Agro Perspectiva

In China, the largest import market for dairy products, surplus raw milk production led to government subsidies to stabilize the domestic processing sector

10.01.2024 15:38 "Agro Perspectiva" (Kyiv) — According to the report of the USDA Dairy: World Markets and Trade (December 2023), FY2023 was a challenging year for U.S. dairy exporters, impacted by sluggish economic growth among importers and increased competition from New Zealand and the EU. However, a slightly weaker U.S. dollar in 2023 helped cushion losses in price competitiveness. Throughout the year, export values of non-fat dry milk (NDM), cheese, and whey remained lackluster, primarily due to weakening demand in China and Southeast Asia. Globally, higher interest rates impacted discretionary spending, particularly affecting dairy consumption, which is not a traditional staple of Asian diets - the most significant growth region for major exporters.

In 2024, U.S. exports are expected to face similar headwinds for much of the year. A combination of factors has impacted demand in key markets in Asia in 2023 and expected to continue into 2024. In 2023, after the end of COVID lockdowns, governments were under pressure to rein in fiscal spending and temper aggregate demand to combat high level of inflation. Central banks have raised interest rates to increase the cost of credit, leading to slowing private business investment for manufacturing exports in markets like the Philippines and Thailand. The resulting slowing of gross domestic product (GDP) and income growth has had spillover effects on discretionary spending. Consumers have also been grappling with high food inflation, substantial currency depreciation against the U.S. dollar that has also contributed to higher imported food prices, and high energy, all of which have put a dent in consumer purchasing power. In China, the largest import market for dairy products, surplus raw milk production led to government subsidies to stabilize the domestic processing sector and resulted in reduced demand for imports of whole milk powder (mostly from New Zealand) and U. S. NDM. As China doesn’t produce meaningful amounts of higher value products like cheese or butter, surplus raw milk is purchased by dairy processors and converted into milk powder for storage in accordance with the «Fresh Milk Purchase and Sales Contract». China whey imports also fell dueto weaker demand for infant formula

use and swine feed, influenced by further declining birth rates and lower pork prices, respectively. Forecast declines in China’s swine production are expected to lead to less feed use and therefore, whey. Large inventories of skim and whole milk powder will continue to limit export opportunities for the United States as well.

Year-over-year price declines for a number of U.S. dairy products are expected to persist early in 2024, pressuring export values. However, stronger demand for skim products is anticipated in the latter half of the year as U.S. price competitiveness improves. NDM and whey, pivotal for exports, are forecast to see sustained lower prices year over year in the first half of 2024, and volumes are expected to be weak due to soft demand from East and Southeast Asia.

The current WASDE projects average NDM prices at $1.17 per pound in FY2024, 8 percent lower than FY2023 levels. This decline is expected to be most pronounced in the first half of FY2024. Cheese prices are expected to average $1.71 per pound, down 8 percent from FY2023.

Expectations for only moderate growth in volumes of shipments and lower expected prices for dairy commodities through much of the year indicate that total dairy export values are forecast to contract in FY2024, most intensely in the first 2 quarters. FY2024 is forecast to resemble much of the monthly data in FY2023, in that signs of growth in some categories are invariably surmounted by declines in others. Gains in export values for cheese and infant formula are projected to be more than offset by declines in skim milk powder, whey, lactose and butter.