milk
June 27, 2018

Tariffs Would Offset 0.8% of Production

 |  By: Mike Opperman

Trade negotiations continue as China and Mexico threaten tariffs on a number of U.S. dairy exports. While the percentage of total U.S. milk production affected by the tariffs is small, if the tariffs are imposed there could be an impact on milk prices.

“The expected drop in export volume only represents 0.8% of total milk production, says Nate Donnay, director of dairy market insight with INTL FCStone. “But it is finding a buyer for that last load of milk, cheese or powder that will set the price.”

While the percentage is small, 0.8% of production works out to about 41,240 tanker loads of milk per year or about 113 per day, Donnay says, that once had a buyer but now will need to go somewhere else.

“To absorb the product into the world market, U.S. exports to everyone except China and Mexico would have to increase by 6%, which isn’t unrealistic,” Donnay says.

The tariffs will have a domino effect, Donnay says. China will buy more product from Europe and New Zealand/Australia, which will boost EU/Ocenaia prices relative to prices here in the U.S. The corresponding drop in U.S. prices as a result of the tariffs would add to the attractiveness of US product to other global buyers.

“The price spreads between U.S. and others could get wide enough that other importers shift more toward U.S. supplies and that could boost U.S. exports to them by 6%,” Donnay says. 

While prices are expected to drop, the impact could be larger depending on retaliatory efforts by China. Donnay says China is now threatening ”qualitative” retaliation, which could mean a number of things, Donnay says. “China could instruct their customs officials to slow-walk U.S. products through the system,” he says. “Or they could start scrutinizing import documents and health certificates.” All of these things, Donnay says, would discourage Chinese buyers from buying U.S. product.

 

Production and Exports of U.S. Dairy Products (MT, April-17 to April-18)

 

Production

Total Exports

Subject to retaliatory tariffs

Likely reduction in exports

Milk Equivalent

92,731,882

14,418,238

2,824,414

706,103

% of production

 

15.5%

3.0%

0.8%

% of exports

 

 

19.6%

4.9%

Cheese

5,790,607

357,435

111,634

33,490

% of production

 

6.2%

1.9%

0.6%

% of exports

 

 

31.2%

9.4%

Dry Whey

481,373

229,684

98,325

19,665

% of production

 

47.7%

20.4%

4.1%

% of exports

 

 

42.8%

8.6%

NFDM/SMP

1,075,921

663,492

28,752

10,063

% of production

 

61.7%

2.7%

0.9%

% of exports

 

 

4.3%

1.5%

WMP

67,014

27,985

14,559

5,096

% of production

 

41.8%

21.7%

7.6%

% of exports

 

 

52.0%

18.2%

Butter

852,302

25,667

34

10

% of production

 

3.0%

0.0%

0.0%

% of exports

 

 

0.1%

0.0%

Source: USDA,GTT, INTL FCStone Calculations and Estimates

 

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