For the past decade, a weak U.S. dollar is one of the factors that helped grow U.S. dairy exports. But as the dollar gains strength against other currencies, particularly the Euro, that advantage may be disappearing.
The dollar has not been this close to parity with the Euro since 2003, notes Mary Keough Ledman, a dairy analyst with Keough Ledman & Associates, Libertyville, Ill.
“[The United States] grew dairy exports with a favorable dollar situation,” she says. “We could struggle with our exports with a stronger dollar, and exports could contact down to 12 to 13% of U.S. milk production.”
She also notes that European farmgate milk prices are actually less than U.S. prices. That might make them even more competitive on the world market. But it also suggests European farmers won’t rapidly grow milk production because of price constraints.
“Currency value is a big deal for the United States,” agrees says Tim Hunt, Rabobank’s global dairy strategist.
At the current level, near parity, the U.S. is still competitive, especially with falling feed prices. The risk is that the dollar falls below parity with the Euro and U.S. corn prices jump to $6/bu.
But the U.S. cannot avoid that risk, and it can’t go back to simply supplying its domestic market. “So the U.S. has to get better at exporting, entering better trade agreements and building better relationships with global trading partners,” says Hunt.
Read more on the global dairy market here.