U.S. dairy exports posted the second-best January export volume on record at 160,887 metric tons, milk-solids equivalent, and the third-best January in value at $505 million despite shipping delays and logistics headaches.
Those delays as well as reduced demand from Mexico took their toll when compared to January 2019. Milk-solids-equivalent volume decreased by 5 percent or 8,964 metric tons and value decreased 9 percent or $49.4 million year-over-year.
Shipping issues delay exports
Dairy demand is strong right now. That can be seen in U.S. whey exports jumping 15 percent or 6,210 metric tons, marking the 14th straight month of growth. Activity on the Global Dairy Trade platform saw whole-milk-powder and butter prices skyrocketing, and skim-milk-powder prices increasing for the seventh time in the past eight auctions. China has been leading the buying charge – fueled by increasing demand, reduced dairy inventories and growing concerns about food security. Demand in other countries remains solid as well.
U.S. nonfat-dry-milk- and skim-milk-powder, already price-competitive, is an increasingly attractive alternative – particularly to more-price-sensitive regions like Southeast Asia and the Middle East-North Africa. The United States has the product; January manufacturing data released recently showed nonfat-dry-milk- and skim-milk-powder production increased 8 percent as compared to January 2020, to 106,067 metric tons. U.S. nonfat-dry-milk-powder stocks were 9 percent greater than the previous January and had increased 8 percent from December 2020.
At the same time during the past three months the United States has seen milk powder, cheese and lactose sales struggle to gain traction. Nonfat-dry-milk- and skim-milk-powder exports to Southeast Asia, the past year’s No. 1 U.S. buyer, decreased 21 percent year-over-year for November-January. Overall U.S. nonfat-dry-milk- and skim-milk-powder sales decreased 11 percent for the same time period. Total U.S. lactose sales for those three months decreased 16 percent 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 putting U.S. exports on ships and across the ocean to willing buyers. U.S. product does move, but the delays remain a frustration for U.S. exporters.
We expect some of that delayed product will begin arriving in the upcoming months, but there’s no definitive timetable.
Cheese exports mixed
Not unexpected given the volatility and inflated prices we saw in 2020, U.S. cheese exports decreased 10 percent or 2,762 metric tons in January. But that 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 less than the United States.
But despite pricing difficulties, the United States 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 percent or 1,571 metric tons; volumes to Japan jumped 31 percent or 663 metric tons. Additionally the United States was able to hold steady in the Middle East-North Africa with an increase of 3 percent or 57 metric tons, Southeast Asia with an increase of 2 percent or 19 metric tons and Central America-Caribbean with an increase of 2 percent or 75 metric tons.
The decline came primarily because of Mexico – a decrease of 49 percent or 4,192 metric tons – posting the worst 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, decreased Mexican demand is likely to continue to weigh on U.S. export volume.
Butterfat exports grow
U.S. butterfat exports in January decreased from the dramatic numbers in December but increased 81 percent or 1,427 metric tons to about 3,200 metric tons. The dramatic growth was driven primarily by the Middle East-North Africa region, which saw an increase of 688 percent as compared to January of the previous year – to 1,100 metric tons, representing about 34 percent of the total U.S. butter-export volume in January. Canada continues to bring in U.S. butter as part of its Import for Re-Export Program. January butterfat exports to Canada increased 7 percent or 65 metric tons. U.S. butterfat exports to Latin America grew 130 percent or 201 metric tons in January.
Increased exports during 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 percent discount – $1,400 per metric ton – to the Global Dairy Trade and a 24 percent ($970/ metric tons) discount to the European Energy Exchange on a butterfat-equivalent basis. Comparatively in January 2019, U.S. butter was at a 6 percent or $253-per-metric-ton premium to the Global Dairy Trade and an 8 percent or $305-per-metric-ton premium to the European Energy Exchange. Difficulty in loading products onto a ship in January was extreme, but it seems the large price discount was enough to overcome the fear of not being able to load product. Moving forward we anticipate strong butter exports to continue. U.S. butter prices have rallied about 30 percent in the past month, but 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. But 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.