Alan Bjerga, NMPF: Hello, and welcome to the Dairy Defined Podcast. Trade equals turbulence in 2022. Today we have two members of NMPF’s economics team working in tandem with the US Dairy Export Council on dairy and trade issues, William Loux and Stephen Cain. Will is the vice president of global economic affairs for the US Dairy Export Council, providing strategic analysis and insight into the global dairy market.
Thanks for joining us, Will, and congratulations on your recent promotion.
William Loux, USDEC: Thanks for having me, Alan.
Alan Bjerga, NMPF: Stephen Cain is the director of economic research and analysis at NMPF, providing economic analysis with a focus on both domestic production and global trade. He’s heavily involved with the Cooperatives Working Together program, which boosts dairy exports.
Good to have you here, Stephen.
Stephen Cain, NMPF: Happy to be here.
Alan Bjerga, NMPF: Let’s start with you, Will. Trade’s becoming a bigger and bigger deal for dairy with each passing year. Twenty twenty-one was a record year for exports. What’s this year looking like?
William Loux, USDEC: Twenty twenty-two is going to have quite a few more challenges for US dairy exports than 2021 did. There’s a couple different things driving that. For one, US milk production has been relatively constrained to start the year. We’ve seen year-over-year declines in milk production growth through March, at least, of this year. As a result of that, there’s less product, frankly, for the United States to be able to export. At the same time, we’ve had strong domestic demand, continuing to pull more product that is made into that domestic market, limiting some opportunities for export growth. But outside of that, we’ve also got a few other factors. For one, there continues to be logistics frustration on the West Coast. Obviously now, what’s happening with China continues to be a major issue as well. But the final thing here is also, we have relatively high prices right now, and obviously that is good news for farmers, but what that does mean is lower-income consumers in several of our key markets are really kind of pushing back or thinking a bit more before they pick up that extra dairy or cheese or something at the grocery store.
So, as a result of that, we’re seeing a little bit more subdued export performance to start the year, at least as far as volume goes. But as far as value goes, we’re actually really starting off the year incredibly strong, because we have these higher prices, which is helping boost our overall export value. But on top of that, we’re also exporting more of our higher value products too. Cheese is up, butter is up, high protein whey products are also up. So, that’s kind of creating this mismatch between total volume, at least to start the year, though I think the second half of the year will be much better compared to value, which is really starting the year off strong.
Alan Bjerga, NMPF: Stephen, I’d like to delve a little bit more into some individual markets here. By the way, we should all mention that you have an excellent piece in Hoard’s Dairyman this week, taking a look at some issues with China. So, maybe we should talk a little bit about that and supply chains, and then give us a little bit of a tour of around the world in dairy.
Stephen Cain, NMPF: Yeah. To Will’s point, for 2022, I think we’re in a time of inflation, that consumers’ currency isn’t stretching quite as far as it used to. I think we’re going to see some pushback from consumers at some of these high level prices, especially in Sub-Saharan Africa. It’s definitely going to take place. We’re not a major exporter to the region, so it won’t be impacting US exports as much, but other regions like the Middle East, North Africa, I think we’re going to see some pushback a little bit on these high prices, maybe some push towards some substitutes, where they are less expensive. To Will’s point, we’re in a higher priced environment all around, so even some of the substitute products are expensive, and it’s difficult to substitute those. So, overall I think we’re going to see some pushback from some more price sensitive regions throughout the world.
Alan Bjerga, NMPF: And the Hoards’ piece we just mentioned, by the way, is titled Chinese Port Woes Could Snap Back to US. Talk a little bit about that.
Stephen Cain, NMPF: To Will’s point, we’re still having some issues getting product out of the West Coast of the United States, but a growing issue that’s taken place over the last six weeks has really been the buildup and the backlog into Chinese ports, especially outside Shanghai. COVID-induced lockdowns throughout the region have grown in number and intensity and the amount of people that are being locked down. That’s effectively shut down some of these ports.
Right now, as of late April, there were over 500 vessels waiting to berth outside of Chinese ports. That backlog is really going to have an impact on global supply chain as well as Chinese demand moving forward. Chinese demand already has been a little weak in whey’s S&P. Whey really driven by the market dynamics with pork industry not being as driving for use of high-value feed content like whey. But what’s going to be a bigger issue now is just getting product into the country as well as those trans loading, getting product from the ports further into the country. So, I think we’re going to see some continued issues from that, but we’ll have to keep our eye on that to see how the Chinese government reacts to the backlog, how they handle that, to see how that really impacts the larger global supply chain.
Alan Bjerga, NMPF: From a US perspective, from the point of view of an American dairy farmer, Stephen, what’s the brightest spot for dairy trade right now?
Stephen Cain, NMPF: Yeah, yeah. To Will’s point, high value whey protein has been pretty positive, seen some strong growth last year. I think we’ll continue to see that this year, especially in the countries like Japan and South Korea, that focus on healthy aging, healthy living. That’s going to continue to drive use of those products. Global cheese demand also remains strong. I think we’ll continue to see that throughout 2022, especially as regions continue to reopen, things get back to normal. Southeast Asia, especially in those terms, they’ve been on and off in lockdowns throughout the pandemic. But we’re starting to see some prolonged re-openings. People are getting back to normal in Southeast Asia. That’s going to be a boom for demand within the region.
Alan Bjerga, NMPF: Looking ahead, Will, one thing you’ll hear is an argument for future US dairy export growth is, we don’t have the same supply constraints as some of our competitors. The market keeps growing. The US is better able to grow with it. Are we seeing any signs of that yet? Tell us how the big shifts are happening in dairy global trade.
William Loux, USDEC: Yeah, happy to, Alan. So, I think for one, you’re absolutely right. We are starting to see evidence of that shift, and the fact is the US is the one that is structurally able to grow with global dairy demand, which is still growing overall. Even in this inflationary environment, we’re seeing consumers around the world really look to dairy, but specifically on the structural and milk production growth that we’re talking about. So, I mentioned up at the top that US milk production has been relatively subdued to start the year. That’s certainly true, but that’s kind of being led by short-term issues. So for one, we haven’t really added too much new capacity so far this year. For another, we’ve had really high input costs on our farmers, making it less profitable, even as prices have risen.
William Loux, USDEC: Europe and New Zealand are dealing with similar issues. You haven’t seen much new capacity come online. They are dealing with incredibly high input costs, especially Europe, as it relates to energy with Russia, Ukraine. But they’re also dealing with higher feed costs and the like as well. So, they’re running into these temporary issues on top of the fact that weather wasn’t that great this past year. But they have some structural issues that are really going to be more of a constraint moving forward. That’s where I think the US is well placed. Both countries, New Zealand and Europe, the number one in Europe, number two in New Zealand, in terms of total global exports of dairy, both those countries aren’t going to grow their milk production significantly over the next five to 10 years.
A lot of that has to do with environmental regulations that both governments are looking to put on the dairy industry. These are regulations that aren’t so much focused on sustainability as a way of maximizing productivity, making sure consumers are fed, while at the same time helping protect our planet. Instead, they’re more focused on at times really disincentivizing dairy production and moving away from some of those animal ag issues. So, you see countries like the Netherlands driving programs to reduce dairy cows by 30%. That’s not really necessarily in the spirit of, “Hey, there’s a globe right now that is demanding dairy products. How do we do that sustainably,” which I think is the US perspective. So, as we go forward, the US really should be the one to capture this global dairy demand as we increase our exports overall.
Alan Bjerga, NMPF: Anything else either of you would like to add?
William Loux, USDEC: I think, for this year I talked a couple reasons as to why US dairy exports on the volume side might struggle to start the year, but I really do think as we go towards the back half of the year, and especially look into 2023, 2024, 2030, the US is on a really good trajectory in terms of our total export portfolio increasing and higher value, as well as large volume products that ultimately help dairy farmers, processors, and the whole industry moving forward.
Alan Bjerga, NMPF: That was Will Loux and Stephen Cain, key members of the NMPF and USDEC economics team. That’s it for today’s podcast. For more on NMPF trade activities, go to the trade policy icon on our homepage, NMPF.org. To learn more about the US Dairy Export Council, including rich data resources and an up-to-the-minute blog on trade developments, often written by Will, visit USDEC.org. For more of the Dairy Defined Podcast, you can find and subscribe to us on Apple Podcast, Spotify, Google Podcasts, and Amazon Music under the podcast name, Dairy Defined. Thank you for joining us.