The long-term trajectory for U.S. dairy exports remains distinctly positive, with growing demand around the world for dairy products – particularly of U.S. origin – despite pandemic-induced uncertainty persisting into 2021.
In spite of the pandemic, in spite of shipping issues and in spite of historic price volatility in the cheese market, U.S. dairy exports in 2020 achieved several milestones.
record in milk-solids-equivalent volume of 2.1 million metric tons
best year of value since 2014 at $6.6 billion
best percent of U.S. milk production exported since the Next 5 Percent plan began at 16.0 percent
Despite a 1.1 percent decline in export milk-solids-equivalent volume in the month of December, U.S. dairy capped off a strong 2020 for exports. As we have outlined during the past several months, there have been crucial reasons for strong growth in 2020.
Whey exports at +24 percent, +107,013 metric tons, benefitted immensely from China’s market reopening following the “Phase I agreement” and exemption for permeate combined with a booming demand as China rebuilt its swine herd.
Nonfat-dry-milk- and skim-milk-powder exports at +16 percent, +111,773 metric tons, surged to Southeast Asia with regional buyers ensuring they had adequate supplies on hand. European Union intervention skim-milk powder was worked through in 2019 and U.S. product was competitively priced.
The cushion cheese exports at 0 percent, -341 metric tons, accumulated in the early part of the year – mainly to East Asia – from product sold before the record prices of the summer and autumn were sufficient to ensure exports remained about equal to the year prior.
But let’s move beyond the topline summary and dig into the December data and what it means for 2021/
Exports hit logistics hurdles
The 15 percent decline in U.S. nonfat-dry-milk- and skim-milk-powder exports in December vs. the previous year is a curious development given market dynamics – one we believe is due in large part to ongoing U.S. port issues.
Here’s the reasoning. U.S. suppliers have enjoyed a price advantage compared to major competitors in the EU and New Zealand since mid-2020 – an advantage that has helped drive U.S. sales. Market indications – skim-milk-powder prices increasing for the past couple of months despite readily available supply – suggests global demand remains strong and the price differential should continue to spur U.S. sales. But that’s not what we’ve seen in November or December.
Shipping issues created by the pandemic have been affecting ports for almost a year. Those issues intensified at the end of 2020, with heightened port congestion and equipment shortages as well as moves by ocean carriers to ship empty containers back to Asia at the expense of outbound U.S agricultural products, including dairy.
For calendar year 2020, U.S. nonfat-dry-milk- and skim-milk-powder exports to Southeast Asia, China and Japan grew 44 percent, 194 percent and 68 percent, respectively, compared to 2019. In December, however, U.S. exports to Southeast Asia to Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam decreased 19 percent, with sales decreasing in five of the six markets. Exports to China decreased 16 percent; shipments to Japan decreased 84 percent.
On the flipside, in December, U.S. nonfat-dry-milk- and skim-milk-powder sales to Mexico increased 4 percent compared to the previous year, with product trucked smoothly across the border.
The facts suggest that the problems at U.S. West Coast ports are taking a toll on U.S. milk-powder exports and that could continue into 2021.
Mexican cheese demand not rebounding
Cheese exports to Mexico continued to see a drop-off in December volumes compared to 2019, with a reduction of about 20 percent at -1,858 metric tons by volume, which follows declines in October and November. Despite that overall exports to Mexico in 2020 were largely in line with 2019 with overall volume slightly less – 3 percent at 2,749 metric tons.
In global terms, U.S. cheese exports to the world in December decreased just 1 percent at 260 metric tons thanks to growth to Japan at +956 metric tons, Canada at +934 metric tons and Korea at +578 metric tons – leaving total 2020 cheese exports flat compared to 2019. Notably that was achieved during a year with unprecedented price volatility.
U.S. cheese-price volatility and wavering Mexican demand continued to be the main culprits for lackluster cheese exports to Mexico. A recent survey of Mexican consumers by McKinsey in November showed that one out of three have reduced household spending due to COVID-19.
Reduced demand is a continuing theme and remains a concern as we move into 2021. With regard to cheese price, even with the most recent food-box announcement, we are seeing more stable prices. That will likely continue into 2021, absent any further drastic government intervention. On a transportation note obstacles in logistics remain, with heavy port delays as well as increasing trucking costs. But the inability to acquire containers may lead to an increased push of product to Mexico via trucks. Overall as we move into 2021, the main factor to watch for U.S. cheese exports will be Mexican demand.
Consider where we go in future
Should we expect U.S. dairy exports to set another record in 2021? Well it’s certainly not guaranteed because exports in 2021 will face substantial headwinds. The continued logistics challenges, not just in the United States but worldwide, have persisted into the new year. Shipping headaches may slow exports, particularly to East Asia, through the first quarter at least. Additionally some data comparison will be less favorable than it was in 2020. Most noticeably U.S. whey exports to China in 2021 will no longer be compared to a period where U.S. dairy dealt with retaliatory tariffs and African swine fever. Finally, 2020 was an exceptionally strong year in terms of U.S. market share in Southeast Asia, so some mean reversion should not surprise observers. That’s still to say nothing about the COVID-19 pandemic and its demand implications.
Still we have plenty of reasons for optimism. U.S. milk production continues to gain steam with growing cow numbers. That new milk will need to find a home, and the export market is the obvious choice given that global demand appears robust with the strong results at recent Global Dairy Trade auctions. The alleviation of shipping problems will result in delayed shipments being moved quickly, causing a short-term surge in exports. Additionally, for new business, the United States remains price-competitive in all major export products, and even in products it does not usually export like butter and anhydrous milk fat. Further expanding the U.S. portfolio into milkfat-heavy products beyond cheese remains an untapped opportunity for export growth. And exports to Mexico should stabilize if not improve when compared to 2020 data.
Regardless of whether exports set a record again in 2021, the long-term trajectory for U.S. dairy exports remains distinctly positive, with growing demand around the world for dairy products – particularly of U.S. origin.
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