Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison, told DairyBusiness Radio’s Bill Baker attempts to join the federal order system will take due diligence, and face challenges. California producers will also have to think about pooling issues, as all plants that are pooled under California’s system today are not optional. A federal order system is optional, so plants would have to be convinced it’s in their best interest to be in that federal order pool.
There’s also the possibility California cheese milk prices equal with federal order prices make it more difficult for manufacturers to push cheese from the west coast to the east coast, due to input costs, according to Stephenson, concluding that “I think with the price volatility and the troughs that we had that it’s been difficult to view the California dairy industry’s status quo as being long-term sustainable. I think they have to do something different.”
Speaking of price volatility; USDA chief economist Dr. Joe Glauber, in Senate testimony this week, highlighted “the harm that high feed costs are causing for the nation’s dairy farmers, and is stark evidence of the need for Congress to pass a farm bill that will provide a workable new safety net for dairy producers.”
Glauber noted that feed costs make up 51 percent of expenses for dairy, the highest feed costs of any livestock commodity, pointing out that, because of high feed costs, milk feed ratios have remained near the low levels experienced during 2009. He warned that “another year of below-trend yields and high [feed] prices would likely result in further liquidation’ of herds.”
Exports key to success of dairy economy
Back to trade; exports remain a vital part of a strong U.S. dairy economy. The February 8 Daily Dairy Report (DDR) said that U.S. dairy product exports in December rebounded from very low levels in November. December cheese and curd exports totaled 20,901 metric tons (MT), an increase of 2.3 percent from December 2011 and the strongest monthly cheese exports since July.
The U.S. exported a record 260,034 metric tons (MT) of cheese in 2012, according to the DDR, an increase of 15.8 percent from 2011. Cheese exports to Mexico, the largest importer of U.S. cheese, were also record large and 36 percent higher than in 2011. Exports to South Korea were up 12.4 percent.
However, Jerry Dryer points out in his Feb. 8 Dairy and Food Market Analyst that December cheese imports were greater than cheese exports, “something that has not occurred for a very long time.”
Cheese imports totaled 21,746 MT (62 percent more than December 2011) versus cheese exports of 20,901 MT. “The December explosion in imports came on the heels of November, when cheese imports (up 22 percent versus a year earlier) matched USA exports,” said Dryer, who added that “Much of the imported product was so-called “processing solids”, that is milk solids headed for conversion into processed cheese. This helps explain most of the abnormally large spread between the block and barrel prices.”
The DDR adds the caveat; “As Oceania milk production slows, the U.S. has the opportunity to increase dairy product trade with Southeast Asia.”
The DDR reported that butter and milkfat exports in December totaled 3,503 MT, an increase of 6 percent from December 2011 and 19 percent more than in November on a daily average basis. Full-year exports of 48,642 MT were 24 percent lower than 2011 due to U.S. butterfat prices that were uncompetitive globally for much of 2012.
December nonfat dry milk (NDM) exports totaled 32,454 MT, a decline of 3.2 percent from December 2011. December NDM exports were 6.5 percent higher than November on a daily average basis.
Milk powder exports to Mexico slowed notably from very strong levels this past fall. Last year, milk powder exports to Mexico were 13 percent higher than in 2011. End users, both domestic and foreign, have shown more interest in U.S. NDM now that prices have fallen to attractive levels. However, milk powder stocks remain heavy, the DDR warned. Listen to the DDR’s “Daily Dairy Discussion” for more details on the DDR website at www.dailydairyreport.com
U.S. shipped 13 percent of milk solids
Meanwhile, the U.S. Dairy Export Council (USDEC) reported that, for the second straight year, the United States shipped more than 13 percent of its annual milk solids overseas, “a continued sign that U.S. dairy suppliers are building a more major role in meeting the needs of burgeoning global dairy demand.”
“U.S. dairy exports are now a $5-billion business,” said USDEC’s Tom Suber. “Export value hit a record $5.21 billion in 2012 and the nation’s dairy suppliers sent 3.295 billion pounds of total milk solids into export channels last year.”
With more dairy products moving overseas, U.S. dairy producers have been able to grow in the last decade while minimizing the accumulation of burdensome inventories in the domestic market, notes Paul Rovey, a dairy producer from Arizona and chairman of USDEC, which is funded by U.S. dairy farmers.
“Since 2003, U.S. milk production has increased 18 percent and more than half (56 percent) of the incremental milk volume has been sold overseas,” Rovey said, crediting USDEC’s long-term engagement in overseas markets.
USDEC and National Milk also welcomed announcement last week that the U.S. and European Union (EU) will launch trade negotiations. The U.S. and EU stated that the planned Transatlantic Trade and Investment Partnership is intended to be a comprehensive agreement that addresses a broad range of bilateral trade and investment matters, including regulatory issues.
“NMPF believes that considerable potential exists for greater U.S. dairy exports to the EU, if the Transatlantic agreement effectively tackles not only market access issues but also the many nontariff barriers that have made it challenging for the United States to make more headway into the European dairy market,” said NMPF’s Jerry Kozak. “The U.S. dairy industry is now a major exporter globally. Despite this fact and the large size of the European dairy market, U.S. dairy exports to the EU have lagged and totaled only $88 million last year,” said Tom Suber, “Not because we can’t compete there, but because of the many tariff and regulatory hurdles facing our exporters seeking to enter the EU.
The EU currently enjoys a dairy trade surplus with the United States of $1.2 billion. This is at a time when the United States is exporting $5.2 billion in dairy products around the world. We believe the Transatlantic agreement can do a lot to drive more reciprocal dairy trade between the U.S. and EU.”