Are Exports Contributing to Higher Milk Prices?

June 12, 2022

John Geuss

This post will cover the impact of exports and imports of the four commodities used to price producer milk. They will be covered in the order of their influence on the pricing of producer milk. The first will be cheese. See the May 22 post to this blog which explains why cheese pricing is the most important.

Both cheese and butter exports have seen significant increases in 2021. The increases are in both total volume and percent of production. The export volumes of both cheese and butter are now above six percent of production. Larger exports increase the market and demand for U.S. producer milk, but unfortunately it comes at a time of milk production shortages and domestic cheese and butter shortages.

Cheese exports increased nicely in 2021 but have fallen back a little in 2022 (Chart I). At the beginning of 2016, the 12-month average of cheese exports was 25 million kilograms per month. It hit a high of 35 million kilograms in November 2021 and is at 34 million kilograms at the end of the first quarter of 2022.

Mexico has been the largest importer of U.S. cheese for a very long time. Their purchases have been steady, but with minimal growth. South Korea is the second biggest customer of cheese exports with steady purchases. Japan, Australia, and Canada are also large importers of U.S. cheese. The total increase in cheese exports comes from a broad mix of the importers mentioned above and other smaller importing countries.

Are we exporting a greater percentage of U.S. produced cheese? After five years of no growth, beginning in mid 2021 the percent of cheese production being exported increased significantly (Chart II). The export increases reached almost one percent and have increased U.S. overall demand for cheese. By comparison, the annual growth in domestic consumption is about two percent annually. An export increase of one percent of total cheese production is very impactful.

What's happening with cheese imports? Not much! Cheese imports have remained steady between 15 and 18 million kilograms per month for six plus years. The largest supplying countries include Italy, Canada, and France. Currently, cheese imports amount to about half the volume of exports.

As a result, net exports of cheese did not change much until the later part of 2021 when export volumes increased. Net exports represent the international impact on demand for U.S. cheese. With higher demand, inventories of cheese diminish, and cheese prices increase.

Butter exports have been very minimal until 2021 when they nearly doubled (Chart V). This is unusual as domestic butter supplies are tight.

Butter exports have reached 6.7 percent of butter production in 2022 compared to 2.4 percent in 2020 (Chart VI). At a time of already tight butter supplies, the increase in exports contributes to lower inventories and higher prices.

Butter imports have remained steady for the last three years with a significant amount of butter imported from Ireland. The cultured butter from Ireland is a niche product and represents a new category which cannibalizes the domestic demand for conventional butter.

Butter net exports were negative (imports were larger than exports) in 2019 and 2020 (Chart VIII), but the growth in butter exports have helped turn butter net exports positive.

Nonfat dry milk (NDM) and skimmed milk powder (SMP) have seen significant growth since the beginning 2016 with exports increasing by 54 percent (Chart IX). There are almost no imports of NDM or SMP. NDM and SMP are really by-products of butter production and do not in themselves create increased demand of producer milk. However, exports of NDM and SMP with high prices can and are increasing Class I, Class II, and Class IV milk prices.

Dry whey exports (Chart X) show no growth over time with China as the largest purchaser. Dry whey has found new uses as an ingredient domestically which is helping keep prices high. There are essentially no imports of dry whey.

Overall, exports are showing very nice growth contributing to the demand for U.S. dairy. Because the current increases in exports stretch the demand on the already tight supplies, they are contributing to the current high prices. That is good for producer revenue, but it can dampen consumption.

The next post will cover the recent movements in fluid milk sales. It is not a pretty picture.