1 U.S. exports (MT, Jan-Sep): NDM/SMP 349,686 6% CHEESE 201,552 21% WHEY 358,424 8% BUTTERFAT 36,145-31% DETAILS, PAGE 3 November 26, 2012 Volume 16 No.6 GLOBAL DAIRY Market Outlook U.S. Dairy Export Council WMP prices up since June U.S. WPC exports (p. 5) Milk production lower (p. 8) Oceania EU US (rolling quarters ) 5,000 75,000 23,500 ($/MT) 4,540 4,080 3,620 64,000 53,000 42,000 (000 MT) 22,760 22,020 21,280 3,160 31,000 20,540 World WMP prices are up about $600/ton since mid-year 2009 U.S. WPC exports are running 34% ahead of last year's pace J F M A M J J A S O N D Milk production from the five major suppliers was down 0.1% in Q3 World market absorbs Oceania flush By Alan Levitt, Marc Beck and Brad Gehrke At mid-november, the global dairy markets were generally steady, and traders weren t tipping their hands on where things go from here. Trading activity has been light, though it has picked up in recent weeks. Since mid-year, export prices are up about 14% out of Oceania and up nearly 30% out of Europe and the United States. Most noteworthy since our last report is that the peak of the Oceania flush is past and the markets have absorbed this increased production without a knock on pricing. This tells us demand has remained good, though not outstanding. From here supply should get tighter. Oceania production is running ahead of last year s record pace and plants are running near capacity, but this volume is mostly committed. The front end of the flush was good, but that doesn t guarantee the back end will be as strong. It s clear that growth won t be as robust as last year (when output was up by double-digits). U.S. holding share of global market By Alan Levitt, Marc Beck and Brad Gehrke Meanwhile, production has fallen below a year ago in Europe, the United States and Argentina. As a result, we view the market as undersupplied and anticipate stronger prices in the short/medium term into End-user inventories are still adequate, but buyers will need to make dispositions to cover remaining needs for Q1 and Q2. Despite long-term investment to boost their local industries, imports remain cheaper than domestic production in China, Russia and other Turn to Oceania flush, p. 2 U.S. dairy exports in the first three-quarters of the year were up 12% by value and 6% by volume compared with a year ago. However, the pace has slowed since May, a reflection of a widening spread between U.S. prices and Oceania prices. U.S. cheese and butter prices retreated in November, which should improve U.S. competitiveness. Turn to Holding share, p. 2 THIS ISSUE AT-A-GLANCE U.S. exports slip in September... 3 World milk production is lower...8 Global trade is up in Prices are steady...11 U.S. dollar is mixed...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 2012 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 Oceania flush (cont.) Continued from page 1 importing countries, which bodes well for sustained buying for the foreseeable future. However, we also believe global economic and political uncertainty is weighing on buyers mentality, as Europe remains in recession, the U.S. Congress negotiates to avoid its fiscal cliff of tax increases and spending cuts, and an escalation of tensions in the Middle East threatens to send oil prices higher again. New Zealand was more aggressive this summer, keeping prices discounted (to the EU and United States) to increase share. In the June-September period, New Zealand exports of milk powder, cheese, butterfat and whey were up 37% from a year earlier. During the same period, exports from the EU were up 13%, United States +6%, Australia +12% and Argentina -13%. In those same four months last year, New Zealand s share among the five exporters was 27%. This year it was 32%. European dairy products are trading at a significant premium to Oceania, particularly on cheese and butterfat, reflecting good internal demand and low inventory. But the weaker Euro (-1.7% vs. the U.S. dollar in the last month) is putting downward pressure on export prices. Meanwhile, recent declines in U.S. cheese and butter prices have improved U.S. suppliers competitive position. At the 2012 IDF World Dairy Summit in South Africa this month, analysts noted that world dairy trade increased 10% last year, more than double the average growth rate of the previous decade. This year trade is again up near 10%. Holding share (cont.) AGGREGATE EXPORT VOLUME SMP, WMP, CHEESE, BUTTERFAT, WHEY Continued from page 1 EU NZ US AUSTRALIA ARGENTINA In 2012, the United States has increased exports of cheese, SMP/NDM and WPC. Shipments of butterfat and dry whey are lower, while lactose volumes are flat. 270, ,000 Among the top five exporters, the United States has maintained its share of export volume this year at about 19%. The EU has held at about 35% and New Zealand has gained a point, from 33% to 34%. Australia and Argentina have each lost half a point, bringing Australia down to 7% and Argentina down to 5%. Overall trade volume is up 10% from a year ago. 162, ,000 54,000 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-november, 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 NOVEMBER 26, 2012 VOLUME 16 NO. 6
3 U.S. exported 13.1% of its milk production (TSB) in September YTD volumes +6% 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-SEPTEMBER (January-April and AND % change CHANGE vs. VS. prior PRIOR year) YEAR) Exports (in millions) $900 + CANADA $413m 12% MEXICO $909m 8% CARIBBEAN $159m 21% SOUTH AMERICA $186m 60% MIDDLE EAST/ NORTH AFRICA $353m 25% SOUTHEAST ASIA $714m 5% CHINA $313m 29% JAPAN $227m 12% SOUTH KOREA $172m 1% OCEANIA $161m 49% $800 $700 $600 $500 $400 $300 $200 $100 U.S. export volumes slip in September Overall U.S. dairy exports were lower in September (vs. August) down by about 5% by volume and value. NDM/SMP shipments were lighter (33,627 mt, -18% vs. August) and cheese, butterfat and dry whey fell for the fourth straight month since peaking in May. WPC exports were down slightly from August's record pace, but remain well above a year ago. Lactose shipments continue to track year-ago levels. Total dairy export value in September was $400.5 million, down 4% from a year ago. Year-to-date value is $3,974.7 million, up 12% from last year. For NDM/SMP, exports in the third quarter were down 3% from last year. Nearly half the volume went to Mexico, while the Philippines took 10,546 mt and Algeria took 7,732 mt. Cheese, dry whey and butterfat volumes continue to trend lower. Cheese volume was the lowest since last October, while dry whey and butterfat were the lowest in more than three years (daily-average basis). Meanwhile, WPC exports remain robust; export volumes have doubled in the last three years, driven by tremendous growth from China and Southeast Asia. In September exports were equivalent to 13.1% of U.S. milk solids production, bringing the year-to-date percentage to 13.6%. Exports were equivalent to 13.3% of U.S. milk solids production in 2011 and 12.8% in Meanwhile, imports as a percent of milk solids production were just 3.0% in September 2012 U.S. exports as % of production PRODUCT Jan-SEP 2012 YR AGO NDM/SMP u 46% 49% Total cheese u 5.5% 4.7% Butterfat u 5.7% 8.6% Dry sweet whey u 48% 53% Lactose u 66% 68% Total milk solids u 13.6% 13.3% 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 most recent three months were 107,995 tons, down 4.8% vs. last month and down 3.3% vs. last year. Year-to-date, sales to Mexico were up 18% from the prior year while exports to Southeast Asia were off 32%. Shipments to the Middle East/North Africa more than doubled. 140, ,000 98,000 77,000 56, , ,000 96,000 64,000 32,000 Cheese U.S. Cheese Exports - Rolling Quarters U.S. cheese customers U.S. exports in the third quarter were 60,814 tons, down 7.8% vs. last month but still up 27.6% vs. last year. Year-to-date, shipments to Mexico were up 39% vs. prior year, while Japan (+30%) and Saudi Arabia (+34%) also posted strong gains. 85,000 71,000 57,000 43,000 29, ,000 40,000 30,000 20,000 10,000 Butterfat U.S. Butterfat Exports - Rolling Quarters U.S. butterfat customers U.S. exports in the most recent three months were just 7,460 tons, down 20.8% vs. last month and down 42.2% vs. last year. This year more than three-quarters of the volume went to the Middle East/North Africa region (primarily Saudi Arabia), while sales to Mexico and Canada have dropped off. 28,000 22,400 16,800 11,200 5, ,000 12,000 9,000 6,000 3,000 Source: USDA.
5 U.S. EXPORTS Whey Products 5 U.S. exports of whey products in the most recent three months were 124,178 tons, down 3.7% vs. last month but still up 8.6% vs. last year. China remains the major customer for U.S. whey products, with 2012 purchases up 10.9% vs. the prior year. WPC exports are up 33.7% year-to-date. U.S. Total Whey Exports - Rolling Quarters U.S. total whey customers 135, , ,000 90,000 75, , ,000 75,000 50,000 25, 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 62,000 49,600 37,200 24,800 48,000 12, SE Asia China Mexico Canada Japan U.S. WPC Exports - Rolling Quarters U.S. WPC customers 75,000 64,000 53,000 42,000 31,000 82,000 65,600 49,200 32,800 16, China SE Asia Mexico Canada Japan U.S. WPI Exports - Rolling Quarters U.S. WPI customers 5,300 4,800 4,300 3,800 3,300 4,400 3,520 2,640 1, Canada China Mexico SE Asia Japan Source: USDA.
6 U.S. EXPORTS Other Products 6 Lactose exports are steady. In the third quarter lactose export volume was 76,314 tons, down 1.0% from the prior month and down 4.2% from last year. Shipments of food preps are running higher this year (12% year to date). Meanwhile, exports of fluid milk/cream are down 31% in U.S. Lactose Exports - Rolling Quarters U.S. lactose customers 85,000 76,000 67,000 58,000 49,000 50,000 40,000 30,000 20,000 10, U.S. WMP Exports - Rolling Quarters U.S. WMP customers 24,000 18,000 5,000 4,000 12,000 3,000 6,000 2,000 1, U.S. Food Preps (Blends) Exports - Rolling Quarters U.S. food preps (blends) customers 24,000 21,000 18,000 15,000 30,000 24,000 18,000 12,000 6, U.S. Fluid Milk/Cream Exports - Rolling Quarters (000 LITERS) U.S. fluid milk/cream customers (000 LITERS) 22,000 19,200 16,400 13,600 10,800 27,000 21,600 16,200 10,800 5, 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 $) Volume, value tracking ahead of a year ago In the first nine months of 2012, U.S. exports of dry ingredients (milk powder, whey, lactose), cheese and butterfat were 1,251,954 tons, up 6.1% from the previous year. Total export value was $3.97 billion, up 12.0%. Export volume of NDM/SMP (+6% vs. a year ago), cheese (+21%) and WPC (+34%) remain on track to establish new highs in NDM/SMP Cheese Butterfat 460, , , ,000 92, , , ,000 96,000 48, ,000 80,000 60,000 40,000 20,000 Total Whey Dry Whey WPC 480, , , ,000 96, , , , ,000 60, , , ,000 80,000 40,000 WPI Lactose WMP 20,000 16,000 12,000 8,000 4, , , , ,000 66,000 60,000 45,000 30,000 15,000 Food Preps (Blends) Fluid Milk/Cream (000 liters) Total Export Value (Million $) 100,000 80,000 60,000 40,000 20,000 80,000 64,000 48,000 32,000 16,000 5,200 4,160 3,120 2,080 1,040 Above charts: TOTAL YTD Source: USDA, USDEC.
8 U.S. powder output -6% in August-September: PAGE 9 8 Global Milk Production Milk production - change vs. prior year (000 MT) EU U.S. NZ AUSTRALIA ARGENTINA 1, (300) (600) JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB* MAR APR MAY JUN JUL AUG SEP OCT World output falls below year-earlier levels Milk production has pulled back significantly. After more than two years of expansion, output from the five major exporters (EU, U.S., New Zealand, Australia and Argentina) was estimated to be down 0.1% in the third quarter. TOTAL Milk Production From Major ExporterS *Feb 2012 adjusted for leap day (000 MT) EU-27 Milk deliveries were estimated to be off 1.1% in the third quarter. Poor weather and tight margins have driven output lower. Production is down in key regions including France, Ireland and the UK. Meanwhile, Germany and the Netherlands are near year-ago levels. United States Heavier culling this year, compounded by the summer drought, has put the United States in contraction mode. Cow numbers dropped 84,000 head in six months. Production was down 0.2% in the August-October period. Margins have improved slightly, but a quick improvement is not expected. New Zealand The 2012/13 season is off to a good start. Output was up 8.4% in the July-September period. For the full year, production is projected to be up 2-3% on top of last year s record pace. Australia Milk production was up 2.1% in the third quarter production is projected to be 2% higher than last year. Argentina After two years of double-digit growth, milk deliveries were down 2.2% in the third quarter as unfavorable weather impacted productivity. 23,500 22,760 22,020 21,280 20,540 Includes EU, U.S., New Zealand, Australia and Argentina. EU and Argentina are milk deliveries. 30-day months. February 2012 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 Q Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Australia Milk Production (% CHG VS. PRIOR YEAR) Argentina Milk Deliveries (% CHG VS. PRIOR YEAR) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3-8.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 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.) 7, , ,000 7,680 90, ,000 7,460 80, ,000 7,240 70, ,000 7,020 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 45,000 18,000 75,600 42,400 17,280 66,200 39,800 16,560 56,800 37,200 15,840 47,400 34,600 15,120 Source: USDA, EuroStat, DairyAustralia, DCANZ.
10 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) Imports heavier in July-August Imports of milk powder, cheese, butterfat and whey from the world s major buyers were up 25% from a year ago in July and August, as buyers took advantage of historically lower prices to purchase ahead during what is typically a slow period in global dairy trade. Throughout the third quarter, gains from China and Russia were especially impressive. China imports were up 46% in the July-September period, and Russia s were up 25%. Meanwhile, in July and August, Southeast Asia s imports were up 11%. Sales to Southeast Asia were up 4% in the first eight months of the year, putting the region on track for record import volumes in Malaysia posted the largest gains (+18% YTD), while Indonesia (+5%) also boosted purchases. The Philippines (-4%) and Thailand (-2%) purchased slightly less than a year earlier. Mexico, the largest market for U.S. suppliers, increased imports by 11% in the first eight months of the year, led by large gains in purchases of SMP and cheese. In the January-July period, Algeria imports were off 20% from the elevated levels of last year, due to lighter purchases of milk powder. SMP imports were down 30% and WMP imports were down 20%. Japan imports were up 6% in the first nine months of the year, led by a 10% gain 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 Oceania prices are still below their 2011 peak: PAGE World Prices Price Trend - SMP, WMP, Cheese, Butter, Whey* ($/MT) SMP WMP CHEESE BUTTER WHEY 5, ,600 SMP, WMP, Cheese, Butter 4,540 4,080 3,620 1,480 1,360 1,240 Whey 3,160 1,120 *Mid-point of range. Milk powder, cheese and butterfat are Oceania; whey is EU. Prices stall in fourth quarter Source: USDA s Dairy Market News. World dairy prices have been mostly steady over the last two months after rallying 10% (Oceania) to 25% (EU and U.S.) in July, August and September. The lone exception to this trend is EU butter prices, which continue to rise. Activity is slow, with traders holding out for better signs of market direction. We believe the signs are pointing up and it s only a matter of time before supply conditions tighten. It s encouraging that prices held during the onset of the Oceania flush. This suggests demand was steady enough to absorb the new supply. The downturn in production from the United States and Europe should keep the market undersupplied into 2013, which will be supportive of prices. SMP will be the one to watch: about two-third of the globally traded SMP comes from the United States and Europe, where production and stocks continue to dwindle. Heading into the end of the year, Oceania milk powder, cheese and whey prices are about where they were a year ago. Butter prices are still off about 15%. Compared with the fiveyear average, milk powder, cheese and butter prices are down 5-10%. The whey price is up 21%. U.S. benchmark cheese and butter prices have come down this month, bringing prices closer to comparable Oceania indexes. Current Prices $/MT, FOB ship (w/ change from LAST mo.) Europe Oceania SMP u 3,300-3,550 (+13) 3,225-3,525 (+88) WMP u 3,725-3,950 (+25) 3,200-3,500 (+150) Cheddar cheese u 4,000-4,400 (+75) 3,700-4,100 (-50) Butter u 4,000-4,400 (+113) 3,025-3,450 (+38) Butteroil u 4,500-4,900 (+50) 3,550-3,950 (+50) Dry whey u 1,200-1,400 (NC) 1,450-1,650 (NC) WPC-34% u NA 2,900-3,300 (NC) Lactose u NA 1,875-2,075 (-25) Source: USDEC.
12 WORLD PRICES 12 6 Year Trend SMP ($/MT) WMP ($/MT) OCEANIA EU US OCEANIA EU US 5,500 5,700 4,700 4,860 3,900 4,020 3,100 3,180 2,300 2, Cheddar ($/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 U.S. dollar down 6% vs. NZ dollar this year 13 Currency Exchange U.S. dollar fluctuating in recent weeks 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 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 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.