Weekly global protein digest: Mexico to vaccinate poultry to block H5N1, mixed outlook for 2022, 2023 US meat exports

Analyst Jim Wyckoff shares an update on the USDA reports and global protein news
calendar icon 18 November 2022
clock icon 11 minute read

Weekly USDA pork, beef export sales

Beef: Net US sales of 13,400 MT for 2022 primarily for Mexico (5,200 MT, including decreases of 100 MT), Japan (2,500 MT, including decreases of 400 MT), Canada (1,800 MT, including decreases of 100 MT), South Korea (1,500 MT, including decreases of 500 MT), and Hong Kong (500 MT, including decreases of 100 MT), were offset by reductions for Colombia (200 MT). Net sales of 3,800 MT for 2023 were primarily for South Korea (2,200 MT), China (500 MT), Mexico (400 MT), Hong Kong (200 MT), and Japan (200 MT). Exports of 18,200 MT were primarily to South Korea (5,500 MT), Japan (4,900 MT), China (2,600 MT), Mexico (1,400 MT), and Canada (800 MT).

Pork: Net US sales of 25,200 MT for 2022 primarily for Mexico (15,300 MT, including decreases of 500 MT), Japan (4,300 MT, including decreases of 400 MT), Canada (1,900 MT, including decreases of 300 MT), Colombia (1,000 MT, including decreases of 100 MT), and South Korea (700 MT, including decreases of 400 MT), were offset by reductions for Australia (200 MT). Net sales of 1,000 MT for 2023 were primarily for the Dominican Republic (500 MT) and Chile (300 MT). Exports of 30,600 MT were primarily to Mexico (15,300 MT), China (4,400 MT), Japan (3,400 MT), South Korea (2,300 MT), and Canada (1,500 MT).

US Senator Cory Booker criticizes USDA support for confined animal feeding operations

Booker said he sees linkages between food deserts in rural areas and urban areas. Booker said he believes that current farm subsidies encourage the growing of crops that lead to food deserts and that he wants to work on “realigning subsidies” in the new farm bill. Torres Small said that encouraging farmers to diversify their crops “can make farmers more resilient.”

Mexico will vaccinate poultry to block H5N1 avian influenza

Mexico will start vaccinating birds in high-risk areas this week to prevent the spread of the highly contagious H5N1 strain of bird flu in the country, authorities said. Last month, Mexican authorities detected a severe H5N1 strain of avian influenza at a commercial farm in Nuevo Leon state on the border with the United States.

USDA’s livestock, dairy and poultry outlook

  • USDA Forecast turkey exports increase by 8 million pounds from 2022 to 2023, an increase of 1.8 percent; broiler exports are expected to increase by 158 million pounds, or 2.2 percent. 
  • Both beef and pork exports are expected to decline between 2022 and 2023. 
  • Beef exports decline the most on both a percentage and absolute basis. Forecast beef exports decline by 472 million pounds, or 13.3 percent. Forecast pork exports decline by 129 million pounds, 2.0 percent lower than 2022.

Beef/Cattle: Based on a more-rapid cow slaughter and strong expected pace of fed cattle demand, beef production for 2022 is raised 211 million pounds to 28.3 billion pounds. Fewer cows are expected to be in the slaughter mix next year, which lowers projected beef production in 2023 by 90 million pounds to 26.3 billion pounds, a decline of more 7 percent next year. Fed cattle prices in 2023 were raised on feedlots being more current than expected with their supplies early in 2023. The forecast for total 2023 U.S. beef trade is unchanged.

Dairy: The all-milk price forecasts for 2022 and 2023 have been lowered due to recent downward trends in dairy product prices and larger expected milk supplies in 2022. The all-milk price forecast for 2022 is $25.50 per hundredweight (cwt), $0.10 lower than last month’s forecast. The all-milk price forecast for 2023 is $22.60 per cwt, $0.30 lower than the October forecast. The milk production forecast for 2022 has been raised, but the 2023 forecast is unchanged as lower expected milk cow numbers offset higher yield per cow.

Pork/Hogs: Processors’ spreads will likely be pressured for the balance of 2022 by year-over year higher hog prices and consumer resistance to higher pork prices. Fourth-quarter pork production is trimmed 28 million pounds to about 7.1 billion pounds, almost 2 percent below a year earlier. Hog prices are expected to average $64 per cwt in the fourth quarter. Export forecasts for 2022 and 2023 are unchanged at 6.4 billion pounds and about 6.3 billion pounds, respectively. A gently appreciating peso—partially offsetting higher ham prices—has supported pork exports to Mexico this year.

Poultry/Eggs: Broiler production forecasts in 2022 and 2023 are adjusted up on strong hatchery data and recent production trends. Broiler exports for 2022 are adjusted up accordingly. The wholesale broiler price forecast is adjusted down in the fourth quarter of 2022 on strong production and recent price trends. Table-egg production forecasts for 2022 and 2023 are revised downward as the current Highly Pathogenic Avian Influenza (HPAI) outbreak continues to impact the sector. Wholesale egg price (New York, grade A, large) forecasts for the fourth quarter and next year are revised up. Egg export and import forecasts for 2022 and 2023 are revised downward on lower-than-expected trade data. Turkey production is adjusted downward in the fourth quarter and the first half of next year on additional HPAI cases. Turkey imports and exports are both adjusted upward, though the export forecast remains well below last year. Turkey price forecasts are adjusted upward on recent price data and lowered production forecasts.

Pork processors squeezed by high hog prices and buyer resistance to increasing pork prices

USDA also reported federally inspected (FI) hog slaughter in October, estimated at about 10.9 million head, lines up well with the heavyweight category of the September Quarterly Hogs and Pigs report. The estimated October FI slaughter numbers were 1.5 percent below those of a year ago, consistent with the September Hogs and Pigs report, which estimated a 1.5-percent year-over-year decline in the 180-pounds-and-over category. October prices of live equivalent 51-52 percent lean hogs averaged $67.78 per cwt, 7.9 percent higher than a year earlier. Pork processors sold pork at lower year-over-year prices in October: the value of the wholesale pork carcass cutout averaged $101.15 per cwt, about 1.4 percent below the October 2021 cutout value. Price information for 2022 processors’ costs (hog prices) and revenues (wholesale pork carcass cutout and byproduct values) show lower year-over-year processing spreads beginning in March (week 9 in the figure below) and largely persisting through October. Through the balance of 2022, processors will likely pay higher hog prices due to lower supplies of slaughter-ready hogs, while confronting consumer resistance to pork price increases— factors which, when combined, will continue to pressure processors’ price spreads.

Weekly values of the 2022 processors’ spread4 have been below same-week values of 2021 in 28 of the first 43 weeks of 2022. This year, the average value of the spread through week 43 has been about $33 per hog, whereas last year over the same period the average was almost 20 percent higher, at about $41 per hog. For October 2022, the spread averaged about $38 per hog, almost 29 percent below the same-period spread for last year.

Chinese pork imports to rise

China will increase pork imports in the coming months, industry participants said, after losses for farmers last year caused a reduction in hog numbers that appears larger than official data suggests. A manager at a feed producer that supplies more than 100 mid-sized pig producers across China told Reuters, “I think there’s 25% to 30% less fatteners [hogs] than a year ago.” Pan Chenjun, senior analyst at Rabobank, said: “I expect more [pork] shipments to arrive in Q4," adding that 2023 imports will be higher than this year.

Weekly USDA dairy report

BUTTER: Grade AA closed at $2.9050. The weekly average for Grade AA is $2.8765 (+0.1375).

CHEESE: Barrels closed at $2.0625 and 40# blocks at $2.2000. The weekly average for barrels is $2.0165 (+0.0520) and blocks, $2.0910 (+0.1075).

NONFAT DRY MILK: Grade A closed at $1.4300. The weekly average for Grade A is $1.3970 (+0.0030).

DRY WHEY: Extra grade dry whey closed at $0.4400. The weekly average for dry whey is $0.4390 (-0.0115).

BUTTER HIGHLIGHTS: Cream is becoming more available in the Northeast and in most of the West. Contacts in some parts of the West note cream remains tight. In the Central region, cream availability is mixed. Some plant managers say availability is growing week to week, while other report cream is available but purchasers could use more loads than are locally available. Butter production is growing in the Northeast and Central regions. In the West, butter makers are busy churning though some say labor shortages are causing them to produce below capacity. Food service demand for butter is steady in the Northeast and retail sales are active, though some regional stakeholders believe inflation is contributing to reduced shopper interest. Retail demand for butter is softening in the West as some grocers have finished purchasing butter to meet their holiday needs. Food service and bulk butter demand is steady in the region. In the Central region, demand is present for bulk butter, but butter stocks are, reportedly, exclusively from recent production. Butter loads are becoming more available in the West. In the Northeast, butter inventories remain tight, but some users are searching westward for loads to meet their current needs. Bulk butter overages range from 5 to 18 cents above market, across all regions.

CHEESE HIGHLIGHTS: Milk is available for cheesemakers in the Northeast and West to run steady production schedules, though some plant managers say they are operating below capacity due to labor shortages and supply chain delays. In the Midwest, spot milk remains steadily available, though cheese production varies across different plants. In recent weeks, curd and barrel cheese makers have reported shifting to alternate varieties to counterbalance slowing cheese sales. Some cheddar block and Italian cheesemakers say they are now seeing similar slowdowns. Western cheese contacts say retail and food service demands are steady. In the Northeast, retail demand, is steady to lower, though food service sales are unchanged. Loads of cheese produced in domestic markets are being sold at lower prices than those produced internationally, and contacts in the Northeast and West say this is contributing to strong interest from export purchasers. Spot loads of cheese are available for purchasing in the Northeast and West regions.

FLUID MILK: U.S. milk production is mostly steady throughout the country, as pockets of higher output show up in some areas of the regions. Class I milk sales are steady to higher with the addition of seasonal eggnog purchases. The Florida milk market is preparing for another hurricane to hit the state. Some bottling plants have posted closings due to the expected inclement weather. Cold fronts are expected to push through the Midwest this week as corn harvest nears completion in the upper areas of the region. In the West, tight milk supplies in Arizona prompt purchases from nearby states, while loads are being sold at discount in local market in the mountain states of Idaho, Utah, and Colorado. Class II cream demand is stronger. F.O.B. cream multiples for all Classes are 1.32 -1.38 in the East; 1.23-1.32 in the Midwest; and 1.06-1.30 in the West. Condensed supplies are tight, with above Class pricing reported in the spot market.

DRY PRODUCTS: Low/medium and high heat nonfat dry milk (NDM) prices are weaker on light buyer interest leading up to the holiday in most regions. Dry buttermilk prices are steady to lower in the East, Central, and West regions. Supplies exceed demand, translating to generally lower prices in a weak market. Dry whey prices vary, with little difficulty finding loads in the spot market. Export demand is mixed. Dry whole milk prices are steady. Availability is limited on the spot market, but expected to shift higher with milk production increases. Whey protein concentrate 34% prices are mixed. Production is steady. Lactose prices are unchanged as offers increase. Acid casein prices declined, but rennet casein prices are unchanged. Market tones are bearish.

International dairy market news 

WESTERN EUROPE: European milk output is at or near the nadir for the typical milk production season. But as the continental milk output approaches the low point, typically in mid-November, farmers are pushing their cows to produce more milk. Milk buyers have kept pay prices at high levels in efforts to keep their farmers under contract. Inflation is taking a bite of dairy and food sales. Food and beverage prices in the UK have risen 14.6 percent in September 2022, compared to September 2021.

EASTERN EUROPE: Eastern European milk production is nearing the low point for the year but has maintain a year over year increase for much of the year. After threatening to pull out of the UN-brokered Black Sea grain export deal, Russia has agreed to continue to honor the deal. So far, Ukraine has been able to export approximately 14.3 million tons of grain, down 30.7 percent from the amount exported at this point in the last grain season.

AUSTRALIA: Australia's farmers continue to wrestle with extensive flooding in the midst of labor issues and production costs. Market analysts see these as significant obstacles that affect increases in Australia's near term milk production and dairy export volumes. The recent milk production report shows that output decreased 5.9 percent in August, compared to 2021 milk output. Sources report that cheese production, currently Australia's primary export focus, is pressured by low milk output. Meanwhile, butter, skim milk, and whole milk powder are expected to suffer reductions in the country's 2023 export market.

NEW ZEALAND: As the New Zealand dairy industry examines indicators for optimistic milk production trends, the new milk production season has sprinted into November. Warmer than average conditions and periods of dry spells are forecasted for the month, across the country, which some say could be another La Nina weather pattern in development. Meanwhile, market demand is a growing concern with the declines in dairy commodity spot prices. Sources note that the reductions in China imports drives the lower prices and the least uptick in demand may sway the current bearish sentiment.

SOUTH AMERICA: Spring has brought an increase in milk production in the Southern Cone, seasonally. That said, total 2022 projections for Argentina's overall milk production are not expected to grow much when compared to last year. Individual purchasing hurdles, at the retail level, are being reported by a number of contacts. They say dairy items are eschewed for less costly substitutes. South American milk powders are under some bearish pressure in recent weeks. After a notably bullish Q1-Q3 run, even casein processors are taking notice at global pressures and adjusting their 2023 contracts accordingly.

US NATIONAL RETAIL REPORT: Ahead of the end-of-year holidays, conventional dairy retail advertisement totals increased 14 percent, but organic ad totals declined 50 percent. Conventional ice cream, 48- to 64-ounce containers, remains the single most advertised dairy item, while conventional ads for items such as two-pound block cheese, one-gallon flavored milk, and 32-ounce yogurt more than doubled last week’s figures. Conventional one-pound butter advertisement numbers grew by over 50 percent, as well.

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