For full analysis of September and year-to-date export numbers, visit the Research & Data section of usdec.org or click here. To get monthly trade data reports sent direct to your inbox shortly after they are released, sign up for the U.S. Dairy Exporter Blog here.
New USDEC GDMO sheds light on a price rally that has run out of steam
After slumping to levels unseen in more than a decade, world benchmark milk powder prices increased 40-60 percent by the end of September, noted Alan Levitt and Marc Beck in the new issue of USDEC’s Global Dairy Market Outlook (GDMO). But, as USDEC forecast earlier, the rally has proven to be more of a correction from prices that went too low this summer rather than a sustained recovery. For a more in-depth examination of global dairy market trends and market expectations, click here to view the full GDMO.
USDEC’s Global Market Outlook webinar returns Dec. 1
To set the stage for 2016, USDEC analysts Marc Beck and Alan Levitt will examine the drivers and dynamics of the global dairy markets at our annual outlook webinar, scheduled for 2pm ET on Dec. 1. Beck and Levitt will present their view on the trajectory of market recovery, looking at the major factors shaping the global dairy sector and what’s in store for next year. The program also features a live Q&A with webinar attendees. To register for the one-hour live program, please click here.
Window of opportunity to enter Vietnam cheese market
USDEC is seeking additional details but early reports from Europe indicate that the EU has announced that in its FTA with Vietnam several cheeses will face restrictions beginning Sept. 1, 2016. According to those reports, Vietnam will ban the use of the terms asiago, gorgonzola and fontina unless the sales meet one of two criteria: 1) they are imported from Italy; or 2) they have been sold by non-Italian companies in Vietnam prior to Sept. 1, 2016. The grandfathering provision in point 2 will be extended on a company-specific basis.
Information suggests that only those companies that have sold the impacted variety in Vietnam prior to the grandfathering deadline will be allowed to continue to do so after Sept. 1, 2016. If you are interested in more information on how to preserve your ability to access this market in the future, please contact Angélique Hollister (ahollister@usdec.org) or Shawna Morris (smorris@usdec.org). (USDEC staff)
USDEC works with lab to lower nitrite-testing turnaround time
USDEC has been working to facilitate nitrite testing of U.S. dairy shipments since China started to enforce its 2ppm nitrite specifications more than a decade ago. We originally cooperated the USDA AMS National Science Laboratory in Gastonia, N.C., to develop nitrite testing capacity using GB 5009.33, the Chinese method for determining nitrite and nitrate in foods. (USDEC members can click here to download a copy of the most up-to-date version of the test method from USDEC’s test-method database Testopedia.)
The Gastonia lab has since continued to offer nitrite testing for dairy ingredients using the Chinese method, although other U.S. laboratories also offer nitrite testing using GB 5009.33. The test at Gastonia is $132 per sample plus a processing fee that includes sample handling, preparation and reporting.
At the AMS lab, USDEC recently discussed turnaround time for the nitrite results with staff and explored solutions to balance testing efficiency and speed. We jointly developed a proposal to streamline the procedure by conducting all nitrite testing on the same day each week (the current recommendation is Thursdays). The plan would require U.S. suppliers who use the Gastonia lab to get their samples to the facility by Wednesday for inclusion in the Thursday testing and receipt of the certificate of analysis on Friday.
Starting next week, the lab will begin a trial period for the once-a-week proposal to make sure it functions as expected. We welcome your input and recommendations regarding this new optimization effort. For questions or comments, contact Annie Bienvenue at abienvenue@usdec.org or 703-528-3049.
MARKET CONDITIONS
GDT slips 7.4 percent
The GlobalDairyTrade (GDT) Index fell 7.4 percent to US$2,569/ton at the Nov. 3 auction, the second straight decline. As noted in the new Nov. 4 issue of USDEC’s Global Dairy Market Outlook, the key factors necessary to deliver better market balance—overall global production contraction, inventory reduction, China buying—have yet to materialize.
Average winning prices declined across the board at the auction: WMP and SMP each fell 8 percent to US$2,453/ton and US$2,018/ton, respectively; butter dropped 5.6 percent to US$2,574/ton; AMF decreased an almost identical 5.7 percent to US$3,647/ton; and cheddar faded 4.6 percent to US$2,987/ton.
News that Fonterra Co-operative Group will be offering “enhanced age” WMP and SMP starting with the Dec. 1 GDT auction generated mixed interpretations from market observers as either a sign of existing significant stockpiles or an effort to discourage stockpiling. The “enhanced” medium-heat SMP is guaranteed less than 120 days old at time of departure; the “enhanced” regular heat WMP is guaranteed less than 90 days old at time of departure. (USDEC staff; GDT; Agrimoney.com, 11/3/15; Dairy Markets, 11/3/15)
China’s middle class provides some lift to slowing economy
Although China’s GDP growth rate is slowing, “Chinese consumers appear to be weathering the slowdown better than the economy’s traditional growth engines like manufacturing and construction,” a Nov. 3 Wall Street Journal article noted. The country’s growing upper middle classis is increasing spending, particularly for “accessible aspirations” like Starbucks and Apple electronic products.
The article quotes a recent McKinsey survey of 1,200 Chinese consumers that found 71 percent expect wages to rise this year and 84 percent expect to spend more. E-commerce giant Alibaba Group noted that people “have lots of savings, lots of liquidity” and were likely to continue healthy consumption habits despite China’s slowing growth. The article quotes Bain & Co.’s Shanghai office as well: “There is room to be optimistic about consumer growth [in China] for the foreseeable future.”
To give you a sense of the type of growth this healthy middle class is supporting, Starbucks noted that it opened on average 1.5 stores per day in China during the third quarter this year and planned to open 900 Chinese stores next year. (Wall Street Journal, 11/3/15)
India sees dairy worries in insufficient rainfall
The Indian dairy industry issued a word of caution about the 2015/16 milk production year. If southern India does not receive good rains over the coming months, dairy processors estimate milk production could decline 5-10 percent in 2015/16. Dairy farmers are already coping with a below average 2015 monsoon, a drought in Maharashtra and a poor fodder season. (Business Standard, 10/28/15)
Data Updates on USDEC.org
Have you checked out the interactive charts of market and trade data on the USDEC website? Key metrics like milk production, exports and imports and prices are updated regularly. This week we learned:
To browse the full Market Data section of usdec.org, click here.
TRADE POLICY
New Zealand, EU announce FTA talks
The EU and New Zealand agreed to initiate discussions toward a comprehensive FTA. Initial conversations will focus on the process, outlining the scope of the deal and other steps needed to launch formal talks.
The initiative is part of New Zealand’s efforts to diversify its trading partners and rely less on China. Although Chinese trade has skyrocketed since the 2008 NZ-China FTA, in part due to surging dairy exports, Prime Minister John Key cautioned against the risk of focusing too much business on a single country.
Fonterra issued a statement welcoming the announcement, saying a comprehensive, high-quality deal between the EU and New Zealand would be “mutually beneficial for dairy players in Europe and New Zealand.” (New Zealand government; European Commission, Company reports; Financial Times, 10/29/15)
LOGISTICS
Potential West Coast port disruptions on tap for 2016
The International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) may have resolved their marathon contract talks earlier this year, but that resolution did not include the ILWU clerical unit at the West Coast’s largest port facility, Los Angeles-Long Beach.
The L.A.-Long Beach clerical workers’ contract expires July 1, 2016. The union and employers are slated to start talks in April. On the plus side, this is not a coast-wide issue, so the impact is likely limited to Los Angeles-Long Beach. On the negative side, L.A.-Long Beach handles around 70 percent of West Coast port volume, the talks are more complex since the ILWU Office Clerical Unit (OCU) has to negotiate 15 separate contracts with the port’s terminals and shipping lines rather than one contract with the PMA, and the talks have historically been extremely contentious.
The last time the OCU and employers negotiated a contract it took two years, triggered multiple port shutdowns at L.A.-Long Beach, and required government and legal intervention. (Journal of Commerce, 11/2/15)
COMPANY NEWS
Glanbia plans New Mexico cheese expansion
Glanbia is in advanced talks with partners in its Southwest Cheese plant to expand capacity at the Clovis, N.M, facility by 30 percent. If approved, Glanbia and the dairy cooperatives of the Greater Southwest Agency, including Dairy Farmers of America and Select Milk Producers, would spend $140 million on the two-year project. (Company reports)
Fonterra opens Guangzhou foodservice customer service center
Fonterra opened a new Applications Center in Guangzhou to capitalize on foodservice growth in southern China. The center, its second in China, will host technology demonstrations, conduct professional training sessions, assist with recipe development and marketing, and collaborate with Fonterra’s global R&D teams. Additional Application Centers are reportedly planned for Beijing and Chengdu.
In other Fonterra news, the co-op began producing wrapped cheese slices on a new production line at its Eltham, South Taranaki, facility. Fonterra is looking to tap the international grocery channel with the line, part of an overall NZ$32 million (about US$22 million) Eltham upgrade set for completion in February 2016. (Company reports; China Daily, 10/30/15)
Mergers, acquisitions and joint ventures
Fonterra collected about US$53 million by selling off its 9 percent stake in Australia’s Bega Cheese. The co-op said the deal frees up capital for future growth initiatives . . . UAE food and dairy manufacturer National Food Products Co. (NFPC) plans to divest up 51 percent of the company for around $1.5 billion . . . The J.M. Smucker Co. sold its U.S. canned milk brands and manufacturing plants in El Paso, Texas, and Seneca, Mo., to Eagle Family Foods Group. The deal does not include Smucker canned milk business in Canada . . . Singapore-based conglomerate Fraser and Neave (F&N) is one of the rumored suitors for the Vietnamese government’s 45 percent stake in Vinamilk (see Global Dairy eBrief, 10/22/15). F&N denied that it had submitted a $4 billion bid for Vietnam’s largest dairy processor. (USDEC Middle East office; Company reports; The Business Times, 11/3/15; Reuters, 10/30/15)
From the U.S. Dairy Exporter Blog
