Second half softness
Despite the positive overall advancement, the second half of 2012 illustrated a marked difference from the first. U.S. export volumes grew nearly 8 percent January-June, compared to the same period the previous year, but declined 2 percent July-December. And aggregate U.S. export volume in the second half was 9 percent lower than shipments in the first half.
“Our export softness in the second half primarily stems from unfavorable pricing shifts,” says Suber.
In the first half of 2012, near-perfect weather and strong returns for dairy farmers in major export regions triggered record milk production, pushing global prices about 20 percent lower, on average, than the previous year. When the U.S. drought hit, domestic supply concerns sent U.S. prices, which had been tracking closely with Oceania, sharply higher.
Meanwhile, world demand held strong. Shipments from the world’s top five exporters (Argentina, Australia, the European Union (EU), New Zealand and the United States) for July-December 2012 grew about 9 percent. But Oceania suppliers picked up share of this growing trade at the expense of the United States.
“The underlying fundamentals behind rising global dairy consumption remain, but a cyclical price rise in the United States reined in U.S. supplier growth in the second half,” says Suber.
Pricing difficulties notwithstanding, there are positives in U.S. suppliers’ second-half numbers.
“The fact that U.S. exports did not plummet, as they did following the 2008 financial crisis, supports the contention that U.S. suppliers are maturing in their approach to the export market,” says Suber. “The overall U.S. performance reflects a greater industry-wide move towards exports as a strategic growth path.”
Moving forward, USDEC contends that a major global milk oversupply of the kind that characterized the first half of 2012 is not in the cards for 2013. And even though milk powder inventories have grown in recent months, stock levels appear manageable.
“Global economic signs are starting to move in a more positive direction, demand and consumption will continue rising, and world prices are expected to come more into line with U.S. prices,” says Suber.
And while the U.S. industry is shifting its focus to make world markets an integral aspect of the business, more challenges lie ahead.
The Innovation Center for U.S. Dairy®, established through the dairy checkoff program, noted a number of key objectives necessary for the United States to solidify itself as a consistent global supplier. Work continues on many of those objectives, enumerated in the organization’s Globalization Studies in 2009 and 2011, to upgrade the United States’ global competitiveness to withstand new and emerging competitors.
“As the Innovation Center noted, we have a finite window of opportunity to reach a series of consistent exporter goals,” says Suber. “The need to quicken the pace in fulfilling some of those key objectives — U.S. pricing policy reform, beneficial trade treaties, tools to manage volatility and various paths to better meet the needs of global customers — stands as urgent as ever.”