U.S. dairy exports have come back strong in 2010, which is good news for all of U.S. dairy producers.
In the first eight months of the year, volume shipped overseas was about 40% above the 2009 pace. According to the U.S. Dairy Export Council, exports were equivalent to 12.2% of U.S. milk solids production in the January to August period, up from 9.3% last year and nearly a full percentage point higher than the 2008 mark.
In other words, we’ve found a home for about 3% of our milk supply that we didn’t have last year. That’s been critical in a year when milk production has been up 2.8% since June.
Prospects for continuing to move volume offshore look good. First and foremost, overseas demand is solid, particularly in developing nations, where people are adding dairy to their diet in increasing numbers.
Second, New Zealand remains intent on serving the large China market with whole milk powder at the expense of all else. That emphasis on whole milk powder means Kiwi production of skim milk powder (SMP), cheese and butterfat is down about 13% this year. In addition, Europe has focused on making cheese for its internal market and for Russia, leaving output of butterfat and SMP lower. As long as Chinese and Russian demand stays hot, world markets should remain firm.
Third, the U.S. dollar has weakened considerably since Labor Day, falling 9% versus the euro in six weeks. That’s made European products more expensive and given U.S. exporters an advantage.
World milk supply growth could overwhelm demand in 2011, but since the summer holiday, production forecasts have turned pessimistic. Adverse weather in New Zealand has undercut what was a promising spring flush. Meanwhile, skyrocketing grain costs may temper production growth in Europe and the U.S.
It’s never been more important to keep tabs on global dairy market trends than it is now. In fact, the fate of U.S. milk prices is tied closely to global powder prices.
Not convinced? The graph above plots the U.S. All-Milk price and Oceania SMP prices for a six-year
period. Since mid-2006, the lines have practically traced each other. Even more instructive, by plotting Fonterra SMP auction prices onto the graph (see the red dots), we can get an idea of where U.S. milk prices might be headed in the first half of 2011.