Dick Groves
Editor, Cheese Reporter

 

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US Becoming Dumping Ground For Global Dairy Surpluses

In recent years, the US has emerged as one of the world’s leading dairy exporters, but at the same time, the US has also remained a major dairy importer, particularly for cheese but also for products ranging from casein to milk protein concentrate.

US dairy imports have been mixed in recent years, but this year they’ve increased pretty impressively, both on a value and a volume basis. And what appears to be happening, at least to some extent, is that the US is becoming a dumping ground for some of the world’s dairy surpluses.

A few very recent import figures help illustrate this point. In July, licensed US Cheddar imports totaled 5.7 million pounds, up some 4.3 million pounds from July of 2014. That represented more than 20 percent of the total annual US tariff-rate quota for Cheddar (27.3 million pounds).

Meanwhile, the US has been importing a pretty high level of butterfat products thus far in 2015. Licensed butter imports during the first seven months of this year totaled 11.2 million pounds, or almost three-quarters of the annual tariff-rate quota (15.3 million pounds). Licensed imports of butter substitutes during the first seven months of 2015, at 7.2 million pounds, are up 5.4 million pounds from the first seven months of 2014.

Also, imports of high-tier butter during the first seven months of 2015 totaled 9.1 million pounds, up an eye-opening 8.6 million pounds from the first seven months of 2014.

And one more import statistic: licensed US imports of dried whole milk during the first seven months of 2015 totaled 4.3 million pounds, up 3.3 million pounds from the first seven months of 2014.

What these higher imports represent, in part, is the fact that domestic dairy commodity prices in the US are higher, sometimes quite a bit higher, than are global commodity prices. This is especially the case for butter. In July, according to USDA’s Dairy Market News, Oceania butter prices averaged under $1.50 per pound, while the CME cash market price for Grade AA butter averaged over $1.90 per pound.

What these higher imports don’t represent, for the most part, is lower domestic production (which would usually necessitate higher imports). Cheddar production through the first six months of this year was running 2 percent above the first six months of last year, although butter production was running 1.4 percent below year-ago levels through June.

And US production of dry whole milk during the first half of 2015 was up more than 30 percent from the first half of 2014.

Because these imports aren’t necessarily needed for immediate use, what we’re seeing is some build-up in US stocks of some dairy products. For example, stocks of American-type cheese at the end of July were up 6 percent from a year earlier and up 2 percent from a month earlier, while butter stocks were up 41 percent from a year earlier (but down 1 percent from a month earlier).
And manufacturers’ stocks of dry whole milk at the end of June were up 74 percent from a year earlier (but down 10 percent from a month earlier).

What these rising US dairy product imports illustrate, to some extent, is the problem some of the world’s leading dairy exporters are currently experiencing. New Zealand is the world’s leading dairy exporter, and New Zealand’s leading export market is China, followed by the US. China is also New Zealand’s leading market for whole milk powder and butter/anhydrous milkfat/cream products, according to figures from the New Zealand government.

But China isn’t buying as many dairy products as it has in the recent past, so New Zealand is looking around for other markets. US government figures indicate that New Zealand has found a market for at least some additional dairy products in the US.

For example, during the January-July 2015 period, licensed US butter imports from New Zealand totaled 2.6 million pounds, up more than 2 million pounds from the same period in 2014.

During the same period, licensed US imports of butter substitutes from New Zealand totaled 6.4 million pounds, up 5.3 million pounds from a year earlier; and licensed Cheddar imports from New Zealand totaled 8.6 million pounds, up more than 7 million pounds from a year earlier.
Meanwhile, the European Union is also facing some dairy export problems, specifically the Russian ban on dairy imports from the EU as well as several other countries, including the US.

Like New Zealand, the EU also seems to have found a home for at least a little more cheese in the US.
During the first seven months of 2015, licensed US imports of other cheese-nspf from the EU totaled 36.4 million pounds, up about 5.5 million pounds from the first seven months of 2014.

Another issue impacting US dairy imports is exchange rates. As USDA’s Economic Research Service puts it, exchange rates “are, arguably, the single most important price for any economy with significant trade.”
From October 2014 to March 2015, the dollar appreciated 8 percent from the preceding six months, which helped boost US import demand, ERS noted.

All of this should be put into the context of the current US balance of dairy trade. That is, among other things, the US remains a net exporter of dairy products, and a net exporter of cheese. And US imports of cheese, while rising impressively, aren’t close to their peak of more than a decade ago.

But it’s a bit troubling to see that, when times get tough for the world’s leading dairy exporters, they tend to look to the US to absorb some of their surplus products. DG


 

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