U.S. dairy exports posted their strongest month of growth in a year and a half in July, climbing 9.6 percent year-over-year in milk-solids-equivalent terms. In contrast to prior months, where cheese and high-protein-whey products were the only products posting significant growth, gains were made across multiple categories in July.
In particular, reduced-protein whey has become the star of the show after lagging throughout 2023, gaining 27 percent in July and marking the fourth-consecutive month of growth. Not to be outdone, despite declines in production, nonfat-dry-milk and skim-milk products surprise by increasing 11 percent for the month. Cheese and high-protein whey also maintained momentum, growing 10 percent and 23 percent, respectively.
July’s strong export growth is a welcome signal after an up-and-down first half of the year. But weaker comparisons certainly played a part in explaining why July’s figures were particularly robust. July 2023 was the weakest month of the year in that year with whey figures for the month being the worst since October 2019, when U.S. exports to China were still subject to retaliatory tariffs and the country was still suffering from the worst of the African swine fever outbreak. As such, the 10 percent gain in July appears slightly less impressive upon closer examination.
U.S. dairy exports overall remain remarkably stable despite global headwinds, with gains continuing to be made in multiple products – especially in cheese and whey proteins.
Southeast Asia outlook improves
Fundamentally, demand in the region is improving thanks to several factors.
• inflation cooling rapidly throughout the region
• an improved economic outlook boosting spending power
• reduced palm-oil prices increasing demand for fat-filled milk powder and other blends utilizing whey or skim milk powder
Global trade to the region – from all exporters, not just the United States – improved by 9 percent in the first half of 2024.
Unfortunately, other suppliers have captured most of the growth in demand. New Zealand’s exports to the region climbed 6 percent from January to June, the European Union 27 gained 9 percent and Australia’s shipments increased an astonishing 77 percent. Effectively, with China’s purchasing remaining well less than prior years, Oceania and European exporters are focusing on regions where demand is growing. They hold critical advantages, especially on tariffs in the case of New Zealand and Australia. As such, with growing demand in Southeast Asia and a tight milk-supply situation in Europe, the United States has the potential to grow exports to the region. But competition will remain fierce for market share so long as China’s demand remains subdued.
China outlook improves
Speaking of China, U.S. reduced-protein-whey exports to China improved for the fourth-straight month in July, improving 36 percent. Monthly volumes during that span have been similar to each other, with little to indicate there’s been an acceleration in demand even as the pork market in China has firmed. Even still, the whey complex in China appears the strongest dairy category in the market.
Through the first six months of the year, global shipments to China have decreased by 9 percent, with reduced-protein whey accounting for a relatively small share of the decline. Furthermore, global reduced-protein shipments to the country improved in the second quarter; if the U.S. data reflects broader trends, July will be similarly positive. The increase in piglet prices and expansion of investment in pig-breeding facilities should boost whey demand as China looks to rebuild its pork supply. Demand is still relatively soft for pork given the economic dynamics in the country, but with increased prices and tight pork supplies, the incentive to expand pork production – and thus whey demand – should boost U.S. whey – and therefore dairy – exports to China.
But even as whey turns positive, China’s demand outlook for the rest of the dairy portfolio looks questionable. China’s economic struggles have continued in 2024, limiting demand growth for fluid products, food-service and discretionary spending in general. And with China’s emphasis on growing domestic production despite sluggish consumer demand, raw-milk prices continuing to decrease – suggesting an oversaturated market. Profitability struggles on farms are all contributing to the rapid decrease in imports, particularly of milk powders. China’s recent announcement of import tariffs against select dairy products from Europe could open opportunities to alternative supplier, including the United States. But given demand dynamics in the country and ample local-milk supplies, growth in U.S. exports to the country outside the whey complex appear doubtful in the near future.
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