EXPORTS ON ‘SOLIDS’ FOOTING
What happened?
Lower U.S. fluid milk consumption and higher export volumes are changing the balance of how U.S. total milk solids are being sold. Based on calculations by Progressive Dairy, it’s likely the U.S. exported more total milk solids (butterfat, protein and other solids) during the first five months of 2021 than were consumed domestically through fluid product sales.
What’s next?
Not all the numbers are in for June 2021, but the export-versus-fluid total milk solids trend isn’t likely to change anytime soon. Preliminary June milk production was estimated at 18.96 billion pounds, and the percentage of total solids in milk marketings was down slightly from May, at 12.74%, yielding about 2.4 billion pounds of total solids. The U.S. Dairy Export Council (USDEC) estimated about 199,383 metric tons (or about 439.6 million pounds) of total solids were exported in June, or about 18.2% of total milk solids production.
The USDEC’s latest monthly report suggests all signs point to port congestion remaining a headache for U.S. exporters through at least the end of the year. Despite that, strong overall growth is expected in milk powders, with less certainty regarding whey and cheese.
June fluid milk sales (and total solids) estimates were not available at Progressive Dairy’s deadline. However, on a volume basis, June fluid product sales were the lowest monthly total in each of the previous three years, 2018-20. That’s not a good sign for moving total solids via fluid milk.
Bottom line
Here are the numbers contributing to our conclusion (Table 1).
1. U.S. milk production was estimated at 95.96 billion pounds between January-May 2021. (Historically, about 99.5% of all production is marketed.)
2. Milk is approximately 87% water and 13% total solids (milkfat and nonfat solids). Milkfat carries the fat-soluble vitamins A, D, E and K. The solids-not-fat portion consists of protein (primarily casein and lactalbumin), carbohydrates (primarily lactose) and minerals (including calcium and phosphorus). Milk also contains significant amounts of riboflavin and other water-soluble vitamins.
USDA analysis shows milk marketed through Federal Milk Marketing Orders (FMMOs) over that five-month period averaged 4% butterfat and 9% nonfat solids, or about 13% total solids. If component percentages are similar across all U.S. milk, that translates into total milk solids production of about 12.47 billion pounds.
3. While FMMO data shows about 33.7% of milk marketed through FMMOs was utilized as Class I (fluid products) during January-May 2021, another USDA report summarizes all fluid product sales, including those outside FMMO-regulated areas. Continuing a long-term trend, year-to-date (January-May 2021) sales of all fluid products were down 4.8% from a year ago, at 18.736 billion pounds. Based on those estimates, about 19.5% of U.S. milk production was sold through packaged Class I fluid milk product sales during the first five months of 2021.
4. Depending on the variety of product sold, fat and some other solids may be skimmed from milk used in fluid products. FMMO statistics reveal Class I sales averaged 2.2% butterfat and 9.16% nonfat solids, or about 11.36% total solids, through the first five months of 2021. That means about 2.13 billion pounds of total solids were marketed through fluid products during January-May 2021, or about 17.1% of total solids production.
5. Monthly trade data from the U.S. Dairy Export Council (USDEC) and National Milk Producers Federation (NMPF) shows exports of total solids have been on the rise. Measured in metric tons (MT), monthly exports of total solids have increased from 160,887 MT in January to 217,394 MT in May and totaled 983,803 MT over the five-month period. Compared to a year earlier, January-May 2021 exports of total solids are up 122,973 MT, or more than 14%.
6. A MT is equivalent to about 2,205 pounds. Converting the total solids exported to pounds equals about 2.17 billion pounds, about 40 million pounds more than total solids marketed through fluid products during January-May 2021.
7. Exports of total solids as a percent of total production started the year slow, at about 14%. However, that percentage has been growing, averaging 16.4% for January-March and 18.6% for March-May, peaking at 18.76% in May. Even with the slow start, exported total solids as a percent of total solids production through the first five months of 2021 has averaged nearly 17.4%.
There are both clouds and silver linings in the picture.
The clouds include the decades-long decline in fluid milk consumption, which is giving no indication of changing. Class I milk prices are generally the highest among the four classes of milk under the FMMO system. Reducing Class I volume and value from the FMMO pool reduces uniform prices paid to dairy farmers.
Exports of some products, such as cheese and butter, are frequently dependent on the relationship between U.S. and world prices. Higher domestic prices that benefit U.S. farmers may make those U.S. products less competitive in global markets.
For other products, however, the U.S. and global markets are essentially one, said Peter Vitaliano, NMPF chief economist. Finding a foreign market for them helps support producer milk prices at home.
“About 80 percent of the total solids exported over the past two decades are in the form of dry skim ingredient products: skim milk powder, nonfat dry milk, all types of whey products and lactose,” Vitaliano said. “The U.S. exports so much of its production of these products, and represents such a large share of world trade in them, that for all practical purposes there is just one global market and U.S. and world prices are similar.”
The U.S. dairy industry produces proportionately more skim solids than milkfat, relative to total demand, Vitaliano added. “This ‘structural surplus’ of skim solids used to be sold to the federal price support program, with those stocks overhanding the domestic market. Now, however, the skim solids are sold commercially to other countries at prices well above the old price support level and no longer generate excessive domestic stocks.”
Without the export of those products, increasing U.S. milk and dairy product production and product inventories would weigh even heavier on milk prices paid to dairy farmers.
“The resulting improvement in milk prices from this change to commercial exports from domestic stock-building is significant and needs to be counted in the positive column as an offset to the fact that additional exports are additional Class III and Class IV sales while declining fluid sales are declining Class I sales,” Vitaliano said.
