Rabobank highlighted the potential for the US to grow dairy exports as New Zealand-based Fonterra. investigating the botulism scare which prompted product recalls, revealed a milk powder withdrawal.
Tim Hunt, US-based global dairy strategist at Rabobank, said that the US "could emerge as a significant competitor" in dairy exports, thanks to a slowdown in domestic demand at a time of elevated international prices.
Already prices of some US dairy exports are showing significant growth, with milk powder exports rising from some 300,000 tonnes in 2007 to 500,000 tonnes last year, and cheese shipments rising from 100,000 to 250,000 tonnes over the same period.
"The US dairy industry is becoming increasingly cost competitive in export markets due to a combination of its large-scale farm operations, easing feed costs and a lower US dollar," Mr Hunt said, although he highlighted the need for the US industry to invest if it is to meet its potential.
"With the entire US dairy industry having developed to service the domestic market, they are not aligned to the requirements of exporting dairy," he said.
"Essentially, they have the wrong plants and they make the wrong products for global market exports."
Milk powder withdrawn
The comments come amid a growing focus on the dairy industry in New Zealand, the top exporting country, and its ability to ride out the storm created by Fonterra's discovery of bacteria which can cause botulism in some whey protein concentrate.
The contamination prompted product recalls and trade restrictions, by countries such as China, on some products containing Fonterra whey protein concentrate, and has prompted some commentators, such as INTL FCStone, to foresee a switch in demand to the US from New Zealand.
Fonterra on Thursday revealed a further product withdrawal, in May, of 42 tonnes of milk powder which had been stopped at the Chinese border after tests showed levels of nitrites, which can by toxic in high concentrations, above the 2 parts per million allowed in the country.
Ian Palliser, Fonterra's group director of food safety and quality, said that the milk had tested below 2ppm in New Zealand, and that levels of up to 5ppm of nitrites were allowed in New Zealand itself.
The nitrite levels found in the milk powder shipment were "not a food safety issue whatsoever", he told Radio New Zealand.
Case for US overcooked?
Results from GlobalDairyTrade auctions run by Fonterra have, since the botulism scare, shown a reduced premium of the group's skim milk powder over that of rival product offered by US-based DairyAmerica.
However, while some observers have taken this as a potential sign of a swing in demand towards the US, others have urged caution, highlighting the role of seasonal effects in altering price dynamics between northern and southern hemisphere supplies.
Furthermore, compared with a year ago, when Fonterra skim milk powder was at a 16% discount to rival US product, "the New Zealand premium has moved up massively", an agricultural investor, with an interest in New Zealand's dairy industry, told Agrimoney.com.
The investor also questioned the potential for US dairy producers to compete on the world stage, given their reliance on grain, prices of which are "unpredictable", rather than pasture in cow nutrition.
Furthermore, cows last longer on the New Zealand model, surviving typically for seven lactations, more than twice as many as those kept on US feedlots.
"Indeed, the US is the swing producer in milk production but, as yet, hasn't managed to beat New Zealand on cost."