Managed by Dairy Management Inc.™

U.S. and World Dairy Market Trends in 2020

Canilec: Foro Perspectivas del Mercado de los Lácteos

4 de marzo, 2020

2019 Recap

U.S. DAIRY EXPORT COUNCIL 3

Milk Supply Tightened

Source: USDEC, Understanding Data and Markets

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2011 2012 2013 2014 2015 2016 2017 2018 2019

Milk Production Change Versus Prior Year

United States European Union New Zealand Australia Argentina Belarus Big Six Exporter Total

U.S. DAIRY EXPORT COUNCIL 4

Europe Moved Its Public SMP Stocks Overseas

Source: USDEC, Trade Data Monitor, Understanding Data and Markets

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500,000

1,600,000

1,700,000

1,800,000

2015 2016 2017 2018 2019

EU-28 SMP Production and Exports

EU SMP Production (LHA) EU SMP Exports (RHA)

U.S. DAIRY EXPORT COUNCIL 5

SMP Price Recovered

Source: USDEC

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

2013 2014 2015 2016 2017 2018 2019 2020

SMP Prices and European Intervention

EU Public Intervention Stocks SMP - US SMP - NZ SMP - EU

U.S. DAIRY EXPORT COUNCIL 6

African Swine Fever Impacted Whey Trade

1,250,000

1,300,000

1,350,000

1,400,000

1,450,000

1,500,000

250,000

300,000

350,000

400,000

450,000

500,000

2015 2016 2017 2018 2019

MT

MT

Global Whey Trade

Global Whey Exports to China (LHA) Global Whey Trade (RHA)

China Starts Buying Less

Whey (January 2019)

Source: USDEC, Trade Data Monitor

U.S. DAIRY EXPORT COUNCIL 7

Some U.S. Trade Disputes Were Resolved

U.S. DAIRY EXPORT COUNCIL 8

-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

2016 2017 2018 2019

MT

U.S. Dairy Exports to China: YOY Change(Milk Solids Equivalent)

While Other Persisted

First Round of

Retaliatory Tariffs

on U.S. Dairy

Products

Introduced

Source: USDEC, Trade Data Monitor

U.S. DAIRY EXPORT COUNCIL 9

2019: Moderate Global Growth, But Varied by Product

Source: USDEC, total milk solids calculated from aggregation of dairy exports for

Argentina, Australia, Belarus, Canada, EU-28, New Zealand, USA, and Uruguay

8,000,000

8,200,000

8,400,000

8,600,000

8,800,000

9,000,000

9,200,000

9,400,000

9,600,000

2015 2016 2017 2018 2019

MT

Global Total Solids Exported

U.S. DAIRY EXPORT COUNCIL 10

2019: Moderate Global Growth, But Varied by Product

Source: USDEC, calculated from aggregation of dairy exports for Argentina, Australia,

Belarus, Canada, EU-28, New Zealand, USA, and Uruguay

2020 Market Outlook

U.S. DAIRY EXPORT COUNCIL 12

Coronavirus: What’s the Impact?

U.S. DAIRY EXPORT COUNCIL 13

China Import Projections

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500,000

1,600,000

1,700,000

1,800,000

1,900,000

2015 2016 2017 2018 2019 2020

MT

Global Total Solids Exported to China

Historic Baseline Short-Term Disruption Severe Disruption Scenario

Source: USDEC, Trade Data Monitor

U.S. DAIRY EXPORT COUNCIL 14

China Accounted for Most of the Growth in Trade

(200)

(100)

-

100

200

300

400

500

600

China SE-Asia 5 Mexico Japan/So. Korea Russia MENA ROW

00

0 M

T

Import Growth, 2019 vs. 2015(SMP, WMP, cheese, butterfat, whey)

Source: USDEC, Trade Data Monitor

U.S. DAIRY EXPORT COUNCIL 15

What Will the Ripple Effects Be?

What About the Rest of the Market?

U.S. DAIRY EXPORT COUNCIL 17

Production Growth Will Improve in 2020

Source: USDEC, Understanding Data and Markets; adjusted for leap day

-1,000

-500

0

500

1,000

1,500

2014 2015 2016 2017 2018 2019 2020

Change in M

ilk P

roduction (

'000 M

T)

Major Exporters: Milk Production Change YOY

United States European Union New Zealand Australia

Argentina Belarus Big Six Exporter Total Projected Growth

U.S. DAIRY EXPORT COUNCIL 18

Especially in the United States

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2015 2016 2017 2018 2019 2020

Herd and Yield Changes

Herd Size % Change: United States Yield % Change: United States Production YOY % Change: United States

U.S. DAIRY EXPORT COUNCIL 19

And Certain EU Member States

Belgium

Czech RepublicDenmark

FranceGermanyHungary

Ireland

Italy

Netherlands

PolandSpain

Sweden

United Kingdom

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-200 -100 0 100 200 300 400 500

2019 P

erc

ent

Change

Incremental Change (‘000 MT)

2019 EU-28 Milk Production Growth

U.S. DAIRY EXPORT COUNCIL 20

But Global Supply Growth Will Be Slowed by Australian

Decline

8,000

8,200

8,400

8,600

8,800

9,000

9,200

9,400

9,600

9,800

10,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

'000 M

T

Milk Production: Australia

Milk Production: Australia Forecast

Source: USDEC, Understanding Data and Markets

U.S. DAIRY EXPORT COUNCIL 21

And Challenging Conditions in New Zealand

U.S. DAIRY EXPORT COUNCIL 22

There Are No Longer Large Powder Stocks Putting a

Ceiling on Price

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

2013 2014 2015 2016 2017 2018 2019 2020

SMP Prices and European Intervention

EU Public Intervention Stocks SMP - US SMP - NZ SMP - EU

U.S. DAIRY EXPORT COUNCIL 23

Which Suggests to a Higher Floor for NFDM/SMP

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

SMP Price Comparison

SMP - US SMP - NZ SMP - EEX

U.S. DAIRY EXPORT COUNCIL 24

Global Cheese Demand Projects Robust Growth

1,700,000

1,750,000

1,800,000

1,850,000

1,900,000

1,950,000

2,000,000

2,050,000

2,100,000

2,150,000

2015 2016 2017 2018 2019 2020

MT

Global Cheese Trade

U.S. DAIRY EXPORT COUNCIL 25

And Block-Barrel Spread Will Narrow

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

2013 2014 2015 2016 2017 2018 2019 2020

U.S. Block and Barrel Cheddar Prices

Blocks Barrels

U.S. DAIRY EXPORT COUNCIL 26

Still, Cheese Prices Will Likely Remain Volatile

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Global Cheese Price Comparison

Cheddar - US Cheddar - NZ Cheddar - EU

U.S. DAIRY EXPORT COUNCIL 27

Whey will be Driven by China and ASF Recovery

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

2015 2016 2017 2018 2019 2020

Dry Whey Comparison

Dry Whey - US (NDPSR) Whey Powder - EEX

U.S. DAIRY EXPORT COUNCIL 28

The World Beyond Dairy?

U.S. DAIRY EXPORT COUNCIL 29

Persistence of a Strong U.S. Dollar?

90

95

100

105

110

115

120

125

130

135

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Exchange Rates: Trade Weighted US Dollar Index

U.S. DAIRY EXPORT COUNCIL 30

U.S.-China Relations

U.S. DAIRY EXPORT COUNCIL 31

U.S. Will Remain a Committed Partner to Mexico

0

100,000

200,000

300,000

400,000

500,000

600,000

Mexico SoutheastAsia

China SouthAmerica

Japan Canada NewZealand

SouthKorea

South Asia MENA CentralAmerica

Caribbean Australia

MT

U.S. Dairy Exports by Destination(Milk Solids Equivalent)

2016 2017 2018 2019

U.S. DAIRY EXPORT COUNCIL 32

Thank You

William Loux

Director, Global Trade Analysis

wloux@usdec.org