November 17, 2016

Mexico One of Most Important Markets for U.S. Dairy

 |  By: Fran Howard

Mexico is a one of the most important export markets for U.S. dairy products, so it’s no wonder that talk of new tariffs and renegotiating the North American Free Trade Agreement during the campaign of President-elect Donald Trump raises as of yet unanswerable questions. For now, though, a new report from USDA’s Foreign Agricultural Service’s Global Agricultural Information Network, prepared by the agricultural department within the U.S. Embassy in Mexico, expects Mexico to continue to import large volumes of U.S. dairy products next year.

The report notes that commercial milk production in Mexico this year will reach an estimated 11.934 million metric tons, up 1.7% from 2015 levels. “That is equal to 26.3 billion pounds and equivalent to the combined annual output of Arizona, New Mexico, and Texas,” notes Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman Associates Inc., Libertyville, Ill.

“The Mexican dairy sector is made up of both large-scale operations—like those is the southwestern United States—as well as many fragmented small operations plagued with older herds with poor genetics,” Ledman notes.

The high cost of milk production in Mexico and issues of milk quality have made it difficult for Mexican producers to compete with international milk prices. As a result, the milk production outlook for 2017 is expected to slow to a 0.5% year-over-year gain, the report notes.

“Mexico’s demand for dairy products outstrips its domestic supply, a situation that is likely to continue for many years,” notes Ledman.  In 2016, Mexico is expected to import 42,000 metric tons of fluid milk, 115,000 metric tons of cheese, 40,000 metric tons of butter, and 265,000 metric tons of nonfat dry milk (NDM). Mexico has historically been a large importer of NDM due to limited production there.

“The United States is the largest benefactor of Mexico’s large import demand for dairy products,” says Ledman. “And Mexico is the number-one destination for U.S.-produced NDM and cheese.” Through August 2016, Mexico imported 183,400 metric tons of NDM, which is up 24% from the same period in 2015.

“The United States accounted for 88% of Mexico’s NDM imports last year, and that share has grown to 92% in 2016,” says Ledman. “New Zealand is the next largest exporter of NDM to Mexico at 4,900 metric tons so far in 2016. Much of the imported NDM is hydrated and packaged as shelf-stable fluid milk.”

Since 2010, Mexico’s cheese imports have grown from 80,000 metric tons to an estimated 115,000 metric tons this year. “In 2014, the U.S. accounted for nearly 80% of Mexico’s cheese imports, but high domestic cheese prices hindered our competitive position in global cheese markets in all of 2015 and into 2016.”

As a result of U.S. prices that were higher than world prices, the U.S. share of the Mexican cheese market slipped to 76% in 2015 and 71.5% for the January through August 2016 period, while the Netherlands improved its share of the Mexican cheese market from 3% in 2014 to 8.5% in 2016, she notes

“Barring any major changes in trade law, Mexico will remain a growing import market for cheese as Mexican cheese makers remain constrained by limited supplies of quality milk and competition from other processed dairy sectors,” Ledman adds.