Five Key Indicators for 2017 Dairy Exports
1. The European Union (EU) spring flush. In 2016 milk production in the EU declined 1.8% from June through September compared to the previous year. Heading into 2017, however, Matt McKnight, senior vice president of market access, regulatory and industry affairs with USDEC says the picture becomes less clear. EU farmgate prices are rising, up 10% from July through October, and powder and cheese prices rose 22-68% since their low point in the spring.
The question is will the turnaround be enough to get farmers producing again in 2017. While New Zealand production remains an important swing factor, McKnight says the EU is the 800-pound gorilla in the room. A 1% shift in EU milk production equates to 1.5 million tons of milk.
2. Demand headwinds. International commodity prices are rising and will begin to filter through to consumers at the retail level. A higher dollar value could make headwinds even stronger.
A rising dollar could lift import prices that will eventually work their way to retail and potentially deter consumption, McKnight says. That hurts demand growth, which could negatively impact dairy exporters from all countries.
Oil prices have an impact as well. The two-year slump in oil prices has impacted economies across the Middle East, Venezuela and elsewhere and undercut dairy demand. Oil accounts for about a quarter of Venezuela’s economy and 95% of exports. Traditionally a major dairy buyer, Venezuela has cut dairy import volume by nearly 75% over the past two years.
3. Dairy stockpiles. Global milk production growth may be declining and commodity prices rising, but McKnight says we are still facing a substantially well-supplied market. He says the question moving into 2017 is if those inventories can be metered out without swamping the fragile market recovery.
4. U.S. trade policy. Although President-elect Trump criticized free trade agreements during the election and brings significant trade risks, McKnight says he also brings potentially beneficial prospects of new bilateral deals. USDEC will be counseling the President on issues that will maintain the ongoing flow of trade as well as taking new, dairy-friendly looks at trade policy. That includes holding trading partners to their commitments.
U.S. dairy export competitors are not standing still when it comes to trade. The EU continues to aggressively pursue free trade agreements and, despite internal populist pressures in some markets, will likely keep going. Asian countries are discussing a possible regional agreement parallel to or in lieu of the stalled Trans-Pacific Partnership. Australia and New Zealand already have free trade agreements with China, and New Zealand and China recently announced plans to launch talks to expand their deal, including its dairy provisions. The United States needs to be active in moving forward itself in order not to get left behind, McKnight says.
5. China’s product mix. While China dairy imports jumped 15% on a milk-equivalent basis in the first 10 months of 2016, McKnight says trade data from the past five years indicates an evolution of Chinese dairy demand. Chinese imports of fluid milk, cream, cheese and infant formula had record years in 2016. Jointly they accounted for 16% of China’s dairy import volume which marks the second straight year the product mix accounted for a double-digit market segment. These products averaged a 7% import share from 2012 to 2014. Whole milk powder still commands the largest share, but that share has dropped from 45% to 30%.
While there is little doubt that China will continue to be a major dairy importer, McKnight says the mix of imported products appears to be shifting.
What do you think are the major impacts on export markets? Share your thoughts with MILK editor Mike Opperman at [email protected]