Weekly Protein Digest: Global food prices slide for the first time in a year

Global food prices fell 2.5% (3.2 points) during June, with the Food and Agriculture Organization of the United Nations’ food price index sliding to 124.6 points, writes markets analyst Jim Wyckoff.
calendar icon 9 July 2021
clock icon 7 minute read
Jim Wyckoff Commentary -  TheCropSite

But that’s still 33.9% above year-ago levels. Prior to the June decline, the index had climbed for 12 straight months. “The drop in June reflected declines in the prices of vegetable oils, cereals and, to a lesser degree, dairy prices, which more than offset generally higher meat and sugar quotations,” FAO explained. FAO still expects this year’s global cereal crop to hit a record high, though it trimmed its production estimate to 2.817 billion metric tons.

FAO made a sharp cut its Brazilian corn crop estimate. It also says dry conditions in the Near East have dented global wheat production prospects, prompting a 1 MMT cut to its wheat crop projection that now stands at 784.7 MMT, up 1.2% from last year.

FAO/OECD do not expect a commodity price super-cycle

Prices for most ag commodities should fall slightly in real terms in the decade ahead as production improves to meet rising demand from a growing population, the U.N. Food and Agriculture Organization (FAO) and the Organization for Economic Cooperation and Development (OECD) said in a joint report on their outlook for 2021-2030.

During a related presentation, Maximo Torero, FAO's chief economist, said “the fundamentals don't say to us that we will be moving to a supercycle of commodity prices.” The report notes China will likely remain a major demand driver for global ag markets, especially for meat, fish and feed grains. But the country’s growth in population and demand is expected to be at a lower pace than in the past decade.

Higher hog supplies in China depress pork prices

A recent USDA report said that between April and June 2021 excess pork production in China has lowered pork prices, caused small and medium producers to liquidate farm inventories, and limited piglet restocking. Chinese authorities are instituting a system to address severe price fluctuations in live hogs and pork in an attempt to manage prices and support farmers. Continued price declines in live hog and pork prices will create potential gaps in pork production in the second half of 2021. Demand for imported pork is anticipated to remain robust.

Following the resurgence of African Swine Fever (ASF) in China’s hog herd in late 2020, sources shared that producers exhibited greater concern about the spread of the disease. Reportedly, hog producers rushed to sell, causing prices to decline. From January 2021 to the end of June 2021 live hog prices fell by nearly 65 percent due to increased slaughter, low consumer demand, and an abundance of pork availability in the market. As the price for pork declined, so did piglet prices.

Sources indicate that breeding farms have responded by culling less productive breeding sows which is affecting piglet production. These trends will decrease the breeding sow population, especially amongst small- and medium-sized producers, while supporting large producers with high efficiency sows. Further, feed prices in China remain relatively high even though China’s industry is considering varying feed ingredient rations. Finally, restocking commercial hog farms with piglets is being delayed according to industry sources and is expected to result in lower pork production in the second half of 2021.

FAS China anticipates that demand for imported pork in the second half of 2021 and early 2022 is expected to remain robust. Over the past several months, small- and medium-sized commercial hog producers have liquidated overweight hogs (over 250 kilograms), standard-weight hogs (around 150 kilograms), and under-weight hogs as the price for pork dropped. Previously, producers were keeping over-weight hogs as consumers and meat processors found the product desirable. The slaughter of under-weight hogs speaks to industry concerns about disease and falling prices as small- and medium-sized producers closed down operations before animals reached market weight.

Sources indicate that losses for professional farrow-to-finish farms have intensified leading to further panic selling. For large-scale producers, the ability to take on short-term losses due to low pork prices has allowed them to continue to maintain production targets. However, sources indicate large producers have also scaled back on the purchase of piglets for breeding and/or scaled back the restocking of hog farms.

USDA’s dairy market at a glance

CME GROUP CASH MARKETS - Released on July 2

BUTTER: Grade AA closed at $1.7400. The weekly average for Grade AA is $1.7505 (+0.0110).
CHEESE: Barrels closed at $1.5000 and 40# blocks at $1.5550. The weekly average for barrels is $1.4955 (+0.0095) and blocks, $1.5435 (+0.0600).
NONFAT DRY MILK: Grade A closed at $1.2575. The weekly average for Grade A is $1.2625 (+0.0040).
DRY WHEY: Extra grade dry whey closed at $0.5500. The weekly average for dry whey is $0.5610 (-0.0290).

CHEESE HIGHLIGHTS: Milk supplies for cheese producers are reported as substantial. Spot milk prices in the Midwest are $6 to $5 under Class III. Contacts expect a potential chipping away at those low prices following the upcoming holiday. Some, though, expect further availability into the summer. Cheese is available, but contacts say the lower market prices in recent weeks have buyers being a little more consistent in purchasing patterns. Demand, in general, varies from and within regions. Regarding market tones, blocks have shifted into the mid $1.50s, while barrel prices hover at/below the $1.50 mark.

BUTTER HIGHLIGHTS: Cream is available for spot and contract needs. Production is at the expected seasonal level for most butter operations. Holiday schedules vary, though; some plant managers plan to run churns through the holiday, but others will pause production for a three-day weekend. Inventories are available for current needs and growing as some manufacturers plan for fall demand. Retail demand is unchanged: soft but steady. Food service orders are level to stronger. Steady inventory growth and demand fluctuations over the past year have led to uncertain market tones. Bulk butter overages range from 1.5 to 8.0 cents above market across the country this week.

FLUID MILK: Heat has begun to affect week-to-week output off dairy farms nationwide. Still, there are few signs of milk being tight or short for all needs. Class I demand is lackluster. Some Central area contacts say there was a bit of a rebound following the school summer vacation drops of a few weeks ago. Cheesemakers nationwide say spot milk is widely available, and discounts remain relatively steep in the Midwest, from $6 to $5 under Class. Cream is generally available ahead of the holiday weekend. Both cream and milk are expected to remain available, but contacts question when the summer heat will begin to chip away at supplies. Condensed skim availability is and has been sufficient. End users say there is currently more than enough for their uses, and offers are aplenty. F.O.B. cream multiples are 1.28-1.35 in the East, 1.23-1.33 in the Midwest, and 1.05-1.25 in the West.

DRY PRODUCTS: The very bullish spring is leading to a quieter, although not particularly bearish, summer. Low/medium heat nonfat dry milk (NDM) prices moved lower in some facets in all regions, but trading was noted as generally slow. Dry buttermilk prices moved lower in the West, but higher on the top of the Central/East price range, as availability is regionally scarce. Dry whole milk prices shifted lower on the bottom of the range on slow trading, as availabilities, even on limited production, have grown slightly. Dry whey prices were mixed in the Central region, but slipped in the East and West. Dry whey production is limited, as more producers are shifting toward high-protein blends. Whey protein concentrate 34% prices shifted lower on the bottom of the range, but held steady elsewhere. Lactose producers and buyers are working through contracts, as prices bumped up on the bottom of the range. Strong Asian demand for acid and rennet casein provided firming prices in those markets.

ORGANIC DAIRY MARKET NEWS: Organic Milk Retail Prices for Selected U.S. Cities. The June 2021 in-store surveys of selected supermarkets in thirty U.S. cities reveal that the retail prices of organic whole milk, in half gallon containers, range from $3.14 in Cincinnati, OH and Houston TX, to $5.84 in Pittsburg, PA. The U.S. simple monthly average price, $4.11, is unchanged from May 2021. The largest price increase, over the previous month, for organic whole milk in half gallon containers occurred in Minneapolis, MN, up 16 cents. Twenty-eight out of the thirty U.S. cities’ retail prices are unchanged compared to last month. Total organic ads for surveyed retail stores increased 99 percent. For the holiday, organic milk advertisements, in both half gallon and gallon containers, shifted up exponentially compared to the last period. Organic advertisements increased in the Midwest, Southwest and Eastern regions this week. The price spread between the weighted average advertised price for organic half gallon milk, $4.63, compared to $2.65 for conventional half gallons, led to an organic premium of $1.98. The organic premium dropped $1.17 from the previous reporting period.

NATIONAL RETAIL REPORT (DMN): Following the first full week of summer, conventional ice cream in 48 to 64-ounce containers unsurprisingly remains the most advertised dairy item this week. The national weighted advertised average price is $2.96, down $0.10 from last week.

The national weighted average price for conventional 1-pound butter is $3.07, up $0.36 from last week. The national weighted average advertised price for organic 1-pound butter is $5.55, up $0.26 from last week. Total conventional dairy advertisements are up 24 percent, while total organic dairy ads increased 99 percent from the previous week.

TheCattleSite News Desk

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission (CFTC) has said about futures trading (and I agree 100%): 1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

© 2000 - 2024 - Global Ag Media. All Rights Reserved | No part of this site may be reproduced without permission.