The long-term trajectory for U.S. dairy exports remains distinctly positive with growing demand around the world for dairy products, particularly of U.S. origin, despite pandemic-induced uncertainty to persist into 2021.
In spite of the pandemic, in spite of shipping issues, and in spite of historic price volatility in the cheese market, U.S. dairy exports in 2020 achieved:
- A record in milk solids equivalent (MSE) volume of 2.1 million metric tons (MT);
- The highest year of value since 2014 ($6.6 billion); and
- The highest percent of U.S. milk production exported since the Next 5 Percent plan began (16.0%).
More information, data and charts on specific products and markets can be found here.
Despite a 1.1% decline in export MSE volume in the month of December, U.S. dairy capped off a strong 2020 for exports. As we have outlined over the past several months, there have been crucial reasons for strong growth in 2020:
- Whey exports (+24%, +107,013 MT) benefitted immensely from China’s market reopening following the Phase I agreement and exemption for permeate combined with a booming demand as China rebuilt its swine herd.
- NFDM/SMP exports (+16%, +111,773 MT) surged to Southeast Asia with regional buyers ensuring they had adequate supplies on hand, EU intervention SMP worked through in 2019, and U.S. product was competitively priced.
- The cushion cheese exports (-0%, -341 MT) built up in the early part of the year, mainly to East Asia, from product sold before the record high prices of the summer and autumn was sufficient to ensure exports remained roughly equal to the year prior.
But let’s move beyond the topline summary and dig into the December data and what it means for 2021:
NFDM/SMP exports hit logistics hurdles in December
The 15% decline in U.S. NFDM/SMP exports in December (vs. the previous year) is a curious development given market dynamics—one we believe is due in large part to ongoing U.S. port issues.
Here’s the reasoning: U.S. suppliers have enjoyed a price advantage over major competitors in the EU and New Zealand since mid-2020—an advantage that has helped drive U.S. sales. Market indications—SMP prices rising for the past couple months despite readily available supply—suggests global demand remains strong and the price differential should continue to spur U.S. sales. But that’s not what we’ve seen in November or December.
Shipping issues created by the pandemic have been affecting ports for nearly a year. Those issues intensified at the end of 2020, with heightened port congestion and equipment shortages and moves by ocean carriers to ship empty containers back to Asia at the expense of outbound U.S agricultural products, including dairy.
For calendar year 2020, U.S. NFDM/SMP exports to Southeast Asia, China and Japan grew 44%, 194% and 68%, respectively, compared to 2019. In December, however, U.S. exports to Southeast Asia (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) fell 19%, with sales down in five of the six markets. Exports to China fell 16%; shipments to Japan dropped 84%.
On the flipside, in December, U.S. NFDM/SMP sales to Mexico increased 4% (compared to the previous year), with product trucked smoothly over the border.
The facts suggest that the problems at U.S. West Coast ports are taking a toll on U.S. milk powder exports and that could continue into 2021.
Rebound in Mexican cheese demand? Not yet
Cheese exports to Mexico continued to see a drop off in December volumes compared to 2019 with a reduction of roughly 20% (-1,858 MT) by volume, which follows declines in October and November. Despite this, overall exports to Mexico in 2020 were largely in line with 2019 with overall volume slightly down 3% (2,749 MT).
In global terms, US cheese exports to the world in December were down just 1% (260 MT) thanks to growth to Japan (+956 MT), Canada (+934 MT) and Korea (+578 MT), leaving total 2020 cheese exports flat compared to 2019. Notably, this was achieved during a year with unprecedented price volatility.
U.S. cheese price volatility and wavering Mexican demand continued to be the main culprits for lackluster cheese exports to Mexico. A recent survey of Mexican consumers by McKinsey in November showed that one out of three have reduced household spending due to COVID-19.
Reduced demand is a continuing theme and remains a concern as we move into 2021. With regard to cheese price, even with the most recent food box announcement, we are seeing more stable prices which will likely continue into 2021, absent any further drastic government intervention. On a transportation note, obstacles in logistics remain, with heavy port delays as well as increasing trucking costs; however, the inability to acquire containers may lead to an increased push of product to Mexico via trucks. Overall, as we move into 2021, the main factor to watch for U.S. cheese exports will be Mexican demand.
That’s a wrap for 2020 – Where do we go from here?
Should we expect U.S. dairy exports to set another record in 2021?
Well, it’s certainly not guaranteed as exports in 2021 will face substantial headwinds. The continued logistics challenges, not just in the U.S. but worldwide, have persisted into the new year. Shipping headaches may slow exports, particularly to East Asia, through the first quarter at least. Additionally, some data comparison will be less favorable than it was in 2020. Most noticeably, U.S. whey exports to China in 2021 will no longer be compared to a period where U.S. dairy dealt with retaliatory tariffs and African Swine Fever. Finally, 2020 was an exceptionally strong year in terms of U.S. market share in Southeast Asia, so some mean reversion should not surprise observers. That is still to say nothing about the COVID-19 pandemic and its demand implications.
Still, we have plenty of reasons for optimism. First, U.S. milk production continues to gain steam with growing cow numbers. That new milk will need to find a home, and the export market is the obvious choice given that global demand appears robust with the strong results at recent Global Dairy Trade (GDT) auctions. The alleviation of shipping problems will result in delayed shipments being moved quickly, causing a short-term surge in exports. Additionally, for new business, the U.S. remains price competitive in all the major export products, and even in products it does not usually export, like butter and AMF. Further expanding the U.S. portfolio into milkfat-heavy products beyond cheese remains an untapped opportunity for export growth. Finally, exports to Mexico should stabilize if not improve when compared to 2020 data.
Regardless of whether exports set a record again in 2021, the long-term trajectory for U.S. dairy exports remains distinctly positive with growing demand around the world for dairy products, particularly of U.S. origin.
Source: U.S. Dairy Export Council