Friday, October 19, 2018
 U.S. Dairy Exports Face Marketing Challenges Created by Drought  

U.S. dairy suppliers will be tested next year as the drought diminishes milk supply and agricultural production around the world, the U.S. Dairy Export Council (USDEC) says.

The decline in U.S. milk production will hit U.S. milk powder and butter the hardest, according to the October 2012 edition of USDEC’s “Export Profile” newsletter.

USDEC estimates that nonfat dry milk/skim milk powder (NDM/SMP) production will drop 8-10% over the next 12 months, which equates to about 90,000 tons.

“That could significantly impact U.S. milk powder exports— our largest volume product after whey proteins,” says Alan Levitt, USDEC vice president, communications and market analysis. “We estimate about half—45,000 tons—could come from volumes earmarked for the world market, but the extent to which suppliers pull back from exports largely depends on price movements and the strategic position world markets occupy at individual companies.”

U.S. NDM/SMP price indices as of late September were nearly at parity with Oceania spot prices—a rare occurrence for the usually lower-priced U.S. product and a blow to U.S. competitiveness.

Cheese supplies are expected to be sufficient, but pricing also poses a challenge, USDEC notes. Since early 2006, U.S. cheddar prices had only been above Oceania spot prices for a handful of weeks. Since July, however, the tables have turned, putting the U.S. at a cost disadvan¬tage. U.S. suppliers will be challenged to maintain share and volume should conditions hold, USDEC says.

The good news is that the fundamentals behind the long-term rise in global dairy consumption remain in place. Emerging market demand has been strong, despite slowing economic growth in key Asian markets.

But whether demand growth continues at a strong pace into 2013 is another story, notes USDEC.

Severe weather has stunted agricultural production in a number of regions, suggesting the world is due for an¬other run-up in food prices that could erode consumer purchasing power, particularly in developing countries where a large proportion of income is spent on food. Downside risks, like a deepening of the European debt crisis, could heighten the situation.

That does not necessarily portend a major demand pullback. The Food Price Index from the U.N. Food and Agriculture Organization grew 8% from June- September, yet demand held.

“Recent history has shown that emerging market consumers appear willing and able to maintain dairy consumption levels at relatively higher costs,” says Marc Beck, USDEC executive vice president, strategy and insights. “With supply short and the price gap far thinner than normal, the United States could lose share of global NDM/SMP. But strong developing world demand, constrained supplies out of Europe and the prominent position the United States holds in global NDM/SMP trade—30% of the market—suggests we will remain a significant player.”

How the U.S. ultimately recovers from the drought will heavily depend on when normal weather returns. USDEC expects U.S. milk output to bounce back in 2014 and 2015 with gains of 2.1% and 1.8%, respectively.

“U.S. processors and producers have received the message that if U.S. dairy is to continue growing at a healthy pace it must be an eager, active and committed player in international markets,” says Levitt. “Rising U.S. production is dependent on demand from outside our borders and to capitalize on that potential, we must face the challenges that come with serving that market, including the challenges caused by drought.”

Source: Ag Web

Posted on Thursday, October 25, 2012 (Archive on Thursday, November 01, 2012)
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