September 2, 2013 — It’s hard to see world dairy prices falling anytime soon, according to Alan Levitt with the U.S. Dairy Export Council. He told us about it on Monday’s DairyLine Radio program.
DLR: Alan, how important has the world market been in supporting the U.S. market in 2013?
Levitt: The U.S. All-Milk price has been between $19 and $20 every month this year and that’s actually pretty remarkable. The milk price this year is going to be the second highest ever – just a little shy of the 2011 record. I think that this is even more remarkable that this is taking place in a period where domestic consumption has actually been pretty sluggish and our inventories have grown.
DLR: You reported that the real difference maker this year has been the strength of the global markets and also the way U.S. suppliers have been committed to exports.
Levitt: To put that into context, the first half of the year, we exported 14.7 percent of our milk production on a total solids basis. That’s a record. We sold half of our milk powder, nearly 6 percent of our cheese and 7 percent of our butter overseas. Those sales have been critical to help clear the domestic market and keep supplies more balanced at home.
DLR: That’s great news but are we gaining share at all?
Levitt: Yes, from a business standpoint the good news is we have gained share against all of our major competitors this year. In the first half of the year, U.S. share of exports – milk, powder, cheese, butterfat and whey, from the top nine exporters in the world was 18.4 percent…so we’ve picked up a couple points of share there (from last year). New Zealand gained a half-point because they had some heavy shipments earlier in the year. The EU has lost share for the third straight year. Australia, Argentina and Ukraine have also declined, so we’ve been able to pick up a little bit there.
DLR: Do you see this continuing? What’s the outlook?
Levitt: I think the outlook looks really good for the rest of the year, maybe even into 2014 as well. Right now international prices are still quite a bit higher than they were last year at this time. We’re up 50-60 percent on milk powder, we’re up 20-30 percent on cheese and butter, and there are really no signs of weakness in the marketplace ahead of us. It’s hard to see prices falling in the short and medium term.
The world is still under supplied. We had an extended stretch of lagging milk production worldwide so the cupboard is bare in Oceana and in Europe stocks are pretty light as well.
DLR: What about the demand side?
Levitt: Buyers had bought ahead to some extent, but they are not really fully covered and are going to have to continue to buy. Global demand, as usual, is underpinned by China. Imports there were up 19 percent in the first seven months of the year, and Russia has also bought heavily. So that has offset a little more cautious buying from some of the other major importers like Mexico, Southeast Asia, Japan and Algeria. Imports have been flat in those markets this year.
DLR: What factors should we be keeping an eye on?
Levitt: I think the key now is to see how the Oceana spring flush plays out, that’s how it is most years. The season is underway now and the early reports are good. Pasture conditions were favorable in the off season – they had mild temperatures and good participation. They are off to a positive start, but I think it’s also going to be tough for them to show much increase over last year because they had a record flush last year and they are still coming off a drought that curtailed the end of last season, so that’s the main factor. The outlook is for continued tight supplies and strong global prices at least through the end of the year and then that, in turn, is going to support U.S. prices and that’s going to be beneficial for U.S. dairy farmers.