In part due to lower cheese and dry whey sales to China, U.S. dairy export volumes in July were the lowest since January. However, year-to-date exports remain ahead of last year’s pace, according to monthly data from USDA and the U.S. Dairy Export Council (USDEC).

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Editor / Progressive Dairy

According to USDEC’s Shawna Morris, vice president of trade policy, and Al Levitt, vice president of communications and market analysis, exports gains were primarily in product categories not touched by retaliatory tariffs from China and Mexico. In contrast, just about all product lines and markets affected by the tariffs saw a decline.

On a volume basis, July 2018 U.S. shipments were up 11 percent from July 2017. Gains were led by strong sales of nonfat dry milk/skim milk powder (NDM/SMP) and lactose, while whey and cheese volumes slowed.

And while export volumes are up 11 percent, weaker global dairy product prices meant export values were up just 3 percent. In the first seven months of 2018, overall dairy export volume was up 18 percent from January-July 2017, but export value was up about 5 percent at $3.34 billion.

Ongoing trade and tariff wars with two of the U.S. dairy industry’s major foreign customers – Mexico and China – have been the focus of concern for months. July’s export numbers reflected those worries, at least as they pertained to China.

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The value of July U.S. dairy products exported to Mexico was actually up 10 percent compared to a year earlier at nearly $104 million. Gains in sales of NDM/SMP offset a small decline in cheese exports.

On a value basis, July sales to China were down 27 percent to $35 million. Cheese exports were down 56 percent, although some of that decline was made up in higher sales of lactose.

China’s impact pushed overall U.S. cheese and whey exports lower. Overall sales of cheese totaled 27,636 tons in July, the lowest figure since January and up just 1 percent from last year. The significant decline in dry whey and whey protein concentrate exports to China pushed overall whey exports to the lowest level in more than two years and down 8 percent from a year ago.

On a total milk solids basis, U.S. exports were equivalent to 15 percent of U.S. milk production in July (Table 1). Year to date, exports as a percentage of production stands at about 16.6 percent.

090618 natzke dairy exports

Trade dispute impacts estimated

A late-August announcement by the Trump administration that a trade agreement with Mexico had been reached provided short-term excitement for markets, but that wore off following the realization it left many dairy-related issues unresolved, did not lift the retaliatory tariffs and likely wouldn’t be finalized or ratified until November.

If trade disputes with both Mexico and China are not resolved, U.S. dairy farmers will lose about $1.5 billion this year alone and roughly $3 billion in 2019 based on a study conducted by Informa Agribusiness Consulting and commissioned by USDEC.

The situation in China is particularly problematic, according to Informa. Tariffs have now reached 45 percent on some U.S. dairy products, which puts U.S. products at a great competitive disadvantage to suppliers from Europe, Australia and New Zealand. In 2018, those impacts to dairy farmers due to lower exports to China are expected to tally $1.1 billion and to total $2.2 billion in 2019.

“Aside from the data, what we have heard from numerous U.S. exporters are stories of either lost contracts – some more immediately; other ones they expect to lose once the buyer can shift suppliers – and efforts to adjust pricing to retain the business given the importance of the market,” Morris said.

"The damage is real, and it is being felt by dairy farmers, dairy businesses and dairy exporters every day," said Tom Vilsack, USDEC president and CEO. "Exports hold tremendous potential for our industry and the struggling rural economy, but we must address these tariffs immediately for that potential to be realized."

Prior to July's tariff increase, sales of dairy were growing – up 49 percent from 2016 to 2017 – thanks to industry investments in education, customer development, partnerships and infrastructure improvements.

"We've spent years cultivating overseas markets, and those investments are slowly eroding," explained Jaime Castaneda, USDEC's senior vice president. "We are losing market share, and once it's lost, it is very hard to reclaim. We need our government to bring these tariffs to an end immediately with Mexico and find solutions going forward with China."

USDA has sought to negate some of the impact of tariffs on U.S. farmers. Read Dairy disappointed in USDA tariff assistance packageWeekly Digest: Farm Bureau calculates potential state-by-state dairy tariff mitigation payments; and Dairy tariff aid application period underway.

USDA revises dairy export outlook

USDA trade forecasters remain bullish on U.S. agricultural exports despite the headwinds faced by dairy.

The agency’s quarterly Outlook for U.S. Agricultural Trade report reduced expected fiscal year 2018 (FY18 – Oct. 1, 2017, through Sept. 30, 2018) dairy exports by $100 million to $5.7 billion, citing the impact of retaliatory tariffs and weaker exports of nonfat dry milk and whey. If realized, it would still be up $400 million from the year before and the highest total since dairy exports hit a record high of $7.4 billion in FY14. Projected FY19 (Oct. 1, 2018, through Sept. 30, 2019) dairy exports were also cut $100 million from FY18 to $5.6 billion.

After weakening during the first few months of 2018, the dollar has strengthened considerably since May. It is expected to largely hold its value in 2019, with the agricultural exports-weighted average exchange rate exhibiting a very slight weakening trend.

Dairy replacement exports jump, but …

According to the USDA’s Foreign Agricultural Service (FAS), July U.S. dairy replacement heifer exports jumped to 2,921 head. However, those numbers may be questionable. Of the July total, the USDA report said 2,511 head of dairy replacements were identified as landing in Russia.

At issue are shipments to the Commonwealth of Independent States (CIS), countries that were formerly Soviet republics. Some of the countries involved, such as Kazakhstan, have no seaports. Under an agreement with Russia, beef and dairy heifers and other commodities arrive at a Russian port on the Black Sea and are then trucked to their final destinations. U.S. cattle exporters say the dairy heifers reported for Russia in July were more likely beef cattle destined for Kazakhstan.

Subtracting the number of heifers credited to Russia, July’s total would be just 410. Colombia and the Philippines took 90 head, combined. Canada and Mexico, in the midst of tariff wars with the U.S., accepted 185 and 135 head, respectively, near or below monthly lows for 2018.

Uncertainty over the North American Free Trade Agreement (NAFTA) continues to hinder the movement of dairy heifers to Canada and Mexico, according to Tony Clayton, Clayton Agri-Marketing Inc., Jefferson City, Missouri. Even if a separate agreement with Mexico is signed, it will take time to heal trade wounds there, he added.

Mexico also tends to reduce imports during summer months due to heat, said Gerardo Quaassdorff, T.K. Exports Inc., Boston, Virginia.

Inquiries for high-quality U.S. dairy cattle delivery later this year or early next year continue, but the appreciation of the dollar and concern over transportation costs are making buyers in some markets slow to confirm sales, Quaassdorff said.

One emerging issue, Clayton said, is that he is getting more requests for replacement heifers genetically proven to carry the “A2” milk gene.

U.S. ag trade surplus narrows

The July 2018 U.S. ag trade surplus totaled $601 million, the smallest since January and about $215 million less than the 2018 monthly average to date. Monthly exports of $11.2 billion surpassed imports, valued at $10.6 billion.

Year-to-date fiscal year 2018 (October 2017-July 2018) exports total $122.1 billion compared to $107.7 billion in imports, yielding a trade surplus of $14.3 billion. That compares to $19.7 billion for the same period a year earlier.

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Dave Natzke