market sideways
June 29, 2016

Two Reasons Brexit Will Hurt Milk Prices

 |  By: Anna-Lisa Laca

Last week the United Kingdom made history as they voted to leave the European Union (EU). The morning after the Brexit Vote, media outlets began reporting of voter remorse: Some stories even implying that Britain might reverse the vote and decide to stay. Whether they stay or not, Brexit has already made significant impact on the commodity markets. Should they stay, the impact on dairy could be felt for quite some time, according to Jim Wiesemeyer of Informa Economics.

On Tuesday Wiesemeyer told AgriTalk host Mike Adams recent research by Informa found two reasons Brexit is bad for milk prices.

  1. Economic growth. “Impact of economic growth would reduce global milk equivalent imports by 0.5 percent,” he said. “That will pull down dairy forecasts around the world.”
  2. Reduce UK Dairy Imports. According to Wiesemeyer, Britain is not only the third largest milk producer in the EU but also the second largest net importer of dairy products. “When you factor in the British pound down 5-15% against the Euro,” he explained. “Imports just got 5-10% more expensive on the world market.”

The discussion circles back to the currency trade, says Chip Flory of ProFarmer who joined Wiesemeyer and Adams on the radio show Tuesday. He says when things get rocky in other currencies traders come back to the dollar. “We run back to the safe haven and apparently the dollar is still the safest currency in the world,” he said. “When the dollar goes higher it’s not impossible for the commodity markets to go higher but it is difficult.”

According to Tom Suber, CEO of the U.S. Dairy Export Council, the full impact of Brexit on the dairy industry is yet to be known but he admits it will be a market hurdle. “The fundamentals of an oversupplied global market still ring true, and this latest development is making sustainable price and market recovery all the more challenging,” he wrote on his Dairy Exporter Blog.

As more details of what happens next to both the U.K. and EU unfold more dairy market impacts will be known. In the meantime, Wiesemeyer warns this thing isn’t going away. “This is a fundamental change in the world based on politics not economic factors.”