Philippine Typhoon Could Impact U.S. Milk Prices

November 12, 2013 12:47 PM

Because the Philippines is a major export destination for U.S. dairy exports, the impact of the storm will likely be felt here in the not-too-distant future, Wells Fargo economist says.

Supertyphoon Haiyan, which struck the Philippines this past weekend, could impact U.S. dairy prices as exports slow as the island nation deals with the devastation.

Michael Swanson, a Wells Fargo agricultural economist, says Typhoon Haiyan will be a major blow to the Philippine economy. And because the Philippines is now a major export destination for U.S. dairy exports, the impact of the storm will likely be felt here in the not-too-distant future.

Swanson spoke at Dairy Today’s Elite Producer Business Conference here in Las Vegas this week.

Dairy exports to the Philippines had climbed 6% already this year. But the typhoon will likely halt growth, at least for a time, as the country buries its thousands of dead and struggles to recover from the devastating storm.

Still, Swanson is bullish on exports, noting that January through August, sales reached $4.3 billion, a record pace. Mexico led this surge, with sales up 21% over the period compared to 2012. Sales to China grew 10% and sales to Canada grew 9%.

Exports are, and will continue to be, the lynch pin to U.S. milk prices. The U.S. domestic market is currently over-supplied with dairy products. "Our population rate of growth continues to decline, our per capita consumption of dairy products is maxed out, and our productivity gains swamp demand growth," he says.

So any major growth will have to come from export markets, he says. And that’s where there is continued good news. "The global market is under supplied with dairy products, and global population and incomes remain supportive of continued buying," he says.

Swanson says the United States enjoys a feed cost advantage over most competitors, and because of that, the U.S. is capable of fairly easy production expansion.

He notes that other U.S. proteins, such as poultry meat and pork, are now exporting 20% of their production. U.S. dairy exports account for about 15% of production on a milk solids basis. "I believe we will see dairy follow pork and broilers to the 20% level or greater," he says.

But that doesn’t mean there won’t be bumps in the road. Dairy, like broilers and pork, are now highly dependent and sensitive to global markets. The keys to continued global demand will be trade policy and currency exchange rates, he says.

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