With the April U.S. dairy exports documenting their worst year-over-year decline in four years, Ben Laine, a senior dairy analyst with Terrain says the headwinds facing dairy exports side of the equation is what concerns him the most right now.
“I think there is a little bit of a concern,” he says. “We started off strong, but some of that was probably some contracts that were locked in last year that are continuing to spill into this year. Now, we’re not in as much of a discount as the rest of the world so we don’t have that competitive price advantage that we that we previously had in 2022.”
Cheese, nonfat dry milk/skimmed milk powder (NFDM/SMP), low-protein whey, lactose, butterfat, whole milk powder (WMP) and fluid milk/cream all lagged prior-year levels. Laine shares that we are seeing a slowdown on the export side, while domestic demand is still holding on.
“I think largely because we’ve seen at least some of the wholesale prices drop and hopefully that starts to show up in cheaper prices for consumers and spur demand,” he says. “I’m less concerned about domestic demand immediately. I think we’ve already seen a lot of the impacts happen in terms of consumers shifting their behavior, I think the next step would have to be pretty dramatic.”
On the demand side, China remains the biggest drag on the global market. Last year, global trade to the largest dairy import market dropped by 22%. This year, while imports have stabilized, they remain subdued, growing by just 2% in the first quarter as a large portion of WMP and fluid milk imports have been displaced by increased domestic production. More recently, weaker margins for pork producers in China have dampened the country’s appetite for whey for feed, which directly impacts U.S. exports.
U.S. Dairy Export Council shares that they expect the next several months of trade data will show similar results, particularly on shipments to Asia, where competition has been particularly fierce and the demand headwinds the strongest.
“Demand for dairy in Asia is a great opportunity for U.S. exports in the long run. But at times like this, when Asia’s near-term demand is sluggish and there is sufficient supply coming out of the EU and New Zealand, we miss out on some of those opportunities. Our geographic location relative to Asia is a natural disadvantage when transportation gets priced in,” Laine says.
