Sunday, June 11, 2017

Changes in Exchange Rates Will Help Exports

Exports are improving and exchange rates are shifting favorably.  The Euro is getting stronger and so is the Mexican Peso.  The EU is the world's largest dairy exporter and therefore, the most important exchange rate is the USD/Euro.  Mexico is by far the biggest importer of U.S. dairy products, so this exchange rate is also very important.

A  ten year review of USD/Euro shifts shows the importance of this exchange rate.  From 2008 through the start of 2017, the Euro has gotten consistently weaker vs. the USD.  In mid 2008, the USD/Euro exchange rate was $1.55 per one Euro.  In mid 2014 (an excellent time for milk prices, the exchange rate hovered near $1.40.  At the beginning of 2017, that exchange rate fell to $1.08, a 30% drop from the highs of 2008.  What does that mean?  In 2008, a European exporter of cheese selling cheese for one Euro,  competed evenly against U.S. cheese selling for $1.55.  By the beginning of 2017, the U.S. exporter would have to price his cheese at $1.08 to compete evenly against the same EU cheese exporters in the international market.  A strong USD always sounds good (stronger is better), but when it comes to exports, a stronger USD makes it more difficult to compete in the international markets.

Exchange Rate - USD/Euro

Currently, the exchange rate is $1.12, not a huge improvement, but hopefully a trend to a weaker USD and a better market for U.S. dairy products.

The largest buyer of U.S. dairy products is Mexico.  Unfortunately, from 2008 to early 2017, U.S. dairy products have become more expensive in Mexico due to the exchange rates.   However, during 2017, the Mexican Peso has strengthened vs. the USD, making U.S. dairy products more affordable in Mexico. Dairy sales from the U.S. to Mexico continue to be robust.  A stronger Mexican Peso should support additional purchases.

Exchange Rates - USD/Mexican Peso

However, not all exchange rates moved to the U.S. advantage.  New Zealand is also a very strong international competitor.   Roughly 80% of New Zealand's dairy production is exported.  These exports are especially strong in the Pacific rim, but they are also strongly competitive worldwide. New Zealand dairy exports to the U.S. were up significantly in 2016.  Unfortunately, the USD is continuing to strengthen against the NZD.  As a result, New Zealand is again increasing milk production as exports expand.  Dairy exports are very important to new Zealand's international trade balance.

A ten year review of USD/NZD exchange rates is shown below is a reminder of the importance of fluctuations in the USD/NZD. The chart shows historically the impact of exchange rates in 2008/2010.  In 2008, the USD/NZD ratio showed a strong NZD.  U.S. exports were strong and carried excellent prices. In 2009,  the USD significantly strengthened vs. the NZD, making U.S. dairy exports uncompetitive with New Zealand dairy exports. (See the 2009 post to this blog.)

 Exchange Rate - USD/NZD
Cheese prices, and therefore Class III milk prices, fell by nearly 50% in late 2008 and early 2009. Class III milk prices dropped from $20/cwt. to $10/cwt.  As the USD/NZD exchange rates reversed in 2010 and 2011, cheese prices and Class III milk prices improved.  There is a 96% correlation rate between cheese prices and the Class III milk price.

NASS Cheese Price - 2000 to 2017

Dairy exports to Canada are about half the size of the exports to Mexico, but Canada is still the second largest importer of U.S. dairy products.  Unlike Mexico, the USD is continuing to strengthen vs. the Canadian dollar.  The impact of this on U.S. exports to Canada have been overshadowed recently by the Canadian price controls on ultra-filtered dairy components which have reduced dairy exports to Canada.  At this point, the adverse impact of a stronger USD vs. the CAD is having a minimal impact.

Exchange Rates - USD/CAD

With the two most important exchange rates, the Euro and the Mexican Peso, moving in a positive direction, U.S. dairy exports should continue to make gains in the coming months.  While the shift to a weaker USD vs. the NZD is troubling, the shift to date is minimal and should have a minimal impact on U.S. dairy exports.

Exchange rate data is always very current and immediately available.  Export/import data has a one month plus lag in availability, so the impact of recent moves in exchange rates cannot be correlated time-wise with the export/import data that is reviewed below. International prices of U.S. dairy products are impacted by international supply and demand (too much available product means lower prices), and by exchange rates.  

There are three factors that can influence U.S. dairy prices, domestic supply and demand, international supply and demand, and exchange rates.  Of these three, exchange rates are the most volatile.

Overall, U.S. dairy exports are continuing to improve.  They are still well below the volumes and prices of 2014, but progress is still progress.  Cheese exports so far in 2017 are running well above 2016 levels.

U.S. Cheese Exports

YTD, cheese imports are running below 2016 levels and close to 2015 levels.  Lower imports mean more U.S. cheese is being used domestically.

U.S. Cheese Imports
In total, cheese net exports (export - imports) are well above 2016 levels.  While April numbers show a drop, this is most likely a short-term fluctuation, not a change in trends.

U.S Cheese Net Exports
Mexico is by far the largest importer of U.S. cheese, but the increases are coming from South Korea and Australia.

Cheese Exports by Country

The reduction in imports has mostly occurred from reductions of cheese imports from Italy and New Zealand.  
Cheese Imports by Country

Butter exports remain near zero and imports are down, bringing net exports to a near "0" balance. As reviewed in the prior post, the consumer demand for butter is outstripping production, so imports will likely increase.

Butter Net Exports

Exports of NDM continue at near record levels.  NDM is the largest U.S. export product.  Domestic prices are determined by international prices, which have improved, but are still well below 2014 prices.

NDM Exports

This post has been mostly about exchange rates.  As the world continues to recover from the recession levels of 2008, the U.S. is a clear economic leader.  This has caused the USD to strengthen against other currencies.   Now the challenge is how to continue as a world economic leader, while reducing the strength of the USD.

Monday, June 5, 2017

CLASS AND COMPONENT PRICES IMPROVE

On June 1, May Class and Component prices were announced.  They were generally up from the prior month.  Class III milk increased 2.3% to $15.57/cwt.  Butterfat also increased in value by 2.3% and milk protein took a major increase to $1.77/lb., a 4.5% increase.  NDM, the basis for Class IV pricing, also had a nice increase of 3.8%.  The only items in the red were dry whey, which is the basis for pricing Other Solids.


The long-term trends remain consistent with prior 2017 months with milk protein worth less than butterfat.  Although Other Solids were below the prior month they remained near their current prices. Dry whey has recovered nicely in 2017, but is still below the 2014 record prices.   The price of dry whey us determined in the international markets.


A closer look at the long-term trends shows a two year continuance of butterfat being more valuable than milk protein.  With pressure on butter inventories, caused by low production and increased domestic consumption ( See prior post on consumption trends), butter and therefore butterfat continues to maintain high prices.  While a high price for butterfat seems like a good scenario for producers, it has a very minimal impact on the Class III milk price.


Butter inventories have returned to prior year levels at end of April.  Butter production is running at about the same level as the prior year.  Domestic consumption continues and the increased demand is being met with butter imports.  Exports remain near zero.


The high price of butter can be expected to continue throughout the remainder of 2017 as demand continues to grow and production continues at 2016 levels.

Cheese showed a nice increase in price in May, but inventories remain troubling.   While there is increased consumption and increased exports, production levels remain above demand and inventories continue to grow to record levels.   Domestic consumption cannot reduce this inventory. With an increasing milk supply, production will remain robust.   A spike in exports is really the only solution. Exports (and imports) will be covered in the next post to this blog.


Class IV milk can move the uniform milk price significantly (see this post for an explanation.)  Class IV skim milk prices are determined by the price of NDM, which in turn is determined by the international price of NDM.  However, while the price of NDM has slightly increased from 2016, it is still way below the 2014 highs.


Because of this, the Class IV price remains well below the Class III price, and will probably remain there for the balance of 2017.  Therefore Class I milk prices will remain linked to the Class III prices. While NDM export volumes have been increasing to record levels, the price will probably remain low.


Probably this most important item to watch is exports of cheese.  Cheese pricing is the most important variable in calculating the Class III price.   Europe is the world's largest dairy exporter and has enjoyed an exchange rate advantage in the international markets.  That exchange rate is now shifting toward a stronger Euro.  A continuation of this exchange trend will make European products more expensive compared to the U.S.  New export/import data will be available soon and will be covered in the next post to this blog.


Saturday, May 27, 2017

Update on California as an FMMO


The effort to change the California producer milk payment system to a Federal Order started in 2015. Recent events on the path to California becoming a Federal Milk Marketing Order include the following:
  • February 14, 2017 - The USDA published their recommendation
  • February 22, 2017 - The USDA held a meeting to explain in detail their recommendation
  • February, 2017 - Regulatory Economic Impact Analysis of the recommended California FMMO was published by AMS
  • May 15, 2017 - Deadline for comments on the USDA proposal
  • February to May - Various meeting have been held to review and discuss the proposal
The May 15 deadline for submittal of comments on the USDA proposal has now passed.   The USDA will now review these comments and consider them.  They will then issue the final proposal for voting.  The comments to date have covered issues like handling of transportation costs and the need for a website with forms available.  No deadlines or dates have yet been established for the final version and the voting process, but it will probably take months to organize and execute.  When the USDA publishes the final document, it will require a two-thirds majority of the producers or two-thirds majority representation of the California milk production.  The vote of the producers will probably be cast primarily by their cooperatives.  To date, there is nothing that would suggest defeat of the effort to make California a FMMO.

This blog post will examine some of the key points in the AMS published "Economic Analysis of the Recommended California FMMO."  Their analysis covers not just the impact on California, but covers the impact on the pricing and production of all U.S. milk.

As a Federal Order paid on components, California producers will be paid based on pounds of milk protein, pounds of butterfat, and pounds of other solids. The change in values of these components will impact not only California producers, but all U.S. orders paid on the component system.  By the AMS projections, milk protein will increase in value by $.47/lb.  Based on current values, that would mean an increase of slightly more than 25%.  Butterfat would fall in value by $.26/lb. and other solids would increase by $.03/lb.



LESS CALIFORNIA CHEESE

The AMS reasons behind these significant component changes are based on changes in the class composition of California milk.  The largest use of milk in California today is for making cheese (Class III milk).  In 2016, 47% of California milk went to cheese making.  Because California milk for cheese will be more expensive when priced by FMMO formulas, it will be less competitive.  As a result, less cheese will be made in California.  With less cheese made in California, the total cheese made in the U.S. will drop, causing cheese inventories to shrink and prices to increase.  Higher prices for cheese translate into higher prices for milk protein for all orders.

MORE NONFAT DRY MILK AND BUTTER

That leaves some California milk available for other uses.  By the AMS analysis, that milk will be used as Class IV milk for butter and nonfat dry milk processing.  Because more butter will be available, the price of butter (and therefore butterfat) will drop.  That will reduce butter imports and increase butter exports.  But, the real impact for milk pricing caused by the increased volume of Class IV pricing, will be to reduce the price of nonfat dry milk and butter.  The additional nonfat dry milk will have to find a home in the international markets.  If all other factors remained constant, that would mean a decrease in the value of nonfat dried milk.

By the Federal Order formulas, a lower butter price will also impact the price of milk protein.  By the formulas used, when butterfat is more valuable when used in cheese rather than butter, the value of milk protein goes up.  That is part of the reason for the significant price increase in milk protein.

LESS DRY WHEY

The AMS impact on Other Solids pricing comes from supply and demand for dried whey.  With lower cheese production, less whey will be available for drying and therefore the price of dry whey will increase.

What does the AMS not take into account?  Currently, much of the California milk used for cheese receives an above minimum bonus for milk protein levels above threshold levels.  Will these private incentives for protein production be revised?  Cheese producers in other Federal Orders like the Upper Midwest pay similar bonuses for higher protein levels.  It is likely that bonuses for protein production in California will be revised to be competitive with bonus plans in other orders.  Public information on these bonuses is not available as they are based on private business arrangements between producers and processors.

CALIFORNIA PRODUCER PRICE DIFFERENTIAL

If California becomes a FMMO, producers will also receive a Producer Price Differential.  The Producer Price Differential is based on the difference between the uniform milk price, a weighted average of the four milk classes, and the Class III price.  Producer Price Differentials are calculated individually for each order paid on components.  The California producer price differential is not specifically covered in the AMS model.  In theory, with reduced Class III California milk and a significant increase of lower priced Class IV milk production, the California FMMO uniform price would be close to the Class III price and sometimes below the Class III price, minimizing the producer price differential.  It may at times cause the producer price differential to be negative.

However, California Class II, III, and IV milk can be de-pooled in California when it becomes a Federal Order.  De-pooling was not allowed under the California pricing system. De-pooling allows the producers milk to not be included in the FMMO pricing program.  Producers typically de-pool when the producer price differential is negative.  The de-pooling does not impact the price of nonfat dry milk used for pricing Class IV skim milk, because the price is determined by international supply and demand.   However, the de-pooling will impact the volume of Class IV milk used in the calculation of the uniform price.   If the Class by Class volume changes are as forecast by the AMS model, the producer price differential for California will be minimal.

For more detail on the AMS economic impact report see my recent article in Progressive Dairyman - and the AMS Economic Impact document.

By background, the following articles may also be useful:


Saturday, May 13, 2017

Exports and Imports -Signs of Improvement

In the first quarter of 2017, 14% of U.S. dairy solids were exported.   This is a significant increase from the first quarter of 2016 when 12.6% of U.S. dairy solids were exported, but still well below the previous highs of 2014 and 2015.  Cheese, NDM, and dry whey net exports (exports minus imports) were all up over the prior year.  Butter exports were very low and imports were up, resulting in a lower and negative net export level compared to the prior year.

The improvements are especially significant considering the headwinds caused by a strong USD, which mostly remains unchanged from the prior year.  The most significant exchange rate is the USD/Euro.  This exchange rate fell continuously from 2008 to 2014 and then took a plunge.  It remained stable through most of 2016 at an average rate of around $1.12 and then took another fall in late 2016 to the $1.06 level.  A strong USD makes U.S. products more expensive in the international markets.


Cheese exports have improved from 2016, but still lag behind 2014 and 2015 in volume.  For the first quarter of 2017, cheese exports have increased from 5.3% in 2016 to 5.8% of production.


The increased level of cheese exports have resulted from increased exports to South Korea and Australia.  Exports to Mexico still slightly lag from the prior year.


Imports of cheese are down significantly from 2016.  International cheese prices have increased making them less attractive to U.S. cheese buyers.


In the first quarter of 2017, New Zealand cheese prices increased 23% vs. the prior year.  The impact is very visible in the graph below as imports of cheese from New Zealand have taken a significant fall.


As mentioned in the prior post, cheese inventories are still high and this is keeping the cheese price low.  However, exports and imports of cheese are currently on a favorable trend that should lower the inventories and improve prices.  Because the international markets can be significantly influenced by many external factors such as world supply and demand, exchange rates, political events, etc., there is always a high level of uncertainty in international forecasts, however, for now, the trends look encouraging.

The largest export product for the U.S. is NDM/SMP.  ( The difference between NDM and SMP were explained in a prior post.)  For the first quarter of 2017, NDM exports were at record levels.


However, imports were also at record levels for the fist quarter of 2017.


The imports came from many sources, as shown below.  Prices of NDM have fallen during 2017 as international supplies remain strong.  Because domestic butter consumption is up, there are significant volumes of skimmed milk available for production of NDM/SMP.  This is keeping NDM/SMP prices low and probably will continue to keep NDM/SMP prices low.


The USD has weakened vs. the NZD in 2016, favoring U.S. exports.  However, for the last few months this has reversed.  If the USD continues to strengthen against the NZD, the U.S. price of NDM may fall further to remain competitive with New Zealand.


It seems certain that the international market for dairy products will remain very active and price competitive in the future.  So far in 2017, 54% of nonfat dry milk/skimmed milk powder produced in the U.S. has been exported, so the domestic price of nonfat dry milk is determined primarily by the international markets.

The two major factors influencing producer prices for 2017 are the international dairy markets and the possible transition of California to a FMMO.  The financial analysis of the California change will be reviewed in the next blog post.



Sunday, May 7, 2017

April Class and Component Prices Down

April Class and Component prices all moved down vs. the prior month.  The Class III price dropped to $15.13/cwt., the lowest price in 2017.  Milk protein was down the most, falling to $1.70/lb., which was caused by a 3.8% drop in cheese prices.  Butter prices also fell to a new low for 2017 at $2.17/lb.


Cheese prices skimmed along at the $1.50/lb., which is the lower level of pricing for the last six years.  In the prior post, the increase in consumption of cheese was reported to be about 3.5% for 2015 and 2016.  This is well above the historical increases in cheese consumption.  The lower prices in 2015 and 2016 have no doubt contributed to the increased consumption.  It appears that 2017 is following a similar path.  If this continues, their will be a need increased amounts of Class III milk. The most important characteristics for Class III milk are high protein and low somatic cell counts.


Nonfat dry milk pricing is following a similar pattern with an April price of $.84/lb., also a low for 2017.  Nonfat dry milk is the basis for pricing Class IV milk.


The prices of Class III and IV milk really set the level for all milk pricing.  The Class III skim price is determined primarily by the cheese price (see prior post) and the Class IV skim milk price is determined solely by the price of nonfat dry milk.  In turn, the Class I price is based on the higher of the Class III or Class IV price and the the Class II price is based solely on the Class IV price.

The higher price between Class III and Class IV, has favored Class III since the start of 2016.  The Class IV price was lower than the Class III price in every month of 2016.  Class IV milk started 2017 with a higher price, but the price for the last three months has fallen back to 2016 levels.  The international price of nonfat dry milk/skimmed milk powder dictates the domestic price and the international price has been declining in 2017.  At least for the near future, Class III pricing will probably remain above Class IV pricing and therefore it will be the basis for pricing Class I milk. This in turn means that the uniform milk price will be very dependent on the price of cheese.  More on cheese pricing is covered below.


That brings us to butter and butterfat.  The price of butter is still extremely high by historical standards.  At $2.12/lb. in April, butter remains high priced, but butter from other countries has increased in price during the last half of 2016, to meet U.S. prices.  Therefore, there is little reason to expect a lower butter price in the near future.  As covered in the prior post, per capita consumption of butter is increasing, keeping pressure on inventories.


The only really high dairy inventory is cheese.  Inventories of cheese are growing faster than consumption or production.  Cheese inventories have become a parking place for excess milk production.  As long as the inventories are high, prices will remain low.


The futures market is forecasting some prices increases for all dairy products.   As a result, the Class III futures prices is expected to increase by maybe 10% by the end of the year.

Exports and imports will be covered in the next blog.  There has been some progress in increasing exports.  The most important dairy export, cheese, has seen increases but even with these increases, cheese exports are far below 2014 and 2015 levels.

One of the significant variables that could change 2017 milk prices is the possible change to bring California into the Federal Order system.  During the month of May, there will be another post to this blog on the status of this change.

Thursday, April 27, 2017

How Much U.S. Milk is needed in the Future

The first quarter of 2017 is finished and most of the dairy data is available for the full year of 2016 and partial data is available for the first quarter of 2017.  As covered in a prior post, the volume of beverage milk is down, just not per capita, but in total.  Cheese consumption continues to grow, as has been the trend for decades.  Yogurt sales have plateaued.  Butter continues to grow in both per capita demand and in total.  The U.S. Population growth is running at less than 1 percent.  With a strong U.S.D., exports have struggled and lost ground from prior years.  If you put this all together, how much milk is really needed to meet demand?  How much might be needed in ten years?

Chart I below shows milk usage by Class for 2016.  To make a reasonably comprehensive chart of milk usage for the U.S., it requires not only the data available from the FMMO database, but also data from California expressed in FMMO terms.  And finally, some estimates of the milk usage in FMMO areas must be added to include the milk that is de-pooled.  Class I milk cannot be de-pooled, so the de-pooled amounts only exist for Class II, III, and IV.

If one makes the above adjustments, milk usage in 2016 looks like the following when expressed by milk class.

Chart I - Milk Usage by Class - 2016
To see how each Class of milk may grow or shrink, the domestic consumption of the products made from each Class was reviewed.  The table below shows the domestic growth rates for 2016 and for the last three, five and ten years for the major dairy products, the population growth, and the milk supply growth that supported these sales gains.

Table I -Historic Growth Rates

Beverage milk is falling, and therefore Class I milk will fall.  It appears that the decline in consumption of Class I milk is accelerating.  Cheese consumption has been growing and continues to grow, so Class III milk will continue to grow.  The growth rate of cheese consumption is not plateauing but accelerating.  Class III milk can be expected to increase with the increase in cheese consumption.  Butter has turned around from its half century decline and is being consumed by more people in greater amounts. The growth rate of domestic butter, like cheese, is actually accelerating.  To provide this butter, additional Class IV milk is needed.  With the butter removed and the skimmed milk dried, additional nonfat dry milk/skimmed milk powder will have to be exported.  There is always an international market for nonfat dry milk/skimmed milk powder if the price is right.

The last row in Table I shows the historic growth rate of the milk supply.  Based on the trends in sales, what is this the appropriate rate of increase for the future?

To estimate the future need for producer milk, reasonable judgements of the historic data and some assumptions on the growth of exports, were used.  Based on these, the growth rates in Table II below were chosen to estimate the future class milk usage and provide an estimate of the needed growth rate of the milk supply.

Class I milk is almost all domestic and is expected to continue it's decline by 2% per year.  Because almost no Class I milk is exported, this rate of decline will be used for the entire Class I volume.

Class II milk, the smallest of the four categories, is shown to increase only by the population increase.  The category is fairly stagnant, and the growth in yogurt has plateaued.  Exports are expected to follow this same path.

Class III milk is the largest class and after years of 2% annual growth, the last two years have shown growth of 3.5%.  Exports were growing by double digits until the last two years when exports declined.  Exports are currently about 5% of cheese production.  Exports would have to grow or shrink tremendously to influence the total and the new domestic high might not last.  Therefore, a growth rate of 3.3% was chosen.

Class IV is forecast to grow by 4% per year.  This is less than the current growth rate of butter consumption, but more than the historic growth rates.  If Class IV grows at 4% per year, there will be a lot of nonfat dry milk/skimmed milk powder to export.  However, except by importing more butter, the only solution is to make enough butter to meet domestic consumer demand.

Table II - Class Growth
Rates for Future
How will this influence the need for milk?  If these projections come true, Class I milk will decline to the point where in ten years it will require only 17% of the milk produced.  Class II milk will be static, and remain the smallest milk Class.

Class III milk will grow to almost half of the milk produced.  If the growth rate used is too aggressive, the growth to 50% will only be delayed, not capped.  Class IV shows a huge increase from 18% of the milk produced to 23% of the milk produced.  The big question is where will the remaining skimmed milk go.  Some will go to spike protein for cheese making, but a lot more will have to be exported.  At what price can this amount of skimmed milk be sold?

Table III - Projections of Milk Classes
The Classes of milk for 2017 and 2027 would look as shown in the chart below.  The 2027 chart looks very different than Chart I above for 2016.

Chart II - Milk Usage by Class - 2017
Chart III - Milk Usage by Class - 2027
And finally, what does this mean to the demand for producer milk?  In 2017, it would indicate a need for an increase of 1.7% in the milk supply.  This is roughly in line with the historic increases, but a little below some of the projections for 2017.

The really exciting part comes later as the beverage milk category shrinks in size.  By 2027, Class I would be small enough that the continued decline would have little impact on the total need for milk. The total milk supply needed is dominated by the growth of Class III and Class IV milk.  IF all these pieces came together in some fashion close to the projections in this model, the annual increase needed for the milk supply in 2027 would be 2.2%, far above historical levels.

The type of milk needed in ten years will also be very different.  Processors would primarily need milk components.  Cheese makers especially need milk protein and the increasing consumption of butter requires more butterfat.

You comments are welcome.  Future projections have no right or wrong answers.

Sunday, April 16, 2017

Exports Make Gains - Imports Still Troubling


Export and Import data for February is now available.  The charts below show significant gains in exports.  However, imports are still strong and taking a toll on the balance of exports and imports. The U.S. remains a net importer of butter.  The gains in butter exports shown in the Chart I below, are against a base of almost no exports, so while the percentage gain looks significant, there are still practically no butter exports.  Most importantly, the gain in cheese exports and the reduced cheese imports are impactful and will help keep cheese inventory levels from rising further.

Chart I
Chart II
As the data is analyzed below, one concerning development is the drop in exports of cheese and butter to Mexico.  There is continuing concern about changes to NAFTA and U.S./Mexico relations. Hopefully, these decreases are just temporary fluctuations.   Mexico is our biggest export customer.

Cheese exports grew nicely in February, but were still well below 2014/15 levels.

Chart III
While exports YTD to Mexico are down vs. the prior year, increased exports of cheese to Korea, Australia, Canada, and China more than made up the difference.  A more diversified customer base is always a good thing. 

Chart IV
Imports of cheese were down from January and from the prior two years.  This is another good sign.

Chart V
Most of the reduction in cheese imports has come from New Zealand.

Chart VI
Net cheese exports were at a five-year high in February as exports increased and imports decreased. Exports to date in 2017 have amounted to 5.2% of cheese production.  Again, this is not a record, but it is a nice improvement over the prior year.

Chart VII
Butter exports remain very low, well below the prior year, as exports to Mexico are running behind the prior year.  

Chart VIII
The price of U.S. butter remains high at $2.17/lb., which keeps exports uncompetitive in the international markets.

Chart IX
Imports of butter have decreased somewhat but are still much larger than exports of butter.  The imports from New Zealand and Mexico are down significantly but imports from Ireland are steady and new imports from Chili have kept imports of butter significant (Chart X below).  As a result, butter net exports are a negative value as the U.S. remains a net butter importer.

Chart X
Chart XI
In terms of volume, exports of NDM remain at record levels.  Chart XII below show the exports of NDM since 2000.  They have increased consistently with no end in sight.

Chart XII
Chart XII
Unfortunately the price of NDM is not attractive.  At less than $1/lb., NDM is selling at half the price levels of 2008 and 2014.  

Chart XIII
In order to provide increasing butterfat for churning, the pressure remains on finding new markets for NDM.    Mexico remains the best customer for NDM purchases, however, to keep expanding sales of NDM new markets must be developed.

Chart XIV
The U.S continues to buy significant NDM from other countries such as New Zealand, Canada, Chili, and others. Imports are about two thirds the level of exports as international prices are low and there is a lot of product for sale.

Chart XV
Exchange rates have not been reviewed in the blog for a few months as there has been no significant changes.  There are four charts below, which cover the other major dairy exporters and the U.S. dairy imports.  The USD remains strong and there has been little change in the last few months.

Chart XVI
Chart XVII
Chart XVIII
Chart XIX
February was a good month for exports.  However, the international markets are still difficult.  The USD is strong, the U. S. supply of milk continues to grow, and New Zealand, Europe, and Australia are again starting to increase the global supply of milk.  At the same time, U.S. consumers are drinking less milk.  The TPP was not good for the U.S. dairy industry and has been terminated.  Also, NAFTA is being challenged in Canada and may be changing in Mexico.  The possible change of California to an FMMO creates some more uncertainly in a geographical area with a strong history of exports and a future potential for increased exports.

The good news is the U.S. Dairy Export Council has an excellent new CEO with a proven track record.  Tom Vilsack brings new life to the organization.

Changing events will continue to be followed in this blog.