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With Explosive Dairy Exports, Could Increased Demand Drive the Dairy Markets Higher into 2021?

October 2, 2020

Dairy exports are explosive. The latest data shows milk exports are up 14% in value compared to the same time last year. And considering one day’s worth of milking goes to the export market every week, this is welcome news.

“China is a great example of a market where there's a lot of opportunity for dairy in general,” says Matt Gould, Chief Market Analyst with Rice Dairy. “Then, when you look at the different bids suppliers like New Zealand, Australia, Europe, and the U.S., there's a lot of opportunity for us to grow market share.”

Gould thinks the biggest opportunity will come in the form of countries like China wanting whey.

“The two main producers of whey products are the U.S. and Europe,” he says. “China’s pork industry in particular has become very dependent on lactose as a way of increasing rate of gains for piglets. And our industry is well positioned to support their industry.”

Gould says the downturn in interest from China came when the trade war started. Then, African Swine Fever (ASF) wiped out much of China’s hog herd, so the country didn’t have as great of a need for whey anymore. However, now, Gould thinks the tables are turning.  

“We now have a phase one trade agreement with China, which is kind of the opposite of the trade war and also rebounded hog herd, or a healthier hog herd in China, so there are all kinds of opportunity for U.S. dairy to grow our share, and also to take advantage of incremental new demand.”

While exports may continue to grow into China, Ryan Yonkman of Rice Dairy cautions the news may not drive milk futures much higher.

“We've put an immense amount of focus in 2021, on really setting floors, whether it's buying CME put options, or using the DRP program, which we think is really the best play as you walk into next year, and a way to buy subsidized puts underneath your Class III or your Class IV milk,” says Yonkman. “[The] focus has really been on that class III market going into the first half, as it's giving us a good look.”

Yonkman says on the flip side, due to the increased export interest, he thinks the fundamental for Class IV milk futures look strong.

“Fundamentally, as we talk about exports, we have a nonfat market that’s really poised well; it's been competitive, really the cheapest in the globe all year long, along with our whey market, so it looks like it has fundamental strength,” he says. I’d be a little more patient on that part of the check.”



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