Cheese and Butter Exports and Imports for 2019
February 23, 2020
Dairy export and import data for 2019 was recently released by the United States International Trade Commission (USITC). It was a tough year for exports in general as new trade agreements were being negotiated. In particular, the "trade wars" with significant tariffs being levied by both sides in the trade negotiations impacted exports to Mexico, Canada, and China. This post will review cheese and butter exports and imports as they are the most important commodities used in pricing producer milk.
The highlights are as follows: All comparisons are 2019 vs. 2018.
-Cheese exports are up by three percent.
-Cheese imports are up by one percent.
-Therefore, cheese net exports are up by five percent.
-Butter exports are down by 46 percent!
-Butter imports are up by 10% percent.
-Butter net exports (really net imports) more than doubled on weak exports and strong imports of butter. The U.S. imports twice as much butter it exports.
CHEESE EXPORTS Cheese exports showed growth in 2019 in spite of a difficult environment as trade negotiations with Mexico, Canada, and China resulted in significant changes in tariffs. The largest percent increase over the prior year came in the first quarter before trade negotiations "heated up." The last three quarters produced almost no gain (Chart I).
Mexico is by far the largest importer of U.S. cheese. For 2109, these exports were down by 1.2 percent. The largest volume and percent decline in exports came from China with a 54.3 percent drop in volume.
However, there were two amazing offsets to the "trade war" impact. First of all, there were significant gains in cheese exports to South Korea and Japan. Secondly, there were very nice gains from the 106 countries that are smaller customers. Those smaller export markets make up only 20 percent of the total export volume but contributed a 9.3 percent gain over the prior year.
Cheese imports are significant and contribute to the domestic supply of cheese in the U.S. These imports are about 50 percent the size of exports, so they do have a significant impact on total U.S. cheese supply and availability. Cheese imports did grow in 2019 compared to the prior year, but only by one percent. Chart II below shows the YTD growth of imports over the prior year.
These imports came primarily from the five countries shown below in Chart III. Together, these five countries make up over 50 percent of cheese imports to the U.S. Italian cheeses are by far the most popular imports and showed significant growth.
Total cheese exports less cheese imports is defined as net cheese exports. Because the imports contribute to the available supply of cheese for U.S. consumption, they lessen the amount of U.S. produced cheese needed for consumption which in turn lessens the amount of milk needed for cheese. Because cheese exports grew by three percent in 2019 and cheese imports grew by just one percent, the net cheese exports grew by five percent as shown in Chart IV below.
A growth of five percent in net exports amounts to just 0.1 percent impact on total U.S. cheese demand. BUTTER Butter exports took a plunge in 2019, down 44 percent from the prior year as shown in Chart V. That is a huge drop! The first quarter had a very small decrease and the remainder of the year had decreases of over 50 percent compared to the prior year.
Most of the butter exported from the U.S. goes to Mexico and Canada. The trade war had a huge impact as shown in Chart VI. Butter exports to Mexico fell by 75 percent and exports to Canada fell by 33 percent.
Butter imports increased again in 2019, this time by 10 percent over the prior year as shown in Chart VII.
The imports were again driven by U.S. demand for Irish butter. The demand for Irish butter is not price driven. It is driven by a uniqueness of taste and excellent marketing. Irish butter has grown by 25 percent in 2019 vs. the prior year. In 2019. Irish butter imports were 30 million pounds or about 50 percent of total butter imports. Very importantly this in not commodity butter subject to competitive pricing, but branded and unique butter. It has now gained a market share of roughly three percent of total U.S. butter consumption.
Chart IX shows the growth of Irish butter in the last five years.
Butter consumption in the U.S. is growing at around 2.5 percent annually and Irish butter imports are grew at 25 percent in 2019. At this time, the growth of total imports of butter satisfy about one third of that growth. That leaves only two thirds of the consumption growth for U.S. produced butter.
Exports can drive demand for U.S. dairy products. With declining domestic consumption of fluid milk, yogurt, and ice cream, increased exports of dairy products are desperately needed. There have been significant improvements in trade agreements in 2019 and there is hope for more new trade agreements in 2020.
Also driving exports is price competitiveness in the global markets. There are two things that can make U.S. dairy products financially attractive in the international markets. Exchange rates are an important factor in exports, but there is little that can be done within the dairy industry to manage exchange rates. But, being a low-cost provider is extremely important and can be managed by producers and processors. The year of 2019 has been very harsh on less productive producers. That said, the harsh realities of the capitalistic system are the key to survival.