Despite limited milk supply growth, U.S. dairy exports set new monthly records in volume and value in May, marking a positive break from the trend.
In the first four months of 2022, U.S. dairy export volume held steady to the records set in 2021 – never increasing or decreasing by more than 2%. Indeed, February, March and April were all within half a percent of prior year volumes. And while May did not deliver the runaway, double-digit growth of 2021, a gain of 5% in volume to set a new single-month record is a welcome change of pace.
Cheese exports led the way again – growing by nearly a third (+31%, +9,563 MT), according to FAS Global Agricultural Trade System (GAT) data released this week – thanks to increased cheddar and fresh cheese shipments to Japan, South Korea and Mexico. Whey products and lactose also broke out, climbing 4% (+2,401 MT) and 16% (+6,044 MT) year-over-year, respectively, likely boosted by delayed product leaving the country as port conditions improved.
The only major product to report a decline was nonfat dry milk/skim milk powder (NFDM/SMP), held back by lack of available supply (year-to-date U.S. NFDM/SMP production is down 11%) rather than lack of demand. May marked a sixth consecutive month of lower volumes, trailing 9% (-8,322 MT) compared to May 2021. Until milk production growth returns or available milk is shifted into Class IV, NFDM/SMP exports are unlikely to increase as the U.S. is already exporting more than 70% of its milk powder production.
Ultimately, May’s export figures highlight that even as U.S. milk production remains subdued, supplying the international market remains a top priority for the U.S. dairy industry.
U.S. gaining market share in cheese, headwinds developing
The surge in U.S. cheese exports, particularly cheddar, in 2022 has been welcome news for the international market. With European and New Zealand cheese supplies tight due to lower milk production, the U.S. has stepped up to fill the gap and meet rising international demand. While EU27+UK cheese volumes fell by 4% through April and New Zealand exports trailed 10% through May, the U.S. increased its exports by 14% over the first five months of the year.
Increased cheese processing capacity in the U.S., a prolonged period of price competitiveness, and growth in demand from the United States’ largest markets are all facilitating the boom in U.S. cheese exports to record highs on an annualized basis.
However, some headwinds are developing that could challenge the U.S. in maintaining this booming pace.
First, the price advantage the U.S. held in cheese for months has waned in recent weeks as New Zealand prices have come down to earth. (For context, New Zealand cheddar prices on the GDT surpassed U.S. CME prices at the peak of the food box boom in 2020.) Whether this reflects slowing international demand or simply a necessary price correction back towards parity with the rest of the world remains to be seen.
Additionally, despite the spot market reflecting much higher prices, May was the first month to show U.S. cheese export prices breaking out of what had been a relatively narrow price band between $4,000 and $5,000 per metric ton over the past 10 years. And the average price is likely to climb further in future data releases.
Effectively, the prices that importers are facing, particularly with a strong U.S. dollar, will test company and consumer budgets. This could impact U.S. exports if international buyers slow purchasing due to inflation or fears of a recession, reducing cheese consumption.
Still, despite pricing headwinds, the underlying fundamentals for U.S. cheese exports to maintain significant growth remain. We see substantial opportunity for the U.S. to increase its market share given prolonged declines in European and Oceania milk production. In addition, international demand for cheese has yet to show signs of a pullback, particularly with Mexico and Central America reporting strong demand for imports (though recent price movements at the GDT and CME are worth monitoring).
Finally, any headwinds that have appeared in recent weeks are unlikely to show up meaningfully in the data until late Q3 at the earliest, but we’ll be on the watch for leading indicators in either direction in the months ahead.
SMP to Southeast Asia breakdown
Alongside Mexico, Southeast Asia (SEA) has been a critical market for U.S. dairy export growth in recent months, seeing gains to multiple products and markets. In May, exports on a milk solids equivalent basis were up 17% (+9,833 MT) year-over-year, particularly thanks to NFDM/SMP, which remains the primary export product to the region at over 330,000 MT in the last 12 months. And year-to-date, U.S. NFDM/SMP exports to SEA increased by 7% (+9,997 MT) with roughly the same pace in May (+8%, +2,740 MT).
The growth we’ve seen in Southeast Asia in 2022, while not at the rate we saw in 2020, represents the steady progress of the U.S. commitment to the growing and highly competitive region. But rather than talking about Southeast Asia as a singular bloc, it is worth diving deeper by market.
First, the Philippines, which imported over 125,000 MT over the last 12 months and accounted for nearly 40% of all U.S. NFDM/SMP exports to the region. U.S. NFDM/SMP shipments to the Philippines were up 22% (+10,226 MT) through May.
Still, Malaysia showed the strongest growth so far this year (+72%, +11,490 MT) in NFMD/SMP imports from the U.S., with U.S. suppliers increasing their market share compared to Europe and New Zealand.
Aside from the substantial growth to the Philippines and Malaysia, NFDM/SMP shipments also increased to Indonesia (+9%, +2,926 MT). Indonesian imports are likely to climb higher given recent Foot and Mouth Disease outbreaks in the country that have reportedly reduced local milk production. Exports to Vietnam, on the other hand, pulled back sharply in 2022 (-41%, -16,903 MT) even as volumes remain above pre-pandemic levels and U.S. market share holds steady. But regardless of erosion this year in milk powder sales to Vietnam, the regional picture appears quite positive.
Additionally, Southeast Asia represents more than just a region that takes a large volume of product – value is up as well. The value of U.S. NFDM/SMP exports to the region topped $140 million in May – a jump of nearly 50% compared to the year prior. On a unit value basis, U.S. NFDM/SMP exports to SEA are at the highest levels since 2014.
There remain some short-term questions moving forward about whether Southeast Asian demand will continue to grow as higher prices are passed onto the consumer, but for the long-term, the opportunity remains clear.
Provided by USDEC