News and Press

Dairy Exports, 2011 Milk Prices and CWT

Export Assistance Critical to Maintaining Producer Margins

In an article entitled “Food Prices Rise to Record on Commodity Gains, UN Says” Bloomberg Business Week reported in February that:

World food prices rose to a record in January on higher dairy, sugar and cereal costs and probably will remain elevated, the United Nations said. … Dairy prices led advances among five food categories, rising 6.2 percent, the Rome-based agency said. … ‘The new figures clearly show that the upward pressure on world food prices is not abating,’ Abdolreza Abbassian, senior economist at the FAO, said in a statement. ‘These high prices are likely to persist in the months to come.

The impact of rising food prices in the world market, and on developing countries particularly, results in buyer resistance and cancellation of orders putting downward pressure on world prices. In 2008 this led to a major drop in world dairy product prices and the subsequent major loss of U.S. dairy export market share to competitors and financial disaster for  dairy farmers of 2009.

2011-2012: A repeat of 2008-2009?

The question: Is the U.S. dairy industry heading for a repeat in 2011-2012 of the events of 2008- 2009? If so, what can be done to change the impact on U.S. dairy producers, given the importance of export sales (expected to reach 15% of U.S. milk solids) and the industry’s better understanding of the impact of world market developments can have on U.S. dairy producer incomes?

Current world prices for cheddar cheese and milk powders are very high, but they are not yet as high as they reached during the first half of 2008. However, world prices for butter and anhydrous milk fat (AMF) are currently at record levels and a recent Fonterra auction shows AMF prices rising from $2.74 per pound to $2.99 by the fall of 2011. Continued high world food commodity prices for the foreseeable future, as forecast by the United Nations, will eventually have a cumulative impact on the ability of a growing number of countries to continue to finance their food imports. The possibility of a demand reaction and a substantial world price downturn for dairy products will continue to grow throughout 2011 as long as dairy and other food commodity prices remain at current elevated levels.

Supply-side developments

While demand-side developments point to a growing risk of a significant price correction ahead, milk production developments will determine the extent of a world dairy price downturn. Milk supply expansion that could trigger a drop in world dairy product prices is likely to be a factor in the second half of 2011, when New Zealand’s new production season gets underway, and current price levels have had more time to undermine world dairy product import demand.

NMPF analysis of current Fonterra dairy auction prices together with CME U.S. dairy futures indicates that U.S. commercial exports of skim milk powder (SMP) should continue unhindered for the rest of the year, but U.S. cheese export sales could be significantly impacted. Butter exports could run into some difficulty as well.

CWT Export Assistance critical

CWT Export Assistance will be required to make certain that exports of Cheddar and Amerian-type cheeses continue at the level needed to maintain product price levels and prevent a repeat of 2009’s dairy producers’ financial crisis. In order for export assistance to be available at the level necessary to deal with any likely contingency throughout 2011, the additional funding from the two-cent per hundredweight contribution from at least 75% of milk marketed is critical.

If, on the other hand, the 75% percent participation level is not achieved, there is a significant probability that a world price correction in the second half of 2011 will exceed the ability of remaining CWT funds to prevent a sizeable drop in U.S. dairy exports. The consequence of that will be a sizeable drop in U.S. dairy producer incomes.

CWT Membership Drive Update
Eight new cooperative members

While CWT has funding in 2011 and 2012 because of carrying over about $40 million from the 2009-2010 budget, to do the job that will need to be done as detailed in the above article, cooperatives and individual producers representing at least 75% of eligible milk production must make the 2¢ per hundredweight investment in CWT for the next to years.

Fortunately, thanks to 35 cooperatives including eight new members, CWT is well on the way to achieving the minimum level of participation needed (75%) for the 2¢ investment per hundredweight to do forward. The milk volume from individual producers signing up is approaching a billion pounds as well.

A list of the cooperatives already committed to CWT for 2011 and 2012 is available on the CWT website www.cwt.coop.

CWT Export Assistance 2010 Summary
Export Assistance provides excellent ROI

In 2010, the CWT Export Assistance Program helped CWT members to make sales of 77.6 million pounds of Cheddar, Monterey Jack, and Gouda cheese and 33.0 million pounds of butter and anhydrous milk fat. The product sold and shipped in 2010 resulted in dairy farmers receiving $397 million of additional revenue or about 18¢ per hundredweight.

Two-thirds of the cheese and half of the butterfat were shipped in 2010. Every dollar CWT paid in export assistance for products shipped in 2010 returned $28.90. The analysis was done by Dr. Scott Brown of University of Missouri and the Food & Agricultural Policy Research Institute. Dr. Brown’s complete analysis is available on CWT’s website, www.cwt.coop.

In the three months of 2011, CWT assisted five member cooperatives in selling 19.9 million pounds of Cheddar, Gouda, and Monterey Jack cheese to customers in North Africa, the Middle East, Central America, and Asia.