Dairy Production and Trade Developments

This edition of the "Dairy: World Markets and Trade" circular is based on post reports submitted since January 2003 and on available secondary information.  Scheduled reports were received from Canada, Mexico, European Union, Russia, Japan, Australia and New Zealand.  An off-schedule report was received from Peru.  U.S. information is from USDA sources.  No changes were made to the data for countries not reviewed.  Reflecting the greater availability of information electronically, production and trade data for some countries is only shown in aggregate.   Detailed data for both listed and non-listed countries can be found on the following website:  http://www.fas.usda.gov/psdonline/psdHome.aspx

 The individual country reports can be obtained from the following website:
            http://www.fas.usda.gov/scriptsw/attacherep/default.asp

 Situation and outlook information on the U.S. dairy industry can be obtained from:
           http://www.ers.usda.gov/publications/so/view.asp?f=livestock/ldp‑mbb/

Summary

Major factors affecting international dairy trade since December 2002 have been the depreciation of the U.S. dollar relative to the currencies of most other dairy product traders and the drought in Australia.  Trade volumes as evidenced by actual and estimated exports remain relatively high, but import demand, as evidenced by international prices, remains on the weak side.  Final settlement of the WTO action against Canada’s method of subsidizing exports is probably the most significant policy development of concern to U.S. trade.  For the first 5 months of 2003, U.S. exports of dairy products are running below the 2002 pace while the pace of dairy imports is up from that of 2002.

Production, Trade and Prices  

Aggregate cow milk production in selected countries for 2003 is now forecast at 392 million tons, about a half percent above 2002.  Compared to the December 2002 edition of this circular, the largest milk production change is in Australia where the drought proved to be more severe than originally thought.  Forecast production in the United States is down due to lack of growth in productivity per cow, which more than offsets an up-tick in cow numbers. 

Cheese production is now expected to reach 12.6 million tons in 2003, essentially the same as the revised 2002 estimate.  Compared to the December release, 2003 estimates for the United States and the European Union are each up a percentage point while Australian production is down by the same proportion.  Forecast cheese exports in 2003 are about the same as in December, however, the estimate for 2002 has been revised upwards.  Within the aggregate, the estimate for New Zealand was revised upwards reflecting a significant drawdown in stocks. Australian exports are down as a result of the reduced prospects for milk production due to the drought.

International cheese prices (fob N. Europe) for June were in the $1,750 to $1,900 per metric tons range, up more than $100 from December.  Month-to-month price increases have been fairly regular since December.  Within the United States, cheese prices moved sharply higher (plus 30 percent) during late June-early July.  The higher U.S. prices mainly stem from reduced monthly cheese production levels. 

Butter production in aggregate in 2003 is forecast to increase about one percent from 2002.  Based mainly on developments in New Zealand, aggregate 2003 exports are now forecast to be higher than in 2002, rather than shrinking as was shown in December.  Export forecasts for the EU were also increased largely in response to both higher production and prospects for increased end-of-year stocks.

June 2003 international butter prices were in the $1,275 to $1,400 range, up from December 2001, but still well below those of other dairy products.  Significant improvements in international butter prices appear unlikely based on the forecast buildup of international stocks.

Nonfat dry milk production in 2003 is now forecast at 3.5 million tons, above the December forecast, but 1 percent below revised 2002. Stronger production in the United States accounts for much of the forecast increase.  Exports in aggregate are forecast at 1.1 million tons, marginally below the December forecast.  Forecast exports for the EU, New Zealand, and Australia were reduced from December reflecting lackluster demand.  Increased food-aid shipments are the major factor behind the forecast increase for U.S. exports.

International NDM prices are currently in the $1,600 to $1,725 per-ton-range, little changed from December.  Though forecast end-of-year stocks are down from 2002, rather large government holdings in the United States and the EU tends to minimize the chances for a significant run-up in international prices 

Production of whole milk powder (WMP) is currently forecast at 3.2 million tons, roughly 2 percent above the revised 2002 level.  Compared to December, forecast output in the EU is down, largely reflecting the sharp downward revision in 2002.  Australian output is down, reflecting reduced milk production.  Low butterfat prices continue to give New Zealand the incentive to export WMP rather than NDM and butter. 

International prices for WMP had been slightly above those for NDM; however, in June the two series converged.  Patterns of price movements for WMP have largely mirrored those of NDM.  Forecast end-of-year stocks for WMP are relatively low; however; a significant price run-up is unlikely because NDM stocks are large and NDM can readily substitute for WMP.

Exchange Rates

During the last two years, the currencies of three major competitors of the United States have appreciated significantly relative to the U.S. dollar.  Compared to June 2001, the Euro is up over 35 percent, while the New Zealand dollar was up more that 40 percent and the Australian dollar moved 28 percent higher.  These changes, of course, impact the competitiveness of exports from these countries relative to those of the United States.  Their system of support prices plus frequent adjustments in subsidy rates largely protect European milk producers while producers in Australia and New Zealand bear more of the brunt of such changes in their milk checks.

 Actual and Index Exchange Rates for the EU, Australia, and New Zealand

Source:  Pacific Exchange Rate website.

Policy Developments

Final settlement of the WTO action against Canada’s method of subsidizing exports is one of the more significant policy developments of concern to U.S. dairy trade.  U.S. dairy product trade with Mexico is also being affected by the removal of most tariffs and quotas on dairy products.  This action, a part of final NAFTA (North America Free Trade Agreement) implementation became effective at the beginning of 2003.

Other policy developments which include a new round of world trade negotiations, various regional and bilateral negotiations, including some that do not include the United States, expansion of the EU, and reform of its policies, have important implications for world dairy trade.  However, the impact of most of those policies is well beyond 2003, the main focus of this publication. 

The settlement with Canada, based on 5 years of WTO activity, was announced on May 9^th, 2003.  Details on the case and settlement can be obtained from the following website:  http://www.ustr.gov/releases/2003/05/03-29.pdf

Year-to-date Trade for the United States

Bureau of the Census export data for the first 5 months of 2003 show that the pace of U.S. dairy product exports is running slightly behind that of 2002.  For January–May of 2003, the total value of dairy exports was $366 million compared to $387 million in the same period of 2002.  Milk powders, which depends on export aid from the Dairy Export Incentive Program (DEIP) or food aid programs are up but declines for cheese, whey products and miscellaneous dairy products more than offset those gains

On a regional basis, the value of shipments to Canada and Mexico, the two leading markets, are essentially the same as last year while Japan, the number 3 market, and most other Asian countries are down.

Data on dairy imports, also from the Bureau of the Census, show the pace of imports during the first 5 months of 2003 running ahead of that of 2002 -- $682 million this year compared with $627 million last year.

For cheese, the major dairy product imported, both volume and value are running above last year Similarly, volume and value data for imports of both casein and milk protein concentrate are higher than the same months of 2002.

Last modified: Thursday, April 06, 2000