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Global Focus Is the New Normal for Dairy

03:30AM Jul 04, 2014
New Zealand butter

Why the 2014 World Cup and New Zealand butter prices matter to the U.S. dairy industry.

In this day of instant access to world news, the U.S. dairy industry has taken on a global focus that few would have thought possible a decade ago. U.S. consumers are also paying more attention to world news and sporting events, evidenced by the recent high TV viewership of the 2014 World Cup. Both have affected dairy markets.

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This week’s lower weighted average price butter price at the Global Dairy Trade event sent U.S. CME spot butter tumbling 5 cents on Tuesday and 5 cents on Wednesday. The July 1 GDT butter price of $3,181/metric ton ($1.41/lb.) was $2,187 less than the U.S. 80% equivalent butterfat price of $2.40.

"Something has to give," says Sara Dorland, dairy economist with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle.

"You can’t have butter prices in New Zealand, the world’s largest marketer of global fat, at $1.41, and the United States selling butter at $2.40. The system will have to fix itself. U.S. exports will slow. In fact, we could reverse course and import butter."

However, the United States is not likely to import butter before New Zealand’s coming production season begins this fall.

"October will be the pivotal point," says Dorland. At that point, New Zealand production will ramp up and U.S. holiday demand will be in full swing.

Dorland doubts that U.S. demand is strong enough to fully absorb expected higher milk production and potential imports to the point that the current lofty butter prices can be sustained.

"I think we are seeing some real issues in China, with demand falling off," she says. "China has started to sell powder that it bought at a high price into the world market for a lower price."

World Cup Becomes U.S. Sporting Event

Last week, more than 25 million Americans tuned in to watch the U.S. soccer team take on Portugal in the increasingly popular World Cup. Many were eating pizza loaded with cheese.

USA Today reported that Pizza Hut experienced a 50% increase in lunch sales compared on the day of the match. And in Washington, D.C., some pizza stores actually ran out of product, according to Pizza Today.

"Pizza consumption and sports viewing go hand-in-hand in the United States. This year Americans consumed an estimated four million pizzas while watching the Super Bowl," says Dorland.

The United States vs. Portugal World Cup audience was less than a quarter of the size of this year’s Super Bowl audience, she notes, but the United States vs. Belgium game likely drew an even larger viewing public.

"When the final numbers are in, it is possible far more pizza was eaten when the U.S. team played Belgium than the game against Germany," says Dorland. "Four years from now, U.S. cheese and pizza makers will likely pay closer attention to the World Cup, as it appears to be signaling an uptick in pizza demand much like other any other anticipated sporting event."

That U.S. dairy economists are now focused on soccer and New Zealand butter prices is proof enough that the U.S. dairy industry has expanded well beyond sea to shining sea.