Matt McKnight, Chief Operating Officer of the U.S. Dairy Export Council (USDEC), says no less than eight issues will be critical to dairy exports in 2019. He calls them “signposts that will shape market opportunities and directions in the year ahead.”
- Efforts to remove retaliatory tariffs. A report from Texas A&M’s Center for American Studies is forecasting U.S. dairy export losses from Chinese and Mexico retaliatory tariffs could be as high as $800 million per year. “The retaliatory tariffs won’t grind all U.S. dairy exports to a halt, and on their own, do not doom growth aspirations,” says McKnight. “But the tariffs make us less competitive in two critical markets and heighten the challenge of getting to ‘The Next 5%’ (USDEC’s push to get dairy exports up to 20% of U.S. milk production).”
- Supply and demand realignment. Over-supply conditions are expected to ease over the next two years, with the European Union (EU) expected to work its way through its mountain of intervention stocks of milk powder. The final 100,000 metric tons is expected to be disposed of as animal feed in the first quarter of this year. “Should demand continue as expected…, we could see markets tighter than they have been for quite a while,” McKnight says.
- USMCA approval and implementation. “Approval of the U.S. Mexico Canada Agreement is not assured, and the path forward is filled with unknowns, including what might happen should President Trump follow through on threats to withdraw from NAFTA prior to the USMCA vote,” he says. “The ultimate impact of the agreement will depend on how it is then subsequently implemented by the three countries involved.”
- Other trade talks. McKnight says it’s critical the United States pursue bilateral negotiations with “high potential” markets such as Japan, the United Kingdom (UK) and the EU in 2019. Competitors are implementing their own agreements this year, notably, the old Trans Pacific Partnership without the inclusion of the U.S. The new EU-Mexico agreement is also expected to go into force soon.
- Global economic growth. “Groups like the International Monetary Fund, the World Bank and the World Trade Organization are all sounding warning bells on trade and economic growth,” says McKnight. Slower growth could create headwinds for demand for dairy products.
- Chinese dairy consumption. “China continues to drive global dairy trade, even though second-half buying (in 2018) slowed. Much will depend on China’s economic health in 2019, but if the nation’s imports are up 5 – 10 per cent again…, we could be in for a sizable shift in market sentiment in the second half of the year,” he says.
- Global cheese demand. “In 2019, pending other factors such as global economic development, we expect to see global demand growth recover [for cheese] and will watch if U.S. suppliers can continue to build share even as they face retaliatory tariffs and other hurdles to cheese trade like restrictive geographical indications,” McKnight says.
- Brexit fallout. “Should Brexit (or a replacement) fail to pass, the UK could try to extend the March 31, 2019 deadline or face a ‘no deal’ or ‘hard’ Brexit. Either way, what happens will have a ripple effect on global dairy markets and U.S. export ambitions,” he says.
Read the full article by Matt Mcknight here.
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