For dairy producers, strong export demand has helped support the market in recent years, but questions remain about how long that momentum can continue. This is as milk supply grows and uncertainty surrounds trade relationships. Will Babler of Pinion Risk Management says the industry is balancing opportunity with risk.
“We’ve seen tremendous growth in milk supply. We’ve seen tremendous growth in exports. But at some point, those things can’t go on forever. So there’s a lot of good opportunities as we watch the consumer pick up more protein. We watch cheese get exported all across the world. But when we’re pushing 30-year highs on cow numbers and we’ve got a lot of uncertainty with trade, it’s hard to say how long those things persist. So there’s been a lot of bright spots in the recent years, a lot of challenges too, and just a lot of uncertainty looking forward.”
As production capacity expands, finding buyers beyond U.S. borders will be key to maintaining value in the marketplace.
“You know, there’s been tens of billions of dollars of cheese plant expansion and we pretty much hit our lid on per capita U.S. cheese consumption. So we’re really relying on moving it overseas. So that is a price sensitive endeavor. So when the prices are low, we’re able to find buyers. And next thing you know, they scoop up that cheese and the market tightens up. And then we run into headwinds where we’re not very competitive in the world market. So when folks are complaining about class 3 in the 14s, that’s often we see the export buyers show up. You know, when folks are starting to feel better about class 3 moving into the 17s, that’s when the export buyers are hitting pause. So we’re kind of trapped in this range lately that we really need to grow that export market even bigger to help push out through the top of that price range.”
Those overseas sales often attract attention, but the largest dairy customers may not be the countries making the most headlines.
“But when it comes to dairy, the top of the list is actually Mexico for cheese and then Canada for butter and then China for dry whey. And then the nonfat market, Mexico is back at the top. So it’s actually our closest neighbors, our most important dairy markets for sheer volume. And China has gotten a lot of headlines. Really almost going back 10 years now on the first round of the trade war, China subbed out a lot of U.S. dairy demand. It’s never been a huge buyer, but they’ve reduced it a bit. They’ve grown their own internal dairy production and then they’ve sourced more from other suppliers. So we’d really like them to take more whey and they’ve been doing that. We’d like them to take all those other products, but they’re not even near the top of the list on our major buyers in those markets.”
Despite trade tensions, Babler remains optimistic about one key export destination for U.S. dairy products.
“I’ll put it this way. I tend to think our trade with Mexico, especially in food products, is going to continue to be a bright spot. I think that all the incentives are there to make that work and the fights will be in other areas. So you can get caught in the crossfire, but I tend to think that it will still be a good spot for U.S. ag into Mexico, just long term.”