Whey, cheese, lactose and butter continued to lead as U.S. suppliers set multiple September records.

U.S. dairy exports stayed on record pace in September, posting another strong month of growth. Export volume rose 7% (+13,784 MT) on a milk solids equivalent basis. Whey (+18%, +8,897 MT), cheese (+5%, +1,719 MT) and lactose (+32%, +10,135 MT) all set new September highs, while butter shipments increased 49% (+1,598 MT) in what may be one of the last strong months for the fat this year (more on that later).

U.S. nonfat dry milk/skim milk powder (NFDM/SMP) exports fell for the 10th consecutive month in September (-7%, -4,953 MT), and NFDM/SMP remains one of the few products where exports are trailing the prior year. Declines were driven by limited product availability and the continued absence of China, along with a more recent pullback in Southeast Asia (SEA).

While China continues to lag in overall dairy imports, U.S. whey exports to the country climbed significantly (+41%, +8,626 MT) in September thanks to growth in permeate, likely driven by rising pork prices that are incentivizing increased whey use in hog feed.

Exports to Mexico were particularly impressive in September, with NFDM/SMP volume up 22% (+6,138 MT) and cheese up 11% (+969 MT).

Overall, U.S. dairy exports had another great month. With milk production coming back, we expect topline numbers to remain strong through the end of the year.

For detailed data and charts, check out USDEC’s Data Hub

Now, let’s jump into our two main takeaways. 

Strong butter exports, but challenges ahead

Despite the tight butter market leading to exceptionally high prices, the U.S. continued to grow its butter exports in September. Butter shipments jumped 49% (+1,598 MT) for the month, with strong gains to Canada (+126%, +1,451 MT), though shipments to Mexico doubled as well – albeit from a low baseline (+106%, +164 MT). Both countries have lagged in milk production over the last 18 months and have turned more to the U.S. to help bridge the gap. Competitive U.S. butter prices early in the year encouraged the growth in exports as well as importers purchased ahead.

However, since mid-year, U.S. butter prices have trended well above GDT prices and temporarily surpassed European prices to become the most expensive butter of the major exporters on a spot basis—even as futures were more favorable for exports.

Then, over the last week, U.S. spot prices plummeted. Butter prices at the CME fell 59 cents from $3.20 on Oct. 21 to $2.61 yesterday (Nov. 3). The dramatic price correction likely stems from factors such as last week’s cold storage report, which showed a less-than-anticipated draw down in stocks and retailers having secured purchases ahead of the holiday season.

Globally, EU butter saw a similar dramatic drop in price, which put it on par with the U.S. But both the EU and the U.S. are still priced well above the GDT (roughly 30% higher).

With U.S. prices lacking the discount they enjoyed for much of the last 18 months, we can expect U.S. butter exports to slow in the final quarter of 2022 and into early 2023. This is especially true as New Zealand continues to shift more milk to butter production while the U.S. and EU continue to experience tight supplies.

New Zealand butter production has steadily increased throughout the year as the country’s production mix has shifted more milk to the butter/skim stream in the face of lower WMP demand out of China. New Zealand butter production was up 5.5% YTD (January-August) compared to the U.S. being down 2.2% YTD. That increased supply in New Zealand will help keep New Zealand butter priced below the U.S., which creates an additional hurdle for U.S. exports to finish out the year.

Whey exports up double-digits again

The ongoing resurgence in U.S. whey shipments that began in earnest in June continues to fuel overall U.S. dairy exports. September marked the fourth straight month of year-over-year double-digit gains, as volume increased 18% to 58,117 MT (+8,897 MT).

Drill down into the subcategories of whey, and the picture varies. For example, whey protein concentrate (WPC) exported under HS code 0404.10 posted the biggest rise in September, +49% (+5,051 MT), and has been a major driver in the turnaround of U.S. whey shipments in 2022. But WPC shipped under HS code 3502.20 (what we term WPC80+) continues to undershoot previous-year performance, falling 9% (-492 MT) in September and dropping 8% (-4,100 MT) year to date.

The differing trajectories for each HS code can be traced back to China.

China is the No. 1 buyer of U.S. WPC under 0404.10 (accounting for about 45% of U.S. sales last year) and, until recently, was the biggest buyer of U.S. WPC80+ under 3502.20 (taking about 50% of U.S. exports in 2021).

U.S. WPC exports to China under 0404.10 jumped 154% in September (+5,204 MT) and were up 33% (+16,627 MT) through the first three quarters of 2022. Unlike whey permeate or sweet whey, which are heavily driven by the pork market in China, the gain in WPC is more curious as Chinese demand for most other high-value dairy ingredients has suffered over the past year. U.S. shipments of WPC80+ to China under 3502.20, for example, declined 63% (-656 MT) in September and were down 44% (-5,596 MT) in the first three quarters.

Overall, even given the imprecision of some trade data HS codes, combined WPC exports from the U.S. under both HS codes are growing to China and elsewhere—and is one reason behind U.S. whey export gains this year.

While WPC has buoyed overall whey shipments since March, over the long haul, U.S. exports of modified whey (in large part permeate) performed even better—even during the downturn in overall U.S. whey exports that began in late summer 2021 and ran through February 2022.

Since the start of 2021, U.S. modified whey exports grew 25% (+70,081 MT). We attribute that long-term growth streak in part to buyers turning to permeate as an affordable alternative to sweet whey as sweet whey prices spiked and higher pork prices incentivized increased utilization of dairy ingredients by hog producers to boost speed to market. Over the same 21-month period that modified whey sales jumped 25%, U.S. sales of dry whey (predominantly sweet whey) were flat.

With U.S. sweet whey prices coming down, we expect to start seeing more balanced growth. That may have already started. Year-over-year U.S. shipments of modified whey grew 1% (+206 MT) in September while U.S. sweet whey exports grew 22% (+4,132 MT).

Learn more about global dairy markets:

• U.S. dairy exports grow for 5th consecutive month

• July export gain runs growth streak to four straight months

• U.S. dairy exports soar in June, climbing 9%

• U.S. dairy exports set multiple records in 2021

   

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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.