have impacted milk supply so far this year, these conditions are persisting in key regions. Waikato, which is the largest producing region and accounts for nearly a quarter of all dairy cows, is currently experiencing extremely low soil moisture and other areas in the South Island are also very dry. Southland, which accounts for 12 percent of the dairy herd, had extreme drought earlier in the year but recent rains have improved the situation. Consequently, market sources see the decline in milk supply limiting whole milk powder and cheese exports, with anticipation of slightly higher skim milk and butter exports.

AUSTRALIA: According to a recent Foreign Agriculture Service (FAS) report, Australian milk production is expected to decline by 4 percent to 8.6 million metric tons (MMT) this year as farms exit the dairy industry, despite generally good production conditions for 2022. The overall outlook for production conditions in 2022 remains strong. While farmers are challenged with higher input costs, the farmgate milk price trends higher than ever before.

SOUTH AMERICA: There remain major concerns in regards to the role weather is playing on dairy farmers in the region, and those concerns vary widely. A La Nina advisory remains in effect from the National Oceanic and Atmospheric Association (NOAA), at report time. Despite that, as some dairy producers' milk checks grow, so do their milk volumes. While in others, like Brazil, overall milk output has been strongly, and negatively, affected. Retail demand for dairy products within the region has also lagged, as inflation and, until recently, currency devaluations, have played a part in consumers' options. Skim milk powder (SMP) and whole milk powder (WMP) prices increased this report week. Contacts say they are working through Q3 contracts now, and demand is present, while inventories are questionable. Milk output and processing continue to vary widely across the Latin American sphere. Casein production is ongoing, as producers say casein markets are steadfastly in a bullish bailiwick.

US NATIONAL RETAIL REPORT: Total conventional dairy ads decreased by 5 percent from last week, but organic dairy ads increased by 150 percent. With the unofficial launch of summer following the Memorial Day holiday, grocery chains increased the number of advertisements for conventional ice cream in 48-64 ounce containers by 16 percent. It was the most advertised dairy item in the survey this week. The national weighted average advertised price for the ice cream is up $0.20 to $3.42. Conventional 1 pound butter also had a strong showing, increasing in ad numbers by 21 percent. The national weighted average advertised price for 1 pound butter is $3.97, down 39 cents from last week.

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