Dairy Exports Rebound
Oct 01, 2010
With relentless growth in milk production this year and lackluster consumer spending, dairy producers should be thankful for robustly rebounding export markets.
In 2009, it was the loss of those markets that was much to blame for the price collapse. This year, the rebound in foreign sales is responsible for tightening the U.S. market and powering prices upward. U.S. dairy exports were at record volumes in the second quarter of 2010, up 58% by volume over year earlier. And year-to-date, the U.S. has exported 12% of its milk solids, which is up by a third over 2009 and about 8% over 2008. That’s according to data collated by Alan Levitt, an analyst who works with the U.S. Dairy Export Council and authors Dairy Today’s Market Watch Diary column.
The increased exports mean that powder sales to the government are down 162 million lb. January through June. And that’s a good thing, because USDA’s Commodity Credit Corporation pays only 80¢/lb for powder. In contrast, the world market is averaged of $1.17 /lb during the first half of 2010, a 38¢ swing. When pushed through the Class IV formula, every penny increase in powder prices represents about an 8.6¢ increase in the Class 11/IV price. And since the Class IV is now higher than Class III, it becomes the driver for not only powder and butter but fluid milk prices as well.
The news is much the same for other dairy commodities for the first half of 2010:
• Cheese imports are down 51 million pounds while exports are up 81 million pounds.
• Butter imports are down 8 million pounds while exports are up 48 million pounds.
• Whey imports are down 9 million pounds while exports are up 79 million pounds.
The good news is that the trend lines are all positive. But there are also two warnings to be heeded as well: 1) U.S. dairy producers are no longer insulated from global market realities. 2) We can’t assume that what we’re currently doing will automatically guarantee increasing market share moving forward.
To that end, the Innovation Center for U.S. Dairy Globalization Operating Committee has developed individual work teams to address seven key areas to maintain and accelerate U.S. export potential. These range from pricing reform (eliminating U.S. dairy price supports) to pursuing trade agreements to managing price volatility throughout the supply chain.
The European Union and New Zealand also have not been idle. The Europeans have finalized a free trade agreement with Korea (though it likely won’t be implemented until 2011); the Kiwis with China. These deals can put U.S. exporters at a disadvantage. “By not being active in pursuing trade agreements, we’re actually losing ground,” says Jaime Castaneda, National Milk Producer Federation Senior VP of Strategic Initiatives and Trade Policy.
Whether U.S. dairy producers like it or not or believe it or not, their future is tied to global markets. What policies we enact and pursue in the next 12 to 24 months will be critical. Doing nothing is no longer an option; creating obstacles to trade is even worse.