Tariffs Hit U.S. Cheese Exports to Mexico
U.S. dairy exports slowed in July, but aggregate exports were still higher than a year ago. “Exports fell short of the impressive volumes sent abroad in the first half of the year, which reflects the impact of new tariffs, a stronger dollar, and less competitively-priced U.S. dairy products,” says Sarina Sharp, analyst with the Daily Dairy Report.
Despite the slowdown, aggregate dairy exports in July were up 15.4% from July 2017, according to data from USDA-Foreign Agricultural Service’s Global Agricultural Trade System (GATS). Only exports of U.S. whey products and cream slipped below year-earlier volumes. Year-over-year exports of dry whey slumped 8.3% in July, while whey protein concentrate (WPC) shipments plunged 18.4%.
“Mexico’s higher tariffs on U.S. cheese and China’s higher tariffs on U.S. dairy products took effect in early July, and U.S. cheese exports to these top two markets retreated,” Sharp notes. China is no longer reporting import volumes, but the value of U.S. dairy product exports to China plunged 27% from July 2017, a nearly two-year low, and were down 42% from record-breaking shipments in April.
U.S. butter and milkfat exports to all locations in July were 66% larger than year-earlier volumes, but butter imports—particularly from Ireland—also climbed. July butter imports from the Emerald Isle hit a record high, and overall U.S. butter imports were larger than exports, Sharp notes.
Meanwhile, U.S. cheese exports were 1% greater in July 2018 than in July 2017, and milk powder exports were 29.8% larger than a year ago.
“U.S. cheese exports in July—driven by waning shipments to Mexico—marked the smallest monthly volume since January,” Sharp states. “Mexican buyers clearly tried to rush orders before higher tariffs on U.S. cheese exports took effect July 5.” Mexico has not changed its tariff policy toward U.S. milk powder.
In June, Mexico imported 43% more cheese from the United States than it did in June 2017, but Mexico’s July imports of U.S. cheese were 0.6% lower than 2017’s relatively light volumes. “Combined June and July U.S. cheese export volumes to Mexico suggest that the country’s appetite for U.S. cheese remains robust,” Sharp says.
The future of cheese trade with Mexico remains cloudy at this point, Sharp says. The United States, Canada, and Mexico have been renegotiating the North American Free Trade Agreement (NAFTA) for more than 13 months. Recently, the United States and Mexico announced they had reached a preliminary agreement that excludes Canada, but Canada is now negotiating with both the United States and Mexico to become part of the deal.
Canada’s Class 7 milk classification as well as its high tariffs on dairy products remain sticking points in the negotiations. The U.S. Congress will need to ratify any new trade agreement, and it appears less likely, but not impossible, that Congress would ratify a bilateral deal with Mexico than an agreement that includes all three NAFTA countries, she adds.