Exports Show Gains

Export and import data for October 2016 showed continued improvement.  Exports volumes of all commodities used to price producer milk were up.  The largest percentage increase was butter, but that increase is based on a very small export level.  More detail on butter is covered later in this blog. The most important item is cheese as it has the largest impact on milk pricing.  The 9.3% increase in cheese exports is significant for this time of the year.  NDM exports which have remained strong in 2016 are showing increasing strength with a 10.2% increase in export volume.

Imports of cheese typically rise in the fourth quarter of the year with the holiday demand for specialty cheeses.  The increase in October is in line with the two prior years.

CHEESE

The most important chart for improved producer prices is the chart below on cheese exports.  The October volume of cheese exported is above the 2015 level and near to the levels of 2013 and 2014.  While exports YTD are still off for the three largest export buying countries, October levels are hopefully the start of a positive trend.

Cheese imports coming from Italy and France are close to 2015 levels, but imports from New Zealand are significantly higher YTD.  The higher import levels from New Zealand represent the availability and low prices that have persisted in the international markets for commodity cheese.

Overall, cheese net exports (exports - imports) remain low as compared to 2013 and 2014, but the October levels remain near the 2016 levels.  October net exports typically fall more due to high imports.  However, the increased level of exports in October 2016 kept net exports at prior month levels.  This is an indication of a strengthening export market for U.S. cheeses.

BUTTER

Butter remains a complicated story.  U.S. per capita consumption continues to rise, but production of butter remains near prior year levels.  This has kept inventories relatively tight and domestic prices high.

Butter net exports did show an improvement with exports up and imports down.

The real activity in the butter export/import market is trade with Mexico.  Mexico is the largest export partner AND is nearly the largest import partner for butter.  There are no volume restrictions on exports and imports due to the NAFTA agreement.  YTD more butter has been imported from Mexico than exported.  Changes from 2015 show a huge shift in the market.  U.S. domestic butter prices were well above international prices, at the beginning of 2016, but international prices have increased roughly 60% since the beginning of 2016 and are now comparable to U.S. prices.  This should provide an opportunity for increased exports of butter although available supply remains tight.

As shown in the first chart below, exports of butter to Canada have been significantly above prior years.  This change is relatively recent and its continuance is uncertain.

NONFAT DRY MILK

Exports of NDM have been the strength of the dairy export program in 2016.  While prices have been low, volume has remained steady and growing.  The last three months exports have all been record for that month.  October maintained and improved on that record.  While prices remain well below the early 2014 levels, they are currently up roughly 50% from the beginning of 2016.  The futures market is forecasting additional increases in NDM prices.

Mexico remains by far the largest export market for U.S. NDM, however, the growth over the prior year is coming from other markets.

NDM prices are the basis for Class IV milk prices and in turn Class II milk prices.   See the potential impact of Class IV pricing in the July 16, 2014 post to this blog.

DRY WHEY

Dry whey exports have seen increasing strength during 2016.  Exported volumes are above every one of the five prior years except 2013, and they are near the 2013 level.  As mentioned in the prior post, prices of dry whey have improved during 2016 and are expected to increase further in the coming months.  Dry whey  is the basis of pricing for Other Solids.

October has been a very positive month for dairy exports.  The global dairy market seems to be getting supply and demand more in line and international prices are improving.  The one remaining issue for export prices is the strong USD.  Since the U.S. election, the USD has strengthened more.  More detail on the USD strength is available in the November 27 post to this blog.  While the future always remains uncertain, recent development are suggesting improved prices in 2017.