Total export volume in June unfortunately trailed prior year levels by 13 percent or -28,260 metric tons on a milk-solids-equivalent basis. Value continued to be hampered by reduced prices, resulting in a 28 percent decrease for the month. A significant portion of the total export decline can be traced to weak purchases from China, dampening reduced-protein whey exports, as well as reduced European prices undercutting U.S. cheese exports – resulting in a 19 percent decline for the month of June.
Positively, though, June’s cheese exports did rebound compared to May. Whey-protein-concentrate-80+ volumes continued to impress. And Mexico’s demand is still surging, which has helped exports of nonfat-dry-milk and skim-milk powder hold steady.
The mixed performance in June mirrored the first-half results. Through June, U.S. export volume decreased 5 percent and value declined 10 percent, driven by declines in reduced-protein whey and cheese – even as nonfat-dry-milk and skim-milk powder held steady, lactose moved and whey-protein-concentrate-80+ volumes rebounded sharply.
• When looking at the U.S. export data, several key trends stand out from the first half.
• Cheese exports were hampered by cost differences compared to Europe.
• Whey-protein-concentrate-80+ regained demand with prices rebalancing.
• A strong peso and robust consumer demand supported Mexico’s import surge.
• Reduced pork prices in China dented sweet whey and permeate purchases.
• Increased competition and economic headwinds slowed U.S. exports to Southeast Asia.
Given that the trends will be key drivers for U.S. dairy-export performance through the rest of the year, we’ll dig into each of them to assess whether they are likely to persist or reverse in the second half.
U.S. cheese exports hampered
As we’ve mentioned in past reports, reduced prices for European cheeses toward the end of 2022 and into 2023 undercut U.S. cheese exporters even as U.S. prices declined as well. The data in the past few months of trade data reflects that disparity.
While the United States has still been able to maintain its position in the Americas – or strengthen in the case of Mexico – U.S. market share has come under pressure in markets where there is more competition like Korea, Japan and Saudi Arabia.
U.S. cheese exports to Korea decreased 19 percent year-to-date, largely on account of reduced-priced European product entering the market – though total imports were weaker as well. According to Korean import data, European mozzarella in June was about $1,000 per metric tons or $0.45 per pound less than Mozzarella imports from the United States. That disparity in price in the second-largest U.S. cheese market has naturally impacted the overall U.S. cheese-export performance and has been mirrored in other greatly competitive markets.
Given the sharp decrease in U.S. spot cheese prices for much of June and July, we should expect exports to rebound in the third quarter. But the recent rally at the Chicago Mercantile Exchange, which is certainly welcome news – as well as futures prices for the fourth quarter never fully being competitive with Europe even when spot prices decrease – will likely mean cheese exports later in the year will remain challenged. But if European milk production slows sharply and international prices rally – or less positively, U.S. spot prices decrease again in the fourth quarter, something we certainly don’t want to see happen – we could still see improvement toward the tail end of the year.
Verdict – Cheese exports are likely to improve in July and August, though prepare for reversion in the fourth quarter.
Whey-protein regains demand
On the flip side, U.S. exports of whey-protein-concentrate-80+ have surged in 2023. During the past seven years the only significant decrease in whey-protein-concentrate-80+ exports came when prices surged this past year to record levels. But current prices have returned to more-normal levels even if still inflated compared to 2020.
The market rebalancing has had a positive effect on demand. U.S. whey-protein-concentrate-80+ exports have increased 15 percent year-to-date. Japan, Brazil and China have been particularly active – albeit for different reasons. U.S. whey-protein-concentrate-80+ exports to Japan climbed 11 percent year-to-date as protein has become increasingly mainstream within the country, which allowed demand to weather the inflated prices better than most markets. Similarly, Brazil is quickly becoming a major market for U.S. exporters but that growth is largely thanks to the growth of sports nutrition in the market. Alternatively, demand in China is rebounding sharply in 2023 after a weak 2022, likely driven by infant-formula manufacturers rebuilding inventories.
