Milk swirl.
June 28, 2018

The Debacle of Trump’s Tariffs

 |  By: Dairy Talk

On June 26th, all major U.S. dairy groups and more than 40 cheese and dairy companies sent President Trump a letter respectfully requesting he cease and desist moving forward with tariffs on Mexican products imported into the United States.


They duly noted that Mexico imported nearly $400 million of U.S. cheese in 2017. Sales through the first four months of 2018 suggest we’re on pace to surpass 2017 levels. Tariffs set to go into effect July 6 on U.S. dairy products of 20 to 25% will likely put a brake on those cheese sales, and open the market to competitors from the European Union. China has also issued its tariff schedule on U.S. cheese as well, with some of those ranging from 27% on whey products up to 33% on skim milk powder and fresh cheese.


Also note: Cash sales of barrel cheese dipped to $1.205/lb on July 25. According to Brian Gould, a University of Wisconsin dairy economist who tracks such things, we haven’t seen prices this low since July 2009. The impending trade war with Mexico and China isn’t wholly responsible for this price crash. And barrels have since rebounded a nickel this week. But the impending tariffs still darken the market horizon like a tornadic wall cloud.


The irony is that U.S. dairy exports have rebounded strongly this year, accounting for 16.8% of dairy production through the first four months of 2018, and nearly 19% of April’s output. April sales, in terms of volume, are record levels. This is an indication that the U.S. Dairy Export Council’s goal of raising export sales from 15% of U.S. production to 20% is feasible and achievable.


Internet trolls and skeptics say these exports are at weak prices that still aren’t supporting very good farmgate milk prices. But the export sales are moving products across the Rio Grande and off-shore, and aren’t adding to inventory and stocks that are at high levels. Milk prices would be even worse—and will be even worse—if export sales slow.  

If Mexican and Chinese tariffs go into full effect this coming Saturday, the futures market, USDA and other analysis suggest they could take $1.10/cwt off your milk price in the second half of 2018.


“…dairy futures estimated the average price impact [of Mexican and Chinese tariffs] during the second half of 2018 as a loss of about $1.10/cwt,” say National Milk Producer Federation economists writing in their June Dairy Market Report. “A more formal economic analysis point to about the same affect,” they say.

Nate Donnay, director of dairy market insight with INTL FCStone, estimates tariffs would curtail U.S. exports by about 41,000 tanker loads per year, or 113 loads per day. The percentage is actually small, 0.8%, “But it is finding a buyer for that last load of milk, cheese or powder that will set the price,” he says.

Enter President Trump. He’s convinced himself (but few others) he can get a better deal on NAFTA and with China than other Presidents before him. So far, though, he’s proven himself better at pulling out of international agreements than forging new ones.


U.S. dairy farmers, in the case of NAFTA and China, and U.S. soybean growers, in the case of China, could be left paying the price. The President has said he won’t let that happen, and has instructed Secretary of Agriculture Sonny Perdue to look into ways to compensate farmers if tariffs hurt export sales. But these payments will be messy, to say the least, and will leave huge volumes of product in government inventory hanging over the market for months, maybe years, to come.


Dairy farmers are now in their fourth year of poor milk prices. Many can’t sustain another 6 or 12 or 24 months of such pain, which would be self-inflicted by a President a lot, if not most, dairy farmers voted for. Sad.

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