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U.S. Dairy Exports Finish First Half of 2018 on Record Pace

by Lee Mielke

Published: Friday, September 14, 2018

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

The U.S. Dairy Export Council reports that, in the first half of 2018, U.S. dairy exports of milk powders, cheese, butterfat, whey and lactose topped 1.14 million tons, a record-high and up 20 percent from 2017.

"U.S. suppliers accomplished this by building market share and competing favorably for business against European and Oceania suppliers," said USDEC, "increasing their share of global exports of major commodities from 17 percent in 2017, to almost 19 percent in the first half of this year."

Some of the key factors that drove the strong numbers was that "overall global import demand was good early in the year, driven by strong economic growth in dairy import countries." World trade of milk powder, cheese, butterfat and whey was up 7 percent in the first four months of the year, before slowing in May and June to finish the half up 3 percent.

"Lower global prices in the first quarter (compared with the second half of 2017) helped bring buyers back into the market," said USDEC, "particularly to support supply chain pipelines for milk powder and whey. The data show that the major growth in global import demand in the first half of the year came from the Middle East and North Africa (MENA) region and Southeast Asia, offsetting a slowdown in China demand growth."

USDEC adds, "Demand growth occurred in primary U.S. export products. Looking at skim milk powder, cheese, whey and lactose, which account for nearly all U.S. dairy exports, world trade was even better, up 7 percent in the first half."

"U.S. pricing was also relatively favorable. In the first half of 2018, U.S. benchmark prices for cheese, skim milk powder and whey were competitive to those of New Zealand and the European Union. In addition, overseas markets often offered U.S. suppliers better returns than the domestic market. Moreover, a slowdown in U.S. domestic sales has led to a continued inventory buildup, notably in cheese, and it remains critical U.S. suppliers maintain and continue to build overseas sales to support milk values."

The value of the dollar also played a role. USDEC said, "From early November 2017 to mid-April 2018 the U.S. dollar dropped 6-7 percent against key competitor currencies, which helped U.S. competitiveness in the marketplace."

But a warning is there. "U.S. suppliers face some additional headwinds in the second half, with the potential slowdown in global dairy trade, a stronger dollar, less-competitive relative pricing, expected robust production from New Zealand and other milk sheds, and continued uncertainty around the trade dispute with China and its broader implications," writes the USDEC.

Meanwhile, U.S. dairy exports took a hit in July, the first month following the implementation of Mexico's and China's retaliatory tariffs. Lucas Fuess, director of dairy market intelligence with HighGround Dairy in Chicago, reported in the Sept. 10 Dairy Radio Now broadcast that while most dairy exports were down from June, they were still above July 2017 and the ninth consecutive month exports exceeded the previous year's.

He said there was some frontloading of product as importers tried to beat the tariffs. Cheese, butter and dry whey were down more than 20 percent from June but were above a year ago. He added that, depending on how the rest of the year goes, 2018 may be one of the best years on record.

Butter imports were also up, making the U.S. a net importer, but Fuess says, while that's interesting to watch, "we trade such a little amount of butter compared to our overall domestic consumption."

He also referenced the July Dairy Products report, warning that the growth in cheese output "could hang a shadow on these cheese markets that have climbed in recent weeks."

In politics, House and Senate farm bill conferees met Sept. 6 to begin the process of finalizing the differences between the House and Senate farm bills. Lawmakers said they hope to complete action by the end of September.

More Cheese

July cheese output totaled 1.09 billion pounds, up 2.7 percent from June and 3.7 percent above July 2017. Year-to-date (YTD) cheese output stands at 7.5 billion pounds, up 2.4 percent from this time a year ago. July was the 64th consecutive month that cheese output exceeded that of a year ago.

The No. 1 cheese producer, Wisconsin, contributed 284.2 million pounds, up 3.3 percent from June and .1 percent above a year ago. No. 2, California produced 211.2 million pounds, up 3 percent from June but .9 percent below a year ago. Idaho provided 85.6 million pounds, up 2.7 percent from June and a whopping 14.9 percent above a year ago. Minnesota, with 62.1 million pounds, was up .7 percent from June and 3.4 percent above a year ago. New Mexico vats put out 75.5 million pounds of cheese, up 2.1 percent from June and 18.3 percent above a year ago.

Italian cheese totaled 463.5 million pounds, up 3.2 percent from June and 2.6 percent above a year ago. Year-to-date Italian is at 3.2 billion pounds, up 2.4 percent from a year ago. Mozzarella, at 364.9 million pounds, was up 3.7 percent from a year ago, with YTD at 2.5 billion pounds, up 2.8 percent.

American type cheese totaled 439.8 million pounds, up 2.3 percent from June and 6.1 percent above a year ago, with YTD at 3 billion pounds, up 2.2 percent. Cheddar output, the cheese traded at the CME, totaled 326.4 million pounds, up 13 million pounds or 4.1 percent from June and a strong 9.4 percent above a year ago, with YTD Cheddar at 2.2 billion pounds, up .5 percent.

U.S. butter churns produced 136.2 million pounds, down 4.4 percent from June but .5 percent above a year ago. YTD is at 1.2 billion pounds, up 3.6 percent.

Yogurt output hit 354 million pounds, up 1.3 percent from a year ago, with YTD output hitting 2.6 billion pounds, down 2.5 percent.

Dry whey totaled 91.4 million pounds, down 9 percent, with YTD at 620.4 million pounds, up 2.9 percent. Dry whey for human consumption totaled 89.7 million pounds, up 4.1 percent from June but down 9.1 percent from a year ago. Stocks totaled 74.7 million pounds, up 12.6 percent from June but 21.4 percent below those a year ago.

Nonfat dry milk production totaled 146.7 million pounds, down .1 percent from June and 3.4 percent below a year ago. YTD output stands at 1.1 billion pounds, up .1 percent. Stocks climbed to 317.9 million pounds, up 14.5 million pounds or 4.8 percent from June and were 22 million pounds or 7.4 percent above 2017.

Skim milk powder production totaled 47.6 million pounds, down 19.3 percent from June and .5 percent below a year ago. YTD skim is at 331.8 million pounds, down 1.9 percent from a year ago.

The cash Cheddar blocks climbed to $1.7050 per pound following the Labor Day holiday, highest CME price since Nov. 15, 2017, then lost 6 cents last Wednesday, and regained 1¾ cents last Friday to close the shortened week at $1.6625, down 3¼ cents but 2 cents above a year ago. The barrels hit $1.64 last Tuesday then plunged 8¼ cents last Thursday and dropped 5¾ cents last Friday, finishing at $1.50, down 14½ cents on the week, 4 cents below a year ago, and 16¼ cents below the blocks. Trading saw four cars of block and 39 of barrel sold.

Cheese demand reports from Midwestern cheesemakers remains steady to improving, according to Dairy Market News. Central Class III producers continue to deal with hauling costs and delays, particularly for loads heading east, which have "snowballed to a problematic point." Cheese output remains steady to down a bit from the busy summer. Specialty cheesemakers are still holding back production a bit, but suggest activity will increase in the near term to meet fall business. Milk into the vat is harder to find during the busier school bottling season and prices ranged $1 to $2 over Class III.

Cheese production in the West remains active with several plants close to full capacity due to sufficient milk volumes. Current cheese demand is strong. However, "it is the usual trend for this time of the year," said DMN. "Exports into the Asian market increased, but some Latin American countries have slowed their intakes. As trade negotiations between the U.S. and Mexico are showing a favorable tendency, industry participants hope to see a boost of the cheese market activities when the agreement settles on good terms and takes effect."

Cash butter closed the week at $2.23 per pound, up 1½ cents but 22¾ cents below a year ago, with 11 carloads finding new homes on the week at the CME.

Cream supplies into Central butter production remain available. Some butter makers are churning actively while others are slow to pick up the pace. Some plants were completely offline due to heavy rains and flooding in the Midwest. Contacts suggest that August was an exceptional sales month, notably in food service. Unsalted bulk butter sales are positive as well, but producers say they expect a slowdown there near term. The market tone is a bit bearish, says DMN.

The hot new dry whey market closed last Friday at a record high 51½ cents per pound, 1½ cents higher on the week on five unfilled bids.

Class III futures are sowing some encouraging signs ahead, and the global market is a big part of that. It's far too important to give up on exports, despite the ups and downs, keen competition and tariff wars.

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