Sunday, January 10, 2010

Exports are Key!

In many of the previous posts, we have examined the impact of imports and exports of cheese on cheese prices. Class III milk price is nearly totally dependent on the market price of cheese.

As shown below, 2008 was an outstanding year for cheese exports, leading to some very high cheese prices and therefore very high milk prices reaching $20/cwt. As the USD strengthened, U.S. Cheese became too expensive on the international market, Exports took a significant dip and as a result of the changing supply & demand factors, the price of cheese fell drastically.

While cheese exports are very important to milk pricing, cheese makes up less than 20% of dairy exports. If you include whey exports, Cheese and whey together make up nearly 40% of dairy exports. Non-fat dry milk is actually the biggest dairy export item. When you consider all dairy exports, the fluctuations between 2008 and 2009 are much bigger than the fluctuation in cheese exports alone.

The chart below shows the percentage makeup of dairy exports. Cheese and whey and "Other" (primarily food products with dairy ingredients) become more important as a percentage due to the extreme fluctuation in nonfat dairy milk exports.

To further illustrate this, the chart below shows only cheese, whey, and nonfat dry milk exports. Nonfat dry milk is very sensitive to exchange rates and therefore can play a role in overall demand for U.S. milk.

This data is available at the US Dairy Export Council. This group, funded primarily by the DMI "Checkoff" program has, as it's sole purpose, the support of dairy exports. They have all necessary forms to assist in registering products for import in other countries and they participate in assisting dairy product producers to expand exports.

Actively participating in developing exports very important for milk prices. It is arguably more important than anything else in increasing demand for U.S. dairy products.

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