Dairy’s Steps Forward are Positive, But More Traction is Needed
The long overdue end to Mexico’s retaliatory tariffs against U.S. cheese exports is a positive development amid a few other indicators suggesting that dairy’s fortunes may be improving. But much work remains before we can feel confident we’ve turned a corner.
Removing a barrier that has harmed trade with our largest international partner is important progress. And while no one would pronounce dairy’s nearly half-decade of struggles over, it’s not the only hopeful news.
After years of rising cow numbers dating to 2011, the nation’s herd size has dropped every month since last July, with March’s decline the largest of the entire period. Higher milk prices, combined with steady feed costs, have improved producer margins. And sustained improvement in world prices for butter, skim-milk powder and cheese are helping to lift domestic prices, showing how global demand can benefit U.S. dairy despite trade-policy and export challenges.
The end of the Mexican tariffs helps, with the United States fully back as the preferred supplier to what last year was a $1.4 billion market. The agreement to end the U.S. tariffs against Canadian and Mexican metals that prompted the retaliation in the first place shows that, for all the frustrations farmers have felt in the ongoing trade wars, progress can occur.
United States-Mexico-Canada Agreement (USMCA) passage is the natural next step. Mexico has revised its labor laws, which should help gain support for the agreement in the U.S. Congress, and Canada is vowing “full steam ahead” for ratification. Congress needs to do its part and pass the trade deal, ideally this summer.
The China situation is much more challenging and difficult to predict, but in many ways even more important.
After Mexico and Canada, China is the third-largest U.S. dairy partner with a huge population and a growing middle-class dairy market. Newly imposed U.S. tariffs that came just when a larger trade deal seemed possible between the world’s two largest economies have invited retaliation that almost immediately knocked 20 cents off dairy futures markets, breaking what’s been a months-long, seemingly stable recovery in dairy revenues.
The Trump administration, through USDA, has promised to help producers across agricultural commodities to lessen the near-term economic damage from these aggressive trade war tactics with up to $16 billion in a new round of aid. We at NMPF have been in close communication with the department, suggesting how to target limited resources to best boost milk prices and dairy prospects.
We appreciate the government’s acknowledgement that its trade tactics come at a cost to agriculture, one of free trade’s greatest beneficiaries. But we don’t yet know what will be in the assistance package. The administration’s announcement last week leaves many unanswered questions about the size and scope of assistance to producers; we’ll keep pushing hard for assistance that mitigates the more than $2.3 billion in damages dairy farmers have faced because of the trade war.
But no assistance package can completely capture the full effects of the market uncertainty, frayed relationships and markets lost to unencumbered competitors who are seizing market share. That’s why we certainly hope any aid package isn’t just as fair as possible — we hope it’s the last one farmers need.
Significant work remains on numerous trade policy fronts to help producers weather the dairy crisis over the next few weeks and months.
In addition to our efforts to ensure that USMCA is passed, we will continue urging the administration to diminish the renewed tariff spat with China in pursuit of a bilateral agreement that lowers tensions and improves market access. We also need quick resolution to trade discussions with Japan, which the president has promised, so that U.S. dairy interests are not further punished by tariffs much higher than those negotiated by our European and Oceania competitors. These steps are necessary to provide certainty, opportunities and improved prices for U.S. dairy producers, something badly needed after the economic turmoil of recent years.
These are building blocks for longer-term recovery that need to be laid down now. If dairy truly is getting back on its feet — and we hope this spring’s positive signs are an indication of that — then the next step will be to start moving forward. The end of the Mexico tariffs has put us on firmer ground. It’s time to gain traction.
Source: Cheese Market News