China’s Weakening Economic Growth Impacts Dairy
China’s imports of dairy products, from the United States and elsewhere, remain depressed, and what happens in China has a major impact on U.S. milk and dairy product prices, especially as exports account for a growing share of overall U.S. milk production. Sarina Sharp, analyst with the Daily Dairy Report, said that China’s recent economic woes are already having an impact on the country’s milk and dairy product imports.
“Despite a modest slowdown in domestic milk production, China clearly has enough whole milk powder on hand to eschew foreign product, and that has been keeping global milk powder prices in check,” Sharp said.
While China’s economic recovery from the pandemic has not been as robust as some anticipated, the forecast going forward looks much dimmer. Estimates from the International Monetary Fund (IMF) for 2023 call for 5.4% year-over-year growth in gross domestic product (GDP), which is only moderate growth for the world’s second largest economy. Looking ahead, IMF expects economic growth in China to slow. Continued weakness in China’s housing market and tepid demand for China’s exports could pressure 2024 GDP growth to only 4.6%, and by 2028, growth in China should slow to about 3.5% as the country’s population ages, according to IMF.
“Hog prices in China have been in the doldrums as the industry struggles with a glut of supplies and sluggish demand for pork. Amid high youth unemployment and a debt-laden property sector, China’s economy is expected to underwhelm, which suggests Chinese pork prices could remain low well into 2024,” Sharp said. “Red ink on hog farms could depress Chinese demand for whey products for at least six months. If that’s the case, the U.S. whey market could find it difficult to rally much further, unless domestic whey demand continues to make up for the deficit.”
China imported 118.9 million pounds of whey from all sources in October, a 3.6% decline from a year earlier. Year-over-year imports of U.S. whey products also fell for the fifth straight month, down 12.8%, according to USDA data.
Year to date through October, China’s whole milk powder (WMP) imports lagged the comparable period in 2022 by 38%, and January through October imports were the lowest since 2016. Depressed demand for WMP weighed on China’s total dairy imports in October; China purchased just 40.8 million pounds of WMP last month, which was 32% less than in October 2022, and the lowest volume for any month in more than five years.
“That was enough to drag aggregate Chinese dairy imports well below 2022 volumes despite modest year-over-year gains in imports of skim milk powder, ultra-high temperature fresh milk, and cheese,” Sharp noted.