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Winning the Dairy Exports Battle Dr Marin Bozic, University of Minnesota

Winning the Dairy Exports Battle Dr Marin Bozic, University of Minnesota North Dakota State Dairy Convention November 6, 2013. Dairy Exports and Class I Base Price.

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Winning the Dairy Exports Battle Dr Marin Bozic, University of Minnesota

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  1. Winning the Dairy Exports Battle Dr Marin Bozic, University of Minnesota North Dakota State Dairy Convention November 6, 2013

  2. Dairy Exports and Class I Base Price • Class I Base Price is Higher-Of Class III and Class IV Advanced Prices. For most of the time since 2000, Class III Price (Cheese & Whey) dictated Class I Base price. Class IV Price (Nonfat Dry Milk) has been higher for most of 2013, and is forecasted higher throughout 2014. Dairy exports lift Class IV price which in turns increases Class I Base price. Source: Jerry Dryer, First Monday

  3. Dairy Exports 2013 Year-To-Date Growth • Exports as % of U.S. Production: 48% for NFDM, 5.9 % for Cheese, 6.2% for Butterfat, 51% for Dry Sweet Whey and 74% for Lactose • In July 2013, 17.6% of total milk solids exported. • Over the last five years, over two thirds of the growth in the U.S. milk production was exported.

  4. What is Our Alternative?

  5. What is Our Alternative?

  6. Long-term Outlook on Cheese Consumption • U.S. Population growth and per capita cheese consumption growth slowing down.

  7. Over the next 10 years, U.S. milk production may grow by 25 billion lbs. Where will we sell that? • Needed increase in exports (vs 2012): • Milk Powders: 56% • Butterfat: 270% • Cheese: 60% • In order to export products accounting for 10 billion lbs of milk in 2023, the U.S. would need to capture 70% of the entire forecasted increase in world’s imported demand for skim milk powder and even higher share of additional butter trade.

  8. Important Questions • Where is the U.S. positioned globally? • What is our role, what should it be? • What needs to change for the U.S. to be a power-player globally? • What are the drivers and constraints over the next decade? • U.S. domestic demand? • EU Agricultural Policy Reforms? End of dairy quotas? • Where will China go?

  9. U.S. Dairy Exports

  10. EU Intervention Milk equivalent Price

  11. Export Subsidies Helped Clear EU Market

  12. International NDM/SMP Price Convergence

  13. U.S. Dairy Exports • U.S. dairy exports now consume one day worth of milk production per week. • Over the last 10 years, over half of the growthin U.S. milk production was exported. • Over the last 5 years, over two thirds of the growth in U.S. milk production was exported.

  14. 2012 Composition of Dairy Exports ($) Fluid & Soft Products (6%) Consumer Goods (11%) Other Comm. (2%) Butter (5%) Lactose (11%) Cheese (21%) Dry Whey (19%) Milk Powders (26%)

  15. U.S. Dairy Exports

  16. Keep your buyers close, your competitors closer

  17. New Zealand dairy production capacity? All Dairy Cattle (‘000) Most of the recent growth in dairy herd in the Southern Island: Over the last 5 years 4 million reduction in sheep, and 840,000 more dairy cattle.

  18. The Fonterra Way • Economies of Scale • Market Access • Institutional Innovation • Global Dairy Trade • Trading Among Farmers

  19. Resource Constraints and Strategy Innovations

  20. El Nino: Dry NZ Weather, Low Yields

  21. La Nina: Rains in NZ, Above Average Yield

  22. U.S. vs. New Zealand Change in Milk Yields

  23. The Fragility of Consumer Confidence

  24. A Dragon in The Room

  25. China: OECD Import Forecast 2013-2022

  26. The Next Ten Years: Milk Production

  27. The Next Ten Years: Dairy Imports

  28. The Next Ten Years: Dairy Exports

  29. Ranking Countries by Cost of Production Source: T. Hemme, Presentation at NWDEPA 2013, Boston, MA, based on IFCN Dairy Report 2012

  30. Latent Demand Gap: A Useful Heuristic? “A latent demand gap is developing and creating a sizeable, though finite, window of opportunity for U.S. dairy.” Bain and Co. 2009

  31. Back to the Blackboard… Price S D′ D Quantity

  32. Back to the Blackboard… Price D′ S D Quantity

  33. Exports and U.S. Federal Dairy Policy

  34. Is the U.S. the Dairy Balancing Plant for the World? presented at the North Dakota State Dairy Convention, November 6, 2013. Dr. Marin Bozic mbozic@umn.edu Department of Applied Economics University of Minnesota-Twin Cities 317c Ruttan Hall 1994 Buford Avenue St Paul, MN 55108 Thank you for your help: Susan Grelling, Land O’Lakes Tom Wegner, Land O’Lakes Gary Weber, Land O’Lakes Brad Gehrke, US Dairy Export Council Prof. Brian W. Gould, UW-Madison

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