While it is typically obvious when a team wins, loses or ties (although ties are a rarity in sports these days), in the commodity export world, a win depends on how you define it. 

It’s tempting to argue that an increasing volume (or value) of U.S. dairy products moving to the export market is a win, but I’m not sure that is the right way to look at things. Export volume could fall for a number of products in 2024, but that is because of a tighter balance in the U.S., while we could see a little stronger exports for other products on improving global demand and better availability in the United States.

U.S. dairy exports are a function of global demand, how much product is available to export from of our competitors and how much is available to export out of the U.S. Out of the three major drivers, one of them is positive for U.S. exports, one is neutral, and one looks like it will be a drag for 2024. Let’s start with the positive (or mildly positive) one, which is global demand. Global import demand turned out weaker than expected in the second half of 2022 and the first half of 2023. China, the largest dairy importer, was a big part of the story. Consumer sentiment in the country remains weak with a real estate slump threatening to turn into a mini-crisis and youth unemployment hitting record-high levels. The weak domestic demand has pushed farm gate milk prices down, which has pushed farm gate margins to record low levels and Chinese dairy farmers have been cutting milk production in response. It might still take some time to get production right-sized against demand, so we’re not real optimistic about import growth for 2024, but imports could be up 1 to 2% after two years of declines.

While Chinese demand might not be fantastic, our demand models suggest that the relatively low dairy prices combined with moderate economic growth should continue to drive demand growth in other parts of the world, especially Southeast Asia. When you combine flat to slightly higher imports from China with growth for other regions, it paints a mildly supportive outlook for global demand in 2024, which should be good for U.S. export demand.

The U.S. will face some competition from other exporting countries, but the production outlook remains weak for the biggest competitors. The EU-27+UK is now the largest exporter of dairy products. We’ve seen some growth in their milk production and exports during 2023 on the back of record-high farm gate margins in 2022, but margins have sunk back, and milk production will likely flatten out in 2024. Weak economic growth has limited domestic demand growth in the bloc during 2023, but the expectation is faster Gross Domestic Product (GDP) growth in 2024, which could boost consumption a bit and limit the amount of product available for the export market. 

Farm gate margins in New Zealand look like they will be negative for late 2023 and early 2024, but even more concerning is El Niño. Milk production is primarily pasture-based in New Zealand, so anything that affects the grass growth affects milk production. El Niño typically means hot and dry weather for important milk-producing regions of New Zealand. The current expectation is that their production will be down 1 to 1.5% for the season, but it could turn out much worse depending on how the weather plays out.

So, the available supply from the other major exporters doesn’t look great. The problem is the available supply from the U.S. may not be great either. Negative farm-level margins in mid-2023 along with some adverse weather pulled U.S. milk production below year-ago levels and dairy farmers have been reducing the size of their herds. I’m a little more optimistic than some of my peers on the outlook for U.S. milk production in 2024 and I’m only expecting production up 0.8% for the year with most of the growth coming in the second half. 

The relatively weak U.S. milk production growth will limit how much we produce of certain dairy commodities, which will limit their exports. Production of nonfat dry milk (NFDM), skim milk powder (SMP) and butter are expected to fall in 2024. Production and exports of those products have been weak during 2023 and that likely continues into 2024. U.S. processors continue to invest in new cheese plant capacity and the U.S. will likely need to see stronger exports to help clear some of the increase in cheese and whey product production in 2024.

When I put it all onto a milk equivalent basis, U.S. exports in 2024 might be up 2% to 3% from 2023, but the story will really depend on which product you look at. The good news, at least for farmers, is that the U.S. market looks relatively balanced in 2024 without the need to move a lot of additional milk into the export market. The bad news for processors is that the decent global demand and relatively tight supply outlook mean prices will likely shift higher in 2024.