April 2023 U.S. trade data showed dairy product export sales weakened substantially. At the same time, demand for dairy replacement heifers is much stronger as countries seek to rebuild herds following foot-and-mouth disease (FMD) outbreaks. Here’s a look at Progressive Dairy’s monthly ag trade summary.
Dairy products
While dairy product export performance was expected to weaken in April, the scale of the pullback and the variety of products impacted was a surprise, according to a monthly market update from the U.S. Dairy Export Council (USDEC).
On a milk solids equivalent (MSE), April 2023 dairy product exports had their worst year-over-year decline in four years. Market softness impacted almost all the major product categories, especially cheese, with only high-quality whey protein concentrate posting a small increase.
The 13% drop in April shipments pulled year-to-date export performance down to -0.3% MSE. With prices lower, export value took an even greater hit, falling 17% from April 2022. Year-to-date value was down 3% through April.
What drove April’s downturn? Global dairy demand has weakened at the same time that competition has increased from Europe and New Zealand, according to USDEC analysts.
On the demand side, sales to China have slowed due in part to higher domestic production. In addition to products imported for human consumption, weaker margins for pork producers in China have dampened the country’s appetite for feed whey, directly impacting U.S. exports.
With lower overall demand from China, New Zealand must also find a home for its whole milk powder, adding to the global market supply.
Beyond China and New Zealand, inflation and economic headwinds have dampened consumer demand globally: U.S. sales to Southeast Asia – still the U.S.’ second largest market by volume – lagged 2022 volumes by 19% through April.
Compounding supply levels, European milk production picked up sharply late last year at the same time demand weakened, leading to lower prices for European products and effectively undercutting U.S. exports in many key markets.
Looking ahead, USDEC expects continued headwinds impacting exports for several months, particularly in Asia. Longer term, potential positives include shipments to Latin America and U.S. product prices aligning with global prices to boost competitiveness. Additionally, lower farmgate milk prices in Europe could slow production growth.
CWT-assisted exports
The National Milk Producers Federation (NMPF) said May 2023 Cooperatives Working Together (CWT) program-assisted export contracts covered 1.2 million pounds of American-type cheeses and 562,000 pounds of cream cheese.
Year-to-date CWT export sales total 19.7 million pounds of American-type cheeses, 594,000 pounds of butter, 24.6 million pounds of whole milk powder, 4.1 million pounds of cream cheese and 2,000 pounds of anhydrous milkfat. This brings the total milk equivalent for the year to 407.6 million pounds on a milkfat basis.
The amounts of dairy products and related milk volumes reflect current contracts for delivery, not completed export volumes. CWT pays export assistance to the bidders only when the export and delivery of the product are verified by the required documentation.
Other dairy export numbers
- Separately, the Department of Commerce/Bureau of the Census estimated U.S. dairy exports through the first seven months of fiscal year 2023 (October 2022-April 2023) at almost $5.2 billion, up 7% from the same period a year earlier. Fiscal year-to-date dairy imports were estimated at $3.3 billion, up 26%, with cheese imports up 8%, at $946 million.
- Despite economic headwinds, the value of 2023 U.S. dairy exports won’t be far below those in the record-setting year of 2022, based on the latest USDA quarterly Outlook for U.S. Agricultural Trade report, released May 31. Fiscal year 2023 (FY 2023, Oct. 1, 2022-Sept. 30, 2023) exports are forecast at about $8.9 billion up from the $8.8 billion projected last February, and not far below the nearly $9.1 billion in dairy product values exported FY 2022.
U.S. dairy, beef genetics exports
The latest monthly export report from USDA’s Foreign Agricultural Service (FAS) estimated April 2023 sales of U.S. dairy replacement heifers to foreign buyers at 3,340 head, the highest monthly total since December 2021. Turkey returned to the market for the first time since 2021, purchasing 2,890 head, with another 225 head moving to both Mexico and Canada.
Dairy cattle buyers from around the world where FMD has decimated herds have been calling looking for replacement heifers, said Tony Clayton, Clayton Agri-Marketing Inc., Jefferson City, Missouri. In his 30-plus years of business, he’s never seen so many importers from countries like Turkey, Qatar, Jordan, Pakistan and Egypt all looking for cattle at the same time.
“Most of these countries have felt the effects of FMD, and reports of milk production is off by 50 percent or more,” Clayton said. “Many cattle have been slaughtered, so cattle are needed to repopulate many farms.”
The FMD outbreaks in Turkey and elsewhere will continue to support demand for U.S. dairy replacements. Tight U.S. supplies of dairy replacements – in part due to beef crossbreeding – remain a challenge. However, some of the most desperate foreign markets are now accepting beef-bred dairy replacements.
Financial challenges include international currencies that are weakening against the U.S. dollar, making U.S. heifers even more expensive. OPEC’s decision to reduce oil output is likely to raise fuel prices and other costs related to sourcing and moving cattle, Clayton said. Then, there’s the strong price for U.S. beef, which pulls more cattle into feedlots and slaughter plants.
Exports of dairy embryos slowed in April to 699 head, a three-month low. Of those, 430 were shipped to China, which remains the leading market. The year-to-date U.S. total stands at 3,760, about 320 behind last year’s record pace.
Beef cattle heifer exports were estimated at 1,053 head, with most (1,034) sold to buyers in Canada; 16 went to the Phillippines. Beef cattle embryo exports for the month were estimated at 385, bringing the year-to-date total to 2,036.
Hay exports weaker
Through the first four months of 2023, the year is shaping up to be weaker for U.S. hay exports.
April exports of alfalfa hay were estimated at 147,809 metric tons (MT), a three-month low; January-April sales are the smallest to start a year since 2015. Sales to most major markets were down, with volumes moving to China matching a 40-month low. Exports of alfalfa cubes and meal were mixed to mostly lower compared to March.
April exports of other hay remained slower, at 79,500 MT. Year-to-date sales total 306,235 MT, the smallest four-month total to start a year in at least two decades.
Ag trade balance: Another big negative
April was another month with a large U.S. ag trade deficit. The U.S. Department of Commerce/Census Bureau estimated the value of April agricultural exports at $14.38 billion and the value of ag imports at $16.28 billion, yielding a trade balance of -$1.9 billion for the month, the largest monthly deficit since September 2022. The calendar year agricultural trade deficit is about $3.8 billion through the first four months of 2023.
Other trade news
- Seven U.S. dairy farmers participated on a USDEC mission to Southeast Asia in early June. For a recap of the trip, read: Travelogue: U.S. dairy farmers learn about market opportunities in Southeast Asia.
- New Jersey-based MCT Dairies was among 40 companies participating in a USDA trade mission to Japan, June 5-8.
- United States Trade Representative Katherine Tai requested dispute settlement consultations with Mexico under the U.S.-Mexico-Canada Agreement (USMCA). The consultations regard Mexican barriers concerning products of agricultural biotechnology.
- Multiple bills in Congress address logistical issues impacting exports, according to NMPF and the International Dairy Foods Association (IDFA). The Ocean Shipping Reform Implementation Act (H.R. 1836) authorizes the Federal Maritime Commission to streamline data standards for maritime freight logistics, and more. Both NMPF and IDFA called on Congress to fully financially support the Federal Maritime Commission in the FY 2024 budget. Within the U.S., the Gross Vehicle Weight Limits State Opt-In Pilot Program (H.R. 3372) would give states the option of allowing commercial motor vehicles to carry up to 91,000 pounds on their interstate highways as long as the trucks are equipped with a sixth axle.
