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U.S. dairy exports decline in 09, value still strong overall

The final trade numbers are in, and as expected, U.S. dairy exports declined in 2009, ending six straight years of expansion. The U.S. Dairy Export Council’s (USDEC) Margaret Speich, reported that, from 2002 to 2008, the value of U.S. dairy exports had increased almost four-fold, and overall volume had more than doubled.

But in 2009, dairy exports sales dropped 39 percent, to $2.32 billion. Most of the downturn reflected lower world prices, according to Speich. Commodity prices were 30-40 percent lower in 2009 than 2008. Overall export volume was off just 16 percent, at 2.18 billion pounds of milk solids. In fact, U.S. exports held up better than forecast in January, she said.

“One way of looking at these results is that resilience of our export performance indicates a further maturation of the U.S. industry,” Speich said. “U.S. dairy export volume, overall and in all individual product categories, is significant and high in historic context. In fact, volumes are at levels where exporting is a prerequisite to maintaining a healthy and growing industry.” Export volume represented 9.3 percent of U.S. milk production in 2009, according to the data, down from 11 percent in 2008, and 9.8 percent in 2007.

“The biggest concern going forward is that the United States could continue to struggle to become a consistent exporter because we’re still generally guided by a production-oriented mindset, rather than a global-customer-centric one,” Speich concluded. “Unless the United States deals with the fundamental problems that make it the residual supplier to the world, we will remain the last-in/first-out player in base commodities, which accelerates volatility.”

Farm delegation travels to Middle East

Those sentiments were echoed by Dairy Profit Weekly’s Dave Natzke, who recently returned from a USDEC information mission. The group was made up of USDEC members, USDA staff, Pennsylvania dairy farmer Paula Meabon, Arizona dairyman Paul Rovey and North Dakota dairy farmer Kenton Holle. They traveled to Dubai in the United Arab Emirates.

A centerpiece of the trip was to attend Gulfood, the largest Middle East food trade show, which brought food suppliers and buyers from all over the world. They also spent five days meeting with dairy product and ingredient buyers from throughout the Mideast.

“What I found” Natzke said, “was a region hungry for a consistent supply of U.S. dairy products and ingredients.” The United States lags well behind the European Union, New Zealand and Australia as a supplier of dairy to this emerging market, according to Natzke, and while logistics and prices put many U.S. companies at an economic disadvantage, members of the mission were told that population growth and cultural changes in the Mideast “make the market potential too great to overlook.”

Meeting that market demand will likely mean changes in how U.S. companies address competitive issues, Natzke said, as to what products we produce, and how we conduct business.

For example, many U.S. cooperatives produce a lot of nonfat dry milk powder and salted butter, he said, because if there’s a surplus, they have a guaranteed buyer in the U.S. government. In contrast, Middle East buyers prefer whole milk powder, he said, unsalted butter, and anhydrous milk fat as ingredients for other foods.

The region is a large buyer of whey protein concentrates to use as in ingredient in other foods, according to Natzke. However, because the United States produces a lot of yellow Cheddar cheese, the whey concentrates discolor foods manufactured in the Middle East compared to the whey concentrates derived from the white Cheddar in other parts of the world.

In addition, because the export market is largely seen as a market of last resort for U.S. surplus, U.S. companies often overlook the customer service and personal business relationships necessary to serve this market, he concluded.

USDA issues final producer-handler definition

The USDA issued its final decision as to what constitutes a “producer-handler.” National Milk’s Chris Galen reported that “it’s the end of a long sought effort to put a lid on the exemption that the largest producer-handlers have enjoyed.”

“As farms become fewer, but larger,” Galen argued. “If more and more of these self-contained bottling operations owned by farmers would have proliferated, it would have actually lowered prices for the other farms in a given marketing order because these producer-handlers have enjoyed an exemption from the Class I pooling requirements that other commercial bottlers have had applied to them.”

USDA’s rule, which will take effect this spring after being ratified by farmers in the 10 marketing orders, limits the producer-handler designation to farms that bottle 3 million pound of milk or less per month. Any operation producing above that will be subject to the same Class I requirements as any other commercial bottler, he said, “So this creates a level playing field.”

It remains to be seen if any of the affected operations will reduce their size to maintain the producer-handler status, but NMPF estimates that there are only about five or six in the U.S. that will be affected and another 35 will remain producer-handlers and thus be exempt.

“So it really only affects the very largest of the large producer-handler operations,” he concluded.

3/17/2010