According to DairyReporter, the U.S. Dairy Export Council (USDEC) has analyzed the conditions under which international dairy business is conducted, as well as the major factors that could influence global demand for dairy products and what this means for suppliers.

Weak demand

Global dairy exports fell by 7% in 2023 due to weak demand and increased competition overall, with only protein-rich whey (WPC80+ exports up by 18%), lactose (+5%), and condensed milk (+7%) registering a positive change from 2022.

Skim milk powder, cheese, infant formula milk powder, and milk and cream all saw a low to mid-single-digit decline in 2023, but commodities such as butterfat (-55%), whole milk powder (-33%), whey, and casein (both -20%) experienced more pronounced year-on-year decreases.

SMP exports suffered mainly due to weak demand from Southeast Asia, which offset stronger exports of NFDM to Mexico.

In the cheese sector, weaker demand from Japan and Korea and increased competition from the EU and New Zealand contributed to the decline in U.S. cheese sales, even though cheese export volume in 2023 was the second highest recorded in a single year, according to the data.

The decrease in low-protein whey exports was also largely caused by challenges in the Chinese market, where deliveries fell by 27% compared to 2022, partly due to weak demand for whey in the feed industry.

Modest optimism

USDEC recently summarized several key factors to watch for U.S. dairy exports, from the Chinese economy to demand in Mexico and beyond.

The organization expressed moderate optimism about reports of decreasing inflation – estimated to drop to 5.8% globally in 2024 from 6.8% in 2023 – and signs of global economic strengthening, with the International Monetary Fund forecasting a 3.1% global GDP growth.

A combination of global conflicts, especially in Gaza, Ukraine, and the Red Sea, and the increasing prevalence of trade restrictions - with countries imposing about 3,200 in 2022 and another 3,000 in 2023 - suggests there are plenty of risks to avoid.

"As we saw last year, there is a clear link between economic well-being and dairy consumption," says USDEC. "With so many markets struggling with inflation and reduced purchasing power over the past year, global demand for dairy products has suffered. In contrast, those markets with strong economies and currencies, such as Mexico, have dramatically exceeded expectations."

In Mexico, where strong demand led to increased exports of NFDM (+16% in 2023), shredded cheese (+162%), and protein-rich whey (+35%), American exporters delivered a record 631,511 metric tons of milk solids equivalent in 2023, a 13.5% increase from 2022.

USDEC says these volumes were "critical to offsetting slower exports to other major demand destinations," such as China.

Consumer desire

"Declining unemployment, a resurgence in tourism, and a wave of foreign investment have fueled consumer desire for consumer products, including dairy," USDEC explained.

"As demand increased, strong economic results led the Mexican peso to an eight-year high, increasing the purchasing power of Mexican buyers and further strengthening consumer confidence. At the same time, U.S. dairy products were moderately priced, creating an ideal buying opportunity."

In 2024, the organization expects Mexico to remain the top destination for U.S. dairy exports, although a slowdown, particularly in SMP and NFDM imports, where demand was more modest in December, could be on the cards.

"In 2024, we expect export volumes to Mexico to remain robust, but they may not match the record volumes we saw in early 2023," the organization summarized.

Poor prospects for China

Prospects are less optimistic for China, where consumer and investor confidence remains at the lowest level in years, according to USDEC. "Weaker economic performance will likely influence dairy consumption growth in China again next year, especially in the food sector," the body predicted.

"Ultimately, with uncertain demand growth, the abundance or shortfall of local milk reserves will play a major role in determining dairy import needs."

USDEC emphasized that in recent years, China has heavily invested in improving milk production, mainly through the vertical integration of major dairy processors, which has reduced the need for fluid milk and whole milk powder imports.

"With weak consumer demand, low milk prices, and high input costs, this would theoretically hinder milk production," the body predicted. "But given the industry's vertical integration and the Chinese government's self-sufficiency goals, it is not clear to what extent normal economic fundamentals apply in China.

In this case, expansion and further commercialization could still be on track, further reducing imports until dairy consumption in the country rebounds."

USDEC said another flat year of imports was "likely" given the numerous variables at play; at least in the first half of 2024. "Ultimately, China's import mix is evolving from fresh milk and WMP to cheese, dairy fats, and specialty ingredients – products that are not locally manufactured." (Photo: Freepik)