Jim Dickrell is the editor of Dairy Herd Management and is based in Monticello, Minn.
Dairy Exports Start Slow Rebound
Oct 01, 2009
By Jim Dickrell
The financial crisis that gripped the global economy—and dairy exports—is slowly loosening its hold. It appears U.S. dairy exports bottomed in May and June, and are started their slow rebound in July.
“Milk powder sales in July were at their highest levels so far this year,” says Margaret Speich, VP of communications with the U.S. Dairy Export Council. “And cheese export volumes in July were at their highest level since October 2008.”
The bad news, of course, is that total volumes will be down this year following a record year in 2008. For the first seven months of 2009, total export tonnage was down 26%, and total value of export sales was down nearly by half.
In 2008, the United States exported 10.8% of its production on a milk solids basis. January through July exports totaled 8.5%, and the lowest they’ve been has been 8%. “We were expecting it to average 7.5% for 2009,” says Speich. “So we’re above those expectations.”
Mexico, which is and has been our biggest customer, has remained so even through this downturn. Cheese volumes to Mexico are actually up this year, says Speich.
The other positive, at least through the price slump, is that the U.S. Dairy Export Incentive Program (DEIP) has been reactivated and has begun moving product. Because of the time lag needed for filling DEIP bids, some of the tonnage already approved won’t actually show up in export sales until this month or next.
China has also re-forecast its economic growth expectations for next year, now saying it expects its economy to grow 5% to 6% next year. While that’s about half the level of growth it has seen over the past few years, it is still better than earlier forecasts.
The two flies in the export ointment are credit issues and dairy inventories.
- Buyers are still having trouble securing credit for purchases, though the weaker dollar will make U.S. products even more attractive as credit issues ease.
- Inventories of powder, butter and cheese—both in government warehouses and in private hands—have now returned to 2004 levels. “The European Union alone is sitting on one billion lb. of milk powder and butter,” says Speich. “Dairy buyers look at these inventory levels, and they’re not panicking or placing orders. World inventories will have to be depleted before they start placing new orders again.”
It’s anyone’s guess how long it will take all of us to collectively eat our way through these mountains of powder, butter and cheese. But it could take much of next year—if not even longer—to do so.
“By 2010, we should be in another demand-driven market,” says Speich. Let’s hope it doesn’t take that long.