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What is the one factor that really impacts your bottom line?

Julie Sweney for Progressive Dairyman Published on 17 March 2017

Trade has garnered a lot of attention from the Trump administration and in recent political discussions as of late, but trade has always been an important issue for the U.S. dairy industry. Jaime Castaneda, senior vice president of strategic initiatives and trade policy with the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council, explained the value international trade has for dairy farmers and their bottom line during his presentation at FarmFirst Dairy Cooperative’s annual meeting on Feb. 10.

The U.S. has a large and productive herd

U.S. dairy farmers have always excelled at producing milk, and only continue to get better. In 2015, 9.2 million cows in the U.S. produced 22,377 pounds each, on average.

“If you compare this number to [13,867 pounds] per cow in the European Union, [12,941 pounds] per cow in Australia and [9,061 pounds] per cow in New Zealand in the same year, it’s clear that U.S. dairy farmers know how to produce milk and a lot of it,” said Castaneda. “The United States has a very large, highly productive herd.”

That production continues to grow as well, with U.S. milk production increasing by 12.6 percent from 2006 to 2015.

At this current level of growth, by 2020 milk production would grow to 227 billion pounds, with domestic use growing to 196 billion pounds. With the gap between supply and demand in the U.S. growing by 1.3 billion pounds per year, this would create a gap of 31 billion pounds of milk by 2020, which must be filled by exports.

“In other words, exports need to grow by 1.3 billion pounds per year to clear the market,” said Castaneda.

In addition to supply and demand, there are other factors that impact trade, including economic growth and geopolitical factors, but are beyond our control.

Some of the geopolitical reasons include the Russian invasion of Ukraine, the subsequent European sanctions against Russia and the Russian ban on EU cheese sales. This has led to more supplies being available on the global market as Russia closed its market to EU products.

Underlying problem: EU view on common food names and U.S. quality

The EU would also like to carve out a unique advantage in the global marketplace. While European cheesemakers believe their products are better, they are reluctant to allow more head-to-head competition and insist on a brand-new geographic indicators program that would give them unique advantages at the expense of U.S. producers and companies.

“It may be that they realize the quality of U.S. products actually is much better than they let on,” Castaneda shared. “In reality, it was a U.S. Parmesan that won the last-ever global competition in the EU, where Parmesans from around the world could compete head-to-head. After that competition, the Italians forced the contest holder to discontinue the Parmesan category so that there could not be direct competition again.”

Bringing it back to the Midwest

For a strong milk price at home, there needs to be a place for the excess milk supply. The answer: exports. It’s exports that have bridged the gap between supply and demand.

“A lot has changed since 1995. That year, U.S. exports totaled $982 million, and half of that was government assisted,” Castaneda said. “Today, our annual exports exceed $4.5 billion, with zero export subsidies.”

Nearly half of the “new milk” every year has gone to exports, which equates to one of every seven milk tankers moving overseas. The U.S. dairy sector is now the world’s leading single-country exporter of skim milk powder, whey and lactose.

An economic analysis by NMPF calculates that U.S. free trade agreements generated $8.3 billion in new income for the dairy industry.

“This continued growth in exports has yielded key benefits for farmers, including an average of 1 dollar and 25 cents more per hundredweight,” Castaneda said, referring to the expansion of U.S. dairy exports alone since 2004. “Expanding these exports has also increased total farmer milk sales income by about $36 million, which is up 9 percent compared to where it would have been had the growth rate for exports remained the same.”

However, this position in the global marketplace can only be maintained if trade agreements are negotiated and continue to exist. Especially after a year like 2016, U.S. dairy farmers will look to trade and exports as an important part of their milk price equation.  end mark

Julie Sweney is the director of communications and marketing for FarmFirst Dairy Cooperative.

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