Sunday, November 12, 2017

Dairy Export Data Encouraging

September export/import data for dairy products is now available.  Overall, September data did not create a "blockbuster" month.  However, it was an "OK" month in many respects.  For instance, cheese exports are statistically down from the prior month, but they are also at a near record level for the month of September and just shy of the 2014 record for cheese exports.

Chart I - Cheese Exports
Cheese imports were down from the prior month, which helped reduce cheese inventories (see prior month post on cheese inventory levels).

Chart II - Cheese Imports
Because cheese exports are at near record levels and because cheese imports are down, cheese net exports are actually at a new record high for the month of September.  It was a only a slightly higher record, but a record is a record.

Chart III - Cheese Net Exports
Cheese export volumes YTD show an improvement over 2016.  Cheese exports to the top four importers, Mexico, South Korea, Japan, and Australia are all nicely up vs. the same period of 2016.  There has been encouraging news on additional cheese sales to both South Korea and Japan.  Perhaps the efforts of President Trump on his current Asian trip will help further develop trade with South Korea and Japan.  Because export volumes by month can be erratic, Chart IV is perhaps the best example of progress in cheese exports.

Chart IV - YTD 2017 Cheese Export Countries
With improved cheese exports, cheese inventories will fall, and cheese prices will improve.  Due to the close linkage between cheese prices and the Class III milk price, Class III milk prices will also improve.  U.S. exports of cheese seem to be headed the right direction.

As mentioned in the prior post to this blog, Nonfat Dry Milk/Skimmed Milk Powder (NDM/SMP) inventories are bloated.  More NDM/SMP is being produced than can be used domestically or exported.  The decreased level of exports has continued for the last four months and is troubling.  September NDM/SMP exports were at a low for 2017 and lower than the last six month of 2016.  The international markets are crowded with offers to sell NDM/SMP and prices are low.

Chart V - NDM Exports by Month
As shown in Chart VI, there are significant imports of NDM from Canada and New Zealand.  These imports are adding to the bloated NDM inventories.  They were no doubt purchased at "bargain" prices.

Chart VI - Imports of NDM by Country
While we are importing NDM from Canada, we are also exporting butter.  While very little butter is exported from the U.S. most all of that butter is exported to Canada (Chart VII).  Canada has a critical balance between too little butter and too much skimmed milk.  Because of the high costs of dairy production in Canada, it is difficult to export NDM in a very competitive international market.

Chart VII - Exports of Butter by Country
So far this year, the USD has weakened against other currencies, helping to make exports more competitive.  However, in the last 30 days there has been a strengthening of the USD.  Hopefully this is a short-term event. 

Chart VIII - Exchange Rate USD/Euro
Chart IX - Exchange Rate USD/NZD
The U.S. began a strong effort to enter the global market for dairy products more than a decade ago.  The effort has been successful and the U.S. is a very strong player along with the E.U. and New Zealand.  The U.S. dairy market's transition to a global environment was inevitable, just as the transition from local domestic markets to a national U.S. market was inevitable.  These transitions both developed a more volatile and competitive U.S. dairy industry.  The increased volatility is both a challenge and an opportunity for both producers and processors.