Monday, September 21, 2009

Status of Key Statistics

In this post, the current macro economic data that influences the dairy industry will be reviewed. In many previous posts, the changing nature of the U.S. Dairy Industry has been analyzed. The U.S. dairy industry's economic health is dependent on cheese prices. Cheese prices are dependent on the global markets for cheese and the relative position of U.S. cheese in that market.

First, let's look at a few charts on exchange rates. The USD as compared to six other currencies is shown below. A weaker USD has the impact of making U.S. cheese "cheaper" on the global market increasing exports and reducing imports.

Clearly, the USD is weakening against the other currencies. It has not reached the late 2008 levels, but it is headed downward.

One important currency we have followed is the New Zealand Dollar vs. the USD. A stronger New Zealand Dollar increases the price of New Zealand Cheese on the global market.

The New Zealand Dollar has seen significant strengthening against the USD. It also has not reached the 2008 levels that helped U.S. dairy prices, but it is headed upward.

Next we'll look at cheese exports and imports from the U.S.

Cheese exports have also started to edge upward, although they are a long way from the 2008 levels.

Cheese imports have settled down from their Q4 2008 spikes and may be headed lower if the trends continue.

The USDA released their latest outlook report on September 19.

It shows an expected continuation of the decrease in dairy cow numbers to 8,955,000 by the end of Q2, 2010. This represents a decrease of 375,000 cows from the two years prior.

By Q2 2010, Class III milk prices are forecast to be between $13.75 and $14.75 per cwt. This is a nice increase from the lows of 2009, but still a long way from the 2008 highs.

Similarly, cheese prices are expected to recover during 2010 as well hitting between $1.51 and $1.61 per pound.

Feed costs have dropped significantly as corn prices have dropped to the low $3 per bushel.

Not bad trends, but even modest recovery is still about a year away. Also slowing the recovery will be the huge cheese inventories that have been built during the low milk price periods.

Monday, September 14, 2009

The Global Cheese Market

This post will examine the global cheese markets by country. As a reminder, the U.S. dairy industry milk prices are primarily based on Cheese (April 7 post). Cheese markets are global and influenced by global supply and demand (April 13 post).

Like any market analysis, global consumption by country, imports by country, and export by country will be examined.

If the U.S. is to be a major supplier, a marketing plan must be developed based on where the demand is, what countries have supplies in excess of consumption (exporters), and which countries have supplies that do not meet consumption (importers).

Per capita consumption of cheese varies significantly by country. Using per capita consumption removes the impact of the size of the country to see where the people are that consume cheese. Generally speaking, per capita consumption rises with wealth and acceptance of dairy products in the country culture.

Clearly, the populations of Europe and the U.S. are the major cheese consumers. Some other countries also have well developed cheese consumption patterns. In the Americas, Argentina, Canada, Chili, and Mexico have significant cheese consumption in their diets. In China and India, a significant taste for cheese has not developed.

Who are the big importers that do not have a dairy and cheese business large enough to supply demand or have tastes for imported cheese, or where pricing makes imports more attractive than local production? Below, 2008 cheese import data is shown by country. Russia is a major cheese importer. In the Americas, the U.S. and Mexico are significant importers.

Finally, what countries have developed cheese production that allows them to export significant quantities? The "players" here are Europe, New Zealand, Australia, and the U.S. in that order.

In a traditional sense, if the U.S. dairy industry wants to be a major participant in global cheese markets, the near term targets would be countries that have a taste for cheese (consumption). The near term opportunities would be the countries that need cheese imports to meet their demand, and the competition would be the countries that have the capacity to export significant quantities.

This analysis was done to help create a vision of where the U.S. dairy industry needs to position itself for growth in the near term. Policies and strategies need to be developed to properly position U.S. cheese in the international markets.

What group is coordinating this effort?

Friday, September 4, 2009

August Class III Price Announcements

On September 4, the August Class III milk and component prices were announced. For details, the full report on pricing is available in the September 4 Dairy Product Prices release. The only surprises were the minial impact of the new support levels for cheese announced by Secretary Vilsack on July 31.

Protein increased to $2.10/lb. and fat stayed at its current level $1.25. While the increase in protein from $1.79 to $2.10/lb is welcomed, it is still a long way from the 2007/8 levels.

The increase in support levels, which were effective August 1, are scheduled to last only through October. Due to the lag in NASS reporting of cheese prices, the new support levels were only effective for three of the five weeks in this reporting period.

Perhaps the important fact for producers is to remain cognizant of the factors that influence the top line. At the standard USDA levels of 3.1% protein and 3.5% butterfat, the protein at this month's prices is worth $6.51/cwt of milk while butterfat is worth $4.37/cwt. The big money remains in protein, and maximizing protein is still the best way to maximize income. Maximizing butterfat is the next most important factor in maximizing income.