U.S. dairy products are increasingly competitive globally – a fact shown in surging export numbers, according to two top dairy economists in the National Milk Producers Federation’s latest Dairy Defined podcast.
“Global demand is fundamentally really strong right now,” said Wiliam Loux, the Director of Global Trade Analysis for the U.S. Dairy Export Council. “Consumers within China are just wanting a lot of dairy. And Mexico, after a tough year with the COVID-19 pandemic and some economic issues, is recovering. Southeast Asia, the Middle East, all need product too.”
Loux was joined by Stephen Cain, an economic analyst for NMPF and USDEC, who noted that, relative to its main global competitors, the United States may be best positioned to take advantage of further growth in international dairy markets.
“The EU and New Zealand are facing substantial obstacles in growing their herd. We're the only one that has the capacity to add cows, add growth to meet that growing demand,” Cain said. “Our ability to meet that demand, and adding cows and adding production, is really going to help serve us in terms of the global impact of U.S. dairy on the marketplace.”
Alan Bjerga, NMPF: Hello, and welcome to the Dairy Defined podcast. Today, we have two members of NMPF's economics team who work in tandem with the us dairy export council on dairy and trade issues. And it's a good time to chat with record exports, supporting a hope for brighter outlook on prices. William Loux is the director of global trade analysis for the US dairy export council, a.k.a, USDEC, where he provides strategic analysis and insight into the global dairy market through monitoring and forecasting short and long-term trends in supply demand, pricing, international trade, as well as the broader economy. He was also a farm kid, growing up raising corn and soybeans in Iowa before embarking on a path that took him as far away as London, where he received his master's from the London school of economics.
Stephen Cain is an NMPF USDEC economic analyst, providing ongoing and ad hoc economic analysis with a focus on both domestic production and global trade. Before NMPF, he was agribusiness consultant for IHS market in Washington, where he led the agribusiness division in economic impact analysis. His bachelor's degree in agribusiness and master's degree in agricultural economics are both from Texas A & M. Welcome, Will.
William Loux, U.S. Dairy Export Council: Hi Alan, thanks for having me on.
Alan Bjerga, NMPF: And welcome Stephen.
Stephen Cain, NMPF: Thanks, Alan. Glad to be here.
Alan Bjerga, NMPF: So let's start with you, Will, and let's start with the big picture. What's the trend with US dairy exports overall?
William Loux, U.S. Dairy Export Council: The trend for US dairy exports has really been one of growth. This is a long-term trend, but you said it up at the top. In 2020, we had a record year. That was in terms of overall volume of dairy exports being moved overseas to our international markets, in spite of the COVID-19 pandemic, in spite of issues at ports, in spite of all of that, we still managed a record year overall. But that hasn't stopped once we moved into 2021, either. We had some hiccups towards the end of last year, and into January of this year, just due to, as I mentioned, shipping delays. There's some issues at port. But by and large, that didn't slow down or mess with exports much in March and April, where we had a record month in total volume of exports in the month of March. And April was pretty close behind despite having one fewer day in the month.
Overall us dairy exports are up 15% a year to date. So that's through April, compared to 2020, which again, was our record year. So that's been quite the sharp acceleration that we've had in recent months. And so in dollar terms, that's $2.45 billion worth of dairy exports just in the first four months of 2021. So that's quite a bit of volume and value moving overseas. And fundamentally, what we're seeing right now is growth in our three biggest export products. Number one, being nonfat dry milk/skim milk powder. That's up 18% this year. Whey products are up 25% year to date, and cheese is up 12%. And April was a record month for us cheese exports. So we're seeing a lot of growth in US dairy exports, really continuing on from last year and the success we had in spite of the pandemic, and really moving forward into this year.
There's a couple of reasons for that that I can touch on here in a second. Number one, global demand is fundamentally really strong right now. China has been leading the way, just in terms of overall dairy demand right now. Consumers within China are just wanting a lot of dairy. And Mexico, after a tough year with the COVID-19 pandemic and some economic issues is recovering. Southeast Asia, the middle east all need product too. So we've had the product to sell, and the global market has been demanding it. So that's kind of why you're seeing such an acceleration in US dairy exports last year and certainly into this year.
Alan Bjerga, NMPF: Why does a greater volume of US dairy exports matter to a dairy farmer?
William Loux, U.S. Dairy Export Council: Yeah, well, we conveniently just wrote a whole article about that on a USDEC's webpage. So if you go to USDEC.org, you can find that on there under frequently asked question number one. Fundamentally, it's for a few reasons. One, in terms of long-term growth for the US industry, the international markets is where you want to place your bets. For one, over the past 10 years, a global dairy trade has grown by a 3.8% on average every single year. That's the equivalent of, over the past 10 years, growing about 54 billion pounds worth of liquid milk, farmer milk that's being produced. That's how much the international market has grown. That's a lot. That's roughly twice the size of how much the domestic market has grown. And so, although we're certainly still focused on the domestic market and it matters, if we're going to grow as an industry, the international market is the one that's growing and growing fast and has a high value placed for those products that the US makes overseas.
And then obviously, it also just helps support our market. The US dairy farmer obviously, is very good at what they do. Milk production is up 2 1/2 percent so far this year. That's a lot of milk being produced overall across the United States. But domestic consumption, while certainly still growing, is not growing at that same pace. And so in order to keep the market balanced, we need to be moving more into the export market. But as I said, it's not just because we have more product to sell that we're focused on the international market. It's because that international market is growing and really is the opportunity for US dairy farmers to grow.
And the more we do that, the more we're going to support the Milk Check. Because products that factor into the US dairy farmer Milk Check, that's cheese, butter, nonfat dry milk, and dry whey. All of those products go overseas. And so if we didn't have those, all of a sudden, we get a lot more product that's backing up here into the domestic market and pushing down those prices. So if we're not moving that overseas, if we're not finding new homes for that product, all of a sudden that Milk Check's going to go down. So in some sense, that's also the really crucial factor for US dairy farmers.
Alan Bjerga, NMPF: And you beat me to the punch, Will, because I wanted to plug the US Dairy Export Council's blog. But you already made mention of it. Just to note, it's USDEC.org. It's called the US Dairy exporter blog. It is filled with rich information and important articles written by USDEC staff gathered from a lot of high quality data sources. One thing that the blog talks about a little bit is some specific markets as well. And I want to drill down a little bit further. And Stephen, tell me a little bit about what's going on in some specific regions of the world, starting with a question which is always big on people's minds, china.
Stephen Cain, NMPF: Yeah, China has really just had some insatiable demand for dairy products over the last year. I think that's for a few main reasons. One, domestic milk prices are still very high in the country. The government has also been touting immunity support of dairy products during this global pandemic, and also the ASF recoveries. All three of those have really been playing a key piece.
In terms of domestic milk prices, they're around R and D a liter, which is, incredibly high prices. These are prices that we haven't seen since 2013, 2014, when we saw another just dramatic run-up in prices. So that alone has really been pushing Chinese buyers to the international market, to really get some better deals on product, which is great news for US exporters, as we try to capture some of that demand.
Stephen Cain, NMPF: Also, the government pushing immunity support from dairy during this pandemic has really helped spur dairy demand on in this last year, especially fluid milk consumption. Fluid milk consumption in 2020, increased by nearly 10%. Although that's still roughly a low number comparative to other countries. China, per capita consumption of milk is around 15 pounds, compared to the US. We're at around 141 pounds. So there's still a lot of growth that could be had, a lot of growth potential in China for consumption there, but seeing some good increases there, coming from that push support for the government immunity for dairy products.
And lastly, ASF touched briefly on this. We've been talking about ASF in China for a long, long time. This isn't anything new. But I will say the structure of the industry has been changing. And that's really the big impact that's having a drive up in demand for whey products going into hog operations. So as a rebuilder swine herd, there's a shift from kind of small holder backyard cell operations, to more commercial operations and with large sophisticated facilities. What that means for dairy is that there's more whey going into feed. These large commercial operators tend to rely more on a standardized feed ration more so the backyard operators. So what that means overall, is that there's more whey demand going into feed, for use in China for the hog population. So all of that put together, that's some good news for us exports coming out of China there.
William Loux, U.S. Dairy Export Council: And on top of that, you were mentioning that rising demand in China for whey products, and going towards their hog herd, that's going directly into the farmer Milk Check as well. So that dry whey is being priced in a class three, and we've seen a sharp run-up there. And so if you think about how directly what's happening in China with their hog industry, somehow it's affecting us dairy farmers back here at home in Wisconsin. So it's all interconnected here.
Alan Bjerga, NMPF: Any dairy farmer with a memory that goes back as far as 2014, can take a look at what different shifts in buying trends from China will do to domestic prices and markets. At the same time though, China is not the only game in town. And there can be some arguments that in the immediate term, China might not even be the biggest game in town. What are some other key markets that are really sort of driving what we're seeing in trade, Stephen?
Stephen Cain, NMPF: Yeah, we've seen a lot of growth in Southeast Asia over the last year, especially in powder. In terms of market share, in terms of milk solid exports, the US has increased to March at around 31%. That's up from around 23% in late 2019. So we're seeing, and that has put them as the largest shareholder in milks on exports to Southeast Asia, above the European Union, above New Zealand. And also in skim milk powder, US increased market share there as well from 26% up to 45%. And that's coming off of a 20% increase in volume of S and P, coming from the US to Southeast Asia. So there's just been a really great opportunity there to capitalize on exports going into the region.
But we're also facing some port issues out of the west coast. And that's impacted some delivery product. Moving forward, if we want to make sure that we hold onto the market share, we need to make sure that we're working with buyers in the region as much as we can because our competitors certainly are doing all they can to get back into the market. But overall, Southeast Asia has a large population. They have a growing appetite for dairy. So we see this as really a key market where we see a lot of potential growth in the coming years.
Alan Bjerga, NMPF: But you also, and I'm glad you mentioned the European Union and New Zealand. Because this market doesn't take place in a vacuum. There's a lot of competition here. And I would think that there would be relative strengths and weaknesses. I'm interested, Stephen, Will, what would you see as some comparative advantages that us dairy would have in certain markets? And what would be some areas where perhaps the U S has some challenges that it needs to overcome?
William Loux, U.S. Dairy Export Council: Well, I can start off on that one. And then Stephen, you can jump in here. For one, the US is... As I said, farmers are really good at what we're doing. We're the ones who are really well placed to structurally grow our milk supply. And as I mentioned, global demand is growing, but Europe, New Zealand structurally, are somewhat limited based upon various environmental regulations or profitability concerns. They're not really adding cows. And so because of that, they're reduced to productivity gains as their herd, actually in fact, contracts. Versus in the United States, where we continue to really be adding more cows, be producing more milk. We're the ones best place to really capture that growing volume.
The tricky thing is of course, Europe, New Zealand are focused on really increasing their value of their milk, because of the fact that if they're not going to grow volume, the best way to grow profits and margin for their farmers, for their cooperatives, for their processing companies, is to add value to that milk. And so they're really focused there and have targeted a number of key areas in high value markets, places like even here in the United States, where we import some of those high value products.
For the US though, where we really are seeing competitors take advantage is in the trade space. So Europe has free trade agreements with, I don't know, how many countries around the world. New Zealand does too, including many crucial dairy markets where they've negotiated in access for their dairy products. So the US hasn't had really a new full on free trade agreement besides the USMCA in quite a while. And so, as a result of that, we're standing still as our competitors are moving forward and getting preferential tariff and regulatory advantages in these phases. And I know you've had Shawna Morris come on and talk about why trade policy is so important. That that's really what we're seeing is this matters on the ground when we're working with customers.
But the other thing here is the US also needs to make sure we're making products for that international market. We are a large, growing domestic market here. As I've mentioned, we're growing our milk supply. We're very good at making products for the domestic market. But how we capture the international market, how we capture higher value products is making products for those international customers, not just, we have extra of what we have here made in the United States. We need to be thinking about the global consumer. 'Cause as I mentioned, that's where the growth is happening. So as we start transitioning and making products, making plants for the international customer, I think that's going to come. But that's, that's where one opportunity of growth for the U S industry.
Stephen Cain, NMPF: Yeah, you said exactly right with what's going to be my next point on really domestic milk production growth. That's a key area where we're really... Just like you said, there's a growing global demand for dairy products. The EU and New Zealand are facing substantial obstacles in growing their herd. And really, we're the only one that has the capacity to add cows, add growth to meet that growing demand. So yeah, I just want to echo that last point again, that our ability to meet that demand and adding cows and adding production is really going to help serve us in terms of the global impact of US dairy on the marketplace.
Alan Bjerga, NMPF: As you were saying, well, you can add all the cows and the productive capacity you want. If you can't get it through the port, if you can't get the product to the con that the global consumer wants, you just end up with a backup here. This really is a system that kind of needs to work with interlocking pieces and flow relatively easily.
William Loux, U.S. Dairy Export Council: I mean that port issue has certainly been an issue that's caused a lot of headaches for US dairy exporters. The fundamental issue that we've had at port is US consumers here at home are buying a lot from Amazon, ordering lawn furniture, all these other goods, because we couldn't spend the pandemic spending them on services, spending the money that we had. And so it created this backup and this incentive to move a lot of products from Asia to the United States. And it just takes time to work through those products. And so it's been tough then, sending products from the U S to Asia, because we had to work through all those ships and that backlog. And so, that's something we're still working on it, and it's something we're keeping a close eye on. But as Stephen mentioned earlier, keeping that communication with customers is always crucial to maintain those relationships, maintain those contacts and sales going forward.
Alan Bjerga, NMPF: What have you seen that somebody listening to this podcast might find a little bit surprising?
Stephen Cain, NMPF: What's hard to wrap your head around, sometimes, whenever you're looking at overall export numbers for the US, that there an ebb and flow always, in terms of where products are headed. And the US is really good at adapting to different scenarios. Over the past year, during the pandemic, Mexico prior to the pandemic had been a key export partner for a lot of products going out of the US. As pandemic hit, economic recovery in Mexico was in question. Demand dropped, but we shifted product that would have been destined for Mexico to other regions around the world, like Southeast Asia, and like others. And so we're still able to have, this great last year, despite everything, these great numbers in dairy exports, although some of our key partners had shifted. So that's really a key piece to look at as well as, not just over top line numbers, but where practice is going, and our ability to react to changing environments in a global setting.
Alan Bjerga, NMPF: We're speaking with William Loux, the Director of Global Trade Analysis for the US Dairy Export Council and Stephen Cain, an NMPF USDEC economic analyst. Will, Stephen, thank you so much for your time.
And that's it for today's podcast. For more on an NMPF trade activities, go to the Trade Policy icon on our homepage NMPF.org, to learn more about the US Dairy Export Council, including the aforementioned dairy export or blog, rich data resources, and up-to-the minute trade developments, visit USDEC.org. And for more of the dairy defined podcast, this podcast is on Apple Podcasts, Spotify, SoundCloud, and Google Play, under the podcast name, Dairy Defined. Thank you for joining us.