Monday, March 12, 2018

January 2018 Exports - January 2017 Exports = Success

January 2018 exports showed additional progress more exports, chipping away at the high inventories reported in the prior post.  Compared to a year ago, exports of cheese, butter, Nonfat Dry Milk (NDM), and dry whey are all up.  Imports are mostly down as well.  This is impressive in a very competitive international market.  However, at the current export rate, it will take a very long time to reduce the existing inventories to levels where commodity prices will rise and Class III milk prices will make significant gains.  Current cheese exports are running at about 5.5% of cheese production.  In 2014, cheese exports were about 1% higher.  By comparison to 2014, 2018 cheese exports are still weak.

January cheese exports (Chart I) increased 19% over the prior year and were only exceeded by the extremely strong 2014 exports.  Imports (Chart II) were down slightly from the prior year, which provided for a "nice" gain in net exports.  A 19% gain in cheese exports is huge, however even at this rate it will take months to reduce the high inventories.  There must also be significant reductions in imports and production to reduce the cheese inventories to reasonable levels in 2018.

Chart I - Cheese Exports
Chart II - Cheese Imports

Chart III - Cheese Net Export 
Exports of NDM/SMP (Chart IV) were at record levels for the month of January 2018.  However, this record level of exports, if continued for months would not sufficiently reduce the huge inventory.  Like cheese, production must be reduced to help get rid of the very high inventories covered in the prior post.

Chart IV - NDM Exports

International prices for NDM/SMP (Chart VI) are the lowest in ten years.  The price has been consistently low since 2015.  Currently USA prices are the lowest.  Because over 50% of the NDM/SMP produced is exported, the export price is the domestic price.  Even with the low prices, only so much product can be sold.  Therefore, the only way to sell is to be cheaper than the competition and let their inventories grow. 

Chart V - NDM/SMP International Prices
Butter exports are also up, but they still remain very small.  Butter imports are at the prior year levels and have been necessary to maintain adequate inventory levels of butter.  This will probably continue and will keep the USA as a net importer at least through 2018 (see Chart VII).

Chart VI - Butter Exports
Chart VII - Butter Imports
Chart VIII- Butter Net Exports
Exchange rates continue to move in a positive direction for exports.  One Euro is now worth about 1.23 USDs.  One NZD is now worth about .73 USDs.  These rates are still way below the rates prior to 2014.  However, they are now comfortably higher than the low 2015 levels.  A higher level on Charts IX & X means a weaker USD, which is a financial advantage in selling against other major international dairy exporters

Chart IX - Exchange Rate USD/Euro
Chart X - Exchange Rate USD/NZD
The U.S. is in a very competitive position to sell dairy products on the international markets.  Milk is very available and affordable and exchange rates are favorable, the U.S.  With low prices export sales will no doubt continue to grow.  Right now, every major dairy exporter has excess capacity.  This global glut will have to be relieved by lower production globally before prices can improve.