Sunday, October 15, 2017

Exports Show Improvement

Export and import data for August is now available.  There were many positive events in August.  There were again improvements in exchange rates, which will aid in future exports, as a weaker USD makes U.S. exports more financially competitive.  Cheese exports were up (Chart I), and nearly matched the record levels of 2014 for the month of August.  Nonfat Dry Milk (NDM) exports (Chart II) were up compared to the prior month and imports were down.  To meet and exceed the export positions of 2014, there is additional work needed, but August was certainly a positive move toward that goal.

Chart I - Cheese Exports
Chart II - NDM Exports
Mexico remains the strongest market for U.S. cheese, but exports to South Korea and Japan are also showing strength.  Due to trade restraints, there are very small amounts of cheese exported across the border to Canada (see Chart III).  With NAFTA re-negotiations in process, there may be an opportunity for more dairy trade with Canada.

Chart III - Cheese Exports by Country
Dairy exports and imports between the U.S. and Canada are primarily between butter and NDM.  With the global consumer increase in butter consumption, a glut of NDM is developing.  Canada is perhaps an example of where other countries may be going.  For over a decade, Canada has struggled with an excess of milk protein in the form of NDM.  When butterfat is used for churning butter, the remaining skimmed milk is typically dried. Because of the high cost structure of the Canadian dairy industry, it has been difficult to export the excess NDM profitably.  The Canadian managed system has used various formula revisions to encourage butterfat production and minimize milk protein.  Current technology has very limited tools to make this happen.  As a result they have typically struggled with high inventories of NDM.  Charts IV and V below show the increased exports of butter to Canada from the U.S. and the increased imports of NDM from Canada to the U.S. that result.  Although dairy trade with Canada is excluded from NAFTA, where there is a need, Canada has allowed imports of butter and exports of NDM.

Chart IV - U.S. Butter Export by Country
Chart V - NDM Imports to the U.S. by Country
Dry whey exports (Chart VI) also showed improvement over the prior month and established a 2017 record month.

Chart VI - Dry Whey Exports
As mentioned above, exchange rates continue to move in a positive direction adding support to the competitiveness of U.S. Exports.  Europe is the biggest international competitor and the exchange rate has now changed from a low of $1.08 USD/Euro at the beginning of 2017 to nearly $1.20.  Hopefully this trend will continue.

Chart VII - Exchange Rates - USD/Euro
Exports of cheese to Japan improved in August and certainly the exchange rate between the USD and the Japanese Yen helped that.  The stronger Yen is still a short term event, but hopefully this will continue and support future exports to Japan.

Chart VIII - Exchange Rates - USD/Yen
One of the important exchange rates is with the U.S. neighbor, Canada.  Again, the impact of this will probably be known only after further NAFTA negotiations as dairy exports to Canada are currently limited by exclusion from the current NAFTA agreement.

Chart IX - Exchange Rates - USD/CAD
While the Export/Import data was only mildly positive for August, it is good to see things moving in the right direction.


There has been a lot of interest generated from the October 7 post to this blog concerning the proposed change to the Class I formula..  An addendum has been added to express comments from the Farm Bureau.  They have not taken a position on this change, but are continuing to evaluate the impact.  The Farm Bureau comment is appreciated as it clarifies their position. 

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