September 9, 2016

U.S. Dairy Export Potential Looking Up

 |  By: Fran Howard

It may be taking a while, but U.S. dairy exports are bouncing back as the competitive global atmosphere for U.S. dairy products continues to improve.

“Domestic cheese and butter prices have softened in recent weeks, but they still remain at a premium to world markets,” says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. “However, dairy product futures on both sides of the Atlantic as well as Down Under suggest the gaps between domestic and world prices could temper headed into 2017, which should be welcomed news for U.S. exporters and U.S. dairy producers.”

According to the latest trade data released by USDA last week, milk and whey powders were the bright spot for U.S. dairy exports in July, notes Dorland. Combined nonfat dry milk (NDM) and skim milk powder (SMP) exports of 47,971 metric tons (MT) were 18.5% higher than the prior year. Despite an 8.5% year-over-year decline, Mexico continues to be the largest market for U.S. milk powders, accounting for 38.5% of July’s total volume. Increasing shipments to Indonesia, the Philippines, and Vietnam were more than sufficient to offset declines to Mexico.

Thanks, in part, to China’s increasing appetite for pork, U.S. whey exports continue to outpace last year’s shipments. Whey exports to China soared 56% compared to July 2015, driven largely by increased feeding of whey to piglets, says Dorland. Exports of U.S. whey protein concentrate (WPC) with less than 80% protein climbed 59% above July 2015 levels. For the first seven months of this year, WPC (<80% protein) exports were 43% more than the same period in 2015. Whey and whey products are also used to manufacture infant formulas and various food and beverages, including sports and nutrition drinks.

Cheese exports also fared relatively well in July. U.S. manufacturers exported 23,969 MT of cheese in July, which was only 5.9% less than the prior year. “July was only the second month this year that posted a single-digit decline compared to 2015 activity,” she says. “And for the first time in 2016, U.S. fresh cheese exports exceeded last year’s volumes.”

At 7,521 MT, fresh cheese exports increased 4.2% above July 2015 levels. Cheddar cheese exports remain well off last year’s pace, with year-to-date (January through July) volumes down 28% compared with the same period in 2015. “Given the increase in world cheese prices, though, U.S. export prospects could improve headed into 2017,” Dorland says.

At 1,291 MT, U.S. butter and milkfat exports were a dismal 43% less than the prior year. “Given futures forecasts for U.S. and European butter prices, though, it is possible that U.S. exports could be competitive overseas in early 2017,” Dorland says.

Due to the recent large gap between U.S. and overseas butter prices, the United States imported 3,685 MT of butter and butterfat in July, up 3% from July 2015, according to USDA data. “The narrowing gap between domestic and world butterfat prices could impact new imports, especially over-quota butter, as the economic incentive to bring in overseas butterfat continues to diminish,” she adds.