Sunday, March 19, 2017

Exports and Imports - January Data is Difficult to Judge

Dairy export and import data for January 2017 is now available.  In total, the data is difficult to judge. Cheese exports were at prior year levels and butter exports were beneath prior year levels.  Nonfat dry milk exports were above the prior year, but so were imports, leaving net nonfat dry milk exports unchanged from the prior year.  Dry whey exports were slightly above the prior year.

Why are exports and imports important?  They represent a large part of the demand for U.S. dairy products and they are the most volatile part of total demand.  Changes in demand directly influence inventory levels which in turn influence producer prices.

The USDEC provides timely updates on exports.  However, there seems to be a lag in data posted in their new blog.  As an example, although the current USDEC post carries the date of March 15, 2017, much of the data is updated only through November 2016.  A better view of the current data provided and discussed by the USDEC can be found in their long-term format.  That data is available at this link.  Unfortunately, the updated data in the long-term format carries almost no information on imports.  As covered in two prior posts to this blog (Part One and Part Two), imports are currently more of an issue than exports.

Cheese exports and imports will be discussed first, as they influence cheese prices and cheese prices have the most influence on U.S. producer milk prices (see prior post).

Cheese exports for 2017 have started at the same level of the two prior years showing no improvement or decline.  

The exports when reviewed by the receiving countries, showed significant changes.  Exports to Mexico were way down.  However, the losses in Mexican purchases were made up by increased exports to South Korea, Australia, Canada, and China.  There is some uncertainty in exports to Mexico with the chance that NAFTA will be revised.  This could be influencing the volume of exports to Mexico.  

In a business sense, if the loss in exports to Mexico can be made up through exports to other countries, that would certainly help diversify the customer base and reduce dependence on exports to Mexico.

The good news for January is that cheese imports were lower than the prior year (see chart below). The volume of imports was midway between 2015 and 2016 levels.  Its to early to say that this is the beginning of a trend, but it will be followed closely in future posts to this blog.

There were significant changes in the sourcing of imports.  Cheese imports from New Zealand dropped by two-thirds and were unilaterally responsible for the decrease in imports from the prior year.  However, a near doubling of imported cheese from France offset some of the New Zealand reduction.

Exports of butter in January 2017 were at a five year low.  The price of U.S. butter remains too high to compete in the international markets with other exporting countries.

The butter exports were primarily to Canada and Mexico.  Some or the reasons for the significant changes in Canadian purchases were covered in the February 26, 2017 post to this blog.  The decrease in exports of butter to Mexico was huge, causing Mexico to fall to a second place ranking in purchases by country.

Imports of butter followed the same trends as cheese, with volumes midway between the prior two years.

However, the surprising analytic is that all of the imported butter came from one country, Ireland. While Ireland was our largest import location for the full year of 2016, Mexico and New Zealand also supplied significant volumes.  In January, imports from Mexico and New Zealand were nonexistent.

Nonfat dry milk exports were record setting for the month of January.  While the volume is clearly good news, the even better news is that the price for January 2017 was well above the price for January 2016.  The bad news is that the prices are still only half of the 2014 level pricing for nonfat dry milk.  Therefore the Class IV milk price remains low.

The exports of nonfat dry milk followed historical export patterns with the majority going to Mexico.

However, imports of nonfat dry milk again set record levels totally offsetting the increase in exports.

Imports exceeded the prior year for all five of the top sources for nonfat dry milk.  The biggest increase came for Chile where import volumes doubled from the prior year.

This has left net exports exactly where they were one year ago.  There was no significant increase or decrease.  For the first ten months of 2016, there was a trend of increased net exports, but the last three months have reversed that trend.

The second largest influencer of the Class III price is the price of dry whey (see prior post).  Dry whey is largely an export item and the price reflects this.  Volumes exported in January are slightly above the last two years, but still well below 2013/14 levels.  Prices have escalated in recent months and are expected to maintain their current pricing.

There are many things that could influence dairy exports and imports in 2017 including NAFTA, exchange rates, and the international milk supply.  Volatility can be expected.  Changes will be regularly followed in the blog.

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