U.S. dairy export volume in milk solids equivalent (MSE) rose 5% in September, marking the 13th straight month of year-over-year increases. Through the first three quarters of 2020, the aggregate volume of major products (milk powder, whey, cheese, butter and lactose) grew 14% to 1.7 million metric tons (MT). That puts exports on pace to exceed 2018’s record year when the U.S. exported 2.2 million MT. Overall, the United States exported 16.2% of milk solids produced over the first nine months.
Driving September’s export expansion was strong year-over-year growth in whey products, primarily destined for China, and better than expected cheese exports to Asia-Pacific markets, despite domestic cheddar prices being above world market levels since May. Lower exports of NFDM/SMP in September were primarily a result of reduced purchases from Mexico as exports to Southeast Asia, Latin America, and China all grew.
U.S. September Exports by Product and Year
Looking at the data for September, three trends stand out:
1. U.S. export volumes are recovering to China.
With the Phase I agreement in place, growing Chinese demand and resurgent demand for whey, U.S. dairy export volumes to China are recovering to pre-retaliatory tariffs, pre-African Swine Fever levels.
This recovery has been primarily driven by whey products, where 2020 exports through September nearly doubled compared 2019 levels (+93%) to reach 149,094 MT. September was no different with whey export volume to China up 134%. While a large portion of this growth can be attributed to a recovering pig herd and extended tariff exemptions for whey permeate, the growth is not limited to whey destined for feed.
Volumes of whey proteins have expanded rapidly since Phase I was implemented. Volumes of WPC80+ are up 69% over 2019 and show few signs of slowing down. Expansion in China is crucial to growing U.S. whey exports overall as China has accounted for 35% of total whey traded internationally in 2020.
The recovery of U.S. market presence in China following Phase I is not limited to the whey stream. Through September, exports of SMP/NFDM went from negligible in 2019, just 3,721 MT, to 18,911 MT. While volumes and market share in China remain small relative to the U.S. presence in Southeast Asia and Mexico, inroads are clearly being made. A smoother and more secure trading environment for U.S. dairy in China, through measures such as extending retaliatory tariff exemptions for SMP and cheese, would help ensure this growth in exports is sustained and even expanded.
2. Southeast Asia’s continued emergence as the largest destination for U.S. milk.
Southeast Asia posted another strong month in September, extending a year-long growth streak. Through September, 28% of total U.S. exports in 2020 on a milk solids basis went to Southeast Asia. That is the equivalent of 4.5 percent of total U.S. milk production. Southeast Asia’s emergence as the largest destination for U.S. dairy has been primarily driven by U.S. SMP shipments to Southeast Asia’s six main markets (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam), which rose again in September, up 23%—a gain of 4,887 MT. Year-to-date, U.S. SMP shipments to the region were 259,311 MT, an increase of 106,037 MT.
The Philippines led buyers in September, with U.S. SMP up 219%. U.S. sales to Malaysia (+77%) and Thailand (+160%) were also strong. Together, they made up for a disappointing month in Vietnam that saw sales fall 69% to 1,901 MT, its smallest monthly import total for more than a year.
Although September whey shipments to Southeast Asia declined 6%, cheese sales for the month jumped 76%. to 2,432 MT. Particularly encouraging were shipments to Indonesia, the second-largest cheese buyer in the region.
U.S. cheese volume to Indonesia—traditionally a market dominated by New Zealand—more than doubled to over 1,000 MT in September, compared to the previous year. While only a single month of data, the increase may be a sign of increased U.S. supplier focus on winning share in a promising growth market as well as Indonesia’s ongoing effort to diversify its dairy sourcing—both of which bode well for the future.
3. Exports to Mexico lagged behind.
U.S. dairy shipments to Mexico lagged in September, particularly in the key categories of NFDM/SMP and cheese. Ongoing economic troubles, accentuated by the COVID-19 pandemic, have reduced demand from the U.S.’s largest market and southern neighbor.
NFDM/SMP shipments to Mexico fell 33% in September to 22,789 MT, while cheese sales declined 21% to 6,125 MT. Both products were facing strong months of comparison, so the declines are not as drastic as they sound. However, a return to growth—or even flat year-over-year purchasing—remains uncertain. For NFDM, reports of a tight budget for LICONSA (Mexico’s social program that supports milk powder purchasing) and the federal government’s effort to use more domestic milk in its feeding programs will add to the uncertainty. Moreover, a tight U.S. cheddar market makes U.S. cheese expensive for importers and Mexican consumers, especially when converted into pesos.
More positively though, Mexico’s economy rose sharply (+12%) in the third quarter as businesses began reopening after COVID-19 shutdowns. While year-to-date economic growth is still lagging, if the country can continue to rebound from the first half—and barring additional pandemic lockdowns—an improved economic situation could help reinvigorate demand moving forward.
Source: U.S. Dairy Export Council