US Dairy Export Outlook For Remainder Of 2013 ‘More Uncertain Than Usual’

Madison—Predicting US dairy exports is “always a challenge, but the outlook for the remainder of 2013 is more uncertain than usual,” according to a Babcock Institute Discussion Paper written by Ed Jesse, emeritus dairy economist at the University of Wisconsin-Madison. A “red flag” in the outlook is a significant tail-off in US dairy exports during the second half of 2012, Jesse noted.

For the first six months of 2012, monthly exports were up nearly 20 percent over the corresponding months of 2011. But for the last six months, they were down 2 percent on average, and off nearly 8 percent in November.

The primary reason for the 2012 export pattern was the US milk price pattern, Jesse explained. The US all milk price was $19.00 per hundredweight in January 2012 and fell steadily to $16.20 per hundred in June. It then rose to record high levels in October and November ($21.50 and $22.00, respectively) before falling back to $20.90 in December.

The dairy product prices resulting from this milk price pattern meant that the US was very competitive on international markets early in 2012, but had difficulty matching prices of competing exporters later in the year, he noted. The US-international price disparity was “especially pronounced” for cheese.

Global demand and supply will obviously be the key drivers of total world dairy trade in 2013, Jesse noted. Global demand will determine the overall size of the trade pie; supply conditions in major exporting countries will determine how the trade pie will be sliced.

Based on forecast economic growth, demand for dairy products in leading US markets should remain strong in 2013.

While global demand for dairy products will be strong in 2013, supply-side conditions are less clear, Jesse said. In particular, the US milk supply will be influenced by the severe drought conditions in most of the country in 2012 and whether the drought makes an “encore appearance” in 2013.

A bumper US crop year would ease feed prices and elevate milk production by as much as 5 percent. This would keep milk prices on the low side and stimulate export sales.

On the other hand, a 2013 drought of the severity and magnitude of 2012 would accelerate dairy farm exits and cutbacks, dropping milk production by about the same percentage.
This would yield record milk prices and stifle exports, Jesse said.

Among other leading global dairy exporting countries:
• New Zealand was expected to bump milk production in 2012/2013, but an extended period of unusually dry weather has reduced forecasts to marginally above 2011/2012. However, Fonterra, the dominant New Zealand ...more