Dairy Market Update: U.S. Dairy Industry Gains Ground as Global Exporter

Just a few short years ago, few in the dairy industry thought the United States would see the growth in dairy exports that's taking place today. Between 2000 and 2004, the federal government purchased an average of 500 million pounds of nonfat dry milk under the Milk Price Support Program (MPSP), because no commercial outlet existed. Nearly 140 million additional pounds of nonfat dry milk received export subsidies under the Dairy Export Incentive Program (DEIP) during that same period.

But, two years ago, the world began coming to the United States for powder.

In 2004, total exports of powder more than doubled from 2003, reaching 511 million pounds. Since only 105 million pounds received DEIP subsidies that year, nearly 80% of the powder exports occurred without subsidies. In 2005, there were no DEIP subsidized exports (and no purchases under the Milk Price Support Program either), and yet total U.S. exports of powder increased to 612 million pounds; that represents over 40% of all the powder produced in the country last year. Through the first eight months of 2006, U.S. powder exports are nearly on pace with 2005 exports, moving 447 million pounds versus 461 million pounds a year ago, again with no DEIP subsidies.

What's more, the world market price for powder during the past 30 months has exceeded the average U.S. market price, sometimes by a substantial margin. From March through June of 2006, the U.S. Department of Agriculture (USDA) purchased more than 63 million pounds of nonfat dry milk under MPSP at $0.80 per pound. According to USDA, the U.S. West market price for nonfat dry milk never dropped below a monthly average of $0.81 during that period. Even more important, the world powder price remained far above both the U.S. market price and the USDA purchase price. Since the first quarter of 2004, there has been only one month, December 2005, when the U.S. West market price exceeded the midpoint of the reported high and low price for powder in Europe.

Now, just a few months after USDA's purchase and with unsubsidized exports near record levels, the domestic dairy industry is crying out for nonfat dry milk. USDA's Agricultural Marketing Service reports that sale prices in the central and eastern states in the seven days prior to October 26 reached as high as $1.65 per pound, although most sales were between $0.95 and $1.63 per pound.

These facts represent only one use of farm milk in dry milk products. U.S. exports of whey and lactose products also are growing. In 2005, whey exports represented 40% of all U.S. whey product production, and they continue to rise, already increasing through the first eight months of 2006 by 23% over last year. Exports of lactose products in 2005 accounted for more than 60% of all U.S. production, and, so far this year, these exports are running 17% ahead of last year.

The U.S. dairy industry clearly benefits from increased demand for our products in export markets. Let's hope U.S. dairy policy adjusts to keep pace with our emergence as a growing player in the global dairy export market.

Posted October 30, 2006