The Farmer's Exchange Online Home
Friday, December 13, 2019
Michiana's Popular Farm Paper Since 1926
Click here to start your trial subscription!

New Trade Agreement with Japan Could Boost U.S. Dairy Exports


by Lee Mielke

Published: Friday, September 6, 2019

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

President Trump and Japanese Prime Minister Abe announced that they have struck a free trade agreement in principle. A formal signing is expected next month during the United Nations General Assembly meetings in New York. The announcement came as leaders of the G7 countries, Canada, France, Germany, Italy, Japan, United Kingdom, and the U.S. met in France.

HighGround Dairy (HGD) reports that aspects of the trade deal include industrial tariffs, agricultural and digital trade, and called it "welcome news for U.S. agriculture as Japan is a huge net-importer and this trade deal should provide economic advantages for market share growth."

U.S. Agriculture Secretary Sonny Perdue stated, "Japan is a significant market for U.S. agriculture exports, making today a good day for American agriculture. By removing existing barriers for our products, we will be able to sell more to the Japanese markets. At the same time we will be able to close gaps to better allow us to compete on a level playing field with our competitors."

A study commissioned by the U.S. Dairy Export Council suggests that U.S. dairy exports could triple to Japan in the next 10 years. Cheese could be the biggest winner, as the U.S. exported 74.2 million pounds in 2018, representing just 12 percent of Japan's total imports. USDEC says market share could improve to 24 percent by 2027.

Meanwhile, the tariff tit-for-tat with China continued. President Trump again criticized China for stealing America's intellectual property and called on American companies to move their operations out of China.

The spat is keeping the U.S. from participating in China's current import appetite. HGD reports, "Chinese skim milk powder (SMP) demand surged in July, remaining higher year over year for the 11th consecutive month, and jumped to the highest monthly volume since January." "Imports marked impressive demand in the middle of the year in a country where purchases peak in January due to tariff agreements before usually remaining relatively flat for the remainder of the year." HGD adds that "China's appetite was fulfilled by Oceania and the EU in the month and turned away from U.S. purchases."

July SMP volume from the U.S. totaled just 300,000 pounds, down 95 percent. Imports from New Zealand surged higher and were stronger from Australia and the EU.

"Butter imports were the weakest for July since 2013, however, as product from New Zealand dropped off." "2018 was an exceptionally strong year for China's butter imports and continues to make it difficult to reflect gains," says HGD. The Chinese Yuan has slid to 11-year lows and will reduce its purchasing power heading into fourth quarter.

"While China's total whey imports unsurprisingly remained lower versus the prior year, the gap continued to close as the country imported the highest monthly volume since January, even as YTD imports remain well below prior year. The U.S. remains the top source for whey products, with 38 percent market share in the month, though volumes fell 22 percent," according to HGD.

Back home, dairy margins continued to strengthen over the first half of August following a sharp drop in feed costs as milk prices were mostly flat, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.

"USDA's August WASDE report was considered extremely bearish for the corn market," the MW stated. "The yield forecast was raised to 169.5 bushels per acre, up from 166 in July with production pegged at 13.9 billion bushels. This was up 26 million from last month and 737 million above the average of pre-report estimates. It was also outside of the range of estimates between 12.719 and 13.55 billion bushels. Ending stocks were raised to 2.18 billion bushels which again was well above the average trade estimate of 1.60 billion, as well as outside the range of expectations between 1.297 and 1.90 billion bushels. The corn market dropped 48 cents on the news, or 11.5 percent, which was welcomed following previous concerns with delayed spring planting and slow progress."

"The milk market continues to be supported by positive fundamentals. USDA reported U.S. July milk production at 18.3 billion pounds, essentially unchanged from last year with improved efficiency in the milking herd, particularly in California, making up for a continued decline in cow numbers. USDA revised down the milking herd from June's figure by a further 4,000 cows and noted an additional 9,000-head decline last month. The dairy herd has been particularly decimated in the Mideast and along the East Coast with significant declines noted in Pennsylvania, Ohio and Virginia," the MW reported.

"Combined milk output in the EU, U.S., Oceania and Argentina was 1.7 billion pounds less than 2018 through the first five months of the year, a decline of .6 percent, while a severe heat wave across Europe has crimped summer output also as July was the hottest month on record," the MW concluded.

CME cheese shot higher the last week of August. The Cheddar blocks hit a new high for 2019 and the highest price since November 2016, at $1.93 per pound, up 5 cents on the week and 23½ cents above a year ago. The barrels finished at $1.7375, up 7¼ cents on the week and 9¼ cents above a year ago, but an unsustainable 19¼ cents below the blocks. There were 22 cars of block that traded hands on the week at the CME and 36 of barrel.

Milk is a bit tighter in the Midwest and FC Stone reported that the four-week rolling slaughter average dropped below year-ago levels for the first time all year, but "we're still killing them faster than we can replace them."

Typical fall demand is helping maintain cheese orders, according to Midwest cheese producers, and block and process cheeses requests are strong, according to Dairy Market News. Students are returning to classrooms spurring food service buying. School milk bottling is pulling heavy volumes from cheese vats but manufacturers are finding adequate amounts of milk. Spot milk offers were not very prevalent early week but contacts expected more discounted loads to become available over the Labor Day holiday weekend.

Western cheesemakers relay that cheese demand is strong. U.S. cheese prices have been well above international levels for some time, making export markets more challenging, but contacts are still seeing steady interest. The domestic pull on supplies has reduced inventories and manufacturers are running at or near full capacity. Milk supplies are in good balance with processing, says DMN.

Butter fell to $2.1850 per pound Thursday, lowest since Dec. 19, 2018, after plunging 11¼ cents last week, but closed last Friday at $2.19, 3¾ cents lower on the week and 2½ cents below a year ago, with 40 sales on the week.

Butter churning was fairly active as cream was plentiful in the Central region. Bulk butter continues to be available and offered at discounts, says DMN.

Grade A nonfat dry milk climbed to $1.0475 per pound last Tuesday, highest since July 1, but closed last Friday at $1.04, up a quarter-cent on the week and 15½ cents above a year ago, on 39 loads exchanging hands.

CME whey closed last Friday at 39 cents per pound, down a half-cent on the week and 11 cents below a year ago, with no sales reported on the week.

Return to Top of Page