Dairy Exports on Pace for Record Year

While 2021 has been a year of mixed fundamentals domestically and internationally, the United States export numbers for dairy products have been a notable bright spot for fundamental data. So far this year, we have seen February, March, April, and May all put in record export numbers for their respective months. The month of March set the new all-time record for dairy products exported in a single month at 253,469 metric tons. Non-fat powder is typically the largest product sold from a tonnage basis for the United States export market, and we did see May put in a new monthly export record at 88,728 metric tons.

With the success we have seen in the export market this year, we can identify two major factors for this strength. First and foremost, the United States has been at a steep discount compared to the rest of the market for the majority of the year. When looking at cheese prices, our domestic spot price for cheese has averaged 30 cents lower than the global dairy trade auction through 2021. This equates to around a 20% discount in our cheese price. We see a similar story with non-fat powder, holding a 25-cent discount to the global dairy trade or a 22% discount in price. The butter market has been even more extreme, with an average discount of 62 cents and a peak of 99 cents so far in 2021. This large discrepancy in price has really pushed butter exports higher, currently averaging 140% growth year over year in 2021. The other factor impacting the market has been the dollar index trading near multi-year lows. The index is currently at the lowest levels since 2018, as pandemic monetary policy has pressured the dollar lower. The weaker dollar gives us an additional advantage in the export market on top of our current discounted prices.

The question is now whether or not the market can sustain the momentum we have seen in the first half of the year to keep exports strong. The recipe for the market to continue this underlying strength is still there, as the dollar has remained in a downtrend. However, global prices have begun to lower over the past couple of months, decreasing the discrepancy with U.S. prices, and removing some of our competitive edge. We could see exports continue to be at or near-record levels, and still may lose some of our recent velocity if global prices continue to move lower. We look toward the upcoming update to dairy numbers on 8/3/21 to see if the current trend remains strong.

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Brad Peterson

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