Guest Editorial
Setting our sights on the big cheese

by Marc A.H. Beck

Marc A.H. Beck is senior vice president of export marketing for the U.S. Dairy Export Council. He contributes this column exclusively for Cheese Market News®.

A remarkable thing happened last fall: U.S. bulk commodity cheese became price-competitive — without subsidy — on the world market for perhaps the first time for a period lasting more than a week or two. Commercial exports took place in relatively significant volumes, and we even started to see these quantities tighten the domestic supply.

That is good news.

The better news is that the conditions that facilitated U.S. exports are still active, providing U.S. suppliers an excellent opportunity to continue to build commodity cheese volume and share — with one very important caveat: They have to continue the progress made in 2007.

In 2007, cheese exports were a $345 million business. As we have pointed out in previous columns in Cheese Market News, the global dairy market has undergone structural changes over the past few years. Unprecedented dairy demand from developing and developed nations alike is straining global dairy capacity, and supply problems in 2007 made the situation all the more acute. Together they sent international prices soaring.

Australian and New Zealand Cheddar, traditionally priced significantly less than U.S. Cheddar, shot past our rates in August 2007. For the last seven months, U.S. prices have averaged about $730 per metric ton less than Australian and Kiwi product, according to USDA’s Dairy Market News.

Together, the supply/demand/pricing scenario led to a record year for U.S. cheese exporters. Total U.S. shipments rose 40 percent in 2007, almost cracking the 100,000 metric ton mark. Shipments to Mexico, our biggest customer, increased 38 percent to 33,617 metric tons. Cheese exports to South Korea rose 22 percent, Japan 30 percent, Southeast Asia 49 percent and the Middle East/North Africa 77 percent. The EU, the No. 1 cheese exporter in the world, bought 6,389 metric tons of U.S. cheese, nearly triple what it purchased the previous year.

The fourth quarter was particularly noteworthy. Among the record 28,954 metric tons exported were new sales to the EU (2,423 metric tons), Australia (1,861 metric tons) and the Middle East/North Africa region (2,670 metric tons) — much greater volumes to these regions than had been sold before. In the case of the EU, we believe U.S. cheese was trans-shipped or used for inward processing. For Australia, we believe U.S. cheese was imported to offset deficits in domestic supply. In the Middle East/North Africa, we think U.S. suppliers were able to fill demand that wasn’t being supplied from elsewhere due to the aforementioned shortages from Europe and Oceania.

The factors that really propelled U.S. commodity cheese sales through the whole second half are, for the most part, still in place:

• By all accounts, global demand continues to rise — higher prices notwithstanding — backed by dietary shifts in developing nations, growing appetites for cheese in developed nations and foodservice expansion in both.
• EU export subsidies, suspended in 2007, remain on hold.

• Poor weather that stunted Aussie output and exports is still having a deleterious affect Down Under, and now New Zealand is fighting its own drought.

• And just last week, the U.S. dollar hit an all-time low vs. the euro and decades-old lows against the New Zealand and Australian dollars.

Now, the key to sustaining growth will be sustained commitment by the U.S. industry — when conditions are favorable, as they are now, and when they may not tilt quite so much toward the United States, as they surely will do at some indeterminate point in the future.

This is a perfect time to build that commitment. One of the great accomplishments of 2007 was that a large number of companies went through the export learning curve and now they’ll be better prepared to respond to the needs of the overseas market in the months and years ahead.

Now and for the immediate future, we see an excellent opportunity to increase volume and market share for U.S. commodity cheeses. Now is the time to leverage last year’s success by branching into high-demand varieties like Gouda. Now is the time to make foreign markets less a part-time hobby and more part of the everyday, long-term business plan.

The role global markets are starting to play in the overall U.S. business almost demands it. The United States ended 2007 with three consecutive quarters where cheese export volume exceeded 2 percent, including 2.6 percent in the forth quarter. Historically cheese exports have been about 1.4 percent of production. This is a significant volume. The U.S. cheese market is finely balanced, and an increase in usage of more than 1 percent can swing it from excess into shortage.

We are being presented with an opportunity to grow the industry collectively. We are globally competitive. We have a chance to expand business and, at the same time, raise U.S. cheesemakers’ global profile by paying heed to world markets. Will our ambition match our opportunity?

Note: For more on global cheese pricing and the trends that have created today’s export opportunities, download the archived presentations from the U.S. Dairy Export Council’s Mar. 12 webcast, Deciphering Global Cheese and Butter Markets, at www.usdec.org/goto/webinar.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.