Exports have become a critical driver of the U.S. dairy industry. Growth in U.S. exports due to the dollar’s decline in value, decreased production in other parts of the world and increased consumption of dairy products in many countries has created additional opportunities for dairy processors.
During the past four years, U.S. dairy exports have expanded at a record-setting pace and the outlook for fiscal year 2008 looks no different, with the value of U.S. dairy exports forecast to increase by 50% and hit a new high of $3.7 billion, according to the U.S. Department of Agriculture’s Foreign Agricultural Service’s "Dairy: World Markets and Trade" report. The growth in U.S. dairy exports has been particularly evident in shipments of skimmed milk powder, whey, cheese, and butterfat to Mexico and Asia.
In a late August brief to members of the International Dairy Foods Association, Dr. Bob Yonkers, the group’s chief economist, said the value of U.S. dairy exports in the first half of 2008 totaled more than $2.1 billion, increasing more than 75% over the same period last year and setting a record for the second consecutive year. The primary factor driving the increase was higher world dairy product prices, Mr. Yonkers said.
A milestone associated with the U.S. export surge is that the U.S. dairy industry is likely to achieve a net trade surplus of approximately $500 million, according to the F.A.S. report. Traditionally, the United States has been a net trade importer of dairy products. But a decline in imports of such products as cheese — down 5% year-to-date — coupled with the surge in exports in both volume and value is expected to result in the surplus.
The expansion of global dairy opportunities has not eliminated concern about market conditions. Uncertainty continues to plague dairy markets as fuel and feed costs soar and weather factors disrupt expected production patterns. In late 2007, world dairy prices were for the most part retreating from the record levels posted in mid-2007 as forecasts pointed to a resumption of long-term production trends and increased milk supplies.
Drought limits global supply
In early 2008, the forecasts were thrown into doubt as New Zealand experienced a drought that decreased the original December 2007 milk production forecast for the 2007/08 season. In effect, the anticipated growth in New Zealand milk production was set to shrink from the previous year. This halted the decline in global dairy product prices and kept them well above historical levels.
As 2008 has unfolded, the weather situation in Australia has remained an issue. The month of May was noted as being the driest on record, and all of the country’s dairying areas received less than average rainfall. Even with a resumption of normal rainfall, Australian cow numbers are at their lowest level since 1992, according to the F.A.S. Consequently, any herd expansion will require several years of investment and plentiful rainfall to resume pre-drought production levels.
In New Zealand, the drought in Australia is expected to boost prospects for dairy producers in New Zealand and encourage them to expand. As a result, milk production during 2008/09 is expected to rebound. Elsewhere, in the E.U.-27, quota increases also are forecast to raise milk production but most of the additional output is likely to be channeled toward the domestic market.
In the United States, 2008 milk production continued to expand at a 2% clip, but the longer-term outlook is clouded by concerns over feed costs. With market volatility continuing, the F.A.S. forecast milk output in 2009 to grow by less than 1%. Nevertheless, the U.S. dairy industry currently is reaping the benefits of the tight international market and weak currency with fiscal year 2008/09 exports expected to hit a record $3.7 billion.
Despite the high world prices, dairy product demand remains robust. Although world growth for 2008 is expected to be below 2007 due to rising energy costs and the financial impact of the U.S. credit crisis, gross domestic product (G.D.P.) growth in the key East Asian markets — forecast at 4% to 5% — remains a possibility. In China, G.D.P. growth has been lowered, but at 9% it still represents a significant pace that will have an impact on trade. In other markets such as Mexico, North Africa and the Middle East, oil revenues are ensuring that purchases of dairy products for social feed programs continue.
Cheese exports grow
Cheese exports in 2008 are expected to grow by 4% to 1.4 million tons with marginal decreases in the export forecasts for New Zealand being offset by increases in the United States, the E.U. and Australia forecast, according to the F.A.S. The most significant change from the December 2007 forecasts has been the U.S. cheese export forecast, which was raised by 22% to 122,000 tons. U.S. cheese production this year — up only 0.6% through May over the comparable period in 2007 — has been slow but anticipated to accelerate during the balance of the year. Nevertheless, as the economy slows cheese consumption is expected to slow and register only a modest gain of 1% over the previous year. It is a significant drop from the growth experienced during the 2005-07 period when consumption grew at an average annual rate of 2.5%.
For skim milk powder (S.M.P.), the Australian and New Zealand export forecast was adjusted down by the F.A.S. due to drought and the increased use of fluid milk in the production of cheese and whole milk product. The U.S. S.M.P. export forecast was revised up sharply, increasing 45% from 275 million tonnes to 400 million tonnes, from December on the strength of shipments during the January-April 2008 period — up 77% over the comparable 2007 period, according to the F.A.S. U.S. production of S.M.P. and N.D.M. has surged and 2008 output through May 2008 is running 36% ahead of the same period in 2007.
Mr. Yonkers of the I.D.F.A. noted that nonfat dry milk and other S.M.P.s represented the largest volume of dairy exports, with more than 516 million lbs. With an export value of $866.1 million, the category increased more than 176% from last year. While representing smaller volumes of exports, both cheese and butter categories experienced significant growth in export volume and value.
The only categories of dairy products that have experienced declines in export value were ice creams and related frozen dairy products, down 8.1%, and various whey products (dry whey down 4.4%, fluid whey product value down 71.8%, and lactose down 25.1%), Mr. Yonkers said. All other dairy product export categories experienced growth in export value in the first half of 2008.
U.S. dairy-related trade
2008 2007 2008 2007
Exports (in million lbs) (in million $)
Condensed and evaporated milk 25.0 36.7 $27.5 $21.4
Non-fat dry milk 516.4 283.0 $866.1 $313.6
Fluid milk and cream 44.1 12.8 $46.4 $9.8
Yogurt and other fermented milk 54.1 27.0 $20.2 $10.2
Butter and milkfat 6.0 6.0 $29.9 $14.9
Ice cream 29.8 32.4 $30.2 $32.9
Cheese and curd 156.5 105.5 $299.8 $172.9
Casein 6.9 5.1 $29.7 $16.1
Dry whey 368.8 429.0 $257.7 $269.6
Fluid whey product 1.5 5.9 $0.9 $3.2
Lactose 213.9 472.0 $110.0 $146.9
Other dairy products 351.6 599.4 $212.2 $162.6
Other fluid products 16.4 8.8 $16.3 $7.4
Total fluid exports 72.0 41.8 $37.3 $20.8
Total non-fluid exports 1,831.9 1,998.7 $2,068.4 $1,177.5
Total export value $2,105.7 $1,198.3
Source: International Dairy Foods Association
This article can also be found in the digital edition of Dairy Business News, September 2008, starting on page 10. Click