Through the first seven months of 2015, U.S. dairy exports are down 11% in volume and, more depressingly, down 28% in value.
But until Russia lifts its embargo of European dairy products and China comes back to the market, exports are likely to remain depressed, says Alan Levitt, vice president of communications for the U.S. Dairy Export Council (USDEC). I sat down with Levitt and Margaret Speich, senior VP of Strategic and Industry Communications, here at World Dairy Expo yesterday.
“Historically, Russia bought about 20,000 tons of cheese and 2,500 tons of butterfat per month from the European Union (EU), ” says Levitt. In other words, roughly 2% of European milk production was going to serve the Russian market.
“Since the ban in August 2014, Russia is buying nothing from the EU,” he says. So European manufacturers have had to convert that milk into skim milk powder and butter, storing it and adding it to the world surplus. Until the Russians lift the ban, officially in place until August 2016 and perhaps much longer, the EU will either have to cut back milk production, sell dairy products at a discount or place it into storage.
China is the other challenge. “In the year ending July 2014, China dairy imports were the equivalent to 31 billion pounds of milk, up 48% from the previous 12-month period,” says Levitt. The problem is that in the subsequent 12 months, Chinese imports were equivalent to 21 billion pounds. While still a significant amount, it meant that some 10 billion lb. of milk had to find a new home.
The big unknown is when—or whether—China comes back into the market at previous buying levels.
The good news is that other countries have stepped up their imports—Mexico up 14%, Japan up 15%, Malaysia up 25% and Egypt up 42%. But the percentages are based on smaller denominators and at discounted prices. Consequently, net volumes and values of U.S. dairy exports are down the aforementioned 11% and 28%, respectively.
“Long term, the underlying demand drivers are still intact: Growing emerging markets with increasing population and gross domestic product, adding more dairy to their diets…. The world will still need our milk,” says Levitt.
Levitt and Speich believe it will take another 9 to 12 months for world markets to rebalance. It will take that long for tighter margins to curtail milk production, China to work through its inventories, and lower prices to stimulate consumer demand and greater consumption.
To get the latest on dairy export statistics, go to www.usdec.org and click on research/data.
