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June 26, 2018

Trade, From Outside The Ring

 |  By: Mike Opperman

Dairy farmers are accustomed to not being in control when it comes to milk price. There are things you can do to add more to your milk check like maximizing components, keeping somatic cell counts low and even implementing a risk management plan, but by and large, producers have to take what they can get in terms of milk price.

That’s what makes the ongoing trade issues so tenuous. We all must sit and watch as President Trump and his group of trade negotiators threaten, persuade and largely infuriate world leaders who happen to be the dairy industry’s biggest customers.

It’s no secret that global trade is critically important to the U.S. dairy economy. Production continues to grow and processors are at capacity (page 20), so all of this milk has to go somewhere and shipping it overseas in the form of butter, cheese, powder and other ingredients is the best option.

Exports are on a record pace. In April, exports volumes hit record highs, and that’s coming off record highs in March. We exported 18.8% of our milk production, another record and even closer to the U.S. Dairy Export Council goal of 20%. With what seems to be positive momentum on the global trade front, we all are waiting to see what impact the trade banter has on these numbers moving forward.

The initial reaction is that the rhetoric won’t help our markets.

In early June, Mexico announced significant tariffs on U.S. cheese, in retaliation of the tariffs President Trump placed on steel and aluminum imported from Mexico, the EU and Canada.  “Tariffs on cheese will potentially eliminate the competitive advantage we have in our No. 1 market,” said USDEC president and CEO Tom Vilsack. “That is a legitimate concern.”

Later in June China announced tariffs on a number of agricultural commodities, including a number of dairy products, in retaliation for another set of tariffs imposed by President Trump. Fortunately these tariffs won’t go into effect until July 6 which leaves negotiators time to negotiate.

And then there’s Canada. At press time, most experts believed that the U.S. and Canada are close to a deal that would at least spur a new North American Free Trade Agreement. But even that positive news was offset by tweets sent by President Trump that connected the 270% tariff Canada places on some U.S. products to the aforementioned tariffs on steel and aluminum. (page X)

But wait, there’s more.

When I was a kid I used to watch All-Star Wrestling. Nearly every match pitted a villain, with a nasty manager, against a good guy. Inevitably during the match the manager would get into an argument with the referee while, behind his back, the villain had the hero in a headlock, trying to gouge his eyes out.

Over the past few months the EU has been actively pursuing bilateral agreements with our best customers—Canada, Mexico, Japan and others—while we stand in the corner and complain about trade deficits and unfair practices.

So, in the end, what impact will this have on milk prices? Economists predict prices in the low $16’s through the balance of 2018 (page 21). But any change in the trade balance, or supply and demand figures, could add or take away a dollar from that number.  

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