WCMA Notes: Tariffs Erode Export Strength

Posted By: John Umhoefer WCMA News ,

A close look at Wisconsin dairy export data, and U.S. exports overall, reveals weakening sales as a record-breaking export year reached its end in 2018. Ongoing tariffs in China and Mexico, and the possibility of a closed American southern border, threaten export progress in 2019.

With U.S. cow numbers in decline since last June, and milk production gains dropping closer to one percent in the past five months, market signals are beginning to right the balance of milk supply and demand this spring.

But ongoing tariff stand-offs between the U.S. and Mexico and China have caused dairy exports to “struggle,” according to the latest market brief from U.S. Dairy Export Council (USDEC). In January 2019, they note, overall dairy volume shipped to China dropped 41 percent compared to January 2018, including a 54 percent drop in whey shipments.

January cheese exports to Mexico were 20 percent lower than a year ago.

This week, USDEC and National Milk Producers Federation sounded an alarm as the Trump Administration threatened to close the southern border of the U.S. over immigration security issues.

In an April 1 news release, the two organizations noted that closing the U.S. border with Mexico “would send shock waves though the U.S. dairy industry.” Tom Vilsack, president and CEO of USDEC stated, “Closing the U.S. southern border to Mexico would be a gut punch that could set the dairy industry back a decade or two.”

U.S. cheese sales into Mexico have faced the biggest impact from Mexico’s decision to retaliate against U.S. tariffs on steel and aluminum.  Sales of nonfat dry milk into our southern neighbor are strong.

Closing the border would stop all sales into Mexico, weak and strong. “There is not a ready alternative market for the millions of gallons of milk that are converted to thousands of tons of dairy ingredients and cheese we ship to Mexico,” Vilsack said this week.

Chinese tariffs on U.S. dairy products, instituted in July 2018, curbed strong sales. U.S. exports of whey, cheese, nonfat dry milk and lactose into China were up 18 percent in the first half of 2018, but plummeted 32 percent in the second half. By January 2019, USDEC reports, total whey exports to China were only 9,593 tons, the lowest since February 2012.

Despite concern over sales into Mexico and declines in China, U.S. exporters have rallied successfully to find markets for U.S. dairy products. USDEC reports that U.S. dairy suppliers shipped 2.19 million tons of milk powder, cheese, whey products, butterfat and lactose in 2018, a new record—9 percent more than the previous high of 2.01 million tons in 2017.

But the pattern of a strong opening for 2018, weakening into reduced sales after the implementation of tariffs, can be seen in Wisconsin dairy exports as well.

Wisconsin cheese sales abroad rose 8.1 percent in value in 2018, according to data from Wisconsin Department of Agriculture, Trade and Consumer Protection (WDATCP). Wisconsin cheese sales into Mexico held strong, up 17 percent compared to virtually flat cheese export sales from the U.S. as a whole. But a deeper dive is revealing.

More than 90 percent of Wisconsin dairy exports into Mexico are cheese products, and as Mexico levied 25 percent tariffs on cheese last June, record-paced sales began to decline.  Cheese sales worth $31.6 million in the first six months of 2018 declined to $24.7 million in the latter half.  January 2019 sales to Mexico dropped further, to merely $1.2 million – just 35 percent of average recent January sales from Wisconsin.

Wisconsin whey sales into China tell a similar story.

Whey products are Wisconsin’s dominant offering to China – 92 percent of Wisconsin dairy exports there are whey powders. Annual whey exports to China last year slipped 2 percent, but a look at monthly data reveals a clearer picture. Wisconsin whey sales reached $28.8 million, January through June, before the July tariff increase from China. Whey sales in the second half of the year dropped 40 percent to $17.2 million.  January 2019 sales are low, down 60 percent compared to January 2018.

The U.S. dairy industry deserves price recovery based on quality products, skilled sales and balanced milk supply. A suspension of U.S. tariffs on steel and aluminum, and alternate solutions to address southern border security, can assure that the marketplace, not government policies, will guide dairy industry success.

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