June export figures align with many of the trends we’ve seen throughout the first six months of 2021: dairy ingredients drove the majority of June’s growth in volume and higher commodity prices pushed value up at an even faster pace.
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Exporters repeatedly dealt with container ships canceling or rolling bookings, lack of equipment, and narrow windows to get the product to port, all of which weighed on U.S. exports to the Asia-Pacific, but particularly NFDM/SMP to Southeast Asia (SEA). AP

Total dairy export volume on a milk solids equivalent basis picked up 6% and total export value grew 15% to $670 million. Whey exports grew the most with an additional 6,973 metric tons (MT) shipped out compared to June 2020, a gain of 16% driven by demand from China. Non-fat dry milk/skim milk powder (NFDM/SMP) wasn’t far behind, growing 5,579 MT, a gain of 7%, thanks to recovering demand in Mexico. Cheese exports faltered in the face of strong year-over-year comparisons, declining by 5,031 MT (-13%).

We’re going to focus less on June’s data and more on the key dynamics we’ve seen in the first half of 2021 in each of the United States’ major products and how we see these themes playing out in the back half of the year.

Through June, U.S. dairy exports in 2021 are up 13% in both volume and value compared to 2020.
Through June, U.S. dairy exports in 2021 are up 13% in both volume and value compared to 2020. USDEC

Waiting to leave U.S. shores

Starting with our largest export product, NFDM/SMP, the primary dynamic affecting U.S. export performance remains the congestion at port, particularly in California. Exporters repeatedly dealt with container ships canceling or rolling bookings, lack of equipment, and narrow windows to get the product to port, all of which weighed on U.S. exports to the Asia-Pacific, but particularly NFDM/SMP to Southeast Asia (SEA).

To be clear, delayed product still moved – NFDM/SMP shipments to Southeast Asia are up 1% (+1,133 MT) through the first half of the year – but we believe that plenty of product that has been booked for export has not left U.S.’ shores yet.

Additionally, delays outside of the control of U.S. exporters have hampered the U.S.’ ability to maintain market share in the region as European suppliers have been aggressive in pushing greater volumes to the region (+25,257 MT through May).

With logistics congestion slowing U.S. export growth to Southeast Asia, the recovery in demand out of Mexico has been particularly welcome. Total NFDM/SMP exports to Mexico were up 25% year-to-date (+33,288 MT) and were even ahead of 2019 volumes through June. While we attribute some of the strength in Mexico’s demand to drought that is affecting local milk production, the overall gain in imports is still a positive signal for recovering consumer demand within the country.

What does this mean for the rest of 2021?

Well, all signs point to port congestion remaining a headache for U.S. exporters through at least the end of the year. While those delays will act as a headwind and dampen U.S. exports to the Asia-Pacific compared to what they would be without port delays, we still expect strong growth overall in NFDM/SMP exports in the second half.

As mentioned earlier, plenty of milk powder has already been sold to overseas buyers is sitting in a warehouse waiting to be shipped. That product will move – even if it ships two months later than it was supposed to. Additionally, the U.S. milk production outlook in the back half of the year continues to look incredibly robust, which will result in plenty of available supply for export. Finally, U.S. domestic demand for NFDM is expected to remain weak with so much raw milk available; this will also push greater volumes into the export market.

Overall, while there remain plenty of watchouts to this optimistic forecast – the most significant being COVID-19 outbreaks in Southeast Asia – the U.S. should be well placed to grow its NFDM/SMP in the second half of 2021 given limited milk production growth out of Europe and New Zealand’s additional milk fixated on satisfying Chinese demand.

Whey

The story for whey in the first half of the year has been all about demand. Total U.S. whey exports in June grew 16% (+6,973 MT) over June of last year. High-value protein continues to show strong growth as well with WPC80+ June exports up 43% (+1,899 MT) over June of last year.

This story of steady expansion has characterized the first half of the year. US whey exports are up 24% year-to—date (+66,670 MT) over the same period last year which puts the U.S. on pace to have yet another record year in whey exports.

At the risk of sounding like a broken record, China is fueling the growth. In June, US whey exports to China were up 39% (+7,513 MT) and are up 75% (+66,670 MT) through the first half of this year. As we’ve said many times before, whey for feed has been the key driver for Chinese sweet whey and whey permeate imports as the pork industry consolidates into more commercial operations and continues to rebuild its pig herd following the devastation of African Swine Fever (ASF).

The approval for permeate to be used in food has undoubtedly helped as well, but the market remains small at this point. On the high-value side, China’s push to increase its domestic infant formula manufacturing has increased WPC80 demand.

What does this mean for the rest of 2021?

As we look to the second half, the seemingly insatiable demand we saw over the last year has more recently been put into question with the collapse of pork prices in China pinching pig farmers’ margins and signaling to the industry to curb expansion. This seems to have already impacted whey demand as U.S. dry whey prices have fallen from their peak and industry contacts confirm Chinese purchasing has slowed.

Still before we get too pessimistic, that decline in price fails to tell the full story. More recent outbreaks of ASF in China created a frenzy among producers as they sent hogs to market in an attempt to avoid any outbreaks on their operations, which then fueled that price collapse with a glut of supply.

The price free-fall has subsided in recent weeks, but prices remain in line with pre-ASF levels. If we remain at these price levels, we are unlikely to see the level of feverish whey demand continue through the back half of this year. However, if prices begin to tick back up, we may see renewed demand growth as pork production margins become more conducive for expansion.

Additionally, while it sometimes seems like it, the whey market is not only about China, particularly when we talk about higher protein whey products. US whey exports to countries other than China showed solid growth through June in face of historically high global prices.

THE Dairy Industry Code of Conduct has brought about a “significant culture change” within the dairy sector and helped increase competition at the farmgate, according to Australian Competition & Consumer Commission deputy chair Mick Keogh.

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