Dairy exports will encounter headwinds next year, but officials remain cautiously optimistic.
Speaking at a “Global Dairy Outlook” webinar on Tuesday, U.S. Dairy Export Council Vice President of Communications Alan Levitt said he is optimistic that the record-high levels achieved this year can be maintained.
This year, the U.S. will export about 13.6 percent of its milk production (on a milk-solids basis).
According to Levitt, the companies that export U.S. dairy products abroad have seen the value of positive growth and have become more sophisticated in meeting the needs of foreign buyers. And, that should carry into 2013, despite the challenges ahead.
“I think our volumes will still be there in 2013,” he said.
Still, there is the expectation that dairy supplies on the world market could tighten. For example, milk powder stocks have dwindled. “The world just doesn’t have buffer stocks of powder anymore,” Levitt said.
Expectations of lower stocks are fueled, in part, by the economic difficulties facing dairy farmers throughout the world.
Dairy farmers in many countries are receiving low prices for their milk, and that will restrain production increases. The U.S. has been a notable exception, but prices are expected to fall here, as well. Certainly, that has been the trend lately in Class III milk futures trading on the Chicago Mercantile Exchange.
The continuing drought in the U.S. and high feed costs will put further restraints on production growth.
Tighter supplies of dairy products on the world market could drive up prices and dampen demand.
On the other hand, demand in emerging markets like China may be great enough to overcome those price barriers.
For instance, Levitt pointed out, the peak of the “Oceania flush” ― the time of year when milk production is highest in New Zealand and Australia, which generally occurs from late August though early October ― came and went without any adverse effect on prices. “The market absorbed that production and prices did not go down,” Levitt said.
So much depends on the world economy.
Even though the European Union is in recession and the U.S. faces slow economic growth next year, “China shows signs of accelerating growth into 2013 which, in turn, will support Southeast Asia regional economic growth,” said Marc Beck, vice president of strategy and insights at the U.S. Dairy Export Council.
China continues to be a critical driver of global trade.
“(The Chinese) can’t produce milk as cheaply as they import it,” Levitt said.
Meanwhile, “the challenge for the U.S. will be balancing the needs of the international market with the needs of the domestic market,” Beck said.