Dairy exports: What will influence trade in 2024?

US dairy exports slumped 7% in 2023 due to weak demand and increased competition across the board, with just high-protein whey (WPC80+ exports increased 18%), lactose (+5%) and condensed milk (+7%) recording a positive change compared to 2022.

Skim milk powder, cheese, infant formula and fluid milk/cream all recorded low to mid single-digit decline during 2023, but commodities such as butterfat (-55%), whole milk powder (-33%), whey and casein (both -20%) saw sharper annual declines.

SMP exports largely suffered on the back of weak demand from South East Asia, which more than offset strong NFDM exports to Mexico. In cheese, weaker demand from Japan and Korea and increased competition from the EU and New Zealand contributed to the decrease in US cheese sales, even if the volume of cheese exports in 2023 was the second highest on record shipped in a single year, according to USDEC. The dip in lower-protein whey exports was also largely caused by challenges in the Chinese market, where shipments were down 27% on 2022, in part due to weak demand for whey from the feed industry.

So what lies ahead? USDEC recently summarized some of the crucial factors that US dairy exports should be keeping an eye on, from the Chinese economy to demand from Mexico and beyond.

The organization has expressed ‘modest optimism’ at reports of easing inflation – expected to fall to 5.8% globally in 2024, from 6.8% in 2023 – and signs of strengthening global economies, with the International Monetary Fund forecasting a 3.1% growth in global GDP.

A mix of global conflicts, notably in Gaza, Ukraine and the Red Sea, and the increasing prevalence of trade restrictions – with countries imposing around 3.200 in 2022 and another 3,000 in 2023 – suggest there are plenty of risks to navigate.

“As we’ve seen this past year, there is a clear connection between economic wellbeing and dairy consumption,” USDEC says. “With so many markets battling inflation and reduced purchasing power this past year, global dairy demand suffered. Conversely, those markets that had strong economies and currencies, like Mexico, dramatically overperformed expectations.”

In Mexico, where strong demand drove growth in NFDM exports (+16% in 2023), shredded cheese (+162%) and high-protein whey (+35%), US exporters shipped record-breaking 631,511 metric tons in milk solids equivalents in 2023, an increase of 13.5% on 2022. USDEC says these volumes were ‘critical in compensating for slower exports to other major demand destinations’, such as China.

“Falling unemployment, a resurgence of tourism, and a wave of foreign investment boosted the desire for consumer products, including dairy,” USDEC explained. “As demand soared, strong economic results drove the Mexican peso to an eight-year high, increasing the purchasing power of Mexican buyers and further bolstering consumer confidence. At the same time, dairy products in the U.S. were moderately priced, creating an ideal buying opportunity.”

In 2024, the organization expects Mexico to remain the top destination for US dairy exports, though a slow-down, particularly in SMP and NFDM imports where demand was more modest in December, could be on the cards. “Looking to 2024, we expect export volumes to Mexico to remain robust, but may not match the record volumes we saw in early 2023,” the organization summarized.

The outlook is less optimistic for China, where consumer and investor confidence remain at their lowest levels in years, according to USDEC. “Weaker economic performance is likely to weigh on China’s dairy consumption growth again next year, particularly at foodservice,” the body predicted. “Ultimately, with demand growth questionable, the abundance or scarcity of local milk supplies will play a major role in determining dairy import needs.”

USDEC highlighted that in the past few years China has invested heavily in improving milk production, mainly through the vertical integration of major dairy processors which has reduced the need for imports of fluid milk and whole milk powder. “With lackluster consumer demand, low milk prices and high input costs, this would theoretically hamper milk production,” the body predicted. “But with the industry’s vertical integration and the Chinese government’s self-sufficiency goals, it is unclear to what extent normal economic fundamentals apply to China. In which case, further expansion and commercialization may still be on the way, further depressing imports until dairy consumption in the country rebounds.”

USDEC said that another flat year of imports was ‘likely’ given the many variables at play; at least in H1 2024. “Ultimately, China’s import mix is evolving away from fresh milk and WMP toward cheese, dairy fats and specialty ingredients – products that aren’t made locally. This evolution may open up more opportunities for U.S. dairy in the long run, but for now, China could have a bumpy road ahead in 2024.”

Competing with other global dairy exporting nations, mainly from the EU bloc and New Zealand, poses further challenges, though USDEC predicts that reduced margins in New Zealand could hamper production while in the EU where more generous payouts have started to materialize could boost milk production in the first half of 2024, with a normalization in mid 2024 potentially leading to a slowdown in production. “All told, we expect slight gains for EU27+UK milk deliveries in 2024 (around +0.5%) and New Zealand holding steady with weather as the ever-present variable,” USDEC said. “For the US. this modest growth from the EU and New Zealand is likely to mean continued competition with the two largest dairy exporters in key markets around the world, but the two are unlikely to be as aggressive on price as they were in 2023 to clear excess milk. That could potentially open the door to U.S. export growth, provided that global demand and US milk supply are conducive to expansion.”