U.S. dairy exports continue, even as shipping issues create headwinds
U.S. dairy exports posted the second highest January export volume on record (160,887 metric tons, milk solids equivalent) and third highest January in value ($505 million), despite shipping delays and logistics headaches.
Those delays and reduced demand from Mexico took their toll when compared to January 2019. MSE volume fell 5% (-8,964 MT) and value fell 9% (-$49.4 million) year-over-year.
Looking more in-depth, the three main themes we identify from the data are:
Shipping issues delay exports
Dairy demand is strong right now. You can see this in U.S. whey exports jumping 15% (+6,210 MT), marking the 14th straight month of growth. Activity on the Global Dairy Trade platform saw WMP and butter prices skyrocketing and SMP prices rising for the seventh time in the past eight auctions. China has been leading the buying charge, fueled by rising demand, low dairy inventories and growing concerns about food security. Demand in other countries remains solid as well.
U.S. NFDM/SMP, already price competitive, is an increasingly attractive alternative, particularly to more price-sensitive regions, like Southeast Asia and the Middle East/North Africa. The U.S. has the product: January manufacturing data released this week showed NFDM/SMP production up 8% over January 2020 to 106,067 MT. U.S. NFDM stocks were 9% over the previous January and up 8% from December 2020.
At the same time, over the past three months, the United States has seen milk powder, cheese and lactose sales struggle to gain traction. NFDM/SMP exports to Southeast Asia, last year’s No. 1 U.S. buyer, were down 21% year-over-year for November-January. Overall U.S. NFDM/SMP sales fell 11% for the same time period. Total U.S. lactose sales for those three months were down 16% compared to the same period a year earlier.
With U.S. prices competitive, demand strong and U.S. suppliers in the market selling, more product should be moving. Why isn’t it? The evidence points to ongoing ocean shipping issues.
Port congestion, container shortages, labor shortages and a host of other shipping challenges stemming from trade imbalances created by the pandemic appear to be undercutting U.S. agricultural exports—including dairy. U.S. suppliers are encountering delays getting U.S. exports on ships and across the ocean to willing buyers. Still, U.S. product does move, but the delays remain a frustration for U.S. exporters.
We expect some of that delayed product will begin catching up in the upcoming months, but there is no definitive timetable.
Cheese exports mixed
Not unexpected given the volatility and high prices we saw in 2020, U.S. cheese exports dropped 10% (-2,762 MT) in January. However, that top level analysis fails to tell the full story. Certainly, price played a role in limiting some growth potential – New Zealand’s average export unit value for cheese in January was $500 per ton.
But despite pricing difficulties, the U.S. was still able to secure increased sales in several of its key markets, particularly Japan and South Korea. U.S. cheese exports to Korea climbed 39% (+1,571 MT) and volumes to Japan jumped 31% (+663 MT). Additionally, the U.S. was able to hold steady in the Middle East-North Africa (+3%, +57 MT), Southeast Asia (+2%, +19 MT), and Central America-Caribbean (+2%, +75 MT).
The decline came primarily because of Mexico (-49%, -4,192 MT), posting the lowest month in volume since August 2011. As we’ve talked about in previous posts, consumer demand within Mexico remains hampered by COVID-19 and its economic implications. Until vaccines are more widely available, lower Mexican demand is likely to continue to weigh on U.S. export volume.
Growth in butterfat exports
U.S. butterfat exports in January dropped from the dramatic high in December but were up 81% (1,427 MT) to just under 3,200 MT. The dramatic growth was driven primarily by the Middle East-North Africa region, which saw an increase of 688% over January of last year to 1,100 MT, representing roughly 34% of the total U.S. butter export volume in January. Canada continues to bring in U.S. butter as part of their Import for Re-Export Program (IREP). January butterfat exports to Canada were up 7% (65 MT). US butterfat exports to Latin America grew 130% (201 MT) in January.
Increased exports over the past two months are reflective of the discount U.S. butter sits at compared to the rest of the world. U.S. butter in January was at a 32% ($1,400/MT) discount to the GDT and a 24% ($970/MT) discount to the EEX on a butterfat equivalent basis. Comparatively, in January 2019, U.S. butter was at a 6% ($253/MT) premium to the GDT and an 8% ($305/MT) premium to the EEX. Difficulty in getting products loaded onto a ship in January were very high, but it seems the large price discount was enough to overcome the fear of not being able to get product loaded. Moving forward, we anticipate strong butter exports to continue. While U.S. butter prices have rallied roughly 30% in the past month, U.S. butter is plentiful and still sits at a significant price discount to the world. Together, the price discount, plentiful butter and the potential easing of freight constraints has us bullish on U.S. butter exports in the coming months.
The main themes from January’s export data are likely to persist in the next few months. Shipping delays remain an issue and Mexico’s buying will likely remain subdued. However, those delayed shipments should eventually make it out to sea and vaccine availability is steadily improving, which will aid Mexico’s demand recovery. Additionally, the outlook for butterfat exports remains positive, whey volumes are growing consistently, and U.S. domestic cheese prices are no longer uncompetitive. As a result, there remains strong reasons for optimism regarding U.S. exports particularly into the second and third quarter of 2021.
The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients.