Dairy trade trends discussed

The Livestock Marketing Information Center (LMIC), a service of State Extension Services in cooperation with USDA, released a summary report of recent trends in U.S. dairy imports and exports.  To find the full report, visit the University of Wisconsin “Understanding Dairy Markets” website:  http://future.aae.wisc.edu/publications/dairy_trade_06_12.doc .

International Dairy Trade Update

Dairy trade continues to be a bright spot in the dairy industry.  Last year, double digit growth continued in many areas of exports, and overseas partnerships were strengthened.  The year ended with four of the six export categories which LMIC tracks, exporting new record volumes.   The LMIC tracks six major Harmonized Tariff System (HTS) codes from the Foreign Agricultural Service (USDA-FAS).  The major categories are grouped as follows: Milk Not Concentrated or Sweetened, Milk Concentrated or Sweetened, Buttermilk, Whey and Natural Milk Products, Butter and Fats, and Cheese and Curds.  These six categories have grown considerably, totaling just over $351 million in 1989 to reaching $3.7 billion in 2011.  

 

2012 Year to Date

Year to date total dairy export values are $174 million ahead of 2011’s.  Gains have been made in Milk Concentrated or Sweetened, Buttermilk, Whey, and Cheese and Curds.  The largest percentage value increase was in Buttermilk, running over 200% above 2011 year to date figures.  The largest loss in value has been in the Butter and Fats category, down 36%.  

Quantity changes have largely followed values so far this year.  Categories increasing in values are also increasing in quantity sold.  The same four categories showing year over year increases in value are also increasing in sales. Buttermilk and Butter are again the largest increase and decrease, although not nearly at the same rates.  Buttermilk is only 15% ahead of 2011 in quantity, while Butter is down 32%. 

Import quantities, also, have been increasing.  Year to date data shows the U.S. is importing more concentrated Milk products, Buttermilk, Whey and Butter.  Butter is the largest category to increase, up 94% from 2011 year to date figures.  Milk Not Concentrated or Sweetened was the largest decrease in imported products, down 11%. 

 

April’s Monthly Data

Monthly, quantity export data also followed year to date data closely, showing decreases in Butter and Milk Not Concentrated or Sweetened of 29% and 23% respectively.  Year over year Cheese has shown the largest increase in the monthly data up 31% in April, followed by Milk Concentrated or Sweetened 22%, Whey 20% and Buttermilk 8%.

The recent monthly quantity import data reinforces the year to date trends.  Year over year the newest trade data showed both Concentrated or Sweetened and Butter products were up over 100% compared to April 2011.  Other categories with increases were all double digits, including a 13% gain in Milk Not Concentrated or Sweetened.  Monthly, the only two categories with year over year declines were Whey, which was down nearly 25% and Cheese down 12%.

 

Destinations

Canada and Mexico remain the most important trading partners for U.S. dairy products.  At least one of these two countries is in the top five destinations for each of the six dairy product groups tracked.  The largest volume exported to these two countries is in Milk Not Concentrated or Sweetened.  Exports to North American countries alone represented 75% of the total export volume in Milk not Concentrated or Sweetened.  North America also takes the bulk of U.S. Concentrated or Sweetened milk products, representing 42% in 2011.  In other categories North America may not be the highest volume destination but still represents a substantial portion of the exports.  

For other categories the destinations are more mixed, however usually one region stands out more than others.  The Caribbean sales were the largest percentage for exported Buttermilk, 45% in 2011.  East Asia reportedly bought 45% of the Whey products shipped.  In Butter and Fats the Middle East purchased around 30% in 2011 and in Cheeses and Curds East Asia bought 32% of exports. 

 

Looking Ahead

Monthly quantity figures appear to be holding steady in Concentrated or Sweetened products, and growth, although not as robust as some years, is continuing for Whey, Cheese and Buttermilk products.  Exports of Butter and Milk not Concentrated or Sweetened have been well below year ago levels and would need to climb substantially to show annual growth in either of these products.

Problems in the Euro zone will likely continue to send waves of uncertainty through the system until there is a definitive decision.  However, export consumer demand seems to remain in place in many categories.  A more immediate concern is milk supply domestically and the U.S.’s ability to shift between producing for the export market and absorbing production in the domestic market when needed.  Three areas will be keys to watch for the rest of 2012:

 

Production Levels:

LMIC tracks a limited number of dairy product production, but among them are production levels for butter, total cheese, total dry whey and nonfat dry milk.  These four products are not completely encompassing of the types of products the U.S. exports, but they do provide a barometer for direction.  Production in 2012 has been steady for most products.  Butter, cheeses, and nonfat dry products have month after month been consistently higher than a year ago by a healthy margin.  Unsurprising, cheese and nonfat dry milk are export categories that have continued to sustain growth above a year earlier.  Butter, however, has been an export category that has faltered, and yet, month after month in 2012 U.S. production has grown between 6-13% over a year ago.  Seasonally, butter production usually declines in the summer as biologically cows produce less milkfat and ice cream production ramps up.  

Dry Whey has been the only production product with mixed year over year patterns.  The first two months production was ahead of 2011, and since has dropped below year ago levels despite export growth in April.  The monthly export data indicates quantity shipments have been mixed relative to year ago levels as well, but April showed a strong increase 20% above a year ago.  Of course, dry whey is not the only item within this export category, so growth and production could be related to other products.

 

Cold Storage Inventories:   

Cold storage inventories only take into account perishable dairy products that can be frozen.  Dry products are not tallied in this report which limits the discussion to cheese and butter.  Butter in cold storage has been climbing since the beginning the year, remaining only slightly higher than the prior five year average and well above a year ago.  Cheese on the other hand has been well above the prior five year average, but just under last year’s inventories.   A cursory look at inventories and production would indicate cheese moving to cold storage is destined to export markets, while butter products are possibly rebuilding inventories after remaining at fairly low levels for much of 2011.

 

Exchange Rates:

Exchange rates have played a large role in dairy products and will likely continue to do so.  Europe is historically has a large dairy consuming population, and although they produce many dairy products of their own, financial insecurity will likely play a role in capital investment in the dairy complex as well as consumer demand.  On the other side of the world, new markets in Asia have been a blessing to the dairy exports; however, the slowing of China’s economy could point to a slowing of dairy exports to this region as well.  Steady competition from Oceania will also weigh on our products and the relative value of the dollar to their currencies could be important.

 

Conclusion

Exports will require close monitoring in the months and years to come.  Since 2008, the U.S. has seen their presence offer promise to domestic milk prices and loss when they recede.  Fortunately, this year exports have remained rather high and have seen greater growth than predicted in some areas, such as cheese.  Questions still remain regarding the rest of the year, and consumer demand for these products, largely because of uncertainty in economies around the world.  The U.S. is still finding its way in many of the dairy markets and as data sets build at this relatively new level of exports it will be interesting to see the patterns emerge.