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July 12, 2018

Dairy Exports Make Your Milk Check

 |  By: Dairy Talk

The news on the dairy export front has been extremely positive this spring, with near record volumes of U.S. dairy products leaving the country.

 

Through the first four months of 2018, U.S. dairy exports were well above historical averages and equated to 16.8% of U.S. milk production on a solids basis. April sales set a record, with exports representing 18.8% of U.S. production, says Tom Vilsack, CEO and president of the U.S. Dairy Export Council.

 

In May, exports slowed somewhat but were still the third highest ever for the month of May, up 17% on a volume basis and up 1% to $505 million on a value basis from May 2017. May exports represented 17.2% of U.S. milk production on solids basis while U.S. imports of dairy products were 3.3%.

 

Critics and cynics say these sales are only possible because of low U.S. milk prices. To a degree, they have a point. With the exception of whole milk powder, U.S. dairy commodities are trading at a 10% to 15% discount compared to world prices.

 

Even at these prices, though, it meant U.S. prices were rebounding with Class III prices climbing above $17/cwt in the fourth quarter this year. And it meant product was being sold and consumed rather than piling up in warehouses and adding to already high inventories.

 

Another story out of New Zealand shows the potential of exports to drive milk prices beyond clearance levels. New Zealand, which exports some 90% of its dairy production through specialized products, now claims bragging rights to the highest milk prices in the world.

 

This spring, New Zealand dairy farmers were receiving the equivalent of $18.64/cwt for their milk, well above the $16.82/cwt price in Europe or the $15.50 average price in Australia and here in the United States. Internet skeptics immediately jumped on the story, saying such high prices in New Zealand wouldn’t be possible without Chinese collusion or outright corruption. These trolls, of course, offered only their cynicism and no evidence.

 

The reality is that New Zealand has mastered the art of finding out what customers want and then designing product formulations that meet those specific needs. This is long, expensive and arduous work, but pays off in value added sales over years and decades.

 

The U.S. dairy industry has come a long way over the past decade in its ability to export dairy products. For the most part, however, those sales are still commodity based. The real rewards of the export market will come when U.S. processors start to meet the nuanced needs of specific customers. USDEC has begun that process by establishing dairy innovation centers at Jiangnan University in Wuxi, China   and in Singapore.

 

I continue to believe dairy exports are key to the future of the U.S. dairy industry. Over the next decade, those exports will likely be a combination of commodity products that meet the growing nutritional needs of burgeoning populations in Asia, Africa and the Americas and specialized, higher value products for the world’s emerging middle class. U.S. export growth in the first half of 2018 was just a hint of what is possible.

 

The real boulders in the road are President Trump’s self-inflicted trade war and the retaliatory tariffs from Mexico and China that are now in effect. One can only hope Trump comes to his senses.

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