The U.S. Dairy Exporter Blog: Market Analysis, Research & News
  • U.S. dairy exports dip for first time in a year

    By USDEC Staff May 5, 2023

    Record months for NFDM/SMP shipments to Mexico and WPC80+ not enough to offset declines in most product categories.

    Year-over-year (YOY) U.S. dairy exports slipped 0.4% in milk solids equivalent (MSE) terms in March (-910 MT), marking the first MSE decline in exactly a year. (March 2022 U.S. MSE exports fell 0.5% before going on an 11-month streak of YOY gains.)

    Because of the strong U.S. performance in January, year-to-date value and volume still grew for the first quarter (1Q). U.S. dairy export volume rose 5% (+25,398 MT MSE) and value increased 3% (+$65 million). And on the volume side, most key product categories held their own for the quarter: NFDM/SMP (+3%), cheese (+4%), MPC (+13%), WPC80+ (+18%) and lactose (+26%).

    However, headwinds of increased competition, inflation, economic uncertainty, and lackluster Chinese demand are taking a toll and should challenge U.S. suppliers through at least mid-year when we expect EU milk production gains to soften and China’s appetite to recover more fully.

    On the positive side, U.S. sales to Latin America (Mexico, Central and South America and the Caribbean) continue to grow, even in the face of those headwinds.

    In March, total U.S. dairy export volume to Latin America expanded by 23% (+17,110 MT). Cheese and NFDM/SMP led the way. U.S. cheese shipments to the region grew 20% (+3,918 MT) versus the previous March, while NFDM/SMP jumped 37% (+14,003 MT). U.S. NFDM/SMP exports to Mexico set an all-time record at 42,391 MT. The only other time U.S. NFDM/SMP shipments to Mexico topped 40,000 MT in a single month was in October of 2016 when volume reached 42,303 MT.

    Chart2 (2)-May-04-2023-07-12-26-5500-PM

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    Here are two takeaways from the March and 1Q data.

    WPC80+ sets a record
    U.S. shipments of WPC80+ totaled 6,828 MT in March, more than the United States ever shipped in a single month. A doubling of shipments to China (+209%, +1,219 MT) was the biggest gain, but U.S. suppliers found success in many key markets, with healthy increases to Brazil (+194%, +380 MT), Mexico (+134%, +167 MT) and the UK (+92%, +225 MT). In addition, exports to Japan, which took over as the top U.S. WPC80+ market in 2022, rose 9% (+84 MT).

    Food and beverage processors worldwide continue to cater to their consumers’ health and wellness demands, and WPC80+ has found a home in that sector. (Positioning high-value whey and dairy proteins as delivering the nutritional advantages health-conscious consumers desire, while simultaneously offering superior functional advantages from a formulation perspective are key aspects of USDEC’s ingredients programs in key markets like Japan, South Korea, Brazil and China).

    Demand is holding despite inflation, although lower high-protein whey prices that emerged in the back half of 2022 have played a significant role in boosting exports as well. U.S. WPC80+ shipments fell 8% (-4,100 MT) over the first three quarters of 2022. Then in the final quarter of last year, they jumped 34% (+4,322 MT). Through the first quarter of 2023, YOY U.S. WPC 80+ exports grew 18% (+2,621 MT).

    Market diversification is one reason for optimism moving forward. U.S. growth to key Asian markets has long been the primary driver of U.S. growth, but over the past couple of years, we’ve also seen some encouraging inroads made in Latin America, specifically Mexico and Brazil.

    Combined U.S. WPC80+ exports to Brazil and Mexico grew 94% from 2020-2022. In 2020 they accounted for 5% of U.S. WPC80+ volume; by 2022, that share had risen to nearly 9%. In the first quarter of 2023, Brazil and Mexico together accounted for 14% of total U.S. WPC80+ exports.

    Slipping U.S. export volumes in cheese
    U.S. cheese exports in March (-0.4%, -165 MT) dropped for the second month in a row (February volumes dropped a similar amount). Prior to February, U.S. cheese exports had seen positive YOY growth for 18 straight months.

    The U.S. saw the sharpest declines in Japan (-23%, -1,024 MT), South Korea (-61%, -4,634 MT) and Southeast Asia (-22%, -493 MT). Despite the overall decrease, U.S. cheese exports continued to see strong growth in Latin America with Mexico up 16% (+1,905 MT) and Central America and the Caribbean up +26% (+1,378 MT). And exports to Australia jumped significantly in March (+50%, +1,602 MT). These gains, however, were not enough to offset declines elsewhere.

    March trade data reflects the stiff competition in cheese trade over the last five months, with EU cheese prices at a significant discount to the U.S. EU cheese prices over the last five months have averaged an 11% discount to the U.S. and peaked at a 23% discount. That strong price differential pushed back on U.S. cheese exports, as importers secured opportunistic sales.

    More recently, the price gap has been shrinking, putting U.S. and EU cheese essentially at parity. But despite that narrowing gap, we still expect U.S. cheese exports to be challenged over the next several months as the market adjusts.

    Looking to the rest of the year, we expect U.S. cheese exports to come under less pressure towards the end of 2023. EU farmgate milk prices are sharply declining, which will continue to pressure margins and push back on milk production, supporting higher cheese prices. The U.S. is facing similar pressures, but increased capacity coming online should support U.S. cheese production, creating more product available for export.

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