Sunday, June 12, 2016

Net Exports Continue to Plague Dairy Inventories

The U.S. International Trade Commission has just released April 2016 export/import trade data. Dairy Exports continue to be well below prior years and imports remain strong.  International surpluses and a strong USD mean that U.S. dairy commodities must be sold at low prices to meet competition from other countries.  Net exports (export minus imports) will be the primary focus of this post as both exports and imports impact domestic inventories and in turn producer component and milk prices.

The percent changes from the prior month are shown below.  The changes for butter imports and exports look huge, but they are based on small quantities.  Butter exports remain close to zero as shown later in this post.


As mentioned in the prior post, butter is a very volatile dairy commodity at present with a good chance of significantly falling prices.

Butter exports are primarily exports to Mexico, with a little to Canada.  Beyond that, exports are very very small.  If it were not for the spike in butter exports to Mexico, U.S. butter exports would be miniscule.

Butter imports were less than half of the prior month, but that's because the prior month was a bit of an abnormality (see chart below).  That may very well be because butter inventories have started to rise (see prior post) and spot purchases of international products are the easiest to curtail as compared to contracted supplies within the U.S.  

In total, net butter exports are continuing to be negative, meaning that more butter is imported than exported.

The prices of U.S., Western Europe, and Oceania are shown below.  While the price disparity is less than previously,  U.S. butter is still at a much higher price than other international sources.

As discussed in the prior post and other posts to this blog, butter prices are destined to fall.  The fall in butter imports for April should not be taken as trend, but rather an abnormality.  As butter inventories build, as they are, U.S. butter prices will fall.

As a reminder, while this reduces the price of butterfat for the producer, it will also increase the price of milk protein and have little impact on the Class III or mailbox milk prices.  (See two prior posts for details on this relationship - "The Math Behind Milk Protein and Butterfat Pricing" and "Is Milk Pricing really tied to Cheese Prices."


Cheese exports continue to fall.  Cheese exports were the lowest in five years for the month of April.  

This is a serious problem as cheese inventories continue to build (see prior post)  and, as a result,  cheese prices and the Class III milk price continue to fall.  The only countries buying consistent amounts of cheese from the U.S. are Mexico and Canada, the same as butter exports.


Exchange rates have played a major role in the demise of exports and the increase in imports.   The U.S. has shown financial recovery in advance of most other countries and as a result the USD has strengthened.  However, exchange rates do seem to be stabilizing and trending to a weaker USD.

The three charts below compare the USD to the Euro, the New Zealand dollar, the Mexican Peso.  The first two are the major international supply competitors and the last, Mexico, is the largest U.S. importer.

 A normalization of exchange rates will help increase net dairy exports, but will still leave the issue of international oversupply.  The oversupply issue will take longer to normalize.

These facts suggest that the current low producer milk prices are near a bottom, but real recovery is still a long way off.

Stay up-to-date with future posts to this blog.

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