Weekly poultry digest: mixed US exports, depopulated pandemic flocks

Market analyst Jim Wyckoff shares highlights from this week's activities in the protein market.
calendar icon 17 September 2021
clock icon 11 minute read

U.S. pork exports down, beef up, in latest reporting week

USDA Thursday reported U.S. pork net sales of 25,300 MT for 2021 were down 25 percent from the previous week and 9 percent from the prior 4-week average. Increases were primarily for Mexico (5,800 MT, including decreases of 500 MT), the Dominican Republic (3,500 MT, including decreases of 100 MT), Japan (3,100 MT, including decreases of 100 MT), Canada (2,700 MT, including decreases of 400 MT), and China (1,800 MT, including decreases of 100 MT). Exports of 25,800 MT were down 11 percent from the previous week and from the prior 4-week average. The destinations were primarily to Mexico (8,400 MT), China (3,700 MT), Japan (2,600 MT), the Dominican Republic (2,300 MT), and Chile (2,000 MT).

U.S. beef net sales of 15,300 MT reported for 2021 were up 23 percent from the previous week and 24 percent from the prior 4-week average. Increases primarily for Japan (6,000 MT, including decreases of 500 MT), South Korea (5,000 MT, including decreases 300 MT), China (1,400 MT, including decreases of 100 MT), Mexico (700 MT, including decreases of 200 MT), and Canada (500 MT, including decreases of 100 MT), were offset by reductions for Panama (100 MT). Net sales for 2022 of 3,900 MT were for South Korea (3,700 MT) and Japan (200 MT). Exports of 16,900 MT were down 10 percent from the previous week and from the prior 4-week average. The destinations were primarily to Japan (6,500 MT), South Korea (4,000 MT), China (2,300 MT), Taiwan (1,000 MT), and Hong Kong (700 MT).

USDA: layer flocks depopulated during pandemic don’t qualify for PLIP

Layer hen flocks that were depopulated during the Covid-19 pandemic due to a lack of an egg market do not qualify for the Pandemic Livestock Indemnity Program (PLIP). In a notice to state and county offices, the Farm Service Agency (FSA) said that questions have arisen on whether layer hens are eligible for PLIP and after conferring with the Office of General Counsel and USDA leadership, the Consolidated Appropriations Act of 2021 authorized PLIP for livestock depopulated due to insufficient processing access due to Covid-19. However, FSA said, “the act does not authorize PLIP because of the lack of market of a byproduct of eligible livestock because of Covid-19.”

USDA annual livestock, dairy summary for European Union

The EU beef market is tight due to low production and Brexit. The EU cattle herd is mainly contracting due to the shrinking dairy cow herd. The EU dairy sector is restructuring, resulting in an overall increase in farm efficiencies, most importantly in milk production per cow. With fewer cows, however, the EU dairy sector produces less beef. The reduced supply of lower quality beef resulted in a tight market exacerbated by reduced imports from the UK because of trade complexities brought on by Brexit. In contrast, demand for higher quality beef is still constrained as the European food service sector hasn’t fully re-opened (closures stemmed from the coronavirus--COVID-19--pandemic). In Central Europe, the Balkans, and Baltics, the beef cow herd is expanding because of government financial support for the sector and lower financial risks compared to other livestock (specifically related to feed costs, animal diseases, and returns on investment). Further expansion of the EU beef cattle sector is highly dependent on the implementation of the EU’s Common Agricultural Policy (CAP).

The EU dairy sector produces more milk but Less Beef. The contraction of the dairy cow herd has predominantly been seen in Germany, France, Italy, the Netherlands, and Poland. This reduction in the herd, however, has not led to reduced milk production. In fact, milk production has largely remained unchanged, or, in some cases, even increased because of restructuring of the sector which has led to improved efficiency. Since 2010, EU milk deliveries continuously rose, by an average of roughly 1.4 percent per year. Ireland is the only EU Member State for which the dairy herd is forecast to significantly increase. For more information, see the FAS EU Dairy and Products Semi-Annual of 2021. While milk deliveries are not affected by the shrinking dairy herd, the supply of calves, heifers, and dairy cows for slaughter has been. About two-thirds of the EU’s beef and veal production is sourced from the dairy sector. With the reduced supply of young cattle and dairy cows, EU slaughter has been declining since 2018. In 2021, the reduction is forecast to be limited due to the backlog of slaughter in 2020, caused by the COVID-19 crisis. After a build-up of animals, slaughter increased by 0.12 percent in the first half year of 2021, but is forecast to level off and fall back just below the annual level reported by Eurostat in 2020. Under similar market conditions, the cattle herd is forecast to contract further in 2022, most significantly in France and Germany.

The pork sector is competitive but dependent on Chinese demand. With the EU market leaders continuing to expand production (i.e., Spain, Denmark, and the Netherlands), and production recovering in Italy, France, Belgium and Poland, EU swine slaughter and pork production is forecast to further increase in 2021. While exports to China and the UK are falling, exports are increasing to other Asian markets (e.g., Philippines and Vietnam) which are anticipated to mostly offset reduced exports to China. However, in 2022, EU pork production is forecast to decline based on lower carcass prices and the threat of additional African Swine Fever (ASF) outbreaks in Central Europe. Thus far, EU exports have been able to outcompete other net producers based on producer flexibility and control over the production chain. However, the current market situation is fragile given the EU’s dependency on the Chinese market. To reduce its dependency on the Chinese market, the EU swine sector is aiming to control production expansion and to continue to diversify its export markets.

USDA annual livestock report for Canada

Cattle and Beef - The Canadian cattle herd is forecast to contract once again in 2022. Drought conditions in Western Canada will reduce heifer retention in 2021 and promote culling of cows, leading to a reduced calf crop in 2022. Improved reproduction rate will continue in 2022 which will mitigate the reduction in calf numbers. Feedlot expansion in Western Canada, coupled with a reduced calf crop, will continue to support imports of U.S. feeder cattle. However, a contracting U.S. cattle herd will see live imports remain stable on 2021 numbers. Beef production is forecast to decline by one percent as carcass weights will be lower in 2022. Processing disruptions, due to COVID-19 outbreaks, led to increased carcass weights in the first half of 2021 as a result of cattle held on feed longer. Strong global demand for protein and beef will continue to support exports in 2022. However, an expected drop in Canadian beef demand will see imports reduced on 2021 numbers.

Swine and Pork - The Canadian swine herd is forecast to contract to begin 2022. An increase in sow numbers will see the 2022 pig crop grow over 2021, as Canada adds additional finishing capacity and sees greater slaughter capacity utilization and additional investments. Slaughter will increase modestly in 2022 as a result. Live exports will decline in 2022 as Canada recently resolved the labor dispute in Eastern Canada, which saw over four months of processing capacity disruptions, which resulted in greater number of market and feeder hogs heading to U.S. facilities. Despite increased slaughter, 2022 pork production is forecast to decline two percent as resolved COVID-19 disruptions and labor disputes will reduce numbers of backlogged hogs. Carcass weights will be lower in 2022 as a result. Pork exports will remain stable on 2021 volume with continued global demand due to ongoing impacts of African Swine Fever (ASF) in several regions. Imports will be increased due to lower production and to support Canadian consumers’ preference for certain cuts.

Saudi Arabia cuts off beef imports from five Brazilian meatpackers

Saudi Arabia has suspended beef imports from five unnamed meatpackers located in Brazil’s state of Minas Gerais, following the detection of two atypical cases of bovine spongiform encephalopathy (BSE) earlier this month. Once of the cases was in Minas Gerais and the other was in Mato Grosso. Brazil has already temporarily suspended shipments to its top customer China.

Chinese fish prices soaring

China’s African swine fever (ASF) outbreak sent its consumers on the hunt for alternative sources of protein, and fish has historically been among the cheapest sources. But after a 50% price spike the past year, fish prices now top those for chicken and pork. The price rise has helped lift China’s consumer prices for the past six months, despite a decline in pork prices. The price surge has been driven by tougher environmental standards, reduced rain in some areas and an increase in demand as the ASF outbreak resulted in a more diverse diet for Chinese consumers. Chinese consumption of the staple pork dropped 25% from 2018 to 2020, according to USDA.

Tyson Foods ‘categorically rejects’ USDA, NEC report on consumer price inflation

The Biden administration last week released a report via a blog detailing the drivers of consumer inflation in the food sector, “none of which are related to industry consolidation or scale,” said Tyson Foods last week. The increase in beef prices is due to “unprecedented market conditions,” Tyson said, repeating what the firm told the Senate Judiciary Committee in August. “Multiple, unprecedented market shocks, including a global pandemic and severe weather conditions, led to an unexpected and drastic drop in meat processors’ abilities to operate at full capacity” Tyson explained. “This led to an oversupply of live cattle and an undersupply of beef, while demand for beef products was at an all-time high. So, as a result, the price for cattle fell, while the price for beef rose. Today, prices paid to cattle producers are rising.”

Labor shortages also played a role, Tyson said. “The inability of the industry to adequately staff its plants has exacerbated the situation. Labor shortages are also affecting the nation’s pork and poultry supply.”

Tyson Foods said it now pays its frontline workers an average of $22 per hour, including full medical benefits. It added: “We recently announced additional paid sick leave and vacation benefits starting in 2022. The company is also piloting childcare programs and providing access to vaccinations for all of its U.S. workers.”

Regarding claims of consolidation impacts, Tyson wrote, “It is inaccurate to suggest that consolidation in the meat processing industry is leading to higher prices for consumers. In fact, evidence of healthy competition can also be found by looking at historical outcomes. For example, we have seen a rise in availability and quality of beef, while the price has become more affordable over the past quarter-century: data shows that while the concentration of the industry has remained relatively constant for close to 30 years, quality has significantly improved. Furthermore, as the USDA table below clearly illustrates, the historical ratios of margins of cow and calf producers and feeders versus processors, including Tyson, show that cow and calf and feeder margins outpace processor margins in almost every year except the most recent.”

Tyson said its scale allows it to operate efficiently, “which keeps costs down for consumers,” adding that the firm relies on “independent farmers and want them to succeed, because without a steady pipeline of livestock, we can’t run our business. In rural communities across America, every year, we invest more than $15 billion with 11,000 independent farms supplying us with cattle, hogs and chickens. Tyson Foods is committed to working with the Administration, the U.S. Congress and others to find ways to better feed this growing country — and keep consumer prices affordable. We welcome a deeper discussion on all of the issues raised.”

Meanwhile, the North American Meat Institute, which represents meat processors, argued that rising prices are primarily due to a persistent labor shortage that’s affecting many parts of the economy.

“Issuing inflammatory statements that ignore the fundamentals of how supply and demand affects markets accomplishes nothing,” Mark Dopp, NAMI’s chief operating officer, said in a statement. “Meat and poultry markets are competitive and dynamic with no one sector of the industry consistently dominating the market at the expense of another.”

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