• Senate letter to FMC
• Member input wanted on port issues

• Market Summary: GDT shocker
• USTR releases Trade Policy Agenda

• Export Guide update

• Changes coming to Testopedia

• COVID Update: optimism for economic recovery

• Danone to sell Mengniu stake

 

Senate letter calls on FMC for urgent port action
Twenty-four U.S. Senators cosigned a letter to Federal Maritime Commission (FMC) Chairman Michael Khouri expressing concern over how actions by ocean carriers are preventing U.S. agricultural suppliers from serving global markets—a situation that is hurting millions of food producers and manufacturers across the nation.

Port congestion is already posing significant challenges for agricultural exporters seeking to deliver products affordably and dependably to foreign markets. “In the midst of this challenge, reports that certain vessel-operating common carriers are returning to their origin with empty containers rather than accepting U.S. agriculture and forestry exports not only greatly exacerbates the problem, but potentially violates the Shipping Act as an unjust and unreasonable practice,” the letter states.

The Senators voiced support for the FMC’s ongoing Fact Finding 29 investigation into shipping issues and urged the agency to take “appropriate enforcement actions” under the Shipping Act to halt unjust and unreasonable practices. “The need is urgent,” they stated.

USDEC’s role
USDEC worked with the lead offices of Sens. John Thune (R-S.D.) and Amy Klobuchar (D-Minn.) to ensure that the letter conveyed the key export shipping issues and a sense of urgency. A parallel letter is currently circulating on the House side.

And we continue to cooperate with allied groups like the Agriculture Transportation Coalition (AgTC) to resolve the supply chain issues that have challenged dairy and food exporters for much of the past year. (USDEC is a member of AgTC.)

Contact USDEC with your experience
The AgTC is currently seeking specific examples of carrier actions that are creating inefficiencies and raising costs but that carriers could change in the interest of improving cargo flow. AgTC notes that carriers are currently ignoring FMC detention/demurrage guidelines, restricting chassis availability and failing to provide/update accurate Earliest Return Dates (ERDs), among other issues.

“Ocean carriers admit that their service levels are at all-time lows while profits are at all-time highs,” AgTC says.

USDEC asks members who have examples of such carrier actions to contact Sandra Benson at sbenson@usdec.org. We thank members who have already provided input and welcome additional feedback.

USDEC is collecting comments and submitting input to AgTC. Be assured that we will remove all company names in our input, noting that the feedback came from “USDEC members.”

Buyers report delays
The problems are not limited to U.S. suppliers. Media reports over the past week note shipping delays from Auckland to Singapore to Mombasa.

In speaking with local food importers and end-users, USDEC overseas offices in many regions—China, Japan, South Korea, Southeast Asia—report delays of two-to-five weeks (although sometimes more) on dairy ingredient and cheese imports, as well as increased costs. Most say the delays apply to all major exporters—Oceania, the EU and the United States. However, U.S. delays are typically longer than our competitors. (USDEC offices in China, Japan, Middle East/North Africa, South Korea and Southeast Asia; Bloomberg, 3/2/21)

Save the dates: spring membership meeting April 19-21
USDEC plans to hold the spring membership meeting virtually April 19-21. As in the fall meeting, programming will take place over the course of 2-3 hours each day. Mark your calendars, invite colleagues involved in exports at your company and stay tuned for further details in the coming weeks.

 

GDT shocker: prices skyrocket
Futures markets were predicting positive price movement at the March 2 Global Dairy Trade (GDT) auction, but nobody foresaw that Event 279 would go down as one of the biggest gainers in GDT history.

The GDT Price Index jumped 15% to US$4,231/ton, as bidders—led by China—aggressively sought to secure supplies.

High domestic Chinese milk prices, low Chinese inventories, worries about food security, and concerns over supply availability (due both to lackluster milk production in New Zealand and the EU and worldwide shipping issues) were a potent combination for Chinese buyers with seemingly deep pockets.

Chinese bidders sent WMP skyrocketing 21% to US$4,364/MT (the highest price since 2014), and Chinese and Southeast Asian buyers sent butter soaring 14% to US$5,826/MT (the highest since 2017). Buyers from more price-sensitive regions mostly sat back and watched the fireworks. While 180 bidders participated in the auction, only 86 walked away with product—the lowest number in five years.

After-auction media coverage used words like “extraordinary,” “incredible” and “stunning” to describe the event, and indeed, the gains were historic—and surprising given current market fundamentals.

Prices increased for all products with the exception of buttermilk powder. SMP rose 3.5% to US$3,302/MT, its seventh increase in the last eight auctions. At eight weeks, it’s the longest sustained period of SMP prices over US$3,000/MT in more than five years.

AMF increased 7.4% to US$5,929/MT, boosted by Fonterra reducing volumes on offer by 500 MT in each of the March auctions. Cheddar increased 1.3% to US$4,280/MT.

Farmgate price expectations already rising
Some New Zealand banks were quick to revise farmgate price forecasts after the auction, lifting expectations by a sizable NZ$0.40-0.50/kgMS. Irish farm groups watching developments from afar are already using the auction to demand higher milk prices, citing robust global demand.

Others took a more cautious approach given the magnitude of the gain without a clearer and more concrete foundation.

Fonterra said it was assessing the situation with its sales team on the ground to better understand future demand. It came back two days later and, citing consistent strong demand led by China, lifted its 2020/21 payout by NZ$0.40 as well, bringing it to NZ$7.30-7.90/kgMS. The co-op, however, warned of downside risk given the imminent arrival of the Northern Hemisphere spring flush.

How long prices hold at current levels or whether there is more headspace for further gains is unknown. What is known is that Chinese buyers did not balk at running up prices, and we expect no significant shifts in the conditions that set the stage.

The United States is looking increasingly attractive to more price-sensitive buyers who balk at these new GDT price levels—if U.S. suppliers can get the product to them.

January trade data later today
Keep an eye on your inbox for USDEC analysis of January trade data. The Foreign Ag Service is due to post the U.S. Customs Bureau numbers this morning. Check USDEC’s U.S. Export Data page later today for updated charts and analysis.

Download USDEC pricing app
Price trends are always at your fingertips. All you need to do is download the USDEC Commodity Prices Finder app, a mobile resource for tracking a variety of USDA dairy commodity prices. It is available at the Apple Store for iOS devices and Google Play for Android.

 

If line is trending up, currency is strengthening vs. U.S. dollar (U.S. dollar is weakening). This is favorable for exports, because it increases import purchasing power. If line is trending down, currency is weakening vs. U.S. dollar (U.S. dollar is strengthening).  This is unfavorable for exports, because it decreases import purchasing power. Currency exchange rates are calculated for Wednesday of each week. Source: Oanda.com.

 

Senate Finance Committee unanimously backs Tai; USTR issues 2021 Trade Policy Agenda
The Senate Finance Committee unanimously backed Katherine Tai’s nomination as President Biden’s U.S. Trade Representative. A full Senate vote is expected new week.

Prior to the vote, the USTR’s Office issued its 2021 Trade Policy Agenda as well as a fact sheet highlighting key points. The agenda sets near-term priorities for USTR and U.S. trade policy, focusing on defeating COVID-19, promoting economic recovery and protecting American workers.

“Standing up for American farmers, ranchers, food manufacturers and fishers” was listed among nine priorities. The administration said it will seek to expand global market opportunities for those groups, but will do so by enforcing global agricultural trade rules. Based on the agenda and previous comments by the administration, it so far appears that new trade deals are not a near-term priority.

Even if that is the case, the focus on enforcement holds potential benefits for U.S. dairy given the many sanitary and phytosanitary and non-tariff trade barriers U.S. dairy exporters face. (In her testimony, Tai said she would “review the status” of the U.S. challenge to Canada’s tariff rate quota scheme and “use the tools available to USTR to ensure that our dairy producers benefit from USMCA.”)

Also of note:

• The agenda says the Biden administration will reengage with the WTO, allies and like-minded trading partners.
  
  
• “Putting the world on a sustainable environment and climate path” is another of the priorities. The goal of building sustainability into trade policies means USDEC will need to ensure those policies reflect the strong U.S. dairy sustainability story.
  
  
• The administration will use “all available tools,” including tariffs, to address China’s “coercive and unfair economic trade practices,” suggesting there will not be a quick end to U.S. tariffs on Chinese goods or Chinese retaliatory tariffs on U.S. products, including dairy. The administration is conducting a comprehensive review of U.S. trade policy toward China.

USDEC updates 39 sections in Export Guide in February
The Market Access and Regulatory Affairs team updated 39 documents in the USDEC Export Guide in February. Some of the changes include:

Volume 1: Tariffs and Classification

• Colombia: Updated U.S. and competitive FTA tariff rates for 2021.
• Peru: Updated U.S. and competitive FTA tariff rates for 2021.
• Saudi Arabia: Updated HS code list.

Volume 2: Import Requirements

• All countries: Updated U.S. Export License, Export Party Screening, and Commercial Invoice with export control information.
• China: Published the new dairy and infant formula plant lists.
• Kuwait: Noted expiration of legalization/notarization waiver during COVID.
• Malaysia: Added notes to the introduction and AMS certificate section acknowledging that the plant number on the health certificate should match the plant number of plant registration.

Volume 3: Standards and Labeling

• China: Updated approved cultures list.
• Indonesia: Added new information on processing aids.

Every month, USDEC’s Market Access team emails a list of guide updates to interested members. If there is anyone at your company who should be included on the distribution list for that email in the future, please contact Jessica Smith at jsmith@usdec.org. (USDEC staff)

Changes coming to USDEC’s Testopedia
As part of the MARA team’s efforts in improving our resource efficiencies and creating a more user-friendly experience while in the USDEC Export Guide, we will be migrating and changing the scope of Testopedia.

The information currently found under Testopedia will soon be relocated to Volume 3 of the Export Guide under Test Methods. We will be phasing out any continued updates on test methods standards for the current markets covered and we will begin to include (under Test Methods) a list of in-country approved/accredited laboratories and their contact information for all countries covered in the USDEC Export Guide.

This change will expand the number of markets covered, streamline information, and allow for direct communication between technical staff and in-country testing experts. If you have any questions, please contact Eddy Fetzer at efetzer@usdec.org.

 

Coronavirus: optimism for economic recovery
A combination of vaccinations and deferred purchasing could help drive global economic recovery in the coming months, although progress will likely differ significantly from nation to nation. Economists point to increased savings during the pandemic as one of the potential triggers that could accelerate a rebound.

Consumers in the world’s largest economies amassed $2.9 trillion in extra savings during COVID-related lockdowns over the past year, according to estimates by Bloomberg Economics. Slightly more than half of that amount is from U.S. consumers, but nations like China and Japan saw personal savings exceed “normal” levels by $430 billion and $160 billion, respectively.

Those cash reserves could serve as a basis for a sharp rebound this year. Spending during the summer of 2020, although it was premature and additional waves of COVID-19 put an end to turnaround hopes, showed how quickly economies can bounce back COVID-19 once business and consumer controls are removed, Bloomberg said.

The unknown is whether consumers will feel confident enough to spend or might opt instead to cover debts or continue hoarding until labor markets look stronger and the health crisis is definitively in the rearview mirror.

Lunar New Year
China is an example of what that recovery might look like when it does come. China’s Lunar New Year holiday sales this year hit $127 billion, which was not only 29% higher than the pandemic-disrupted holiday in 2020 but 5% greater than pre-pandemic 2019. That was despite a spike in new coronavirus cases in the weeks leading up to the holiday and a directive from the government calling on people to stay put rather than travel as they normally do for Lunar New Year.

Restaurants, caterers, retail stores, movie theaters all posted significant sales gains as people celebrated by spending. Dairy was one of the beneficiaries. Fonterra Co-operative Group reported double-digit growth in Chinese retail sales during this year’s holiday, strong foodservice turnover and higher dairy ingredient sales to companies creating special items for the gift-giving.

Vaccine status
Progress in vaccine distribution is another key to complete economic reopening, but vaccine supplies and distribution continue to vary widely from country to country. USDEC overseas offices report most countries have obtained vaccines and rolled out inoculation programs, although vaccine purchases and progress has been hit and miss. To track vaccines administered by country, go to “Tracking COVID-19 vaccinations worldwide,” a website updated regularly by CNN with the latest vaccine data.

Japan

• Japan plans to lift the state of emergency on March 7 for all regions except the Tokyo area. About two-thirds of the country has been operating under restrictions since Jan. 8. The state of emergency for Tokyo will be extended until March 21.
  
  
• Japanese restaurant sales fell 21% in January compared to the previous year. While many nations are seeing foodservice sales slowly tick up, Japan’s results worsened from December.

South America

• The COVID-19 outbreak in Brazil is worse than ever with daily death tolls reaching new highs and health systems in more than half the nation’s 26 states at or near capacity. The country still lacks a coordinated national effort to address the pandemic, and President Jair Bolsonaro continues to downplay the danger and criticize restrictions.

South Korea

• South Korea continues to recover from the pandemic, with consumer sentiment improving, elementary schools restarting full-time classes this week (with social distancing measures still in place) and the nation’s vaccine program kicking off at the end of February.

Southeast Asia

• Indonesian food and beverage manufacturers are struggling with rising raw material costs, including for dairy. But they are accepting smaller margins because they feel they cannot raise retail prices because consumption is lagging from pre-pandemic times. Heavy Chinese demand is one factor driving up costs.
  
  
• Singapore opened Phase 1 of its Connect@Changi dedicated hotel and meeting facility for short-term business travelers to conduct face-to-face meetings with existing or new customers during the pandemic. The catch is that travelers have to remain at the facility—which is located within the Singapore Expo—for the duration of their stay and must be regularly tested for COVID-19. Room rates include meals and transport to and from the airport. (USDEC offices in China, Japan, Mexico, Middle East/North Africa, South America, South Korea, Southeast Asia and Vietnam; Bloomberg, 3/2/21; Rural News Group, 3/2/21; Washington Post, 3/1/21; Wall Street Journal, 2/18/21)

Danone to sell stake in Mengniu, hire new CEO
Danone announced leadership changes in response to pressure from activist investors who have criticized the company’s performance compared to rivals, as well as a plan to sell its stake in China’s Mengniu Dairy. Current chairman and CEO Emmanuel Faber said he would relinquish his CEO responsibilities once the organization identifies a replacement. The process to recruit a new leader has already begun, the company said. Faber will remain chairman.

The board of directors made additional changes, including creating a new independent director to provide management oversight in another nod to shareholder complaints. However, it backed Faber’s turnaround plan (including asset sales, job cuts and a reorganization) announced in October (see Global Dairy eBrief, 10/23/20), even though the same group of investors opposed it.

Mengniu sale
One of the assets Danone is selling is its stake in Mengniu, which has a book value of $850 million. Because that stake is held indirectly through its investment in state-owned COFCO Corp. (one of Mengniu’s largest shareholders), Danone must first convert the investment into a direct holding, which it could then sell outright.

Danone stated that despite the planned sale, “China remains highly strategic” for the company and it is committed to the market. (Company reports; Financial Times, 3/2/21, 3/1/21; Bloomberg, 2/28/21)

Mergers, acquisitions and joint ventures
Britain’s First Milk is investing £9 million (about US$12.5 million) in its Lake District Creamery and £3.5 million (about US$5 million) in its Haverfordwest Creamery. The bigger Lake District project includes the installation of new high-capacity cheese block formers and new whey, milk and cream handling processes. The Haverfordwest project includes a “significant upgrade” to whey processing. The projects are part of a three year, £30-million series of upgrades that will ultimately lift capacity at both plants by 20%. The company is making the investments “to meet the growing demand from our customers around the world.” (Company reports)

Mergers, acquisitions and joint ventures
Independent UK milk processors Freshways (Nijjar Dairies Ltd.) and Medina Dairy said they are discussing a merger to build scale and improve competitiveness in the British fluid milk sector. (Farmers Weekly, 2/24/21)

Company news briefs
Reckitt Benckiser put its Chinese infant formula business under strategic review after disappointing results, impacted by falling birth rates, growing local competition, closure of the Hong Kong border and pandemic-related sales and marketing challenges . . . Singaporean food and agri-business firm Olam International hopes to list its Olam Food Ingredients (which will include its dairy operations) by the first half of 2022. The IPO is part of a strategy announced last year to divide its portfolio into two operating units—ingredients and Olam Global Agri—to better respond to market trends . . . Saputo Dairy UK received a £3.2-million grant (about US$4.5-million) from a British government economic growth program to support a project to expand cheese and ingredient processing expansion (including demineralized whey) at its Davidstow manufacturing plant. (USDEC Southeast Asia office; Company reports; Cornish & Devon Post, 3/1/21; Bloomberg, 2/25/21, 2/24/21)

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