Cheese Exports Improve - Is it Enough?

Export/import data for the first half of 2018 is now available.  In summary, Nonfat Dry Milk (NDM) exports are up and they are setting record highs, cheese exports are up, but are still not at record levels, and butter exports are also up, but they are small and not near record levels.

In this post, the first half export/import data will be reviewed comparing the 2018 data from the first half of the year to the data for the first half for the years 2000 to 2018.

The first to be reviewed will be NDM as it is the star performer of dairy exports.  As seen in Chart I, exports are at extreme record levels.  This is the second year of major export increases and the 2018 increases are up over 20% from 2017.  Imports are pretty steady compared to the last four years.  The gains in NDM exports are an amazing achievement.

Chart I - First Half NDM Exports and Imports

The NDM exports are going primarily to Mexico with some nice gains in Indonesia and Vietnam.  NDM sales to Mexico are not in danger of tariffs as the retaliatory tariffs levied by Mexico are only on one dairy product, cheese.  While prices are low, there seems to be momentum for further NDM export increases.

Chart II - First Half NDM Exports by Country

Chart III shows the H1 exports for cheese.  The good news is that cheese exports are increasing and imports are decreasing.  However, exports have not reached the level of 2014.  To help reduce cheese inventories, exports will have to reach heights well above 2014 levels.  Cheese exports for the first half of 2018 accounted for 6.4% of production vs. 6.1% for the first half of 2017.  As stated above, NDM exports are up more than 20% by volume for the first half of 2018 vs. the prior year while cheese exports are up only 7% for the same time periods.

Chart III - First Half Cheese Exports and Imports

U.S. Cheese exports show increases for most all major importing countries in the first half of 2018 (Chart IV).    While that shows success, cheese exports are not meeting the needed volumes to match milk and cheese production.

Chart IV - First Half Cheese Exports by Country

Butter exports remain very small (Chart V).  By comparison, NDM (Chart I) show exports approaching 350 KMT per half year, while butter exports are in the range of 25 KMT per half year.  Butter exports and imports are currently pretty equal, so net exports are near zero.

Chart V - First half Butter Export and Imports

The butter exports go primarily to Canada, and in 2018 exports to Mexico have increased significantly.  All other butter exports are negligible. 

Chart I - First Half NDM Exports and Imports

Imports come primarily from Ireland and are the cultured butter marketed as "Irish Butter."  This butter is unique and has established a significant following.  

Chart VII - Butter Imports by Country

The first half was a positive period for exports with many gains.  However, the gains needed to improve producer prices require more emphasize on cheese exports.  If the gains in cheese exports were up 20% like the gains in NDM are, producer milk prices would be quite a few dollars higher.  The goal for cheese exports is clear, but execution is lacking.

EXCHANGE RATES

Exchange rates show the USD getting stronger.  This is not good for exports.  A stronger USD makes U.S. products less competitive in the international markets.  On the graphs below, three out of four of the charts, show the USD getting stronger.  The Mexican peso is the only currency that is getting stronger against the USD and that increase is only for the last monrh.  Because Mexico is the largest market for U.S. dairy products, the stronger Mexican peso will help U.S. dairy exports.  

The 25% Mexican tariff on U.S. cheese will probably be short lived.  It should be noted that cheeses imported into Mexico from other countries also carry a 25% tariff.  With other exporting countries dealing with a 25% tariff on cheese imports to Mexico, and a weaker USD vs. the Peso, the current impact of a 25% tariff on U.S. cheese should be a small issue.  It appears that the NAFTA negotiations are going well, so the 25% tariff on cheese will probably be short lived. 

Chart VIII - Exchange Rates USD vs. Euro

Chart IX - Exchange Rates USD vs. NZD

Chart X - Exchange Rates USD vs. Mexican Peso

Chart XI - Exchange Rates USD vs. CAD

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