New York, March 31 - U.S. exports grew by 24 percent and accounted for 11 percent of total U.S. dairy production in 2007, according to a new Rabobank report.
According to the recent report, "U.S. Dairy Ag Focus," the international market is becoming increasingly important for the U.S. dairy sector. "In 2007, dairy prices on the international market increased to unprecedented levels," said Rabobank Food & Agribusiness Research and Advisory Managing Director Deborah Perkins.
Exports increased 24 percent by volume and 59 percent by value over 2006 with approximately 1.4 million metric tons valued at $2.9 billion being exported in 2007. Mexico, Southeast Asia and Canada account for the three largest destinations for U.S. dairy exports in 2007 making up about 60 percent of the export market.
"If production growth continues to exceed that of domestic consumption, as is forecast for 2008, exports are going to become increasingly important to the ongoing profitability of the U.S. dairy sector," said Perkins. "The share of production being exported has increased from 5 percent in 2002 to approximately 11 percent in 2007. Historically, exports have been assisted by government support, but the recent growth has been based on commercial merits."
Since 2002, global demand for dairy products has been increasing nearly 3 percent annually compared to a production increase of less than 2 percent. This imbalance of supply and demand resulted in a drawdown of stocks. However, it wasn't until early 2007 that stocks were depleted, and by later that year, prices had increased by up to 150 percent
year-over-year depending on the product.
"The prices of all products were trading at record levels, some by a considerable margin, enabling the United States to be competitive on the world market in products such as butter, skim milk powder and whey," said Perkins.
However, international prices began to come down falling between 3 and 15 percent from their peak in November 2007 to February 2008. In the medium term, there could be further moderation in prices depending on domestic demand in key import regions. "Even so, international prices are expected to remain above their traditional trading levels with volatility in prices being more pronounced," said Perkins.
One of the reasons that the U.S. dairy sector has looked at increasing its dairy exports, is a surplus of milk. For the last three years, milk production has grown more than 2 percent annually, but demand has grown less than 1.5 percent. In the coming year, production is forecast to increase by at least 2 percent again -- due, in part, to additional cows and increased production per cow.
"To counter the difference between supply and demand, the dairy sector should take a two-fold approach," Perkins said. "To address weakness in domestic demand, the dairy sector should continue educating consumers that dairy is an important component of a healthy lifestyle. Additionally, in terms of exports, the industry needs to change its view from simply a convenient way to dispose of surplus to a more focused portion of business operations in order to be successful in the long term."
The premier bank to the global food and agriculture industry, Rabobank is a global financial services leader providing institutional and retail banking and agricultural finance solutions in key markets around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the 25 largest banks worldwide, with over $800 billion in total assets and operations in over 35 countries. Rabobank is the only private bank in the world with a triple A credit rating from both Standard & Poor's and Moody's, and is ranked among the world's safest banks. In the Americas, Rabobank is a leading financial partner to the entire American food and agribusiness industry and is a specialist in sophisticated, customer-driven solutions in the Global Financial Markets and Corporate Finance arenas. Rabobank also provides retail and commercial banking services in California; leasing; and real estate lending, operating loans, input financing and crop insurance to American agricultural producers, input suppliers and agricultural manufacturers.