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U.S. Dairy is a Bargain



U.S. cheese and butter prices are among the cheapest in the world. Steep declines in U.S. dairy product prices have more than offset the strengthening dollar, which suggests that the United States could account for a greater share of global dairy trade despite the currency effect and the myriad of ways Covid-19 has throttled trade. USDA’s Dairy Market News reports that Asian buyers are showing renewed interest in European cheese. Today’s cheese values suggest the United States should be able to gain some of Europe’s immense market share. However, Mexico’s poor economy and weak peso are likely to reduce sales to America’s top market. If there is butter export business to be had, the United States will be a strong contender. The CME spot butter price dropped to a 10- year low of $1.15/lb. today, and the futures settled a nickel lower, at their daily trading limit. By comparison, Oceania butter values are simply too high for importers seeking value. After adjusting for butterfat and currency, EEX butter futures are trading at a slight premium to CME futures. The lowest reported European offers are about halfway between CME spot butter and nearby butter futures. If European butter merchants seek to undercut U.S. butter values, they might consider the European Union’s Intervention storage program rather than export. The European Commission will purchase up to 50,000 metric tons (MT) of butter for Intervention at a fixed price of €2,217.50/MT, equivalent to a U.S. price of just shy of $1.07/lb. at 80% butterfat. While EEX futures stand noticeably above the Intervention price, CME spot butter is only about 8ȼ higher than the Intervention floor. The United States imported a record-high 148 million pounds of butter and milkfat in 2019. U.S. butterfat imports exceeded exports by 93.6 million pounds, and net butter imports were equivalent to roughly 11 days worth of U.S. butter production. Low U.S. butter prices will clearly discourage imports even if logistics prevent a major uptick in exports, which will help to marginally offset some of the massive increase in domestic churning.

DailyDairy Vol. 9, No. 8 / April 13, 2020 REPORT