It’s May 8th. Do you know where your tariff is?
When the tariff winds shift, the Jacoby team is there to help you steer your strategy. Tune in to the latest episode of The Milk Check with special guest Will Loux from the U.S. Dairy Export Council, as we cover:
- Tariff tensions – How will ongoing trade talks between the U.S. and China impact dairy exports?
- Shifting trade strategies – How are global buyers adjusting to new tariff realities, and where does the U.S. stand in this complex landscape?
- Innovation and adaptation – What moves should U.S. producers and buyers make to adapt and thrive amidst tariff uncertainty?
Don’t miss this conversation as we explore how tariffs are reshaping the dairy trade and what the future holds for U.S. dairy exports.
Listen now to The Milk Check episode 77: Tariff talk with Will Loux from the U.S. Dairy Export Council
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Intro (with music):
Welcome to The Milk Check, a podcast from TC Jacoby & Company where we share market insights and analysis with dairy farmers in mind.
Ted Jacoby III:
Welcome, everybody, to this week’s version of The Milk Check. It is May 1st, 2025. Once again, we’re going to revisit the topic of tariffs and international trade. And as everybody knows, it’s a shifting landscape. We have a special guest today, Will Loux from the US Dairy Export Council. Will is Senior Vice President of Global Economic Affairs. Will, thanks for joining us today.
Will Loux:
Thanks for having me, Ted. Good to be on.
Ted Jacoby, III:
We also have some of our usual suspects. Mike Brown, VP of Dairy Market Intelligence, Miguel Aragon, our director of Latin America Cheese Sales, and Josh White, our VP of Dairy Ingredients, and Tristan Sellentrup. Thanks for joining us, guys.
So Will, we’re going to start in the obvious place. What is DC’s attitude about everything that’s going on in tariffs, especially with regards to dairy? Do you see anything changing anytime soon? Is there anything in the works? What’s the landscape as you see it?
Will Loux:
There’s a lot of uncertainty. We were talking about several different types of tariffs that are effectively going on because we have our bilateral relationship with China where we have very high tariffs both for products coming into the US and China has very high tariffs for our dairy products going out, but we also have the 10% universal tariff. We have the steel and aluminum tariff. We have the USMCA question marks between Canada, Mexico, everything else.
So right, now I would say there’s about four different tariff balls being juggled all at once. And as far as where we’re going in DC, I think that’s anyone’s guess where obviously within national milk and the Export Council, very hard at work these days. Very grateful. Jaime and Shauna and Tony Rice on our trade policy team get to live this every day while I get to check out, I guess, what’s happening in the markets.
Ted Jacoby, III:
There’s been rumors that China and the US are talking and they’re trying to work out some things that could lower those tariffs. What are you hearing?
Will Loux:
Good question. Right now, at least what we’ve heard is there are talks, at least attempting to. I don’t know how far along these talks have gotten. When we look at the tariffs between the US and China right now, there probably needs to be some sort of path to de-escalation, but this is also something that when we had the first round of retaliatory tariffs between US and China, that lasted 18 months. So I personally don’t necessarily expect this to change overnight. That would surprise me. There are a lot of things that would surprise me these days in DC, but I would expect this to be in for the long haul. Whether it stays at 125%, I don’t know, but at the same time finding an off ramp for what seems to be at least somewhat of a strategy towards decoupling the US and China in a lot of ways continues to be at least very much forefront and likely to stick around.
Ted Jacoby, III:
One of the things that we’re curious about since roughly 17% of all of our weight production in one form or another has been going to China. And a lot of it goes to feed the pigs because 50% of all pigs in the world are in China, and keeping the Chinese population happy seems to be highly correlated to their access to pork. Is there any possibility that they’ll make exceptions to some of their tariff rules for things like whey permeate just to make sure that the pigs can continue to be fed and they keep their population happy?
Will Loux:
It’s certainly possible. They made that exception last time around with the last really six months effectively of that earlier trade war between the US and China. This time around, it is certainly possible but I’d also say China is also likely to seek alternate sources too just like they did last time. They can find at least some of that sweet way that they’re after from Europe. Turkey is now getting more involved. They still buy quite a bit from Belarus. Argentina ships them a decent amount of whey. They’ve also been stocking up a decent amount of whey before this happened that I think they’re actually sitting on ample stocks to at least see them through some of this disruption. Again, supplemented elsewhere.
Lactose is probably the one where they buy about 70% of their lactose needs from the United States. Again, I don’t necessarily anticipate them giving exemptions. It’s part of a much bigger conversation as to whether they start giving those exemptions, but again, they’re going to look to Europe who’s really the only other game in town. Europe could pull back from their sales to New Zealand, Japan, India maybe as well. That’s their biggest market outside of China. I think there’ll be some trade shuffling a little bit within this too. Permeate, we are probably the main game in town here, but again, it’s is this cost-prohibitive when you’re adding 125% tariff at least right now? And can they make due, at least for the time being? Because Chinese consumption isn’t all that great either. So it’s not exactly like there’s this huge surge to build up the hog industry within China today either.
Ted Jacoby, III:
Josh, what are you hearing on the ground right now with our contacts in China?
Josh White:
Yeah, a lot of mixed messages. I think that generally speaking over the past few weeks, it’s been a lot of paralysis. Most were saying the situation’s fluid. It’s changing. We don’t maybe fully understand it. I think the industry well recognizes that a big lever to pull in trade discussions is probably not whey permeate and the trade. But as you mentioned a moment ago, it’s a pretty important ingredient to the Chinese pork industry, particularly the younger animals, and that’s a recovering industry after the swine flu issues that have previously experienced. So there was some optimism that let’s let the situation evolve, let’s see if we can come out of it if there’s some type of resolution, and we can conduct business as usual, just with a pause.
A couple of things that have helped that most are reporting that at the end of last year around the time Trump won the election, the Chinese started to take action pretty quick. On some of the higher value products, they were out seeking alternatives, but on the ones, as Will mentioned, that they’re buying from the US like permeate, they did a little bit more stocking. We’re not talking stocking in the traditional sense of building large warehouses full but more days in inventory than they had been operating off of. At the same time, that sparked a price movement in the US and the whey permeate price increased significantly by about a dime and moved higher. Well, that allowed people to de-stock in the US as well.
So we entered this issue with inventory space. Within the actual processing facilities, that’s being tested now. We’re right at the cusp where some people are now running into issues or they’re a week or two away from running into issues. Many processors did their best to extend that by going out and making some sales or front-loading other contracts to other parts of the world, or in some cases feeding it back to the dairy cows where it makes sense to do so. But that just buys a little bit of time. There’s a lot of this co-product, as we like to say, but effectively the by-product of the by-product that has to find a home.
ADPI, for instance, has a task force out there right now that has been working on what are new innovative ways that we can use permeate, but none of those are going to be quick solutions. As a result, I heard at least this past week, was the ADPI trade show, a lot of people talking. I at least picked up on a few different processors that are resuming some shipments and working in conjunction with their Chinese customers to try to figure out how to make it work out of necessity, maybe not the pure economics of it. We haven’t experienced that capitulation point yet where we have to make a decision, but we’re really close to it for a lot of different US processors.
Another thing that I would ask Will on is we had also picked up a headline this past week. It’s a headline. I haven’t studied it at all, but that Walmart told some of its Chinese vendors to resume shipments. Any insights to what might be happening there? Do we think that these trade relationships are just looking to bear the cost out of a need, or is there at least some hope that there’s some positive dialogue happening between the two countries?
Will Loux:
I didn’t see necessarily that headline or anything else. I would be surprised if Walmart has any inside knowledge as to what’s going on. I suspect it’s probably out of necessity simply because the US and China are highly integrated economies and a highly integrated supply chain. And for a company like Walmart, you can’t turn on a dime where you’re sourcing from. There are select products that maybe you can shift some of that production if that one company has a plant in Vietnam or elsewhere, but it’s not necessarily a one for one. So I would estimate that more out of necessity than anything else.
And I think also if we look back to what happened in 2018 and ’19, dairy got caught in this, but as far as US-China trade, it was only really select products back then. But if we look at what happened in the US exports in China, it took a while before we really saw a hit outside of the low proteins. China was still buying at least for a while more high proteins and everything else, this time around because it’s much higher tariffs on both sides. I think that impact is coming much starker, but I do think the expectation, at least from retailers and everything else, is these will have to get passed on to the consumer at some point unless they can find an alternate source. And even then, they’d face a 10% tariff coming in unless there’s some US supply on those particular products.
Josh White:
Hey Ted, we went right to probably the worst or most painful part of that trade, talking about low value carbohydrates that are going into that industry, but it would be good to spend a minute on how everything else seems to be rationalizing. For instance, the whey proteins might be the second most impacted directly by this trade. China’s our largest export partner for higher protein whey products, but at the moment, because the alternatives such as Europe are so highly priced, it just seems to be shifting trade lane. The immediate impact was this could be potentially pretty bearish for US supplies of WPC 80 and WPI. That seems to be a little bit calmer over the past few weeks. We’re finding some alternative places to go. I’m not ready to celebrate that that just meant the world shifted its trade lanes and rebalanced. I think that similar to the remarks I made about permeate, it’s plausible that there was some internal inventory space that could be filled while we’re waiting on this situation to stabilize.
But that being said, it doesn’t seem to be quite as disruptive on whey proteins as it is on whey permeate. My question for the group is that even less disruptive as we go across some of the other key products in the dairy complex, some of the other powders and the fats.
Ted Jacoby, III:
My reaction to that, Josh, is the big, big difference between protein space and the permeate space is I think there’s a lot of demand in protein that sits on the sidelines just because they either don’t have access to the protein they need to make certain products or it’s just too expensive for them to use. And so if the price just has to adjust a little bit to pull more people into that market or you’re suddenly giving someone access that didn’t have access before, there’s a realistic alternative domestically for a lot of that protein. And then internationally, whether that protein’s being sourced from Europe or it’s being sourced from Oceania or somewhere else, or if they’re pivoting and making, whether it’s a slight change to a milk protein concentrate instead of a whey protein concentrate or some other kind of protein, I think there’s just better options. And so with all the disruption going on, it seems calm relative to a situation like permeate where if you’re not going to China with that permeate, you’ve got to figure out how to make it go away because you really don’t have a realistic sale.
Will Loux:
And I’d agree with that. China, at least on the low protein side, so sweet whey and permeate, is a third of the global market. Southeast Asia is the only one close. That’s if you combine all the countries, there is no other real option for a lot of our permeate sweet whey. We can move. I think sweet whey, we have an opportunity to move some more into Southeast Asia, Mexico, maybe some other places, but I think permeate is the one that’s really hard to find another buyer for, or at least quickly, at the volumes we’re talking about.
Proteins, they’re definitely our largest market, at least in the international one, but Japan’s not that far behind. Our teams also looked at the trade data and said there was some wonkiness in the unit value, so we actually think there’s a little bit less going to China than what the US Census and USDA reports. So there’s some of that going on too, that it is certainly our biggest market. I would expect Europe and New Zealand to be making a lot of calls to customers within China right now. But I think as you said, Ted, there’s plenty of opportunity for us to find other buyers, especially domestically right now.
And then everything else, cheese, milk, powders, those we sent quite a bit really before 2018, we had already started to decouple from China after that, and our market share never really picked up, and China’s buying a lot less milk powder in the first place here too. So I think for us, those other markets don’t feel the hit from the China discussion. I think cheese probably feels much more of a hit from the overall economic implications of this is really where I think the cheese market will feel this more so than any actual direct sale impacts.
Ted Jacoby, III:
So when we’re talking about cheese, obviously China’s not our top market. I don’t even think it’s in our top 10 export markets for cheese. The press is so focused on what’s going on between the US and China when it comes to tariff talks. I honestly have lost track of what may be going on with some of the other countries we’re exporting to outside of the 10% addition that has been put everywhere. Are there any other countries that you guys are watching closely that have handed tariff rates more than that 10%, and is it causing some significant disruptions to our ability to export to them?
Will Loux:
Right now, effectively the 10% universal tariff is across the board because all those other reciprocal tariffs, including the incredibly high ones on places like Vietnam and elsewhere, were put on that 90-day pause until July. So at least for right now, it seems like most countries have stopped any retaliation or at least paused any sort of retaliation. Europe had a list that came out, but otherwise they had put a pause on that as well. The only exception to that is Canada, and this is from before and really was the first tariff action that came out was a 25% universal tariff on Canada and Mexico. But that also got paused, at least for all USMCA compliant products.
On the whole, that doesn’t impact a whole lot. Canada has continued to retaliate against over-quota levels, but in practice, we’re not sending a ton over-quota into Canada today. So things like butter for import, for re-export, that is not being tariffed, and some of the whey products I believe are. But for the most part right now, the US is still outside of China able to export at the same tariff rates it was before. Now, I’m sure you have customers who are maybe asking questions or they’re changing their buying patterns out of an uncertainty when we get to July or elsewhere. We’ve started to hear rumblings of that, but at least for right now, it’s business as usual outside of that 10% or US consumers.
Ted Jacoby, III:
Miguel, is that what you’re sensing from our cheese customers internationally?
Miguel Aragón:
Yes, indeed. We were at CheeseCon a couple of weeks ago. We were at ATPI just last week. And at ATPI, we had conversations with a lot of customers from Mexico and the number one issue was tariffs, tariffs, tariffs. That’s what everyone wanted to talk about first. In regards to patterns of purchasing, they’re going hand-to-mouth, immediate shipment for immediate purchase. That seems to be how things are happening right now. However, we have two issues helping us not to disrupt the trade within Mexico, mainly Mexico. We haven’t gone above 1.80 a pound and cheese, and the Mexican peso is now 19.6 for the last couple of weeks. That is helping them. That is helping us get rid of product. But the minute we see 21 pesos per dollar, that’ll be a different story.
If you remember we had in one of our podcasts a month ago or something like that, we were talking about that they were expecting us as US suppliers to keep a lid on prices. So far, so good. In there, taking advantage. I have to take my hats off to the US DEC because they have helped us get into other markets, Central America, South America, where the disruption that is happening right now and it’s moving European product to other channels is given us a chance for those markets to actually taste US products, taste cheese, get a feel for it. Just like it happened with Mexico, I see it happening in Central America. I see it happening in Colombia, Peru, Chile, and we have to take advantage of that right now. With everything that is happening, at least something positive is coming out of it. Who knows how it’s going to last, but hey.
Ted Jacoby, III:
Everybody, we will be right back after these messages.
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Miguel, you’ve just taken me by surprise. What you’re saying is all this disruption, there’s a silver lining and it’s actually creating some opportunities for US exporters in dairy right now>
Miguel Aragón:
That is correct. That is correct. Some of the conversations we had with people from New Zealand is that they are saying the US producers are cheaper right now in cheese. We’re going to go ahead and produce more whole milk powder, put our fat on our milk and other products. That is giving us an opening. That’s a silver lining right now. We need to take advantage of it. If we go above $2 again in cheese and then the exchange rates start going all crazy, that’ll be a different story. Right now, we’re moving and we’re moving fast to try to capture that market for the long run.
Ted Jacoby, III:
Will, what are some of your other members saying? Are they feeling pretty good about how exports are going so far this year with all the chaos in DC regarding tariffs?
Will Loux:
In some ways it is, at least for right now, business as usual. The tariffs can be so overwhelming in a lot of ways. We see it on the ingredient side. But as far as cheese exports go, and we’re even getting a lot more inquiries for butter right now too, just given our big price spread compared to Europe and New Zealand, I would say those two exports are going to look really strong as we go forward, and I think we’ve already seen that. There’s probably some more questions maybe around whether we keep up the incredible growth that we’ve seen to Mexico because the last two years, Mexico has outpaced the domestic market in growth, like just total aggregate growth. So whether that continues, I’m not sure, but I think as Miguel said, Central America, the Caribbean looks really good. I think we’re moving more to Australia as well. Another one of our key markets, Japan arguably the most competitive cheese market in the world that we’re seeing sales pick up to as well.
So on the cheese side, we look pretty good. I would say butter’s going to have a pretty nice year just by necessity as much as anything else. The ingredient side, we one don’t have that much powder to export in the first place. We saw pretty weak sales to Southeast Asia, but that was more a function of pricing than anything else. That’s where I think we’ll see somewhere of the weakness. But cheese, butter, our fats really look good. Proteins, I think, will be somewhat mixed. It’ll depend on the price and demand for places like Japan, Korea, Southeast Asia, and some of that trade between us and Europe and how that looks on price, because we should be exporting it to Europe right now too.
Ted Jacoby, III:
That’s true, especially when it comes to butter.
Will Loux:
Yeah.
Ted Jacoby, III:
Okay. Well, from where you sit in DC, is there anything that you think our industry needs to be talking more about that’s going on right now that’s falling under the radar because everybody’s so focused on tariffs and specifically China?
Will Loux:
Yeah, there’s probably two things that we’re starting to watch a little bit more, and the first one I’ll say is what are the implications of a 10% tariff on European product coming into the United States and really what is that impact on both Europe sales to the US as well as their product mix? Because last time around, the US consumer was in a pretty good place. We didn’t see much of a dip when we place tariffs on Europe over the Airbus disagreement. This time around, I am curious. US consumer is pulling back on a lot of things. Do they pull back from your Irish butters? Do they pull back from your specialty cheese, et cetera? And does that help boost at least some of our demand domestically? That butter demand has been okay, but certainly that would help tighten the screen market cheese. I would say there’s an opportunity there.
I think the one thing we’ve pointed out to watch is if Europe doesn’t sell the US or doesn’t sell specialty cheese abroad, they tend to put a lot more into their Gouda and into their mozzarella. It is a delayed reaction, but effectively if the Italian cheese-makers aren’t making that specialty, the milk ends up in Germany as Gouda or something else. So that is something to watch on that front.
The other one is probably more longer term at the export council and everything else that we’re watching is everyone’s been talking about the fat percentage in milk, the growth in that fat to protein ratio. What are the implications? I’m probably on the side of, at least today, I don’t actually think we have a fat problem. I think we have an American-type cheese problem that would normally be absorbing a lot of this cream, at least when we look at the data. But with milk production now picking up, we might have a cream problem and an American-type cheese issue. So then our question is do we need to start thinking about other ways to export fat?
We really don’t have a release valve for our butter when we get long on cream. We export a little bit to Mexico, but frankly we’ve got a smaller market share than New Zealand and Mexico when it comes to butter. They are dominant in AMF as well. That’s a region that in general, we should be price competitive on with tariffs and freight. That’s something we’re watching pretty closely. The same would hold true for Central America. The Middle East has traditionally been our release valve for butter. We’ve often moved a lot of butter. The white butter is preferred in a lot of ways or can be used in processed cheese, but their butter demand is half of what it was 10 years ago because they’ve switched to palm.
So we need to go develop probably some new release valves even if we think this fat market’s going to tighten up because I think what we see today is the US industry takes a long time to turn the ship on fat from making 80 domestic style towards 82 unsalted export style, so how can we speed that up to tighten the cream market so it doesn’t take as long to turn this ship is something we’re talking about, especially with these components growing at the rate they’re growing. So there’s a lot of things we’re watching beyond just the tariffs that just keeps us pretty busy on the day job and everything else.
Ted Jacoby, III:
Well, I have to say, when it comes to butter fat, I think, Will, you and I are thinking along the same lines. I don’t think this trend with higher butter fat percentages in milk is going away anytime soon and there’s going to be a certain point, maybe we’ve already reached it, where we’ve reached a tipping point and we have more butter than we know what to do with in the US and we’re going to have to find those export places for. You mentioned palm oil in the Middle East. What’s the relative price of palm oil relative to butter? And at what point do you think they start to switch back?
Will Loux:
Oh, that’s a good question. I looked at the palm oil price the other day. It’s still fat to fat, still cheaper than butter. Really what happened is Europe and New Zealand butter got insanely expensive. We’re still sitting north of $2. We are a great value buy if you are specifically wanting butter. It’s not that we’re going to go take a ton of share from palm necessarily. We did see that actually a little bit. This would’ve been during the inflation run up back up in ’21. We more saw it in the fact that natural cheese took share from analog cheese. That was where we beat out palm because also it’s a much better product. And so that I think is where we saw it.
This time around, I haven’t heard a ton of switching back. Butter has traditionally been the most price elastic product on the international market because it is the most easily substitutable one. We hadn’t seen a ton of fat demand growth over the past few years. China has really been the one who’s been growing while the Middle East has declined, and they’ve basically canceled each other out. And so the opportunity is where else can we grow it, especially as incomes rise where a higher quality fat is there, as well as also where’s the cold chain for it? So for now, I think butter is still that premium fat, at least right now in the marketplace.
Mike Brown:
You talk about the cheddar cheese is going to absorb the fat. The challenge we have now is we raise fat so much faster than protein is extra fat, even if you’re making full fat cheddars for most cheese-makers. So we are still going to be spinning off some extra fat and that’s a challenge for them. They’re trying to figure out how to best market that depending on their volumes of it, but I think you can’t just assume that’s going to absorb into that, and that’s the challenge we have.
Back to the question of butter and butter fat and the demand for 82 versus 80, at what point does a world, at least as an ingredient say, “Well, US 80% butter is a lot cheaper per pound of fat even though it’s 2% lower.” What do we have to do to get world buyers more interested? Because 2% fat is different, but it’s not that different.
Will Loux:
I think we’re already starting to see it. We’ve heard a couple folks who are just launching butter with 80% fat and see enough consumers notice. I’d also say depending on the application, it’s really just a price point. They may not need the 82%. They can buy it. The question is the salt is probably the bigger thing. If you’ve got 80% salted versus an 80 unsalted, it’s probably the easier thing where there are some applications where salt’s already in there and that’s perfectly fine. I’m thinking of maybe some chocolates or something else that that could work well. The salt may be the bigger challenge perhaps in our base butter than necessarily the difference in fat content.
Josh White:
I also think moisture, moisture because I think that there’s restrictions going into Europe that moisture is our limiting factor that they can’t bring the product in above a 16% moisture, and so that’s created some problem to where I think there’s a lot of inward processing applications and processing applications that can deal with the drop in fat, but it’s restricted because we exceed the moisture requirement. So if there was a way to have 80% fat with the 16 max moisture, I’m pretty sure we’d be loading boats tomorrow for Europe.
Mike Brown:
It’d be pretty salty butter, Josh, if you would.
Josh White:
Right. Let’s some sugar in it.
Mike Brown:
So it’s a regulatory problem, not a users’ ingredient because most products that are going to use butter probably use some other kind of moisture in them, water, milk, whatever it might be.
Ted Jacoby, III:
Sounds to me it’s a non-tariff trade barrier, isn’t it?
Josh White:
With enough time, people will figure it out, right? It’s just like anything else. We know how much confectionary blends and things like that exist today coming into the US. That’s another area where this fat situation starts to adjust itself. In the event that we’re surplus fat or cheaper fat, then a lot less of these confectionary blends will come into the US from New Zealand. New Zealand and other markets will shift that fat elsewhere and will keep more at home. It’s just like anything else. The gap gets filled in so many spots other than just butter as well.
Will Loux:
Even whole milk powder should be pretty cost-competitive, right?
Josh White:
Right.
Will Loux:
Yeah. I think it’s something we may see pick up at least a little bit in the coming months based on that margin if you’ve got the ability to flex.
Ted Jacoby, III:
Well, speaking of whole milk powder, it seems like New Zealand has switched away from making as much whole milk powder as they used to. Will, do you think the market is out there for them to switch back? Because one of the things that I have to wonder is if butter gets cheap enough, both in the US and even in Europe, it’s going to put pressure on New Zealand to make more whole milk powder just to make sure they clear that fat, but they have to have a home for it.
Will Loux:
I think the question’s always on China. We’re back to this again. To me, there seemed to be enough rumblings that China is at least buying a little bit more. I still think China is structurally investing in their milk supply and have reached really a tipping point in that, but I think temporarily with their reductions in milk production, I think they may need a little bit more whole milk powder this year. I think there’s enough smoke around that to say that China will buy more. I don’t think they’re getting anywhere close to the highs that they had a few years ago though either. I think it’s just improved from this low end that we’re at.
It’s also the other markets that New Zealand tends to ship whole milk powder to Middle East, North Africa. They are really dropping off. We saw a lot weaker demand from Algeria so far this year and we’ve seen okay demand from Southeast Asia, but not as good as actually I was expecting. And then you’ve also got the Argentines and Uruguay who Brazil’s not buying as much this year either, so they’re a little bit more active. So I think New Zealand will make a little bit more of a switch to whole milk powder to feed China, but it may just come at the expense of the Middle East.
When I look bigger picture, I think New Zealand at a certain point is going to need to decide what they do with those old whole milk powder dryers. Their milk production is stable, but I don’t know if long-term that’s going to be the best return. I think you’ve already seen them invest in proteins and level up their skim side, and I would expect that to continue at least right now. And for now, China really wants their fat. They really want the cream coming out of New Zealand. They really want the butter. AMF is not quite as strong, but those two, butter and cream, to China are actually still running really hot.
I would expect New Zealand as much as they can flex because they only have so much flexibility in their flush, I would expect them to keep going towards that butter S&P because their butter value is still a lot higher than where ours is right now and more comparable to Europe. And they also have additional access to Europe now, too, that they got as well recently. So I think those two things will make them probably keep going in that stream before switching wholesale back to whole milk powder.
Josh White:
Is there any product that feels heavy globally right now? I understand that we’ve talked about whey permeate and its disruption short term, but is there any product that we feel like the world market is well stocked in? I have the view that for three years in running now, we’re running on pretty short global inventories of most dairy products, and we’ve been able to do that because global demand has been lackluster. But any spark in that, I don’t know how ready the global market is to respond to that.
Will Loux:
I would agree outside of the permeate side of the conversation that we’ve already discussed, I don’t know that anyone’s really sitting on heavy inventories anywhere. This has really been an era of under-demand and under-supply creating this balanced market. I think skimmed milk powder has been the one that I was hoping for more upside on. We’ll see what Mexico looks like this year and otherwise we tended to ship quite a bit of non-fat. If cheese got retaliated against, we’d expect non-fat shipments to Mexico to pick up. There are some of those trade-offs. Indonesia’s got a school milk program. China’s buying a little bit more. It’s still tough for me to really get to a super strong demand outlook for milk powder. I can come up with specific examples, but it’s tough for me to get too bullish on it.
I think quietly what we’ve seen here is over the last six to nine months, our metric of global dairy trade, which had spent three years basically languishing after China’s pullback, is now actually growing again at the same rate it was before COVID. So it’s 2 to 3%. It’s not a super bullish environment, but it’s a whole lot better than what we saw before. It coincides nicely with US milk production. Picking back up here, I think the question is how much can this last. And a lot of it’s being driven by China coming back, so I think these are the things we’re watching is there’s not a cushion right now in the market for most products from an inventory perspective. The question is how much do you believe demand’s coming back, and is supply coming back at the same time?
Josh White:
I wonder if the EU fat situation and the global protein situation might be some early indicators that you better make sure your supply’s secured. And you add to that disruption over global trade and how easily accessible it will be to get the products you need. Coming off of a period where people were able to return back to the just-in-time inventory model, I’m wondering if this trade disruption doesn’t change some business purchasing strategies a little bit. And then I would also be curious if anyone has a view on what the current trade environment may have from a logistical impact. We have a pretty real-world example of what happens when you stop trade flows coming out of COVID. We know what the outcome of that was afterwards when containers were just in the wrong parts of the world when people wanted to resume trade flows. Yeah, I think that is there an opinion across the group on what happens if we don’t reconcile with China anytime soon? And also, what happens if we do reconcile to our ability to execute logistically to the global demand?
Ted Jacoby, III:
Will, has the US DEC had any conversations with anybody about potential container logistical disruptions?
Will Loux:
Yeah, there’s a few different pieces here that I think is right. So one is on that inventory cushion, so going back to your question, Josh, that would be the logical move if folks believe that there is more disruption and demand is picking back up. I have broader questions around what the global economy looks like in this environment if we don’t sort this out in the US, which frankly even when we had high inflation, was really the best performing major economy in the world over the last few years. If we’re not driving this forward, what does that demand look like? But especially if interest rates come down, that calculation on inventory could change a lot as to whether you want to hold longer days in inventory.
On China and on logistics and everything else, I think there’s two pieces of this, is one, just the implications of less bilateral trade within China, but then also the new rules around Chinese vessels or carriers with Chinese vessels. This is still a highly fluid situation with where this is. I think I ran a back of the envelope calculation as to where this is of, well, it would cost potentially an extra half a cent per pound starting out, maybe picking up from there per container, or half a cent per pound of products within those berths basically being passed back to exporters.
If you have fewer port calls, if you have fewer containers, I think there is a lot of uncertainty within this market. I think we’re starting to hear it from our members already, questions and uncertainty. I don’t know if we’ve seen the full impact of this, but I think this is something that folks are watching and it’s something US DEC unfortunately had to become an expert in pretty quick. My colleague, Tony Rice, has spent a lot of time becoming an expert on logistics, working with a lot of the folks within USG, the US government to really understand what’s going on there. So US DEC is unfortunately ready for this, but we had the practice from three years ago to assess what’s going on.
Mike Brown:
We were talking about milk and whey proteins in the trade and those in the world, finding new markets or potential new markets, from my experience in manufacturing, you’re not going to take a spot market away and introduce a product to change your production or your sales strategy without making sure it’s longer term. If someone’s not taking those proteins, they get diverted to a new market. That could change not just who the buyer is, but long-term strategy on products. If China wants to continue these fights and they don’t take the product, they could lose it long-term and not get it back to lose the supply available. And whether New Zealand makes more proteins and makes that available long-term or what it might be, but there’s some implications just from the standpoint of a manufacturer’s decision. They aren’t going to take spot protein without knowing they’ve got a ready supply longer term. I would agree.
Ted Jacoby, III:
Oh, yeah. Are you all seeing anything within Mexico itself, and this is maybe a question for Miguel, how are consumers in Mexico reacting to a lot of this? Mexico’s economy has been one of the best performers along with the United States. I think those two go hand in hand, and we have, as an industry, developed incredibly close partnerships with our friends in Mexico. How are Mexican consumers watching what’s happening? Certainly the tariffs are a piece of this, but I also think of things like remittances going to Mexico as well, and some of these other pieces. What is that outlook and what does it mean for our demand from our biggest trading partner and closest partner?
Miguel Aragón:
That’s interesting that you mentioned that because remittances have taken a hit from the beginning of this administration. A lot of people going back to Mexico instead of staying put here, we could see agricultural production here. At the same time, given that Mexico has, and I’m just talking about cheese in this case, has that flexibility of going from natural cheese to analog cheese making, and given that we as an industry have different lines of production, we have number one product, we have under-grade product and we have trim, for example, and milk powder. Mexico has the ability to go from using all number one product to actually increasing their production of analog cheese product, which it goes to that market that doesn’t have that much money to get cheese. We’ve seen that flow between products reflected in the marketplace. The interesting part is that just like in Canada and Mexico, when I was visiting there, you saw the pushback on getting US products, not as bad as in Canada.
Also, you have agricultural products that are not identified of, oh, that cheese is coming from the US. That milk powder is coming from the US. Those products are coming from the US. It’s other things, so we’ve been lucky that close proximity makes products move really fast, so there is no time to identify at least food products as coming from the US and we’re going to reject them. There is a pushback. There is also lack of resources, but so far, so good. I don’t know by the time July comes if we see a big disruption, but so far so good.
Ted Jacoby, III:
Miguel, our Mexican consumers, is there an anger in Mexico regarding the US and the Trump administration, or are they going with the flow right now?
Miguel Aragón:
I would say there is an anger, but I have to think that the president, the Mexican president, she has handled the situation so good in the Mexico side that it hasn’t exploded. You do have a nationalistic team right now going in Mexico, but it’s more like less produce in Mexico. The US is our biggest commercial partner, so we have to live with both of those things. We can’t move. The US is not going to move. We’re joined forever despite what our administration thinks or says, or despite what nationalistic views in Mexico are. We’re joined forever. So we just got to live with it. This president has made a lot of efforts to direct that anger or that energy into something more positive, as in, all right, we got to produce more in Mexico.
Ted Jacoby, III:
Cool. No, that makes a lot of sense. Well, I’ll end with this. True or false? Despite tariffs, we’re competitive globally on every dairy component for the first time in recent history. Is that a true statement?
Will Loux:
Seems like a true statement to me. The US has, I think, a great opportunity here. The question is what else is going on? I feel pretty good, at least where we’re at today. Talk to me again in a week and who knows what’s happening.
Ted Jacoby, III:
I agree. All right, Will. Hey, thank you so much for joining us. This was a great discussion. I think our listeners will enjoy hearing everything that you had to say, and I think that last comment really sums it all up. One of the things that we’re really losing in all this chatter about tariffs lately is we’re continuing to export a lot of dairy products to every other country in the world besides China, in spite of everything that’s going on, because we’re competitive price-wise and because we make a good product. That gives me a lot of hope for the future of the US dairy industry. Thanks everybody for joining us today. Have a great weekend. Thanks, everyone. Thanks again, Will.
Will Loux:
Oh, this was fun. Sounds like a good time.
Mike Brown:
All right, thanks.
Josh White:
Thanks, Will.
Mike Brown:
Great.
Will Loux:
All right. Yeah, of course.
Mike Brown:
Nice to meet you, Will.
Outro (with music)
We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keagy. The Milk Check is a production of TC Jacoby & Company.
Ted Jacoby, III:
All right.
