Discover why Mexico plays a pivotal role in the U.S. cheese markets. Dive into our comprehensive analysis and unravel the intricate ties that bind these two nations.
Simply put, Mexico matters when it comes to U.S. dairy trade. Believe it or not, our southern neighbor is our largest export customer for cheese, by a significant margin. Throughout much of 2023 into 2024, exports to Asia have been sluggish, amongst other factors, this has prevented milk prices from running higher. But Mexico? It’s bucked that trend and stayed a steady and reliable customer throughout, especially for cheese. The robust economy Mexico has sustained over the past couple of years has been a contributing factor to these promising developments.
“U.S. exports of cheese to Mexico have been increasing every month on a year-over-year basis since July 2021. In February 2024, they were up a staggering 60% from the same time last year, nearly double the volume of February 2021, after accounting for Leap Year.”
When it comes to skim milk powder and nonfat dry milk exports though, they haven’t fared as well with six consecutive months of year-over-year declines. However, given the choice, cheese is a significantly higher value product compared with milk powders on a milk-equivalent basis.
Much of this strong cheese demand is directly correlated with the broad growth and relative stability in Mexico’s economy. Mexico is an attractive location for multi-nationals looking to invest in manufacturing. Part of this appeal comes from the fact that having a manufacturing presence in Mexico offers a lower-tariff access point into the U.S. market.
One example of this is the fast-growing, low-cost Chinese electric vehicle manufacturer, BYD. They are planning to construct an assembly plant in Mexico in 2024. Though BYD wouldn’t receive all the trade benefits of the United States-Mexico-Canada Agreement (USMCA) that Mexican companies do, it would circumvent some of the logistical challenges of overseas shipping to the U.S., and would likely see a tariff advantage compared to the current situation.
This type of manufacturing investment, known as “nearshoring,” has boosted Mexico’s consumer optimism, GDP, as well as strengthened the Peso, which recently hit its strongest level against the dollar since 2015.
“When the peso is strong relative to the dollar, U.S. products such as our cheese seem less expensive to Mexican buyers. The effect is even more significant when you consider that cheese prices are already low in U.S. dollar terms to begin with.”
Of course, it’s not all smooth sailing. Some recent signs indicate that the pace of growth in the Mexican economy might not keep up. The peso recently fell sharply relative to a strengthening dollar after Federal Reserve Chair Jerome Powell made some hawkish remarks on interest rates. However, the substantial investments in manufacturing hold promise for Mexico’s long-term employment gains and productivity.
Political factors contribute their fair share of uncertainty. Both Mexico and the U.S. have presidential elections in 2024, and the USMCA is up for review in mid-2026. This trade agreement, which was negotiated under the Trump administration, is designed to end 16 years after it came into effect in 2020. The first review, due in July 2026, will present an opportunity for new negotiations that could potentially extend the life of the USMCA.
While U.S. cheese markets would surely benefit from stronger demand in Southeast Asia and other vital markets like Japan and South Korea, Mexico has proven to be a resilient and reliable customer. The increasing demand for cheese imports from Mexico is heartening, especially as additional U.S. processing capacity is being developed. Indeed, the long-term outlook for Mexican demand hints at continued strength.
The Impact of Mexico’s Dairy Industry on U.S. Cheese Markets
When it comes to the strength of the U.S. cheese market, one country regularly lands the spotlight – Mexico. Your attention might be drawn to the startling statistics relating to the dairy industry.
Firstly, there’s a steady demand for dairy products in Mexico that is not only strong, but also expected to expand. And who stands to benefit the most? Of course, U.S. cheese exporters. This demand gives a significant boost to U.S. exports, increasing cheese sales and contributing to the stability of the cheese market. It’s worth noting that Mexico remains a milk-deficit market, thus must import about 27% of its cheese and 5% of its butter needs, a void the U.S can readily fill.
Moreover, cheese makers in the U.S. have pay attention to the inflation decrees published by the Mexican government that allows duty-free importation of certain dairy products. This provides an open playing ground for U.S. cheese to dominate the market there, while concurrently giving the residents of Mexico access to quality dairy products at fair prices.
Meanwhile, upcoming elections in June 2024 could shake things up in the dairy sector. Policy shifts concerning dairy trade could result in varying impacts that market stakeholders should be prepared for. For instance, Mexico’s year-over-year milk production in 2024 is projected to increase to more than 30.4 billion pounds, driven by growth in cow numbers and a modest gain in milk per cow. This depicts great promise on the trade scene, essentially for the U.S.
What’s more, the consumption of skim milk powder in Mexico is forecast to grow a solid 11% in the next year. This escalating demand points to a thriving market where U.S cheese and other dairy producers can thrive. However, it’s essential to take note that whole milk powder production in Mexico is expected to remain flat in 2024 due to a lack of new drying capacity.
In a nutshell, the unfolding progression of Mexico’s dairy industry creates remarkable opportunities for the U.S. cheese market, which in turn helps to maintain a healthy balance in the dairy trade ecosystem.
The Economic Significance of Mexico in the U.S. Cheese Trade
Let’s take a moment to truly appreciate the potential that Mexico holds for the US cheese market. Given the strong demand for dairy products in Mexico, it’s clear to see how this could spell a major boost for U.S. exports. In fact, even amidst its own expanding dairy industry, Mexico is going to have to import about 27% of its cheese and 5% of its butter requirements. This gives U.S. exporters a clear, advantageous path to further their foothold.
It’s also worth noting that Mexico’s government has set measures to curb inflation, including allowing duty-free importation of certain dairy products. This policy could substantially lower the barriers for U.S. dairy exporters, reinforcing Mexico’s position as an attractive market.
However, let’s not forget that some uncertainties lie ahead. For instance, policy changes that could impact the dairy sector are on the horizon, with Mexico’s upcoming election in June 2024. Moreover, while Mexico’s economy has experienced growth for eight consecutive quarters, there’s a possibility of a slowdown ahead.
Such factors illustrate the dynamic nature of international trade and the myriad elements that can influence it. Yet, amidst these varying circumstances, the inherent demand for dairy products in Mexico remains substantial. This is especially true for products like skim milk powder, expected to see a significant consumption increase of 11% next year.
With a thoughtful and strategic approach, the U.S. cheese market stands to gain much from its southern neighbor. This relationship is not just economically significant to U.S. cheese traders, but is also pivotal in ensuring that Mexican demand for cheese is met reliably and efficiently.
The Bottom Line
So, as we’ve journeyed through the fascinating realms of U.S. cheese markets, we’ve uncovered the pivotal significance Mexico holds within this schema, standing as a vital cog in this smoothly running system. The remarkable $60.7M cheese trade revenue between these two nations stands as solid proof, transcending individual functions and broadening our understanding of global market dynamics. It’s almost as if the tale of cheese forms its own riveting geopolitical saga, with U.S. at its helm, Mexico playing a crucial part, and Chile and Panama painting captivating frames. We hope this richer perspective on your cheese helps you appreciate the long, intricate journey it undergoes from farm to table, and almost makes log-in as admin into this complex business enviably tempting! So next time, when you’re biting into your 14th slice of rich, creamy cheese, remember, your tastebuds are a tiny, yet integral part of a bigger, delicious story!
