Guest Columns

Perspective:
Dairy Markets

Can U.S. cheese exports keep pace?

Kevin Peterson

Kevin Peterson is a risk management advisor at Rice Dairy*, a brokerage firm in Chicago that specializes in dairy and markets at dairy’s periphery. He contributes this column exclusively for Cheese Market News®.

U.S. cheese exports have been off to a strong start through the first four months of 2019, up 6.75 percent year over year. When comparing January through April exports, 2019 is the second highest year on record, falling just short of 2014’s export numbers. The bulk of this year’s surge can be attributed to a significant increase in exports of fresh cheese, up 20.6 million pounds (24.40 percent), while cheddar exports only increased 5.1 million pounds (12.10 percent). South Korea is the second largest export destination for cheese from the United States, falling behind only Mexico, which retains the top spot.

So far this year, of the 105.3 million pounds of fresh cheese the United States has exported, South Korea has imported 40.6 million pounds of it, nearly 40 percent. The vast majority of this “fresh cheese” as labeled by USDA in the export numbers is mozzarella. These exports were gained with the help of competitive U.S. cheese prices found at the beginning of the year, where National Dairy Products Sales Report (NDPSR) settlements averaged $1.385 from December 2018 through February of 2019. In comparison, Trigona reported that mozzarella in Europe averaged $1.53 during the same time period, nearly a 15-cent premium to the United States.

As a result of this discrepancy in price, the United States has been able to win over additional export business of mozzarella into South Korea and, therefore, taken over a considerable chunk of European market share. As noted in the chart accompanying this column, the United States has gained enough market share to overtake Europe as South Korea’s top supplier. This is a position the United States has found itself in since 2015. According to the most recent data from Eurostat, European exports of cheese into South Korea are down 16 percent this year from January through April versus the same time period last year.

Today’s market is inverted from what we were seeing at the start of the year. The U.S. market is seeing its highest CME spot block settlement prices in nearly two and half years, while the June NDPSR cheese average is on track to settle around $1.70. Meanwhile in Europe, spot cheddar and mozzarella prices are reported to be in the mid $1.50s, now at about a 12-cent discount to the U.S. block/barrel average. With the reversal in this spread taking place, look for cheese exports (specifically fresh cheese) to pull back as Europe can now get mozzarella into South Korea more competitively.

During the first quarter of 2019, the United States has seen an increase in the amount of mozzarella produced versus last year, while cheddar has seen a decrease in production. If the United States can maintain and grow its South Korean market share, the extra mozzarella might not be an issue. However, with Europe now finding itself in a much more competitive position with regards to getting mozzarella into South Korea, those marginal loads will likely look less appealing, and the U.S. domestic market may be forced to absorb that extra supply.

Through the start of 2019, cheese exports have been the shining star of total U.S. dairy exports. However, we now find ourselves at a competitive disadvantage to Europe for export share into South Korea. Without either a boost in European cheese prices or a pullback in U.S. cheese prices, it will be a struggle to maintain the trend throughout the rest of the year.

CMN

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

*The risk of loss trading commodity futures and options can be substantial. Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources believed to be reliable; however, no independent verification has been made. Information contained herein is strictly the opinion of its author and not necessarily of Rice Dairy and is intended to be a solicitation. Past performance is not indicative of future results.

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