July 13, 2018

We’ll See Tariff Impacts This Fall

 |  By: Mike Opperman

According to the U.S. Dairy Export Council May dairy product export numbers were up 17.8% from last year, following record-setting export months in March and April. On the surface that doesn’t seem possible, given the turmoil surrounding trade with some of our key customers, namely Mexico and China.

“There is typically a 1 to 3 month lag between when export orders are placed and when the product ships,” says Nate Donnay, director of dairy market insight with INTL FCSTone. “The shipments in May were driven by decisions made back from February to April when prices were lower and before retaliatory tariffs were announced by Mexico or China.”

For that reason it will be another month or two before we can realize the full impact of the trade debate. How far exports will drop is hard to know, Donnay says.

“Right now I’m not sure you can make the case for more than a 20-30% drop in volume on the high end,” he says. “Maybe the drop could be bigger than that in August through October as some buyers wait to see if the tariffs will be lifted while they work down inventory.”

Still, Donnay says he isn’t hearing anything about large cancellations as of yet.

In addition to monitoring the volume shipped to China and Mexico, it will be important to see how other buyers that don’t have tariffs on U.S. dairy products respond, according to Donnay.

“Since the start of 2018 most of the growth in U.S> milk equivalent exports has actually been in products and countries that have not increased tariffs,” Donnay says. “But buying by those countries is likely to slow.”

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