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Economic Update: USDA dairy trade forecast up, but ag trade surplus smallest in decades

Progressive Dairy Editor Dave Natzke Published on 28 August 2020

Update Highlights

USDA dairy trade forecast up, but ag trade surplus smallest in decades

Global economic pressures and other factors point to the smallest U.S. agricultural trade surplus in more than four decades, according to the USDA’s quarterly Outlook for U.S. Agricultural Trade report, released Aug. 26.

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The forecast for overall U.S. ag exports in fiscal year (FY) 2020 (FY 2020, Oct. 1, 2019-Sept. 30, 2020) was cut by $1.5 billion from the May outlook to $135 billion. The estimate of U.S. ag imports was raised up about $1.5 billion from May to $131.7 billion. That would result in a FY 2020 trade surplus of $3.3 billion, the smallest dating back to at least 1976, based on USDA records.

Looking farther out, the USDA forecasts fiscal year 2021 (FY 2021, Oct. 1, 2020-Sept. 30, 2021) ag exports at $140.5 billion and ag imports at $136 billion, yielding a $4.5 billion trade surplus. Much of the increase in exports from 2020 is due to higher corn and soybean sales to China.

Previously, the fiscal year U.S. ag trade surplus has been below $5 billion only three times in the past 45 years: in 2005, 2006 and 2019. Through the first nine months of fiscal year 2020, the ag trade surplus stood at just $1.7 billion.

On a calendar-year basis, the 2020 U.S. ag trade surplus is in danger of slipping below the previous four-decade low of $3.9 billion in 2005. Through June, the 2020 U.S. ag trade balance was a deficit (-$2.9 billion).

In contrast to the cloudy picture for overall U.S. ag exports, the USDA estimated FY 2020 dairy exports at $6.5 billion, up about $300 million from May’s forecast, due to higher sales volumes of skimmed milk powder, whey and cheese. If realized, it would be the second-highest dairy export total on record and highest since the $7.4 billion in dairy product exports in 2014.

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The USDA forecasts FY 2021 dairy exports at $6.6 billion due to stronger global demand and increasing competitiveness of U.S. dairy products on global markets.

The USDA cut the FY 2020 U.S. dairy import forecast to $3.6 billion, down $100 million from the May outlook. Estimated FY 2020 cheese imports, at $1.3 billion, were unchanged. And the USDA outlook for FY 2021 is unchanged from FY 2020.

The USDA releases July 2020 ag and dairy export estimates on Sept. 3.

NMPF: Don’t miss CFAP deadline

The National Milk Producers Federation (NMPF) reminds dairy producers that the deadline to sign up for direct financial support through USDA’s Coronavirus Food Assistance Program (CFAP) is Sept. 11. Visit NMPF’s Coronavirus Resources webpage for program links and other dairy-related information.

The USDA updates CFAP payment totals each Monday. As of Aug. 24, dairy applications processed by USDA Farm Service Agency (FSA) offices stood at 23,246, with direct dairy payments totaling just over $1.699 billion. The second (and smaller) installment of CFAP payments were just getting underway.

Depending on your starting point, CFAP sign-up through Aug. 24 represented about 68% of the average number of dairy farms licensed to market milk in 2019 (latest estimate available), or 88% of dairy operations with annual milk production history recorded with FSA under the Dairy Margin Coverage program. Read: $1 billion added to ‘food box’ program; CFAP payment updated.

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Senators seek robust enforcement of USMCA dairy agreements

A bipartisan group of 25 senators sent a letter to the U.S. Trade Representative’s Office and the USDA, urging government officials to actively enforce dairy provisions of the U.S.-Mexico-Canada Agreement (USMCA). It reads, in part:

“As negotiated, the USMCA will create new export opportunities for America’s dairy industry and creates an equitable playing field for American dairy exports in Mexico and Canada. Given the importance of these provisions to our dairy farmers and to American dairy exports, we ask that you use USMCA’s enforcement measures to hold our trading partners accountable to their trade commitments. It is imperative that Canada and Mexico deliver upon their agreed upon commitments related to dairy products.”

In applauding the letter, the leaders of the U.S. Dairy Export Council (USDEC) and NMPF allege Canada has begun implementing the trade agreement in a way that thwarts U.S. market access. They also raised concerns regarding how Mexico will translate its commitments to safeguard common name cheeses into action.

In early August, a bipartisan coalition of 104 U.S. representatives also sent a letter urging the U.S. government to fully enforce USMCA.

Retail dairy sales still ‘powerhouse’

It’s old news but good news: The latest report from the International Dairy Deli Bakery Association (IDDBA) shows continued strength in retail sales of dairy products at grocery stores.

The update is based on Information Resources Inc. (IRI) U.S. grocery store sales data for the week ending Aug. 16. The value of retail sales of dairy products was up about 13.4% compared to the comparable week a year earlier.

“Dairy has been a pandemic powerhouse ever since the second week of March, with 23 weeks of consecutive double-digit increases,” according to Abrielle Backhaus, IDDBA research coordinator. “Importantly, the three biggest categories in dollar sales, cheese, milk and yogurt, improved their week-over-week and year-over-year dollar performances. These staples underscore that America continues to consume many more meals at home, from breakfast, lunch and dinner to snacks and beverages.”

Compared to the corresponding week a year earlier, a summary of sales for the week ending Aug. 16 includes:

  • Natural cheese sales were up more than 17% by value and about 10% by volume; and processed cheese sales were up almost 14% in value and 5% in volume. In the deli department, random weight deli cheese dollar gains were up 11.4%; fixed weight cheese had even higher gains, up 16.6%.
  • Fluid milk sales were up 9.4% by value but just 1.2% by volume.
  • Butter sales were up 7.4% by value and 6% by volume.
  • Creamers and creamers were up 14% by value and 12% by volume.
  • Sales of yogurt were up about 2.6%-2.7% by both value and volume.
  • Cream cheese was up 16% by value and 13.5% by volume.
  • Sour cream was up more than 12% by value and 10% by volume.
  • Whipped toppings were up 22% and 24% by value and volume, respectively.

Dairy Stream podcast: Dairy customer of the future

Related to the trends exhibited in the IDDBA report above, a recent episode of the Dairy Business Association’s Dairy Stream podcast looks at how COVID-19 has impacted the dairy customer of the future and normalized online grocery shopping. Host Mike Austin talks with Chad Vincent, CEO of Dairy Farmers of Wisconsin, about shopper habits and future marketing strategies.

USDA expands ‘family’ in payment limits

The USDA FSA has expanded the definition of “family member” to include first cousins, nieces and nephews to allow farming operations to qualify for additional payment limitations for an existing farming operation. The change was mandated by the 2018 Farm Bill.

With this change, a joint operation comprised of the newly expanded definition of family members would no longer be subject to the limitation of members qualifying on a management contribution alone, which increases the number of additional individuals eligible for payment within joint operations comprised solely of family members.

Among other changes, the rule adjusts payment limitations for certain conservation programs and makes changes to the definitions of “active personal management.”

The rule became effective upon publication in the Federal Register, Aug. 20, 2020.

Read also: Reviewing USDA revisions to the payment limitation and eligibility rules by University of Illinois ag economists Jonathan Coppess, Gary Schnitkey, Nick Paulson and Krista Swanson and Ohio State University ag economist Carl Zulauf

Presentations offer domestic, international outlooks

Certainty is hard to come by as dairy markets react to the coronavirus pandemic worldwide. Several recent podcasts offer additional insights.

  • Mark Stephenson, director of dairy policy analysis, and Bob Cropp, dairy economics professor emeritus at the University of Wisconsin – Madison, provided an overview of dairy markets in their monthly podcast. Strong milk prices in June and July have altered U.S. milk production trends, with July U.S. milk production up 1.5% and cow numbers increasing from the previous month for the first time since April. Stephenson noted springer heifer prices have been stronger in recent weeks, an indication there’s stronger demand for replacement heifers. After adjusting rations to meet milk marketing restrictions earlier this year, many “base” programs have been lifted. However, the rebound in milk per cow has remained slow.

Stephenson anticipates negative producer price differentials (PPDs) will become less of a factor on August milk marketings. Unfortunately, that’s primarily due to weakening Class III milk prices.

There remains a lot of uncertainty as to where milk prices are headed for the remainder of 2020 and into 2021, Cropp noted in his monthly Dairy Situation and Outlook report.

  • Rabobank’s Global Dairy Strategist Mary Ledman and Vice President of Dairy Research Ben Laine discussed their outlook on the global and U.S. dairy markets in a webinar hosted by the I-29 Moo University Consortium. They review milk production and marketing trends in the "big seven" dairy regions.

  • Laine cites 2020 as an example of when risk management was critical and foresees Dairy Margin Coverage (DMC) and Dairy Revenue Protection (Dairy-RP), as well as other risk management tools, playing an important role going forward.

  • Ledman shares further observations during a Professional Dairy Producers The Dairy Signal podcast.

  • Zach Myers, risk education manager with Pennsylvania’s Center for Dairy Excellence, provides a dairy risk management update in his monthly Protecting Your Profits webinar. He looks at current milk production, product inventories, exports and price projections, and also provides updates regarding the DMC and Dairy-RP programs.

‘Economies of scale’ advantages evident

The economic advantages of large dairies – largely through lower average cost of production per unit of milk – are discussed in a new article released by the USDA’s Economic Research Service. The article (Scale Economies Provide Advantages to Large Dairy Farms), authored by James MacDonald, acting chief of the agency’s structure, technology and productivity branch, reviews dairy financial data by herd size covering more than two decades.

Based on that data, net returns for herds of 1,000 head or more exceeded returns for smaller herds in every year between 2005-18. Moreover, average net returns for herds with 500-999 head consistently exceeded those for herds with 200-499 head, whose net returns consistently exceeded those of small commercial herds.

While farm size is an important determinant of dairy farms’ costs and returns, it is not the only factor. It should be noted there are substantial differences in performance among farms, and some farms in every herd size class realize positive net returns.

The article draws on information from a previously released report, Consolidation in U.S. Dairy Farming, co-authored by MacDonald.  end mark

Dave Natzke
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