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The Importanceof the World Dairy Market
to U.S. Dairy Farmers
Peter Vitaliano
Vice President, Economic Policy and Market Research
National Milk Producers Federation
Export Market Participation Important to U.S. Dairy Farmers
• Exports now represent a major segment of the commercial market for U.S.-produced milk, and it is the fastest growing market.
3.7%
4.5% 4.4%5.0% 5.2%
5.5%5.1%
5.7%
7.6%
8.3%
9.3%9.8%
11.0%
9.3%
12.5%
2.7% 2.9%
3.6%3.9% 4.0% 4.2% 4.2% 4.4% 4.5% 4.6% 4.4% 4.5%
4.0%
3.4%2.9%
0%
2%
4%
6%
8%
10%
12%
14%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
To
tal M
ilk S
olid
s,
% o
f U
.S.
Pro
du
cti
on
2010: January- September
U.S. DAIRY TRADE BALANCE, 1996-2010 ytd
ExportsImports
Export Market Participation Important to U.S. Dairy Farmers
• The U.S. domestic market is a large, but mature market for dairy product sales
• The export market is growing at a rate at least eight times faster than overall growth in domestic sales
164 167 168 171 171
15.5 17.0 19.4 15.221.0
0
20
40
60
80
100
120
140
160
180
200
2006 2007 2008 2009 2010
Bill
ion
po
un
ds, m
ilk e
qu
ival
ent
Source: USDA
U.S. Commercial Dairy Product Sales: Domestic and Export
U.S. Domestic SalesU.S. Commercial Exports
1.1% growth per year
8.8% growth per year
U.S. Dairy Sales, 2008-2009
USDA World Agricultural Supply and Demand Estimates (WASDE)
2008 2009 2009/08 2009/08
Milk equivalent, total solids basis, bil. lb. %
U.S. Domestic Sales 168.2 170.5 2.3 1.4%
U.S. Commercial Exports 19.4 15.2 -4.2 -21.6%
Total U.S. Sales 187.7 185.8 -1.9 -1.0%
Export Markets Impact on Income
• The large drop in U.S. dairy exports in 2009 was the direct cause of the worst financial crisis the U.S. dairy industry has suffered in decades, if not ever
• But, it was not caused by a drop in world demand
• In fact, total world dairy imports by all other countries in 2009 were well above 2008 imports on a volume basis
2009 World Market Growth
• 2009 dairy import volumes grew in all major product categories:– Butter: up 7%– Cheese: up 2%– Skim milk powder: up 9%– Whey and lactose: up 18%– Whole milk powder: up 9%– All products, milk equiv.: up 7%
What Caused the 2009 U.S. Dairy Crisis?
• Competing exporters aggressively cut prices to maintain export sales and avoid building inventories.
$10.50 $10.50
$15.30
$19.70
$12.40
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
2005 2006 2007 2008 2009
Dolla
rs p
er C
wt.
of M
ilk, F
OB
U.S.
Value of Total World Dairy Imports/Cwt. of Milk, fob US
What Caused the 2009 U.S. Dairy Crisis?
• U.S. dairy exports did not compete aggressively in this lower-price world dairy market environment, and the U.S. suffered a major loss in export sales and a considerable drop in international market share.
0
500
1,000
1,500
2,000
2,500
2007 2008 2009
Mill
ion
Po
un
ds
, Milk
Eq
uiv
ale
nt,
tsb
.MONTHLY TOTAL U.S. DAIRY EXPORTS, 2007-2009
2009 Export Market Shares
World Market Export Shares Change: 2009/20082007 2008 2009 (%) (tms)
New Zealand 23.1% 20.6% 26.8% 6.3% 38%
European Union 25.4% 25.6% 25.9% 0.3% 7%
United States 15.1% 17.2% 13.7% -3.4% -15%
Australia 7.7% 7.6% 8.0% 0.5% 12%
Argentina 2.8% 3.0% 3.5% 0.5% 22%
All Other 25.8% 26.1% 22.1% -4.1% -11%
Total 100.0% 100.0% 100.0%
Exports Drop, Inventories Build
• In 2009, the EU, New Zealand and Australia increased their exports by sharply lowering prices and avoided burdensome product inventory buildups.
• The U.S. did not.
0
1,000
2,000
3,000
4,000
5,000
6,000
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Mill
ion
Po
un
ds
, Milk
Eq
uiv
ale
nt,
tsb
.Potential Stock Accumulation, Aug. 2008 - Dec. 2009
Argentina
Australia
EU-27
New Zealand
United States
0
200
400
600
800
1,000
1,200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
En
d-o
f-m
on
th, m
illio
n p
ou
nd
sCOMMERCIAL STOCKS, TOTAL NATURAL CHEESE, 2000-2010
Effect of Exports on Milk Prices
• Even at the lower world prices of 2009, the world market as a whole would have returned more to U.S. dairy farmers than the domestic market did.
$10.50 $10.50
$15.30
$19.70
$12.40
$14.70
$12.15
$18.35
$18.25
$11.65
$0
$5
$10
$15
$20
$25
2005 2006 2007 2008 2009
Dol
lars
per
Cw
t. of
Milk
World Mfg. Product Returns, fob US, & FO Class I Mover
World Mfg. Value, fob USUS FO Class I Mover, @ avg. test
Effect of Exports on Milk Prices
During August 2009 – July 2010:
New Zealand (Fonterra) payout:$14.40/cwt.
U.S. Class I mover: $13.80/cwt.
Maintaining U.S. Exports is Critical
Due to a combination of:• current U.S. dairy policies• domestically-focused product standards• generally low priority of export marketing
U.S. dairy products are commonly “last in – first out” of world export markets.
Maintaining U.S. Exports is Critical
“Last In” = U.S. dairy farmers gain the least when world prices are strong
“First Out” = U.S. dairy farmers lose the most when world prices drop
When Exports Drop So Do Prices
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
5%
10%
15%
20%
25%
30%
35%
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
U.S
. Ex
po
rts
as
% o
f P
rod
uc
tio
n
U.S. AND WORLD PRICES - Butter
Exports/ProductionWorld Price - U.S. basisUSDA - NASS PriceCCC Purchase Price
When Exports Drop So Do Prices
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
U.S
. Ex
po
rts
as
% o
f P
rod
uc
tio
n
U.S. AND WORLD PRICES - Cheddar Cheese
Exports/ProductionWorld Price - U.S. basisUSDA - NASS PriceCCC Purchase Price
Conclusion:
• The biggest threat to the milk price received by every dairy farmer in the United States is interruption of the commercial flow of U.S.-produced dairy products into the export markets
• The ¢wt Export Assistance program is the only mechanism currently available to U.S. dairy farmers to address this threat in the future.
¢wt and 2010 U.S. Exports
31%
25%
66.5
34.7
0
10
20
30
40
50
60
70
0%
10%
20%
30%
40%
Cheese Butter & AMF
Mill
ion
Po
un
ds
Sh
are
of t
ota
l U.S
. Ex
po
rts
2010 CWT Exports, Volume & Share of Total
Share of U.S. Exports
CWT Exports
¢wt Impact on Milk Prices
¢wt export assistance has generated a substantial increase in producer prices:
Scott Brown: $0.17/cwt in 2010
Roger Cryan: $0.18/cwt in 2010
¢wt Export AssistanceReturn on Investment
Revenue generated per dollar invested in Export Assistance• Bids accepted 2003 through September 30, 2010• Includes product scheduled to ship in 2010
Dollars Spent
Pounds of Product
Revenue Generated
Return per $1 Invested
2010 $18,207,524 73,601,339 $375,025,026 $20.60
Since 2003
$90,608,076 247,531,216 $1,407,008,039 $15.53
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