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U.S. dairy has a big reason for optimism
The value of U.S. dairy exports has climbed over 25% through the first three quarters of this year when compared to the same time last year. That’s not all — September marked the eighth consecutive month in which growth exceeded 20% versus the previous year. This is no small feat considering that 2021 export value was 18% above 2020 and that 2020 (+9%) and 2019 (+8%) both registered impressive annual growth.
Can this continue into 2023?
USDA’s Foreign Agriculture Service (FAS) recently provided market reports that included 2023 projections for three other major dairy exporters: Australia, New Zealand, and the European Union. Those projections, and the explanations given for them, suggest that the future for U.S. dairy exports remains extremely bright.
Consider the world landscape for dairy product supplies:
From 2019 to 2021, the U.S. and these three exporters accounted for more than 79% of world butter and cheese exports.
That share climbed even higher to 87% for nonfat dry milk.
Combined 2023 exports for Australia, New Zealand, and the European Union are projected to decline for three major dairy product categories versus this year:
Cheese (-0.5%)
Butter (-5.2%)
Nonfat dry milk (-8.5%)
Comparing to the prepandemic year of 2019 yields similar results:
Cheese (-0.2%)
Butter (-11.9%)
Nonfat dry milk (-25.4%)
Far beyond economics
Though the factors driving these projections vary somewhat from country to country, they all have one thing in common: very little to do with the economics of milk production. All three note that there are many non-economic factors at play which are driving expectations, including labor shortages, environmental regulations, drought, and climate-related policy restrictions.
The takeaway?
Regardless of how financially lucrative milk production becomes in these three important exporting regions, supply response will be muted significantly by these other factors. This stands to keep the door wide open for continued gains in U.S. dairy product exports.
U.S. consumer demand strength continues to be the most important demand puzzle piece for the 2023 milk price outook. However, with much uncertainty affecting the U.S. economic outlook in the year to come, prospects for continuing growth in dairy exports lend some optimism to the milk price outlook.
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