U.S. dairy exports are approaching record levels as consumer demand for dairy products in Mexico continues to outpace the country’s production. Mexico is the leading export market for U.S. dairy products, accounting for more than one-fourth of international sales. All told, Mexico purchases 4.5% of U.S. milk production via dairy products and ingredients, according to a new report released by CoBank Knowledge Exchange.

While milk production in Mexico has grown annually since 2011, it hasn’t been enough to keep pace with surging demand. Dairy product consumption in Mexico has increased by 50 lb. per capita since 2011.

According to the CoBank Knowledge Exchange report, the upside potential for increasing U.S. dairy sales to Mexico remains strong and broader export market opportunities are positioning the U.S. dairy industry for long-term growth.

“Dairy product sales to Mexico have the potential for continued growth as more consumers enter the middle class and seek higher quality proteins and fats,” said Corey Geiger, lead dairy economist with CoBank. “Mexico faces an annual dairy product deficit ranging between 25-30%, and the U.S. supplies over 80% of that shortfall. Beyond Mexico, the U.S. has strong growth prospects in the wider dairy export market that will be increasingly important as new dairy processing capacity comes online.” 

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The European Union and New Zealand currently hold the top two spots for global dairy exports, but milk production in those regions has stalled. Greenhouse gas reduction policies have constrained production in the EU, and New Zealand has likely reached its peak cow population due to land constraints.

Growth prospects for U.S. dairy both domestically and abroad triggered an $8 billion investment in new processing plants that will be ramping up production over the next two years. By the middle of 2025, nearly 20 million lb. of new milk is expected to be flowing through those plants. That means more cheese, whey and other dairy proteins will be seeking a home, and exports are expected to be a major destination for those products.

A generation ago, almost all the milk and dairy foods produced in the U.S. were sold domestically. Today, the milk from one in six tanker trucks leaving American farms is processed into dairy products and ingredients sold to other countries.

Free trade agreements have been instrumental to export growth for dairy and other agricultural products, Geiger noted. Prior to the implementation of the North American Free Trade Agreement in 1994, the U.S. exported just $211 million in dairy products to Mexico. By 2011, Mexico became America’s first $1 billion dairy export market. Dairy exports to Mexico surpassed $2 billion in 2022 under the U.S.-Mexico-Canada Agreement (Figure).

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U.S. Department of Agriculture - Foreign Agricultural Service

U.S. dairy exports to Mexico totaled 1.38 billion lb. in 2023, and the 10-year growth rate for U.S. dairy sales to Mexico is 42%, according to U.S. Department of Agriculture data. Geiger said the dairy industry is hoping that trajectory continues.

“As the industry prepares for future demand, producers and processors hope Mexico will one day purchase a significant portion of America’s milk production in the form of dairy products and ingredients,” he said.

The report, “Mexico Has Become America’s Most Reliable Dairy Customer,” by Geiger and Abbi Prins, is available on the CoBank Knowledge Exchange website.

CoBank is a cooperative member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities.

CoBank provides loans, leases, export financing and other financial services to agribusinesses across rural America and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 77,000 farmers, ranchers and other rural borrowers in 23 states around the country.

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Headquartered outside Denver, Colo., CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.