Somehow, the world has seemed to come out of a two-year pandemic and entered even odder times. Inflation is at levels not seen in decades, the housing market is all but out of control, businesses are desperate for workers, and products and materials have become scarce at levels many people have never experienced. Though we will not discount the human suffering involved in war, the effects of this conflict on global commodities are substantial. Ukraine exports roughly 17% of the world’s corn, Russia and Ukraine combine for around 30% of the world’s wheat exports, plus the area is involved in the production of many energy and fertilizer products. There really is nothing in recent times to compare to this situation.
Ukraine’s dairy export presence on the world stage is nothing notable, though the consequences on grain/feed prices and inputs for U.S. dairy producers has and will continue to be felt. When it does come to dairy exports, the U.S. essentially competes with the European Union, New Zealand, and Australia.
The European Union
The European Union’s 27 countries combine for the second highest milk production. (Although India is highest in milk production, it uses most of its capacity domestically.) The European Union (E.U.) has not seen milk production slide a great amount in recent years, with Germany, France, Netherlands, Poland, and Italy leading the way. There is some concern on what the shift towards “green” energy will have on some of these countries in the coming years. Many governments have tried to encourage a shift away from milk production due to methane and manure concerns. These issues are in their infancy and should be monitored in coming years. Although the E.U. is a big exporter of milk, it exports remain only about 10% of production due to its large domestic demand.
New Zealand and Australia
New Zealand dairy production relies heavily on pastureland for feed. The weather in 2021 was poor in many areas, characterized mostly by an abundance of moisture, which has led to lower milk production for the last year. On top of that, supply chain issues regarding feed and fertilizer products plus a lack of workers due to harsh COVID restrictions have added to the production pinch. The country exports 95-98% of its milk production and is the largest exporter in the world.
Like New Zealand, Australian milk prices are rallying due to lower production and high demand. Weather has been difficult and high beef prices have helped to cut cow numbers, while demand for products is solid.
The United States
The United States produces the third most milk in the world and exports roughly 15-18% of its production in various forms. Exports have been robust over the last year, in large part due to the issues mentioned above in competing countries, with China and Mexico representing the two biggest importers of U.S. products. Butter exports in the month of March were more than 7,200 metric tons, the largest monthly total since March 2014. April and May were no slouch at 6,804 and 5,128 metric tons, respectively. Cheese exports were just under 42,000 metric tons in March, breaking the previous record monthly total from April 2021. April and May both held over 40,000 metric tons as well.
Looking forward, some concern regarding the higher dollar and its effect on U.S. exports is warranted. The U.S. Dollar Index hit its highest point in two decades in July, and the notable technical breakout could bring more follow-through. On top of that, history tells us that milk production will increase given current price levels, although possibly at a slower pace given the higher input costs.
We’re Here to Help
Given all the uncertainty with the U.S. and global dairy markets, trying to guess price direction remains a fool’s game. However, the market has given producers ample opportunities to mitigate downside risk on milk. Volatility will keep things exciting.
At Total Farm Marketing, our consultants work with dairy farmers every day to help manage the market and its impact on individual operations. Contact us if you have questions on how to best address the issues and conditions that affect you and your business.