export ship
May 8, 2018

U.S. Dairy Exports Off to Roaring Start

 |  By: Fran Howard

U.S. dairy exports are staging a strong recovery, rising to levels not seen in more than five years. While that is good news for U.S. dairy producers and processors, a few uncertainties remain that could derail the current pace of exports, says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle.

“Unequivocally, U.S. exports are off to one of the strongest starts to any year in recent history, but that does not mean higher year-over-year exports through 2018 are a foregone conclusion,” Dorland says. “Several things could alter the course of rising exports.”

The United States exported more than 17% of milk solids it produced in February and then again in March, and most export categories in March increased over February levels. For the first quarter of this year, U.S. exports equaled 16.1% of total milk solids produced and were moving closer to the U.S. Dairy Export Council’s goal of exporting 20% of U.S. milk solids by 2020, Dorland notes.

“The idea that U.S. and European milk production would continue to outpace prior-year levels was a significant concern for markets at the end of last year,” she says. “While milk supplies could be less of an issue at current demand rates, that does not suggest U.S. dairy exports will continue to push ahead without any setback this year.”

Crude oil prices will continue to influence dairy demand, and prices so far have risen to levels that have helped oil economies without cutting into spending power elsewhere. “With improving oil prices, energy-driven economies, which now have more buying power, are directing some of their buying to dairy products, particularly milk powders,” Dorland notes.

In the first quarter of this year, nonfat dry milk (NDM) and skim milk powder (SMP) exports totaled nearly 184,000 metric tons and were higher than the comparable period each year since 2013. However, Dorland calculates that the average price for those exports was only 83.4¢ per pound, compared to the five-year average of $1.33/lb.

“Basically, what that tells us is that historically low nonfat dry milk prices could be encouraging additional buying, but it also implies that should prices move higher, some demand for milk powders could decline,” she says.

Another caution regarding future U.S. exports is the Trump Administration’s ongoing mixed messages regarding trade negotiations, which have caused concern among some of the United States’ most important dairy trading partners, namely China and Mexico.

For the foreseeable future, though, the global demand picture is likely to remain strong, and that could help chip away at the global surplus of skim milk powder. “U.S. dairy exports, across all categories, are now using up a larger share of domestic milk production than they did a year ago,” Dorland notes. “And that appears to be helping to lift dairy product prices.”