Bullish on Exports

January 10, 2012 01:28 PM
Bullish on Exports

Cautious optimism for world dairy markets

Despite the financial crisis in Europe and uncertainty over U.S. dairy policy, dairy analysts say they are cautiously optimistic, even bullish, for 2012 world dairy markets.

Marc Beck, senior vice president of export marketing for the U.S. Dairy Export Council (USDEC); Jerry Dryer of J/D/G Consulting; and Bart Van Belleghem, secretary general of Europe’s dairy trade association Eucolait, discussed 2012 global dairy markets last month in a webinar sponsored by Dairy Foods magazine and USDEC.

"I’m sensing a little bit of bullishness," Beck said. "Right now, we are in a sweet spot where we have stronger global dairy prices and the milk supply to meet that demand."

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As economies continue to recover from the 2008–09 global recession, the middle class in many countries will continue to grow and demand more dairy products, Dryer said. "These markets are continuing to emerge. China will continue to be a factor. In the first 10 months of 2011, China’s dairy imports were up some 10%. While they weakened in October, 2011 will still be a very good year."

While Russia has backed off considerably in its dairy imports in 2011, Beck said, the country is holding a presidential election in March. "That could have a positive impact because [Prime Minister Vladimir] Putin doesn’t want empty food shelves during the elections," he noted.

India is a wild card; its import intentions are unknown. "But when India comes into the market, it will provide a real jolt," Beck said. And that could happen in 2012.

Europe’s credit crisis is one situation that is more perception than reality for countries that import dairy products from the European Union (EU), Van Belleghem said. "Some Asian buyers think the EU will collapse. But as of now, the crisis has not really impacted our ability to do business," he added.

The bigger problem for European dairy farmers is that their milk prices are too high to allow them to compete for global markets. In 2011, EU farmgate prices averaged nearly $22 per cwt., up from $20.50 in 2010 and $17 in 2009.

And even though the EU currency value has declined versus the U.S. dollar and other currencies, EU dairy prices are still not competitive globally for most products, with the exception of skim milk powder, Van Belleghem said.

In the U.S., Dryer expects, milk prices will fall slightly in 2012. "We’ve been at $20 in 2011, and we’ll only be marginally below that next year," he said.

He noted that U.S. milk production grew 1.7% in 2011, but estimates it will grow only 0.4% in 2012. He believes some of that growth came as a result of "race for base" as the U.S. dairy policy discussion included a supply management component.

But, he said, high feed prices—and possible supply management if the proposed dairy reform is passed—will curtail U.S. milk production in 2012.

"Feed supplies have been the real issue; there isn’t enough forage in some regions," he said. "Supply management will hurt exports.…We don’t need supply management."

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