Uruguay

Latin America’s Dairy Exports Likely to Remain in the Region...for Now

Wed, 27 Nov 2024 20:40:13 GMT

The current milk production situation across Latin America is starkly different than what it was at the beginning of this year. In some countries, healthy margins are boosting output, whereas adverse weather has limited output in others, according to Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aries.

Of the Latin American milk-producing countries, Mexico is the most crucial to the U.S. dairy industry, and like elsewhere across the region, a shift in output has also started to occur in the United States’ largest dairy market.

“Official government data indicates that Mexico’s milk production continues to move steadily higher, including a 3.1% year-over-year increase in October, but that is in sharp contrast to information being shared by market participants,” Ganley said. “Stakeholders indicate that milk volumes in Mexico have tightened considerably compared to earlier in the year.”

In fact, weakening production in Mexico has pushed milk prices higher, which helps to explain why Mexico’s dairy imports have remained so strong in recent months even as the value of the peso has declined, she said. While a decline in milk and dairy product supplies in Mexico should be good for the U.S. dairy industry, the election of former President Donald Trump as the 47th president of the United States has raised concerns for the U.S. dairy industry.

Trump has threatened to pressure Mexico into curbing illegal immigration into the United States, a crucial issue during the campaign, by levying 25% tariffs on Mexican imports into the United States. And if the border issue persists, he has further threatened to increase those tariffs to 100%.

If Trump follows through on his threat of tariffs, Mexico has already indicated it would retaliate with tariffs of its own. A recent New York Times article noted that about 80% of Mexico’s exports are sent to the United States, while 16% of all U.S. exports go to Mexico. However, Ganley noted that Mexico is a particularly critical market for the U.S. dairy industry, with nearly 30% of all U.S. dairy exports in value terms sent to Mexico last year.

Another large importer of dairy products, Brazil, started the year with strong milk production, but that has since stumbled due to major weather challenges. Ganley noted that lingering effects of flooding in the south of the country compounded by drought and wildfires in the center of Brazil have had a negative impact on milk production. By the third quarter of this year, she said, year-over-year milk production had slipped 0.6%.

“Weaker domestic production in Brazil has kept demand for dairy product imports strong,” Ganley noted. “But most of that demand will be filled by fellow Mercosur members, Argentina and Uruguay.”

South American Milk Production

(Daily Dairy Report)

At the same time, milk production in Latin America’s who largest dairy-exporting countries has shifted from double-digit losses early in the year to being down only slightly in recent months. “At the start of 2024, a difficult macroeconomic environment in Argentina, punctuated by soaring inflation, caused dairy producers to slash production as they attempted to insulate themselves from rising costs. The resulting scarcity of milk combined with moderate operating costs, have driven profits higher, and the resulting strong margins have encouraged dairy producers to expand.”

In Uruguay, the region’s other major exporter, heavy rains took a toll on second-quarter output, but just like in Argentina, strengthening milk prices in the face of lower output have improved producer profitability, Ganley reported, and that has led to a near recovery in output. Most industry analysts expect production in Uruguay to continue to improve.

“However, even if milk production continues to improve among the region’s exporters, milk and dairy products would largely stay confined to the region if demand among Latin America’s importers continues to increase,” Ganley said.

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South American Dairy Exporters Hit Headwind in 2024

Wed, 23 Oct 2024 19:26:19 GMT

Adverse weather and economic instability have challenged South America’s key dairy exporting countries this year, while weak supplies have driven milk prices higher, and that has led to improved profitability. As milk prices rise, milk production could follow in the fourth quarter of 2024 leading to more product on the international market, said Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aries.

“In Argentina, an aggressive economic agenda implemented by the new president late last year resulted in a major currency devaluation and soaring inflation for the country,” Ganley said. “The instability ignited by these reforms drove producers there to reduce their costs by drying cows off early and reformulating feed rations away from expensive concentrates.”

As a result of these challenges, year-over-year milk production tumbled by 13% in the first half of the year. As milk supplies fell and milk prices rose, producer margins soared to multi-year highs, she added. High margins encouraged producers to increase output, narrowing the production gap with prior-year production. The year-over-year deficit slipped to just 4.8% in July and 6.2% in August.

In the first quarter of 2024, Uruguay posted a 2.2% increase in output, but as excessive rains led to flooding in key dairy areas, that growth was undone in the second quarter, Ganley noted. Torrential rains and flooding negatively impacted pasture conditions, cow comfort, and animal health, which ultimately caused a cumulative 10.6% drop in production in the second quarter.

Similar to what occurred in Argentina, falling supplies in Uruguay spurred increases in milk prices in the Southern Hemisphere’s winter. Even though milk prices failed to exceed prior-year levels, when combined with moderate operating costs, the increase in milk prices was sufficient to deliver stronger producer margins, Ganley said. Uruguayan producers responded and the large year-over-year gap in milk production begun to shrink, with volumes down 9.2% in July and 5.3% in August, compared to the same months in 2023.

“South America will remain a key component of the global dairy supply matrix as a growing global population requires more dairy,” Ganley noted. “But to substantively contribute to global dairy demand, it will be critical that the region’s exporters see milk production improve.”

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Uruguay’s Milk Surplus to Look for New Home

Fri, 08 Sep 2023 17:10:59 GMT

Uruguay, a country about the size of Virginia and West Virginia combined, is one of South America’s dairy powerhouses. The country’s dairy industry produces more dairy products than its nearly 3.5 million people consume. While demand from neighboring Brazil is often strong enough to absorb much of Uruguay’s surplus, that’s not true today, which will add to the world surplus, according to Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aries.

“For the first half of the year, plentiful milk in Uruguay wouldn’t have been a problem because the country enjoyed exceptionally strong demand for its dairy products from neighboring Brazil,” Ganley said. “But as Brazilian milk production has begun to recover and demand has declined, Uruguay has been scrambling to identify alternative markets for its products.”

Brazil, Argentina, Paraguay, and Uruguay are all part of the Mercosur trading bloc, and as such Uruguay receives preferential tariff treatment from Brazil. Ganley notes that earlier this year, in part because of this advantage, Uruguay’s dairy producers enjoyed dairy commodity prices, especially milk powder prices, that exceeded those in the international market, but that also appears to be ending.

“In response to stubbornly low international prices and waning regional import demand, Uruguay’s dairy processors have announced aggressive milk price cuts in coming months,” Ganley said. “The country’s largest dairy processor and exporter has slashed the price it pays for dairy solids and reduced winter bonuses.”

This processor dropped the August pay price to 36¢ (U.S.) per liter, the equivalent of $15.85/cwt., which is a 21.7% decline from July’s near-record 46¢ per liter. Other processors have also announced price cuts, some even more drastic.

“By dropping milk prices to within a few cents of the cost of production, Uruguayan processors are likely trying to right size supplies before spring fully sets in and they are awash in milk,” she said. “Uruguayan milk production has struggled over the past couple years, but then it turned decisively positive in recent months.”

Milk production in the country was up 6.4% year over year in July, leading to some of largest volumes ever for the month, according to INALE. Uruguay’s recent robust milk prices and healthy margins have played a key role in encouraging production, but that will ease as declining milk prices cut into margins, she said.

As Brazil imports fewer milk products from Uruguay in coming months, the country’s surplus will find its way to other markets and weigh on international markets.

Uruguay

Latin America’s Dairy Exports Likely to Remain in the Region...for Now

South American Dairy Exporters Hit Headwind in 2024

Uruguay’s Milk Surplus to Look for New Home

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