Tuesday, February 13, 2018

2017 Dairy Exports Look Pretty Good

Typically, statements in this blog blame high inventories of dairy commodities for low dairy commodity prices and low producer milk prices.  High cheese inventories are especially sited for low producer milk prices.  The high inventories are blamed on too much milk and not enough exports of the dairy commodities used to price producer milk.

The full year 2017 export statistics are now available and there is clear evidence of export growth.    Dairy exports for 2017 were significantly higher than the prior year and, very importantly, there were significant gains in cheese exports.

To reduce the very high inventories reported in the prior post, exports will need to continue to increase in 2018.  The past imbalance between supply and demand has increased inventories, which will still require lower milk production and higher exports before balance can be reestablished.  In other words, while 2017 was a tremendous year in terms of improved dairy exports, to bring supply and demand in balance, even more dairy exports are needed in 2018.

The analysis below does show momentum building for increased 2018 exports of cheese, which would reduce domestic inventories and increase cheese and Class III milk prices.  As shown in Chart I, 2017 exports of cheese were the second highest ever and were significantly higher than the prior year.  Now, 2018 must continue with even higher cheese exports.

Chart I - Cheese Exports by Year
In the second half of 2017 (Chart II), exports of cheese were stronger than the first half and matched the two best years ever, 2013 and 2014.  These statistics show that significant gains were made in 2017 with much of that in the second half indicating that there is momentum for further increases in 2018.

Chart II - Second Half 2017 Cheese Exports by Year
As shown in Chart III, NDM/SMP exports set a new record for the year 2017.  International sales of NDM/SMP have been tough as there is an excess of NDM/SMP on the international markets.  Overcoming this tough market and setting a record high is a significant achievement.

Chart III - NDM/SMP Exports by Year
Chart IV shows NDM/SMP exports for the last half of 2017.  Unfortunately, in the second half of 2017, exports of NDM/SMP showed a slight decrease from the prior year.  Unlike cheese, NDM/SMP has no momentum in exports to carry forward into 2018.

Chart III - NDM Exports by Year
Butter exports have been almost nothing for the last three years.  Exports for 2017 were above 2016 and exports for 2016 were above 2015.  While the yearly increases look good, they are based on small numbers and are of little significant.  Most of the butter exports go to Canada.

Chart IV - Butter Exports by Year
Charts V through VIII show the exchange rates for the biggest global dairy competitors, Europe and New Zealand, and the largest dairy customers, Mexico and Canada.  There has been a lot of discussion in the news recently as to whether the USD should be weaker or stronger.  If the USD is weaker, it helps make the U.S. exports more competitive in the international arena.  However, a stronger USD favors companies who are bringing cash back to the U.S. from other countries.  The recent tax code revisions included incentives to bring cash back to the U.S.  A weaker USD makes this more difficult.

In all four charts below, the USD is continuing to get weaker, favoring exports.

Chart V - Exchange Rate with Euro
ChartVI - Exchange Rate with New Zealand Dollar
Chart VII - Exchange Rate with Mexican Peso
Chart VIII - Exchange Rate with Canadian Dollar
The futures markets are showing a slight increase in Class III prices during 2018.  However, the increases are contained in the $15/cwt. range.  However, the strength and momentum of exports and the shrinking growth of the milk supply as reported in the prior post, signal that more positive diary prices could be on the horizon.  These signs will continue to be monitored in future posts to this blog.