Canada Rattles World Dairy Markets
Well that didn’t take long. Canada’s skim milk powder exports have ballooned eight to 10-fold since it created its Class 7 for skim milk powder (SMP) this past summer.
According to the U.S. Dairy Export Council (USDEC), Canada was exporting about 1,000 metric tons per month of SMP prior to the creation of its Class 7 program. “Now they’re shipping 8,000 to 10,000 tons of SMP per month,” write USDEC’s Marc Beck and Alan Levitt. “This is not an incidental volume; it’s equivalent to about 5% of world trade.
“They’ve accomplished this with very aggressive pricing. [Canada’s] average export unit values are about $1,850/ton this year, $200 to $300 less than offerings from the United States, Europe or New Zealand. This, too, puts downward pressure on the global market.”
And this is happening in an environment where warehouses are already bursting with skim milk powder. Europe is sitting on about 380,000 tons; the U.S. had about 140,000 tons in inventory in August. And total world stocks of SMP are estimated to be at about 600,000 tons—or three times the normal working level.
Canada’s dumping of an additional 8,000 to 10,000 lb of the stuff each month isn’t helping the situation. Our friends to the north are subsidizing the lowest value product being traded—and driving those prices even lower. SMP prices on the Chicago Mercantile Exchange are sitting at about 75¢/lb and not seeing anything north of 80¢ until next June.
The Canadians can argue the U.S. is not lily white in its dairy exports efforts, pointing to the Cooperatives Working Together (CWT) program. CWT offers ”sales incentives” to move cheese, butter and whole milk powder off-shore. But CWT is a private program, not facilitated by a national government. Plus, CWT volumes pale in comparison to what the Canadians are now doing.
Last year, it incentivized 7,080 metric tons of whole milk powder, 18,600 tons of cheese and 3,200 tons of butter. On a tonnage basis, that’s less than a third of what Canada is on pace to do with its SMP discounted sales.
CWT is also geared to assisting sales in growing markets rather than displacing sales in established markets. CWT officials say there was only one case of documented sales displacement over the past eight years of the program. “In that case, the country in which the sales were being made was declared ineligible for assisted sales on the eligible list,” CWT says.
Cynics might scoff at this CWT claim. But it’s on the cynics then to prove otherwise.
If Canada continues to under-cut world SMP prices, it will face the ire of Europe, the U.S., New Zealand, Australia and Argentina at the World Trade Organization. Such a case will take several years to resolve. But it won’t be in Canada’s favor. In the interim, millions of dollars will be drained from world dairy markets.