China’s ebbing demand for dairy imports from the U.S. was the big story for the industry in 2023, but other factors also surprised dairy analysts in the past year.

Everyone was expecting that once China lifted its COVID restrictions there was going to be a big boost for export markets, said Ben Laine, senior dairy analyst with Terrain.

“It turned out that was pretty lackluster and … they came out of the gates a whole lot slower than we expected,” he said during the latest “Dairy Download” podcast.

“That sort of weighed on prices a whole lot more than a lot of other things I think through the rest of the year,” he said.

“I’m hopeful that there is a little bit more import demand … out of China, but I think that their economy is still going to face a lot of headwinds. I think that’s going to be a challenge to overcome,” he said.

Mexican demand

Sabrina Sharp, risk manager at Ag Business Solutions and market analyst for the Daily Dairy Report, agreed weak demand from China was a big factor during the past year, but Mexico’s strong demand was a big surprise to her.

“Mexican demand was very impressive, especially for cheese and milk powder,” she said.

Record-breaking cheese imports and pretty good milk powder imports from the U.S. “really bailed us out from feeling even greater impacts from the poor Chinese demand,” she said.

That demand seems likely to continue in 2024 as a lot of the problems in China have discouraged multinational investment in China, and some of those investors have moved funds to Mexico, she said.

“The Mexican economy is very strong. The Mexican peso is one of the few currencies in the world that has outpaced strength in the U.S. dollar. So I expect to see continued strength … in the manufacturing sector in Mexico,” she said.

Tourism in Mexico is going well, and Mexican demand for U.S. dairy is strong. That’s going to be really helpful because the U.S keeps making a lot of cheese, she said.

Volatility

What’s been fascinating to Lucas Fuess, senior dairy analyst with Rabobank, is the lack of price response to the lower milk supply in key export regions.

The U.S. milk supply has been down for four months, New Zealand’s production turned lower although it might be up recently on a milk solids basis. Europe is having problems with production that will probably persist into the spring flush, he said.

Yet there’s not been the expected corresponding volatility in the markets in the fourth quarter, he said.

Consumer response to market trends has also been interesting. Consumers are seemingly crazy for butter regardless of record-high prices in October, but cheese has failed to find any price traction in the fourth quarter — a typically high demand period, he said.

“I think it just … speaks to maybe some concerns about the overall health of the consumer moving into the year-end period,” he said.