Global dairy markets pulled back in March but stabilized after a 5 to 10 percent decline. Buyers purchased aggressively in the fi rst 10 weeks of the year, driving prices to three-year highs. With pipeline holdings built and improved milk-supply prospects, orders slowed.

The price softness might have actually been benefi cial in the long run, says Andrew Ferrier, CEO of New Zealand-based Fonterra Co-operative Group, the world’s largest dairy exporter.

“The price was getting pretty high; it would have risked burning demand off if the price had gone up much further,” Ferrier told Bloomberg News in early April. “Where we are now, having come off the peak, is potentially a sustainable level.”

Milk production from the major exporters was positive in January-February 2011 – up close to 2.5 percent in Europe, Oceania and the United States. Buyers are looking ahead to the second half of the year and trying to assess the upcoming Oceania production season. Good fall weather

has prolonged the milking season in New Zealand and Australia, and fi elds are expected to be in excellent condition for the 2011-2012 season, making producers optimistic for the upcoming year.

However, orders from China, Russia and Southeast Asia continue to strain the supply capabilities of the world’s major exporters. In the fi rst quarter, China’s imports of milk powder, whey, cheese and butterfat topped 250,000 tons, up 34 percent from last year, and more than two-and-a-half times the volume bought in fi rst quarter 2008. In addition, Russia’s imports of that basket of products were up 39 percent in January-February.

“Export pricing in the coming months will continue to be infl uenced by market sentiment based around political instability in the Middle East and North Africa and the effects of the earthquake in Japan,” says Rabobank International in its April Agribusiness Review. “Nevertheless, tight market fundamentals are expected to underpin fi rm pricing in the short term.” PD

Dairy markets retreat, fi nd support

export

WATCHThe following update is provided by the U.S. Dairy Export Council (USDEC), a non-profi t, independent membership organization that represents the global trade interests of U.S. dairy producers, proprietary processors and cooperatives, ingredient suppliers and export traders. Its mission is to enhance U.S. global competitiveness and assist the U.S. industry to increase its global dairy ingredient sales and exports of U.S. dairy products. USDEC programs and activities are supported by the dairy checkoff program, with additional funding from the U.S. Department of Agriculture, Foreign Agricultural Service and from membership dues. For more information, go to www.usdec.org

(Che

ddar

, But

ter,

SMP,

WM

P)

WK1

Cheddar Butter SMP WMP Whey

(Whe

y)

5 9 13 WK1 5 9 1317 21 25 29 33 37 41 45 49

2010-11 World dairy prices ($/lb.)

Source: USDA’s Dairy Market News. Cheddar, butter, SMP and WMP are Oceania; whey is Europe.

30% is how much milk powder prices rosein the first two months of 2011before pulling back in mid-March.

$1.10

$1.40

$1.70

$2.00

$2.30 0.71

0.62

0.53

0.44

0.35

China imports

08-Q1

250

200

0

150

50

WMP Whey SMP

100

Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q409-Q1 10-Q1 11-Q1

(in th

ousa

nds

of M

T)

In the first quarter, China imports were up more than 30 percent from the prior year, underpinning world markets.

Source: GTIS Global Trade Atlas.

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16 Progressive Dairyman Issue 8 • May 21, 2011

U.S.

EXP

ORTS

U.S.

EXP

ORTS

In early 2011, U.S. dairy exporters continued on the record pace they established in 2010. Global supplies remained tight, and the United States shipped a greater percentage of its output overseas than ever before.

In January-February, aggregate export volume of dry ingredients (milk powders, whey proteins and lactose), cheese and butterfat was 253,905 tons, up 47 percent from the prior year and up 24 percent from the 2008 pace. Total exports were valued at $675 million, an improvement of 52 percent over 2010.

Exports accounted for 13.1 percent of U.S. milk solids production, compared with 12.8 percent of production in all of 2010 and 9.3 percent in 2009.

NDM/SMP exports were up 163 percent in the fi rst two months of the year, to 74,741

tons. Shipments were up signifi cantly to Southeast Asia and Mexico, and new sales were realized in Bangladesh, Egypt and China.

Cheese exports were 38,728 tons in January-February, the most ever, and double the prior-year level. Major customers were Mexico, South Korea, Middle East/North Africa and Japan. Signifi cantly, exports were equivalent to a record-high 5.0 percent of cheese production during the two months.

Butterfat shipments also picked up. Exports in the fi rst two months of the year were 10,417 tons, nearly double last year.

Whey export volumes were slightly below year-ago levels in early 2011. Total export volume was 69,003 tons, down 1 percent from 2010. Dry whey shipments were up slightly but WPC sales were lower.

U.S. exporting 13 percent of its production in 2011

J A J O A J O A J O OJ J A JJ J

Exports Imports

Dairy trade as a percent of U.S. milk produced(total solids basis) Source: National Milk Producers Federation/U.S. Dairy Export Council.

In January-February, U.S. dairy exportswere equivalent to 13.1 percent ofU.S. milk production.

In January-February, exports were equivalent to the milkvolume from about 1.19 million cows.

1.19 mil 13.1%2007 2008 2009 2010 2011

2

6

9

13

1616

13

9

6

2

U.S. Dairy Exports, January-February (metric tons)

2010 2011 % change2011 % of U.S.

production

NDM/SMP 28,435 74,741 +163% 54%

Whey proteins 69,570 69,003 -1% 61%

Lactose 33,945 49,104 +45% 69%

Cheese 19,427 38,728 +99% 5.0%

Butterfat 5,307 10,417 +96% 7.3%

Fluid milk (in thousand liters) 7,212 12,439 +72% NA

Food preps (blends) 10,963 8,539 -22% NA

TOTAL VALUE ($ million) $444 $675 +52% NA

U.S. dairy export value was up 52 percent in the fi rst two months of 2011.Source: USDA’s Foreign Agricultural Service; U.S. Dairy Export Council

The tsunami/nuclear tragedy that hit Japan in March had a devastating impact on millions of people. In the small corner of the world that is dairy, traders are still trying to gauge the consequences.

The catastrophe caused uncertainty around local supply and trade fl ows. The country produces about 7.9 million tons (17 billion lbs) of milk per year and most of that capacity is still intact. But it also imports another 360,000 tons (800 million lbs) of cheese, butter, whey protein, milk powder and lactose, making it a top-fi ve buyer on the international market.

Japan is the fourth-largest single-country market for U.S. exports, with purchases of $204 million in 2010. It’s one of our biggest customers for cheese, whey proteins and lactose.

According to early reports, processing and inventories were disrupted by electrical blackouts. Of potentially greater impact, consumer confi dence in the safety of domestic food is somewhat shaken, which could trigger the need for more imports. Exporters report a rise in orders for cheese and whey as cleanup efforts continue.

Japan a major dairy buyer

Issue 8 • May 21, 2011 Progressive Dairyman 17

For the 12 months ending October 2010, U.S. share of the global export market reached 17.2 percent, compared to 14.1 percent for the baseline

period.

U.S. share of the world cheese export market registered nearly 9 percent for the 12 months ending October 2010, vs. 5 percent for the baseline. For the

same time frames, U.S. whey protein share of global exports jumped from 32 percent to 36 percent and milkfat share increased from 3 percent to 8 percent.

The United States is far outpacing the rest of the world in skim milk powder (SMP) as well, with shipments up 2.5 million lbs. per month

from February 2009-October 2010 vs. a 100,000-lbs.-per-month decline for U.S. competitors. U.S. suppliers, however, have yet to make up all the market share they lost at the end of 2008/start of 2009. PD

What it means

export

WATCH

U.S. Dairy Globalization Dashboard 1st QUARTER 2011Goal Stakeholder performance

indicator Current Assessment (based on data through fourth quarter 2010)

Increase global competitiveness

Is U.S. becoming more competitive globally?

U.S. building on gains made before 2009 downturn.

Is U.S. filling the latent demand gap? U.S. capturing a growing share of larger market.

Is U.S. moving beyond surplus disposal and “supplier of last resort” status?

Some recovery, but unclear if gains would be sustained under less favorable market conditions.

Strengthen domestic marketIs U.S. becoming more competitive

domestically?U.S. milk solids continue to displace imports in the domestic market.

Provide value to producersIs the global market contributing to

higher returns to U.S. milk producers?Returns from Class III products in export markets routinely exceed

domestic returns.

Improve commercial focusIs U.S. better fulfilling increasingly

demanding needs of global customers?Buyers say they want U.S. supply option in market, but customer service

improvements needed.

Positive Neutral Negative

The “traffic lights” compare data (from the most current period for which numbers are available) to a benchmark of average results from 2005-2007. The latest data shows a generally positive assessment; overall trends support that U.S. suppliers are growing more globally competitive.

To evaluate progress towards the Innovation Center for U.S. Dairy’s (IC’s) goal of becoming a “Consistent Supplier,” a system of metrics, underlying data and a one-page “dashboard” assessment was developed to provide an at-a-glance snapshot of U.S. dairy industry performance in addressing the ongoing and progressive impacts of globalization. The Globalization Dashboard measures advancement toward four goals laid out by the IC’s Globalization Operating Committee.

The “Globalization Assessment Dashboard” provides an at-a-glance snapshot of U.S. progress in achieving four goals (laid out by the Innovation Center for U.S. Dairy’s Globalization Operating Committee) aimed at moving the industry along the path toward “Consistent Supplier.”

The Dashboard is updated on a quarterly basis. The “traffic lights” on the right compare data (from the most current period for which numbers are available) to a benchmark of average results from 2005-2007.

The latest data follows on a generally positive assessment published late last year. Overall trends support that U.S. suppliers are growing more globally competitive.

The United States accounted for 39 percent of the growth in global dairy exports for the year ending October 2010.

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18 Progressive Dairyman Issue 8 • May 21, 2011