1 U.S. exports (MT, Jan-Feb): NDM/SMP 66,823 15% CHEESE 43,598 9% WHEY 74,147 10% BUTTERFAT 8,478 29% DETAILS, PAGE 3 April 23, 2013 Volume 17 No. 3 GLOBAL DAIRY Market Outlook U.S. Dairy Export Council Oceania SMP prices jump U.S. cheese exports (p. 4) Milk production lower (p. 8) Oceania EU US (rolling quarters) 5,700 85,000 23,500 ($/MT) 4,980 4,260 3,540 73,000 61,000 49,000 (000 MT) 22,860 22,220 21,580 2,820 37,000 20,940 Oceania SMP prices are up almost $2,000/ton in 6 weeks U.S. cheese exports have increased since November J F M A M J J A S O N D Milk production from the five major suppliers was down about 1.0% in Jan-Feb. (*2013 is USDEC estimate) Undersupplied market takes off By Alan Levitt, Marc Beck and Brad Gehrke The market situation and psychology has shifted dramatically in just the last six weeks, as the widely reported New Zealand drought sent Oceania prices rallying to record highs. Milk powder prices are up more than 50% since the beginning of March, and butterfat and whey prices have posted double-digit increases. Rising Oceania prices have pulled U.S. and European prices higher as well. We caution that the meteoric rise in the Global Dairy Trade pricing is primarily a reflection of meager offerings on the auction platform. Just 13,912 tons and 15,019 tons, respectively, were traded at the two April auctions a far cry from the average of more than 50,000 tons traded per event from August 2012 to January In the April auctions, just tons of New Zealand SMP was offered per contract month. Still, many buyers were caught short by the rapid market turnaround, and now are scrambling to get coverage in a rising market. We expect U.S. off to good start in 2013 By Alan Levitt, Marc Beck and Brad Gehrke to see undersupplied conditions through the second and third quarters as buyers cope with declining production in Oceania, Europe and Argentina. Besides the New Zealand drought, a brutally cold winter and delayed spring has pinched milk production across the EU a marked contrast from a year ago, when a mild winter and warm spring gave a lift to milk flows. We estimate milk production in the top five exporting regions (New Zealand, EU-27, United States, Australia and Argentina) Turn to Undersupplied, p. 2 U.S. dairy exports in the first two months of the year were up 3% by value and 4% by volume compared with a year ago. Data is not in yet, but U.S. shipments have reportedly improved in March and April as U.S. pricing has become relatively more favorable. Turn to Good start, p. 2 THIS ISSUE AT-A-GLANCE U.S. exports start strong in World milk production is lower...8 Global trade is up in Prices are significantly higher...11 U.S. dollar is steady...13 U.S. Exports...3 Exports: 5 Year Trend...7 Global Milk Production...8 Key Suppliers...9 World Dairy Trade...10 World Prices...11 Currency Exchange...13 ACCESS TRADE DATA ONLINE Visit usdec.org and click Why U.S. Dairy, then Export Trade Data Copyright 2013 U.S. Dairy Export Council. All rights reserved by copyright owners. Reproductions of all portions of this newsletter is permitted with proper credit to U.S. Dairy Export Council Wilson Blvd., Suite 400 Arlington, VA U.S.A. PHONE FAX usdec.org Managed by Dairy Management Inc.
2 OVERVIEW 2 Undersupplied (cont.) Continued from page 1 will be down more than 1.0% in the first half of 2013, a shortfall of 1.6 million tons of milk vs. a year ago. New Zealand has welcomed good rains in the last two weeks, easing the driest summer in 30 years. Pasture growth rates are improving though they re still below normal for this time of year. The season has all but ended, so it won t make much difference for 2012/13. But it should improve conditions for 2013/14. In the meantime, product shortages from the end of Oceania s season should present opportunities for U.S. and European suppliers to fill the gaps. New Zealand suppliers have already warned of the need to ration their dwindling supply in the months ahead. Demand remains persistent, but looking ahead we expect to see continued supply rationing as higher prices take hold. In addition, higher farmgate milk prices and improved margins should spur a strong supply response across the globe. Fonterra increased its payout in late March from NZ$5.50/kg MS to NZ$5.80, and another boost is expected later this month. European processors also have topped up pay rates. Meanwhile, U.S. grain prices plunged at the end of March on a more bearish supply outlook. The impact of price-induced product substitution and supply enhancement will determine if the market is oversupplied again by the time the new Oceania season comes on in September-October. But in the short- and medium-term, conditions should stay firm, with prices sustainable at historically high levels. Good start (cont.) AGGREGATE EXPORT VOLUME SMP, WMP, CHEESE, BUTTERFAT, WHEY Continued from page 1 EU NZ US AUSTRALIA ARGENTINA In 2013, the United States has increased exports of cheese, WPC, butterfat, lactose and fluid milk compared with last year. Shipments of NDM/SMP and dry whey are lower. 310, ,000 Among the top five exporters, the New Zealand moved its flush production aggressively in the first two months of 2013, increasing volumes by 16% vs. the prior year. The United States and Australia mostly held their share. EU sales were down 5%, and Argentina exports dropped off by 10%. 186, ,000 62,000 Source: GTIS & USDA. ABOUT THIS ISSUE Global Dairy Market Outlook is written and distributed monthly by the U.S. Dairy Export Council (USDEC), 2101 Wilson Blvd., Suite 400, Arlington, VA 22201, USA, (703) , FAX (703) , website Data is compiled and analyzed by Alan Levitt, vice president of communications and market analysis; Marc Beck, executive vice president of strategy and insights; and Brad Gehrke, director of global trade analysis. Analysis is supported by USDEC's network of nine international offices. This issue of Global Dairy Market Outlook covers conditions at mid-april USDEC uses sources believed to be reliable but cannot warrant the accuracy of the information herein. Global Dairy Market Outlook is solely for information purposes and is not to be construed as commercial trading advice. USDEC, primarily funded by Dairy Management Inc. through the producer checkoff, works closely with its member processors, trading companies and others to build global demand for U.S. dairy products. U.S. Dairy Export Council Global Dairy Market Outlook Visit us at usdec.org APRIL 23, 2013 VOLUME 17 NO. 3
3 U.S. exported 13.5% of its milk production (TSB) in February YTD volumes +4% vs. prior year: PAGE 7 3 U.S. Exports NDM/SMP... 4 Cheese... 4 Butterfat... 4 Whey... 5 Lactose... 6 WMP... 6 Food Preps (Blends)... 6 Fluid Milk/Cream... 6 U.S. Dairy Exports, Top 10 Markets (JANUARY-FEBRUARY (January-April and AND % change CHANGE vs. VS. prior PRIOR year) YEAR) Change (%) 0% 0-15% CANADA $109m 15% MEXICO $208m 2% CARIBBEAN $27m 16% SOUTH AMERICA $43m 14% MIDDLE EAST/ NORTH AFRICA $78m 3% SOUTHEAST ASIA $146m 7% CHINA $58m 12% JAPAN $58m 18% SOUTH KOREA $42m 49% OCEANIA $45m 46% 15% + U.S. exports trending higher in early 2013 U.S. dairy exports continued to improve in February, posting their highest levels since second quarter of Overall volumes were up for the second straight month (+8% vs. January on a daily-average basis) and value was up for the fourth straight month (+9% vs. January). Pricing relationships were more favorable for U.S. suppliers in February, and anticipated tight supply from competing exporters has buyers looking to the United States. Nonfat dry milk/skim milk powder (NDM/SMP), cheese, butterfat, lactose and fluid milk volumes all are trending higher. The improvement of NDM/SMP is particularly encouraging: February volumes were 35,152 tons, up 23% from January (daily average) and the most since last August. Volumes are still below a year ago, but recent advances represent a change in the trend. Exports were equivalent to 43% of production for the month, just below the five-year average. Cheese exports in February were 21,638 tons, up 9% from January (daily average) and the most since last June. Exports were equivalent to 5.4% of total cheese production. Butterfat exports in in February were 4,426 tons, a nine-month high. Volume was up 9% from January (daily average). Dry whey exports were on par with prior months, with slight improvement in WPC and a slight decline in dry whey. Lactose exports were 28,057 tons, the most ever on a daily-average basis. In February, exporters shipped $439.3 million worth of dairy products. Exports were equivalent to 13.5% of U.S. milk solids production. Meanwhile, imports as a percent of milk solids production were 3.0%. U.S. exports as % of production PRODUCT Jan-FEB 2013 YR AGO NDM/SMP u 40% 45% Total cheese u 5.4% 5.0% Butterfat u 5.2% 4.2% Dry sweet whey u 45% 46% Lactose u 75% 66% Total milk solids u 12.9% 12.5% U.S. EXPORTS AND IMPORTS AS % OF PRODUCTION % of mik production (TSB) EXPORTS IMPORTS Source: USDA, USDEC, National Milk Producers Federation.
4 U.S. EXPORTS NDM/SMP, Cheese & Butterfat 4 NDM/SMP U.S. NDM/SMP Exports - Rolling Quarters U.S. NDM/SMP customers U.S. exports in the December-February period were 99,277 tons, up 6.1% vs. last month but down 11.4% vs. the same period in the prior year. In the first two months of the year, volumes to Mexico were flat, while sales to other top regions were below 2012 levels. 140, ,000 98,000 77,000 56,000 35,000 28,000 21,000 14,000 7,000 Cheese U.S. Cheese Exports - Rolling Quarters U.S. cheese customers U.S. exports in the December- February period were 64,500 tons, up 5.2% vs. last month and up 6.7% vs. the same period in the prior year. In the first two months of 2013, shipments to Mexico were up 9% vs. prior year, and South Korea (+30%), Japan (+44%) and Egypt (+291%) also posted large gains. 85,000 71,000 57,000 43,000 29,000 11,000 8,800 6,600 4,400 2,200 Butterfat U.S. Butterfat Exports - Rolling Quarters U.S. butterfat customers U.S. exports in the latest three-month period were 11,705 tons, up 18.1% vs. last month and up 19.2% vs. the same period in the prior year. So far in 2013, nearly 87% of the volume has gone to the Middle East/North Africa region, primarily Saudi Arabia and Iran. 25,000 20,600 16,200 11,800 7,400 4,200 3,360 2,520 1, Source: USDA.
5 U.S. EXPORTS Whey Products 5 U.S. exports of whey products in the most recent three months were 107,850 tons, down 1.1% vs. last month and down 0.3% vs. the previous year. China remains the major customer for U.S. whey products, with YTD purchases up 31% vs Overall WPC exports were up 39% in the first two months of the year, while dry whey shipments continue to lag. U.S. Total Whey Exports - Rolling Quarters U.S. total whey customers 135, , , ,000 99,000 26,000 20,800 15,600 10,400 5,200 China SE Asia Mexico Canada Japan U.S. Dry Whey Exports - Rolling Quarters U.S. dry whey customers 80,000 72,000 64,000 56,000 12,000 9, ,800 48,000 2,400 China SE Asia Canada Japan Mexico U.S. WPC Exports - Rolling Quarters U.S. WPC customers 75,000 67,000 59,000 51,000 43,000 15,000 12,000 9,000 6,000 3,000 China SE Asia Mexico So. Korea Canada U.S. WPI Exports - Rolling Quarters U.S. WPI customers 5,300 4,840 4,380 3,920 3,460 4, Canada EU SE Asia BrazilO ceania Source: USDA.
6 U.S. EXPORTS Other Products 6 Lactose exports remain strong. In the December-February period, lactose export volume was 80,492 tons, up 2.8% from the prior month and up 5.0% from the prior year. In addition, exports of fluid milk/cream continue to trend higher: YTD shipments of 14.5 million liters were 42% higher than the volume posted a year earlier. U.S. Lactose Exports - Rolling Quarters U.S. lactose customers 85,000 76,000 67,000 58,000 49,000 13,000 10,400 7,800 5,200 2,600 U.S. WMP Exports - Rolling Quarters U.S. WMP customers 24,000 18, , , U.S. Food Preps (Blends) Exports - Rolling Quarters U.S. food preps (blends) customers 24,500 21,500 18,500 15,500 7,000 5,600 4,200 2,800 1,400 U.S. Fluid Milk/Cream Exports - Rolling Quarters (000 LITERS) U.S. fluid milk/cream customers (000 LITERS) 22,000 19,600 17,200 14,800 12,400 8,000 6,400 4,800 3,200 1,600 Source: USDA.
7 U.S. EXPORTS 5 Year Trend 7 U.S. exports volume and value Volume 165, , ,000 96,000 AGGREGATE VOLUME, SELECTED PRODUCTS* TOTAL DOLLAR VALUE , *Volume includes SMP, WMP, food preps, whey, cheese, butterfat, lactose Value (million $) Feb exports $439 million U.S. exports have been relatively consistent from month to month since spring In the last 35 months, aggregate export volume of dry ingredients (milk powder, whey products and lactose), cheese and butterfat has averaged 132,558 tons and the value of all exports has averaged $396.7 million. In the first two months of 2013, the largest sales gains (vs. a year ago) came from South Korea, New Zealand and Canada. NDM/SMP Cheese Butterfat 480, , , ,000 96, , , , ,000 54,000 70,000 56,000 42,000 28,000 14, Total Whey Dry Whey WPC 500, , , , , , , , ,000 60, , , , ,000 50, WPI Lactose WMP 20,000 16,000 12,000 8,000 4, , , , ,000 66,000 60,000 45,000 30,000 15, Food Preps (Blends) Fluid Milk/Cream (000 liters) Total Export Value (Million $) 80,000 64,000 48,000 32,000 16,000 80,000 64,000 48,000 32,000 16,000 5,350 4,280 3,210 2,140 1, Above charts: TOTAL YTD Source: USDA, USDEC.
8 U.S. cheese production higher in January-February: PAGE 9 8 Global Milk Production Milk production - change FROM prior year (000 MT) EU U.S. NZ AUSTRALIA ARGENTINA 1, (300) (600) World output trailing year-earlier levels Milk production continued to lag in early Output from the five major exporters (EU, U.S., New Zealand, Australia and Argentina) was estimated to be down 1.0% in the first two months of the year (adjusted for leap day), and March isn t likely to be any better. EU-27 Poor weather has stunted EU milk production. Deliveries were estimated to be off 1.2% in January-February (adjusted for leap day). Production in the UK, France, Germany, Ireland and Italy, among others, are trailing year-ago levels. United States Milk production in the first two months of the year was up 0.3% vs. the prior year (adjusted for leap day). A cold, wet spring is depressing the spring flush. Margins are improving as milk prices rise and feed costs soften. New Zealand Milk production in January-February was up 1.0% from the prior year (adjusted for leap day). But drought knocked output down 15-20% in March and probably at least that much in April. For the full 2012/13 season, we estimate production will be down about 0.3% from the prior year s record volume. Australia Milk production was down 5.7% in January-February (adjusted for leap day) as poor weather and margins took their toll production is projected to be down about 3%. TOTAL Milk Prod. From Major ExporterS Includes EU, U.S., New Zealand, Australia and Argentina. EU and Argentina are milk deliveries. 30-day months. February 2012 adjusted for leap day. * 2013 USDEC estimate Argentina *Feb 2012 adjusted for leap day (000 MT) * 23,500 22,760 22,020 21,280 20,540 Output continues to lag; milk deliveries in January-February were estimated to be down 10.4% (adjusted for leap day). Source: USDA, EuroStat, DairyAustralia, DCANZ, Argentina Ministry of Agriculture.
9 MILK PRODUCTION Key Suppliers 9 European Union Milk Deliveries (% CHG VS. PRIOR YEAR) New Zealand Milk Production (% CHG VS. PRIOR YEAR) % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Australia Milk Production (% CHG VS. PRIOR YEAR) Argentina Milk Deliveries (% CHG VS. PRIOR YEAR) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4-8.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q adjusted for leap day. U.S. Production U.S. Milk Production (000 MT, 30 Day Mos.) U.S. NDM/SMP Production (MT, 30 Day Mos.) U.S. Cheese Production (MT, 30 Day Mos.) 8, , ,000 7,800 90, ,000 7,600 80, ,000 7,400 70, ,000 7,000 60, ,000 U.S. Butter Production (MT, 30 Day Mos.) U.S. Dry Whey Production (MT, 30 Day Mos.) U.S. WPC Production (MT, 30 Day Mos.) 85,000 44,000 18,000 79,000 41,400 17,280 73,000 38,800 16,560 67,000 36,200 15,840 61,000 33,600 15,120 Source: USDA, EuroStat, DairyAustralia, DCANZ.
10 Butterfat trade led by New Zealand 10 World Dairy Trade Imports, major buyers, selected products SMP, WMP, Cheese, Butterfat, Whey - Rolling Quarters CHINA SE ASIA-5 RUSSIA MEXICO JAPAN ALGERIA (000 MT) Early China buying boosts market Imports from key customers were mostly higher in early 2013, led by record purchases from China. In January-February, China imported 231,378 tons of milk powder, whey products, cheese and butterfat, up 12% from the prior year. Gains were driven by a 50% increase in purchases of WMP vs. last year. In addition, cheese imports were up 21%. This offset declines in purchases of SMP, whey and butterfat. Russia imports pulled back from Q4 levels, but January-February totals came in 19% above last year. Cheese and butterfat purchases were up 12% and 56%, respectively. Mexico started the year strong, with January imports up 11% vs. last year. Cheese and whey purchases were up by more than a third and butterfat imports nearly doubled, but NDM/ SMP imports were down 12%. Japan imports were flat in the first two months of the year. Data is not complete for Southeast Asia, but purchases in the early part of 2013 appear to be flat across the region. South Korea posted a 19% gain in the first two months of the year, led by a 42% increase in cheese imports. IMPORTS, MAJOR BUYERS, SELECTED PRODUCTS 1, (000 MT) Rolling quarters. Buyers include China, SE Asia-5, Russia, Mexico, Japan, Algeria. Products include SMP, WMP, cheese, butterfat and whey. Source: GTIS.
11 Milk powder prices have doubled in the last nine months: PAGE World Prices Price Trend - SMP, WMP, Cheese, Butter, Whey* ($/MT) SMP WMP CHEESE BUTTER WHEY 5, ,600 SMP, WMP, Cheese, Butter 5,100 4,500 3,900 1,480 1,360 1,240 Whey 3,300 1,120 *Mid-point of range. Milk powder, cheese and butterfat are Oceania; whey is EU. Prices rally to record highs Source: USDA s Dairy Market News. How tight is the market in Oceania? There are so few spot loads available out of the region that getting an adequate sample for pricing is a challenge. But reports indicate milk powder prices top $5,500/ton, up more than 60% since early February. In the same time period (the last 10 weeks), butter prices are up by a third, cheese prices up 10% and whey prices up 5%. However, there is a wide variation in prices from various suppliers, a situation that will sort itself out in the weeks ahead. Prices near these levels appear sustainable over the next 4-6 months. Buyers have been whipsawed by the turnaround and now are scrambling to get coverage in a rising market. U.S. benchmark cheese and butter prices have moved significantly higher since early March, but still lag comparable Oceania indexes, giving the United States a competitive advantage. Today s prices rival the global price run-up of Then, like now, the rally was driven in part by drought in New Zealand that depressed milk production. Whey prices also have turned around in recent weeks. Dry whey values are approaching levels last seen in the summer of Current Prices $/MT, FOB ship (w/ change from LATE-FEB.) Europe Oceania SMP u (+588) (+1250) WMP u (+800) (+1650) Cheddar cheese u (+250) (+450) Butter u (+675) (+900) Butteroil u (+775) (+950) Dry whey u (+150) (+50) WPC-34% u NA (NC) Lactose u NA (-150) Source: USDEC.
12 WORLD PRICES 12 6 Year Trend SMP ($/MT) WMP ($/MT) OCEANIA EU US OCEANIA EU US 5,800 5,800 4,940 4,940 4,080 4,080 3,220 3,220 2,360 2, Cheddar ($/MT) Butter ($/MT) OCEANIA US OCEANIA EU US 5,600 4,940 4,280 3,620 2,960 6,400 5,420 4,440 3,460 2, DRY Whey ($/MT) EU US 2,000 1,640 1, Source: USDA s Dairy Market News.
13 Japanese yen down 20% vs. U.S. dollar since September 13 Currency Exchange U.S. dollar steady vs. exporter currencies EXCHANGE RATES RELATIVE TO U.S. DOLLAR, EXPORTING COUNTRIES INDEXED TO JAN. 1, 2011 EURO NEW ZEALAND DOLLAR AUSTRALIA DOLLAR /5 2/5 3/5 4/5 5/5 6/5 7/5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 5/5 6/5 7/5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 EXCHANGE RATES RELATIVE TO U.S. DOLLAR, IMPORTING COUNTRIES INDEXED TO JAN. 1, 2011 JAPAN YEN CHINA YUAN MEXICAN PESO KOREAN WON /5 2/5 3/5 4/5 5/5 6/5 7/5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 5/5 6/5 7/5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 Top chart: If line is trending up, currency is strengthening vs. U.S. dollar (U.S. dollar is weakening). This is favorable for U.S. competitiveness. If line is trending down, currency is weakening vs. U.S. dollar (U.S. dollar is strengthening). This is unfavorable for U.S. competitiveness. Bottom chart: If line is trending up, currency is strengthening vs. U.S. dollar (U.S. dollar is weakening). This is favorable for exports, because it increases import purchasing power. If line is trending down, currency is weakening vs. U.S. dollar (U.S. dollar is strengthening). This is unfavorable for exports, because it decreases import purchasing power. Source: Oanda.com.