30 June 2023

18 minute read

By: Jim Wyckoff

South America

Asia

Japan halts some Brazilian poultry imports

Japan suspended purchases of poultry from the Brazilian state of Espirito Santo after an outbreak of highly pathogenic avian influenza (HPAI) on a non-commercial farm. The Brazilian Association of Animal Protein said the decision “is not in line with the guidelines of the World Organization for Animal Health” and noted Japan doesn’t currently import poultry from Espirito Santo.

USDA Hogs & Pigs Report out Thursday afternoon

Analysts expect USDA’s Hogs & Pigs Report this afternoon to show the U.S. hog herd as of June 1 was fractionally smaller than year-ago. In fact, all of the categories except spring pigs per litter are expected to be down slightly from last year. Key in the report will be any revisions to past data and the weight breakdown of market hogs for an indication of hog slaughter during the second half of the year.

Weekly USDA export sales for US beef, pork

Beef: Net sales of 12,000 MT for 2023 were down 9 percent from the previous week and 16 percent from the prior 4-week average. Increases were primarily for China (2,500 MT, including decreases of 200 MT), Japan (2,500 MT, including decreases of 500 MT), Canada (1,400 MT, including decreases of 100 MT), Mexico (1,400 MT, including decreases of 100 MT), and Taiwan (1,200 MT, including decreases of 100 MT). Exports of 15,100 MT were down 15 percent from the previous week and 7 percent from the prior 4-week average. The destinations were primarily to Japan (4,200 MT), South Korea (3,600 MT), China (1,800 MT), Taiwan (1,600 MT), and Mexico (1,400 MT).

Pork: Net sales of 26,700 MT for 2023 were down 7 percent from the previous week, but up 3 percent from the prior 4-week average. Increases were primarily for Mexico (15,100 MT, including decreases of 200 MT), South Korea (4,100 MT, including decreases of 300 MT), Japan (2,600 MT, including decreases of 300 MT), Colombia (1,300 MT, including decreases of 100 MT), and Canada (1,300 MT, including decreases of 700 MT). Exports of 29,300 MT were down 3 percent from the previous week and 6 percent from the prior 4-week average. The destinations were primarily to Mexico (9,300 MT), China (3,900 MT), Japan (3,700 MT), South Korea (2,800 MT), and Australia (1,900 MT)

USDA Secretary Vilsack to announce more funding for meat processing

USDA Secretary Tom Vilsack will announce $115 million will be distributed across 17 states in the form of 15 awards to augment meat and poultry processing capacity. This announcement will be made in Des Moines, Iowa. The National Institute of Food and Agriculture managed by USDA will also grant seven awards totaling $4.5 million to community and technical colleges for the training of meat processing workers. The industry has been facing labor supply issues. The funding will be allocated as follows: the Meat and Poultry Processing Expansion Program will distribute five awards totaling $38 million to support smaller, independent processing firms. The Meat and Poultry Intermediary Lending Program will dispense ten awards cumulating $77 million. The funding for the educational grants will be channeled through the Meat and Poultry Processing — Agricultural Workforce Training program.

Everything you need to know about lab-grown meat now that it’s here

That’s the title of a Forbes article written by Chloe Sorvino (link). It provides an analysis of the realities surrounding lab-grown meat, also referred to as "cultivated meat", following its approval in the United States. While the technological innovation is impressive, the piece raises several issues that may hinder its success and widespread adoption.

• Cost: Lab-grown meat is incredibly expensive to produce, costing in the range of thousands or even hundreds of thousands per ounce. Despite the high costs, brands are setting prices similar to regular meat to entice consumers, resulting in substantial losses.
• Profitability: Given its current cost structure, lab-grown meat might not be profitable for years, if ever.
• Production Process: Creating cultivated meat requires expensive facilities and equipment such as bioreactors, which is further adding to overall costs.
• Taste: The experience of eating lab-grown meat needs to appeal to consumers, posing a challenge for the products to be flawless and desirable.
• Environmental Impact: Contrary to popular belief, the process of producing lab-grown meat uses a significant amount of energy and could potentially be more damaging to the environment than conventional meat production if renewable energy sources aren't utilized.
• Health Concerns: Experts indicate that these proteins could be considered as ultra-processed, and there is little research currently on the potential long-term impacts of consuming such foods.
• Intellectual Property: Patent wars may likely occur between companies, each having unique formulas for producing lab-grown meat.
• Economic factors: Even with advancements in this technology, the high production costs mean that it will likely become a luxury item affordable only to the wealthiest consumers, doing little to address food scarcity and affordability issues.

Bottom line: It's apparent that while lab-grown meat is an innovative development, there are several significant hurdles to overcome to make it a legitimate alternative to conventional meat sources. This goes beyond obtaining regulatory approval to factors such as cost, taste, health implications, environmental impact, and economic disparities.

Brazil reports first farm-level HPAI case

Brazil’s ag ministry reported the first case of highly pathogenic avian influenza (HPAI) in farm-raised birds in the municipality of Serra, Espirito Santo. The Brazilian Association of Animal Protein said because it is a backyard outbreak and not from a commercial flock, this does not change Brazil’s status as free of the disease before the World Organization for Animal Health.

USDA's Food Safety and Inspection Service (FSIS) has published two directives regarding cell-cultured meat

One outlines their responsibilities for inspection and another on their sampling program for testing these products. Since cell-cultured meat is not derived from slaughter, there is no need for carcass-by-carcass inspections. Minimum inspection requirements include once per shift during harvest and processing operations. FSIS recognizes the need for close coordination with the FDA given the dual jurisdiction. Imported cell-cultured meat products must come from countries with equivalent regulatory and inspection systems.

The "Cell-Cultured Meat and Poultry Food Products Sampling Program" details FSIS's plans for microbiological, chemical residue, speciation testing, and pathology, along with required environmental sampling.

Lower-cost US cookouts this summer

American Farm Bureau Federation reports that the cost of a summer cookout for 10 people will be slightly lower in 2023 than in 2022 with a total cost of $67.73, mainly due to decreased prices for chicken breasts and pork chops. Last year's record cost was $69.88. Although grocery inflation has slowed to 5.8%, families are still feeling the impact of high inflation and other factors that keep prices high. The cost of ground beef has increased, but this is offset by the combined $1.77 decrease in chicken and pork prices. Additionally, prices for potato chips, pork and beans, lemonade, cookies, and potato salad are lower than last year, while hamburger buns, ice cream, and strawberries are more expensive. Cheese prices remain unchanged.

USDA revises its food and grocery store price outlook for 2023

The agency projects U.S. food prices will see a 6% increase, compared to a 9.9% rise in 2022. Grocery store prices are expected to increase by 5.9%, lower than the 11.4% hike in 2022. Restaurant prices are set to rise by 7.7% in 2023, on par with the 2022 increase. Notably, pork prices are the only category set to decline, with a 2.1% drop forecasted. Meanwhile, egg prices are expected to increase by 6.2%, which is significantly lower than the 32.2% rise in 2022. Other food categories are also projected to have lower increases than seen in 2022.

Despite the lowered outlook, most price increases are still above their 20-year averages, highlighting somewhat elevated levels of food price inflation for the year. This will mark the second year of substantial increases in food prices, which will continue to impact consumers amid broader inflationary pressures.

California releases court order that modifies the California Proposition 12 implementation

NPPC last Friday said that “Contrary to some reporting, this is not a delay of all of Proposition 12, rather it is an adjustment related to the sale of whole pork meat. This is an extension of time for the sale of non-compliant whole pork meat, provided that the meat is in the supply chain by July 1. If it is in the supply chain by July 1, that product can be sold in California until December 31. Anything harvested after July 1, to be sold in California, will still have to be Proposition 12 compliant.” As to the significance of the order, NPPC said “California recognized that if something was not done on the implementation of Proposition 12, consumers in the state could potentially face increased food prices and a significant decrease in amount of pork supplied to the state.”

US Sens. Chris Coons and Roger Wicker preparing to introduce a bill to support farmers during avian flu outbreaks

Politico reports that following the record-breaking impact of the 2022 outbreak, which resulted in over 50 million culled birds, the senators aim to expand eligibility for USDA compensation for farmers affected by such outbreaks. The bill, which has bipartisan support, proposes to simplify the compensation process for farmers who lose their flocks due to culling or having to leave poultry barns empty for extended periods. The measure also has support from more than a dozen state Farm Bureaus and the National Chicken Council, which represents poultry processors. Coons and Wicker plan to incorporate the proposed legislation into the farm bill, aiming to ensure that impacted farmers are fairly compensated and can recover quickly.

GAO: OSHA should strengthen rules to protect meat and poultry workers from infectious disease

US Meatpacking plants experienced high rates of Covid-19 infections due to workers standing close together, cold temperatures, and the need to shout over machinery. USDA and the Department of Labor (DOL) did not collaborate effectively to protect worker health, according to a Government Accountability Office (GAO) report. Over 86,000 meatpacking workers contracted coronavirus and 423 died before October 2021, with infection risks in some plants much higher than the general population.

The GAO recommends the Occupational Safety and Health Administration (OSHA) investigate infectious disease dangers in meat and poultry processing and determine how to better protect workers. The report states that OSHA and the Food Safety and Inspection Service (FSIS) have not found a way to reconcile their differing missions. OSHA has previously been criticized for not protecting meat industry workers.

The GAO report suggests both agencies meet regularly to resolve collaboration challenges. OSHA was also found to have inadequately investigated many meatpacking worker deaths during the pandemic, often using rapid response investigations that did not involve visiting plants.

US senators introduce the Livestock Disaster Relief Act

The bipartisan bill, introduced by Sens. John Hoeven (R-N.D.) and Jon Tester (D-Mont.) is aimed at improving the Livestock Forage Program (LFP) and Emergency Assistance for Livestock Program (ELAP) — see related item below for background information on these programs.

The proposed legislation seeks to better support ranchers affected by natural disasters. It includes the following improvements:

• Better alignment of coverage between LFP and ELAP,
• Increased producer assistance under LFP for more accurate feed cost compensation,
• Specified transportation costs for feed, water, and livestock as covered losses under ELAP,
• Makes these program enhancements permanent.

The senators aim to advance the legislation as part of the upcoming farm bill.

Livestock Risk Protection (LRP) purchases for feeder cattle have significantly increased since 2021

LRP for fed cattle has also experienced growth. LRP, an insurance policy allowing cattle producers to insure a minimum price level for a specific period, was developed to offer hedging opportunities to smaller-scale producers who cannot sell 50,000 pounds of cattle at once. Increased premium subsidy rates in 2019 and 2020 lowered LRP costs for producers, leading to a rise in fed cattle LRP contracts sold. The number of such contracts and insured heads has nearly quadrupled in 2021 and 2022. Despite the recorded growth, the number of fed cattle insured with LRP remains relatively small compared to the number of eligible cattle. It remains to be seen how the increasing fed cattle prices will affect LRP policy purchases for the rest of the year.

Chicken sandwich wars could return

The chicken sandwich wars may have cooled down for now, but according to Rabobank Protein Analyst Christine McCracken, they will likely intensify again in the future. During a recent media event, she acknowledged some recent softness in the quick service restaurant (QSR) sector, which has affected breast meat pricing. However, she believes that rising beef prices could lead to a resurgence in the popularity of chicken sandwiches, as diners may opt for more affordable options. The chicken sandwich wars began in 2019 when Popeyes launched its chicken sandwich and challenged Chick-fil-A, with other QSR establishments following suit.

Brazilian cattle production topic at Senate hearing

At a Senate Finance Committee hearing on Thursday, the impact of Brazilian beef production on the environment was discussed, with a focus on deforestation in the Amazon. Committee Chairman Ron Wyden (D-Ore.) condemned JBS, a major Brazilian meat producer, for allegedly participating in harmful practices that contribute to climate change and hurt American ranchers. Wyden introduced the Cattle Price Discovery and Transparency Act, which aims to bring transparency and accountability to the U.S. cattle market.

The committee also discussed plans to modernize and improve the customs system, including better data collection and information sharing to gain insights into U.S. supply chains.

Cottage cheese, once popular among older generations, has made a comeback, particularly among Gen Z and millennials

That’s thanks to innovative and creative recipes shared on social media platforms like TikTok. With new recipes featuring cottage cheese in dishes like ice cream, pasta sauce, and pancakes, its popularity has soared with younger consumers. There has been a 15.9% increase in cottage cheese sales in the U.S., reaching $1.2 billion in the 52 weeks ending May 21, according to market-research firm Circana. Dairy companies like Good Culture have reported growth, and Cabot Creamery also noticed this revitalized interest. One potential reason for the revival is the increasing consumer focus on protein-rich diets, as cottage cheese contains slightly more protein than Greek yogurt.

World’s largest dairy producer, France’s Groupe Lactalis, is expanding in Chicago

This comes after a $3.2 billion deal to acquire cheese brands from Kraft Heinz. Lactalis Heritage Dairy plans to hire nearly 100 employees in Chicago in the coming year, according to CEO Peter Cotter. This expansion comes as part of the company's integration of Kraft's natural cheese brands like Cracker Barrel and Knudsen, following their $3.2 billion deal. Lactalis aims to capitalize on growth opportunities in the U.S., its second-largest market. The company has already completed the first phase of separation from Kraft, and the transition agreement for supply chain and finance systems will end in March. Lactalis Heritage Dairy now represents 39% of the group's total U.S. business, and despite the tight labor market in engineering, manufacturing, and technical areas, the company remains confident in attracting talent from businesses leaving the city. Cotter acknowledges inflation concerns but believes some softening will occur, with potential value being passed on to consumers.

US farmers are facing a crisis as the pork industry undergoes a difficult cycle

The world's largest hog producer, Smithfield Foods' CEO Shane Smith, predicts that some U.S. hog producers may start selling their corn instead of using it as animal feed. This comes because of growers losing up to $80 per head due to dwindling demand from China and rising feed costs. The situation has been exacerbated by the worst corn crop conditions since 1992, causing prices to soar and putting farmers in a tough spot. Additionally, stricter animal welfare laws in California have further increased production costs. The American meat market is facing a glut, and Smith believes it might take until the end of 2024 to normalize.

Weekly USDA dairy report

CME GROUP CASH MARKETS (6/23) BUTTER: Grade AA closed at $2.4200. The weekly average for Grade AA is $2.3744 (+0.0074). CHEESE: Barrels closed at $1.5000 and 40# blocks at $1.4050. The weekly average for barrels is $1.5069 (-0.0331) and blocks, $1.3981 (+0.0016). NONFAT DRY MILK: Grade A closed at $1.1325. The weekly average for Grade A is $1.1450 (-0.0140). DRY WHEY: Extra grade dry whey closed at $0.2650. The weekly average for dry whey is $0.2669 (-0.0091).

BUTTER HIGHLIGHTS: Cream volumes are steady in the East and West. Eastern butter makers report strong demand for cream from ice cream makers but say that demand is lighter compared to previous years. Central region cream offers were quieter this week, though some contacts in the region anticipate increased cream availability in the coming weeks. Butter makers in the East and West are operating strong schedules. Some manufacturers in the East are operating seven days a week. Inventories in the region are ample, and some regional butter makers are freezing butter. In the Central and West regions, butter loads are available, though some western contacts report tighter unsalted bulk butter inventories. Demand for butter is moderate to steady in the West, and unchanged in the East. Butter sales are trending higher, following seasonal trends in the Central region. Bulk butter overages range from 0 to 10.75 cents over market value.

CHEESE HIGHLIGHTS: Milk volumes are available for Class III production throughout all regions. In the Midwest, some milk suppliers are selling volumes to cheese plant to avoid disposal, and looking for the processors to cover freight costs. Contacts in the region continue to report spot loads of milk trading as low as $11 under Class. Cheesemakers in the Northeast say production steady, while contacts in the West say production is strong to steady. Retail and food service demands for cheese are steady in the West, though contacts report mixed demand from international purchasers. In the Midwest, cheesemakers say demand is trending higher. Cheese buyers in the Midwest are more willing to purchase inventories for storage with market prices for cheese at or below $1.50/lb. Cheese barrel inventories are tighter than blocks in the West, though stakeholders say loads of barrels and blocks are available to meet current demand. In the Northeast, cheese inventories are unchanged.

FLUID MILK: Temperatures nearing or over 100 degrees in parts of the South and West are depressing milk output. Contacts from the south-central states say milk availability has noticeably ebbed in recent weeks. There are similar notes from Arizona and California. Eastern and Midwestern contacts say milk availability ranges from steady to slowly declining, where temperatures are more mild at the onset of summer. Class I demand, however, is aligned throughout most of the country with lighter bottling pulls from school districts nationwide. Cheesemakers reported spot milk prices between $11 and $3.50 under Class III in the Upper Midwest this week, although they say offers have ticked markedly lower for the past two weeks. Cream multiples are edging higher in all regions, following seasonal trends. Butter producers say there is still spot cream available to them, however they expect multiples to continue their upward progression with the incoming heat. F.O.B. cream multiples are 1.28-1.35 in the East, 1.22- 1.31 in the Midwest, and 1.00-1.30 in the West.

DRY PRODUCTS: Dry dairy commodities remain, for the most part, under bearish pressure throughout the country. Low/medium heat and high heat nonfat dry milk (NDM) prices were steady to lower in all regions. Availability is more of a concern for processors than buyers, as buyers remain hesitant to take on more volumes outside of near-term needs. Dry buttermilk powder prices were steady in the Central/ East regions, while steady to lower in the West. Condensed and dry buttermilk powder is, and has been widely available. Dry whey price movements were mixed. With flush levels of milk still moving throughout the upper Midwest, dry whey processors are less hesitant to offer loads in the $.20s. Lactose prices were steady, as demand remains subdued. The whey protein concentrate 34% price range is unchanged, but some spot sales are moving at lower prices within that range. Dry whole milk and casein prices held steady this week.

INTERNATIONAL DAIRY MARKET NEWS

WESTERN EUROPE: As summer weather builds, seasonal milk declines are becoming more evident across much of northern Europe. While milk output is starting to decrease week over week, data suggests that milk volumes for the EU are stronger than last year. Ample milk supplies have put pressure on milk pay prices. Farm-gate milk pay prices have fallen off steadily since the beginning of 2023, and the provisional EU[1]27 May 2023 pay price is below the pay price of May 2022.

EASTERN EUROPE: Milk production in eastern dairy powerhouse, Poland, has remained strong through the first few months of 2023. According to industry sources, April 2023 milk production volumes, 632,000 MT, in Ukraine are similar to April 2022 milk production levels, 637,000 MT. Industry news sources from within Ukraine suggest cheesemakers are once again looking at export markets for cheese sales. Although the United Nations (UN) brokered an extension for the Black Sea grain deal, neither side is fully content with the progression of the deal.

OCEANIA: NEW ZEALAND: Recently released milk production data showing May 2023 output in New Zealand indicated milk output in the country was at the highest recorded volume for the month of May. Meanwhile, inflation remains a concern for New Zealand farmers in recent years. Recent data concerning the upcoming production season indicates lower costs for feed and fertilizer compared to last season. Export data released by Stats NZ showed the largest increase in export values from the country came from milk powder, butter, and cheese during May.

AUSTRALIA: In Australia, recently released milk production data indicates April production increased by 1.6 percent compared to 2022. Production data for a variety of dairy products was released earlier this month, showing production through March of 2023. The Australian Department of Agriculture, Fisheries, and Forestry updated their Agricultural Overview report earlier this month, and it contains forecast data for the upcoming 2023/2024 dairy season. The report forecasts an uptick in milk production as improving pasture quality, falling feed prices, and drier conditions contribute to increased cow comfort.

SOUTH AMERICA: At the onset of winter, there are renewed expectations regarding milk output in the South American continent. Contacts in Uruguay and Argentina suggest that late July/August may offer more notable gains in milk output, but it is currently too early to call. Argentine soybean output expectations are still clearly under the same stresses due to the recent dryness. Brazil's second corn crop is reportedly bullish, particularly when compared to its neighboring countries' overall crop expectations. Commodity powder prices in the region are holding quietly steady, after a bit of a wobble in the previous report week. There is a consensus among contacts that if Brazilian importing continues to slow, exports into farther reaches, namely Algeria, will put pressure on commodity traders to edge pricing lower to offset freight costs. Therefore, despite generally steady pricing, particularly when compared to other global markets, overall market tones are unassured in the South American region.

US NATIONAL RETAIL REPORT: Total conventional dairy advertisements increased by 4 percent this week, and total organic dairy ads increased by 48 percent. Ice cream in 48-64 ounce containers was the most advertised dairy product, with a weighted average advertised price of $3.91, up 10 cents from last week. Half gallons of milk were the most advertised organic dairy product, appearing in 124 percent more retail ads than last week, with a weighted average advertised price of $4.23, down 10 cents from last week. Conventional butter in one pound packages appeared in 15 percent fewer ads this week, with a weighted average advertised price of $4.29, up 44 cents from last week.