Sunday, December 16, 2018

October Dairy Export/Import Data is Now Available.

October Dairy Export/Import data was recently released.   The most positive category sector is exports of Nonfat Dry Milk/Skimmed Milk Powder (NDM/SMP.)  NDM/SMP export volumes for 2018 remain very high, with most of the product going to Mexico.  Exchange rates were also generally positive with a weaker USD.  Other export data was not so positive.  The four export products analyzed below are those that impact dairy producer milk prices; cheese, butter, NDM/SMP, and dry whey.  The emphasis in this post will be net exports (exports-imports).

Cheese net exports (Chart I), are a very important as they impact inventories and cheese inventories control the price of producer milk (see prior post).  Cheese net exports for October are almost exactly at the level of 2014 and 2017 and somewhat above 2015 and 2016.

Chart I - Cheese Net Exports
 Cheese imports are typically strong in the final quarter of the year as specialty cheeses are imported for the year-end holidays (Chart II)

Chart II - Cheese Imports
Chart III shows where these imported cheeses come from, which are primarily from Italy and France. This shows the impact of specialty cheeses during the holiday season.  By comparison, most all U.S. cheese production is commodity cheeses.
Chart III - Imports of Cheese by country
Butter exports and imports show a similar situation.  Butter Imports are growing (Chart IV) and will likely continue to increase.

                               Chart IV - Butter Imports

Irish butter, which is cultured, has gained a significant position in the U.S. market (Chart V) as well as other international markets.  The concept of a "different" butter with unique characteristics was refined, branded, and marketed, and has had a major impact on Irish dairy exports.   The Irish dairy cooperatives have led the effort.

Chart V - Butter Imports by Country
As a result, butter net exports (Chart VI) remain near zero.

Chart VI - Butter Net Exports
NDM/SMP is the bright spot in dairy exports.  Net exports of NDM/SMP have been setting records most every month in 2018.  And, the records being set are significant gains (Chart VII).

Chart VII - NDM/SMP Net Exports
Exports of NDM/SMP have set new records in all but one month of 2018 (Chart VIII).
Chart VIII - NDM/SMP Exports
More than half of the exports of NDM/SMP are going to Mexico (Chart IX).  It is a perfect product for areas that lack refrigeration and need low cost good nutrition products.
Chart IX - NDM/SMP Exports by Country
Imports of NDM/SMP are at a low.  In September they were at a five-year low and were near a five-year low in October.
Chart X - Imports of NDM/SMP
The imports are coming primarily from Canada at low prices.  Due to increased butter consumption in Canada, there is a glut of skimmed milk which can be converted into NDM/SMP.  New Zealand has also been selling low priced NDM/SMP in the international markets.
Chart XI- Imports of NDM/SMP by Country
The final product to be reviewed is dry whey, which is the basis for pricing Other Solids.  While exports are low, inventories are also low (see prior post).  Not all whey is dried, and a significant amount is feed to animals in a wet form.  This helps keep inventories in balance and therefore even with low exports, the price of dry whey is reasonable. 
Chart XII - Exports of Dry Whey
Exchange rates are currently moving in a favorable direction for exports. Only the exchange rate with New Zealand showed a stronger USD. A weaker USD makes U.S. products more competitive in the international markets.  The four charts below represent the two largest dairy competitors in the international markets, the EU and New Zealand, and the two largest U.S. dairy export markets, Mexico and Canada.  
Chart XIII - Exchange Rates USD/Euro
Chart XIV - Exchange Rates USD/NZD

Chart XV - Exchange Rates USD/Mexican Peso
Chart XVI - Exchange Rates USD/CAD
The USDEC should be congratulated on a positive 2018 for dairy exports.  The challenge in 2019 is to increase exports of cheese to help reduce inventories and improve producer prices.

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