A Bumpy Ride: 2009 dairy exports may cool; long-term prospects hot

January 15, 2009 11:43 AM


U.S. dairy exports have slowed their record-setting pace of the past four years, but opportunities lie ahead.

Global economic troubles will dampen demand for U.S. dairy products in 2009, but 2010 should see a recovery in the export market.

USDA forecasts the value of dairy exports at $3.1 billion for fiscal 2009 (October to September), a significant drop from 2008's $4 billion. The decline stems from falling consumer prices and weaker income growth, which are pressuring global prices for major dairy products. Still, both the 2008 and 2009 numbers surpass 2007's export value of $2.5 billion.

Despite 2009's lower levels, world prices will rise eventually and U.S. overseas shipments will rebound, says Ted Jacoby III, vice president of cheese sales and risk management for T. C. Jacoby and Company.

New Zealand, Australia, Argentina, Brazil and the European Union are poised to increase dairy exports over the next year as their production rises, Jacoby says. When supplies increase, he says, New Zealand will "aggressively hit the first bid and lower [its] prices because [it] has no choice—the product must move.”

Even so, there's not enough milk in the rest of the world to meet the growing population and increased diet demands, Jacoby says. "Buyers don't want to terminate relationships with U.S. suppliers because they know in a year or two they'll need U.S. products again. U.S. exports in 2010 could easily return to 2008 levels.”

Rabobank International's Deborah Perkins predicts a "bumpy ride” in 2009 global dairy markets. In the first half of the year, prices are "likely to go much lower than anyone was expecting,” says Perkins, managing director of the bank's Food and Agribusiness Research and Advisory group. She also expects the U.S. dollar to remain strong through 2009, which will significantly impact dairy markets.

But demand will ultimately recover as retail price inflation slows, economic stimulus packages take effect and credit becomes more available to companies, she adds. "Longer-term, there is reason to be optimistic.”

Low-cost producers in New Zealand, Australia and South America face constraints that will limit their ability to satisfy the eventual growth in demand. That means the market will have to attract a higher-cost supply and commodity prices will have to return to a higher trading band.

"There are going to be challenges in 2009,” Perkins says, "but for suppliers focused on exports in the longer term, it's going to be very important to foster relationships with customers to continue to supply key markets.”

The global economic crisis and credit crunch have created uncertainty, pushed consumer spending down and put a damper on the dairy trade, agrees Matt McKnight of the U.S. Dairy Export Council. Recovery in dairy demand will depend on the length and depth of the global recession.

"But the structural trends are still intact: population growth, Westernization and urbanization will continue to drive global dairy consumption,” McKnight says. Once consumer demand picks up again, he predicts, buyers will return to the market and contract for pipeline needs.

Bonus content:

Click here to go to USDA''s Foreign Agriculutral Service.

Click here to go to the U.S. Dairy Export Council Web site.


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