Big month for cheese unable to offset declines in milk powder, lactose and whey.

After a strong year-over-year (YOY) performance in February, U.S. dairy exports slipped back into the red in milk solids equivalent (MSE) terms in March. YOY MSE volume fell 7% despite surging U.S. cheese sales and gains in high-protein whey, milk protein concentrate and whey permeate.

With March data in, year-to-date (YTD) U.S. MSE export volume was down 3.1% in the first quarter, compared to the previous year. U.S. export value fell 10% to just over $2 billion.

The biggest positive highlight in March was cheese. U.S. cheese shipments jumped 20% (+8,494 MT) to 50,022 MT in March, marking the first time volume ever topped 50,000 MT in a single month.

Mexican demand remained strong, with YOY March shipments up 8% to 15,284 MT. The country has grown into the United States’ most reliable cheese customer, as evidenced not only by recent-month sales gains but by the past few years. The last time YOY U.S. cheese shipments to Mexico declined was June 2021—in other words, we’ve seen a remarkable 33 straight months of YOY gains.

While the Mexico gains are impressive, U.S. cheese success in March was much more broad-based, including Japan, South Korea, the Middle East/North Africa (MENA) and the rest of Latin America. (For more on U.S. cheese export growth in March, see below.)

In addition to cheese, U.S. WPC80+ exports continued their hot streak in March. YOY shipments jumped 32% (+2,153 MT), with widespread geographic success. YOY sales to our No. 1 market, Japan, rebounded (+61%, +603 MT) after a streak of lackluster months. Exports to India soared more than 10-fold (+623 MT), shipments to Southeast Asia rose 55% (+354 MT), sales to China rose 29% (+525 MT), volume to Canada jumped 77% (+598 MT), shipments to South Korea gained 235% (+332 MT), and exports to Brazil grew 33% (+190 MT).

Less successful in March was nonfat dry milk/skim milk powder (NFDM/SMP). U.S. NFDM/SMP shipments fell 18% (-14,335 MT) as sales trends to the top two U.S. markets—Mexico and Southeast Asia—continued to diverge. Exports to Southeast Asia grew 13% (+2,595 MT) with sizeable gains to the Philippines (+121%), Malaysia (+113%), Vietnam (+37%) and Thailand (+42%) offsetting declines to Indonesia and Singapore. YOY U.S. NFDM/SMP shipments to Southeast Asia rose 13% (+7,576 MT) in the first quarter.

On the other hand, sales to Mexico, which began to soften in late 2023, fell 37% (-15,700 MT) in March. (For more on Mexico and overall NFDM/SMP trends, see below.)

Between NFDM/SMP, cheese and WPC80+ was low-protein whey (HS 0404.10). YOY U.S. low-protein whey exports fell 8% (-4,081 MT) in March to 45,366 MT. Decreased demand from China remains the overwhelming cause for the ongoing U.S. low-protein whey slump. YOY U.S. shipments to China fell 36% (-9,080 MT) in March, more than twice the overall volume decline for the month.

While down, there were a couple of optimistic signs in the low-protein whey category: 1) total U.S. volume for March was the highest since March 2023; 2) whey permeate demand (using the “modified whey, not elsewhere specified” HS code as a proxy) appears to be slowly working its way back. U.S. shipments of whey permeate have grown in volume for three straight months. March YOY shipments increased 12% (+1,595 MT).

For more detailed information, as well as interactive charts and data, visit USDEC's Data Hub.

Mexican NFDM imports waning

Weaker global demand for NFDM/SMP and a tighter domestic supply environment are challenging exports. U.S. NFDM/SMP exports dropped 18% (-14,334 MT) in March. Slower shipments to Mexico led the decline—down 37% (-15,700 MT) for March and off by 26% (-29,337 MT) year-to-date.

Mexican NFDM imports have underperformed the previous year every month since September 2023. Contributing to the lower import volume are increased Mexican milk production (reducing reliance on imported NFDM), the tighter NFDM supply environment in the U.S., and price-competitive cheese from the U.S. (although that may be shifting).

Mexican milk production faced a number of challenges last year, but domestic milk output started 2024 on the rise, in contrast to declines in many other regions around the world. That increased domestic supply has lessened the need for imported NFDM, and with the U.S. supplying effectively 100% of Mexican NFDM imports, the pullback in NFDM volume is being felt entirely by U.S. exporters.

U.S. NFDM production and stocks are down significantly as well. U.S. NFDM/SMP production dropped 19% in February and is down 15% to YTD. Stocks are at the lowest levels in nearly a decade—down 36% in February and down 29% YTD. The lower volume, paired with weaker demand from our No. 1 export destination, Mexico, is pressuring export growth in the near-term.

Less expensive cheese out of the U.S. has also eroded NFDM imports. A large portion of Mexican NFDM imports is used for cheese fortification. With lower U.S. cheese prices, there is an incentive to simply import cheese rather than take the extra step of importing NFDM to support domestic cheese production.

U.S. cheese prices over the last five months have been very price competitive and likely supported the increased U.S. cheese volume to Mexico. However, U.S. cheese prices have rallied more recently, and if cheese prices remain elevated, it could push Mexican buyers to return to NFDM. But with U.S. NFDM/SMP production and stocks down significantly, there is a limit to how much NFDM is available for export to Mexico even if the incentives for NFDM imports increase.

Cheese exports impress again in March

Once more, cheese exports stole the show in March. For the first time, U.S. cheese exports topped 50,000 MT in a single month, notching a 21% increase (+8,494 MT) relative to the prior year and stretching the trend of year-over-year increases to five consecutive months.

Mexico continued to demonstrate a healthy appetite for U.S. cheese, as exports rose 8% (+1,159 MT) to 15,284 MT, the second largest monthly volume ever, behind only February’s figure. But perhaps even more encouraging, there were some important improvements beyond the United States’ largest customer.

After a prolonged period of contraction, cheese exports to South Korea surged by 132% (+3,963 MT) in March, representing the first YOY gain since late 2022. Japanese demand was also solid, delivering a 52% (+1,734 MT) increase year over year. Most of the growth in cheese exports to Japan and Korea were for fresh cheese (+137%, +1,543 MT) and cheddar (+59%, +1,543 MT), which may be a reflection of foodservice channel recovery in those markets.

U.S. cheese exports to MENA grew 132% (+2,603 MT), marking continued demand resurgence in that region, while Latin America beyond Mexico also impressed. Cheese exports to Central America and the Caribbean climbed (+8%, +550 MT) to 7,297 MT, while South America contributed a more modest 171 MT (+7%) to the monthly total.

Meanwhile, U.S. cheese volumes fell into Oceania (-27%, -1,295 MT), China (-37%, -449 MT), and Southeast Asia (-26%, -449 MT).

Competitive prices likely played a central role in catapulting U.S. cheese exports to record highs in March. The spot CME cheddar price reached its nadir in late December, creating an ideal opportunity for foreign buyers. That window likely persisted through mid-April while cheese largely remained below $1.60/lb. However, the market’s recent run-up to the high $1.70s has created convergence with European and Oceania prices and will likely give pause to buyers before booking additional volumes.

Currency dynamics have compounded pricing to further influence cheese exports. A persistently strong Mexican peso has likely supported additional exports south of the border, while weakness in the Japanese yen and Korean won makes the demand strength exhibited by those markets in March all the more impressive.

Looking forward, a combination of competitive pricing and favorable foreign exchange dynamics will be critical to keep U.S. cheese moving offshore at a healthy clip.

Learn more about global dairy markets:

• U.S. dairy exports rebound in February

• U.S. dairy exports off to a slow start in 2024

• U.S. dairy exports fall 7% in 2023

   

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The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post.