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November dairy product exports slumped; dairy cattle outlook stronger

Progressive Dairyman Editor Dave Natzke Published on 12 February 2019

There’s plenty of dairy-related export news to digest as U.S. Foreign Ag Service (FAS) staff work through a backlog of numbers.

Dairy products: Smaller shipments to China, Asia

U.S. dairy product exports slumped in November, falling below year-ago volume levels for the first time since October 2017. Fueled by smaller shipments to most of Asia, the declines affected almost all major product categories, according to market analysis from the U.S. Dairy Export Council (USDEC).

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• Volume basis: Suppliers shipped 157,146 tons of milk powders, cheese, butterfat, whey products and lactose in November, down 12 percent from November 2017. In the first 11 months of 2018, overall export volume was up 12 percent.

U.S. exports of nonfat dry milk/skim milk powder totaled 48,028 tons in November, a 13 percent decline versus the year before and the lowest volume in 10 months (daily-average basis). Shipments to Mexico remained good, but exports to Southeast Asia, Pakistan, the Middle East/North Africa and China were lower.

With sharp declines in shipments to China, November whey product volumes were markedly lower. U.S. suppliers also saw lighter whey sales to South Korea, Japan, Canada and Southeast Asia. In the five months since retaliatory tariffs were put in place (July-November), U.S. whey exports to China were down 36 percent.

Cheese exports (26,491 tons) were 10 percent below November 2017, falling short in most major U.S. markets.

• Value basis: November U.S. exports were worth about $442.2 million, 7 percent below the prior year. In the first 11 months of 2018, dairy exports totaled $5.16 billion, 3 percent more than the same period in 2017.

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• Total solids basis: USDEC’s report did not include an estimate of total solids as a percent of U.S. milk production.

Things to read

In a separate USDEC report (Read: Better balance expected for 2019), Alan Levitt and Marc Beck discuss the outlook for dairy product exports in 2019. There’s a dose of optimism, thanks to two factors.

First, milk supply growth in the five major dairy-exporting countries has stalled. In November 2018, for the first time in almost two years, year-over-year milk production from the top five global milk suppliers (European Union [EU], U.S., New Zealand, Australia and Argentina) was negative and that trend was expected to continue in December.

Second, the EU has finally eliminated intervention stocks of skim milk powder (SMP) that had been overhanging the market.

In a USDEC Exporter blog, Pennsylvania dairy farmer Marilyn Hershey, head of the Dairy Management Inc. (DMI) board, explains the dairy checkoff's commitment to grow dairy exports, how it benefits farmers and what's happening to increase their return on investment. (Read: 7 things farmers need to know about their investment in exports.)

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Dairy replacement export outlook promising

November 2018 U.S. dairy replacement heifer exports fell, but early signs point to a stronger year in 2019.

November shipments were estimated at about 1,799 head, valued at nearly $2.63 million. In terms of volume and value, both were the lowest monthly totals since June.

At 25,430 head, the 2018 year-to-date sales fell slightly behind the pace of 2017, but remain on track to be the second strongest in the past four years.

Mexico was the leading destination for U.S. dairy replacement heifers in November at 1,504 head. The neighbor to the north, Canada, took the remaining 295 head.

Gerardo Quaassdorff, T.K. Exports Inc., Boston, Virginia, said the export year is starting with a mix of promise and questions, but he expects a better year for U.S. exporters of both beef and dairy cattle.

With reports of a stabilizing economy, Mexico looks to be prepared to buy more cattle from the U.S., he said. Elsewhere, regular buyers from Pakistan, Egypt, Turkey and other countries are putting together budgets and making inquiries.

Among headwinds, delays in ratifying the U.S.-Mexico-Canada trade agreement (USMCA) and the potential of rising interest rates create uncertainty, Quaassdorff said. U.S. dairy cattle exports to Pakistan and Kazakhstan are facing growing competition from lower-priced cattle from Australia.

For Tony Clayton, Clayton Agri-Marketing Inc., Jefferson City, Missouri, the year is already starting strong. His company delivered 203 head of dairy heifers to Kuwait in early January – the first shipment into that country since the early 1990s. In addition, 1,625 dairy heifers were scheduled to depart the port of Olympia, Washington, about Feb. 12, headed for Vietnam. Buyers from Mexico are selecting cattle for shipment early this year he added.

A health issue in another country is also creating openings for U.S. replacement heifers, Clayton said. The first case of bluetongue disease in almost a decade was discovered in Germany in early January, and many countries have now imposed import restrictions on German cattle. Other countries are also adding bluetongue testing requirements to import protocols.

“This will drive the prices up for Danish cattle and they will not have the inventory to fill orders,” Clayton said. “The Russians and others who were importing cattle from Germany have turned their attention back to the U.S., and we’ve seen more inquiries over the past seven to 10 days.”

Other questions entering the new year concern trade relations with China and Russia. In the latter case, Russia is the gateway for shipments to members of the Commonwealth of Independent States (CIS). Some of those countries, such as Kazakhstan, have no seaports, and dairy and beef cattle arrive at a Russian port on the Black Sea and must then trucked to their final destinations.

There’s one other issue on the horizon: Changes in U.S. dairy herd management practices increase the chances that short-bred dairy heifers may be carrying dairy-beef crossbred calves. Foreign buyers looking to get a bred heifer with hopes of also getting a dairy heifer calf may be more selective going forward.

Demand from Japan supports hay exports

U.S. alfalfa hay exports improved in November, despite continued downward pressure from China.

Overall sales totaled 212,429 metric tons (MT), up nearly 15,000 MT from October and the eighth month sales topped 200,000 MT in 2018.

Year-to-date alfalfa hay exports now total about 2.3 million MT, behind last year’s record-high pace, but ahead of 2016.

Japan was the top destination for U.S. alfalfa hay in November, at 56,377 MT, the highest volume of alfalfa hay shipped there in at least five years.

At 47,904 metric tons, alfalfa exports to China were up slightly from October, but still the second-lowest monthly total since January 2016.

Shipments to the United Arab Emirates hit 43,850 MT, the highest total since December 2013. Sales to Saudi Arabia were also up compared to October.

November 2018 exports of other hay also showed some improvement, with volumes the highest since November 2017. Pacing the increased sales were shipments to Japan, at 67,249 MT, the highest since April 2017. At 48,772 MT, sales to South Korea were the highest in 12 months.

Despite the resurgence in November, exports of other hay through the first 11 months of the year are still the smallest for that period in more than a decade.

U.S. ag trade surplus grows

November 2018 U.S. agricultural exports were estimated at $12.2 billion, down slightly from October. Imports were valued at $10.3 billion, yielding a November 2018 trade surplus of $1.86 billion, the largest surplus since December 2017.

Other trade developments

• A study released by the USDEC projects new trade agreements between Japan and other countries will put U.S. dairy exports at a competitive disadvantage. Australia and New Zealand already have the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in place with Japan. An agreement between Japan and the EU was effective on Feb. 1.

The Japanese dairy market, the fourth largest export destination for U.S. dairy exports, is expected to continue to grow in years to come. With a level playing field, the U.S. could roughly double its market share, according to the study conducted by Tokyo-based Meros Consulting.

Without a strong U.S.-Japan trade treaty, competitors will seize a cumulative $1.3 billion in dairy sales over the next decade that would otherwise have been supplied from the U.S., a toll that climbs to $5.4 billion once CPTPP and the Japan-EU agreements are fully implemented, according to NMPF President and CEO Jim Mulhern.

• Differing bills introduced in Congress either expand or restrict presidential authority on U.S. trade. Two bills, the Bicameral Congressional Trade Authority Act and the Trade Security Act, make it necessary for the president to submit to Congress any plans to adjust imports in the interest of national security under Section 232 of the Trade Expansion Act of 1962. Citing Section 232, President Donald Trump imposed import tariffs on steel and aluminum, setting off the ongoing trade war and retaliatory tariffs negatively impacting agriculture. Dairy organizations, including the National Milk Producers Federation, USDEC and the American Dairy Coalition, have thrown their support behind the Trade Security Act.

Another bill, the U.S. Reciprocal Trade Act, would give a president broad authority to raise tariffs unilaterally on specific products if it was determined foreign countries were employing higher import barriers than the U.S.

• Agriculture leaders of Canada and Mexico will speak at the USDA’s 95th Agricultural Outlook Forum, Feb. 21-22, in Arlington, Virginia. Minister Lawrence MacAulay of Canada and Secretary Victor Villalobos Arambula of Mexico will join U.S. Secretary of Agriculture Sonny Perdue for the forum’s keynote address, the first time the three ministers have spoken jointly at a public forum since the signing of the USMCA in November 2018.

• Dairy and agricultural groups continue to pressure Congress to ratify the USMCA, which was signed last October. Even if it is ratified, import tariffs on steel and aluminum must be lifted to end the retaliatory tariffs.  end mark

Dave Natzke
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