Let’s Chat Dairy is a weekly podcast hosted by HighGround Dairy’s top analysts. At the end of every week, they sit down to recap the week in dairy markets and summarize recent reports and relevant news. The podcast can be found here on our dashboard or wherever you listen to podcasts. Subscribe so that you never miss an episode!
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Transcript:
(0:15) Alyssa Badger:
Hello, everyone, and welcome back to Let’s Chat Dairy, your favorite weekly market podcast powered by HighGround Dairy. Today’s Friday, April 11th and you’re joined today by Alyssa Badger and Cara Murphy. If you thought last week was wild, well, then buckle up because this week’s roller coaster was record-breaking. Literally. We’ll dive into tariffs, the market turmoil, and how this impacts dairy markets in just a second, but first, as always, let’s start off with the CME Spot Market Recap. Cara?
(0:47) Cara Murphy:
The cheese market has climbed back into the $1.70s this week, with blocks closing at $1.7450 per pound with 27 trades in total, while barrels settled at $1.8050 per pound today with 11 trades on the week. Butter has also found a bit of support, but still remains in the low $2.30s, ending the week at $2.3475 per pound. Yesterday, there was quite a bit of trading in the butter market at 24 trades, and on top of Monday’s 3 trades and today’s 3, the weekly total marked 30 in all. For almost three weeks, the dry whey market has held within a tight 2-cent price band, finding resistance above $0.50 per pound and support below $0.48 per pound. But that ended today when it closed at $0.4650 per pound with a total of 11 trades. Lastly, the nonfat dry milk market has also been bouncing in a 2-cent price band, around $1.16 per pound, for the past several weeks. It settled today at $1.1675 per pound with 10 trades in total.
(1:48) Alyssa:
Thanks, Cara. Well, this week was a bit confusing, maybe stressful, volatile, I can think of a lot of words to use here, but how about you give us a quick breakdown of what exactly happened?
(2:00) Cara:
Absolutely. Starting last Wednesday, Trump’s tariff announcement of a 10% baseline tariff for all US imports excluding Canada and Mexico, as well as reciprocal tariffs up to nearly 50% did not go over well in the markets. Over the course of the next four days, the S&P 500 lost $5.83 trillion in market value, marking its steepest four-day loss since the index was created in the 1950s. From its nearest high, the market lost 19%, stopping just short of confirming a bear market at 20%. Then on Thursday, after much market drama and talk of an American recession, Trump lowered all reciprocal tariffs for 90 days to the 10% baseline, excluding China, of course, which I’ll let you, Alyssa, our resident expert on China, cover that in a second. This pause, however, caused markets to rally, with the S&P 500 surging 9.5%, the largest one-day percentage jump since October of 2008.
(3:02) Alyssa:
All right, so where does that leave us today, Cara?
(3:05) Cara:
Well, baseline tariffs on all imports are at 10% for the next 90 days, excluding China. Mexico and Canada are also excluded from this 10% baseline for all goods included under the USMCA free trade agreement, which includes dairy. However, the 25% tariff on all steel and aluminum imports is in effect, including Canada and Mexico, as well as the 25% tariff on autos and auto parts. But there is something here I think is more important to focus on. Ultimately, the sheer volatility over the past week has done irreparable damage to consumer sentiment and many economists feel that the US will enter a recession, and for some, we might already have. Consumer spending accounts for roughly 60% of US gross domestic product, and over the past two years, consumers continued to spend despite rising inflation. When we take a more detailed look at this data, though, what we find is a disparity between lower-income and higher-income household spending. In 2024, the stock market did great, and higher-income households who have assets in these markets did well. Not as impacted by inflation as lower-income households, the higher-income household outlook remained optimistic, and they kept spending. Meanwhile, lower-income households reduced spending, or they spent on credit. Total credit card debt has ballooned to a whopping $1.21 trillion at the end of 2024, and 90-day delinquencies have risen to 11.4%, the highest since Q4 of 2011. Consumers across all income levels do not like volatility. Unsure of what will happen next, they reduce spending, bulk up their savings, and prepare for the unknown. Now add this to high debt levels, elevated interest rates, sticky inflation, and rising unemployment, and things are not looking too hot for the American economy.
(5:00) Alyssa:
Yeah, yikes, I certainly can’t blame consumers for being worried. This volatility has me concerned as well in a lot of different ways. But since we focus on the dairy markets here, what does this turmoil really mean for dairy in the end?
(5:16) Cara:
Well, actually, despite the headlines in the news, we’ve not seen too huge a move in the dairy markets. The big takeaways, I’d say, are US dairy imports—things like milk protein concentrate, butter, and cheese—will be more expensive, as Trump did keep the 10% baseline tariff on all US imports in effect. However, we did see a good level of front-loading in these products ahead of tariffs in the January and February trade data. Also, US cheese and butter is at a discount to the rest of the world, stimulating stronger export demand from the US. Mexico is also the US’s top trading partner for dairy, and is included under the USMCA Free Trade Agreement at a 0% tariff rate, so that is good as well. However, that leaves China.
(6:01) Alyssa:
That it does, Cara. Since the initial announcement on April 2nd, China upped their tariffs on American goods, then Trump upped American tariffs, and well, that leaves us today with American tariffs on Chinese goods at 145%, and Chinese tariffs on American goods at 125%. China is the United States’ second largest trading partner for dairy behind Mexico, and as a reminder, the new 125% tariff rate is in addition to the 10% tariff on US dairy products that was announced back in March, and on top of the 25% tariff for US whey that was reinstated at the end of February. This means most US dairy, including cheese, butter, high-protein wheys, face a 135% tariff rate and US whey tariffs are at 150%. We do ship a lot of whey and permeate, primarily for animal feed, and this tariff of course prices the US out of the market and is a big problem for the US dairy industry.
Outside of just dairy, this trade war is problematic for the Chinese economy as well. Factories lowered prices to account for the initial bump in US tariffs from the last trade war, but with a 145% increase, prices in China cannot come down anymore, and US companies can’t really afford the costs either. Orders are being canceled, factories are slowing down or shutting down, and employees are being temporarily laid off. China has been struggling with youth unemployment with a rate of 17% as of February, not to mention there are a record number of college graduates coming into the workforce this summer in China, with over 12 million students graduating. These layoffs will only exasperate this problem and, like the US, probably reduce consumer spending, which was already struggling in the country. The Chinese government has pledged strong fiscal and monetary support to boost consumer spending domestically, but this hasn’t really materialized in a significant way just yet. With the American and Chinese economies taking a hit from this trade war, as well as Europe, some economists believe a global recession may be underway.
(8:25) Cara:
Speaking of Europe, they’ve had some contentious relations with China over the past years, but I did see this morning that Chinese President Xi Jinping told Spain’s Prime Minister that China and the EU must join together in defending globalization and that the EU had a key role to play in ensuring global economic stability. To me, it sounds like China may be interested in mending ties with the European Union. For dairy, the EU is typically more expensive than the US, but that was before the 125% tariff rate, and we hear some reports that Chinese buyers may be working with the EU folks on some deals. My question is, will the EU have the capacity to fill Chinese demand? Of course, the Chinese could also increase purchasing from Oceania, but I question Europe primarily because their milk production figures through early 2025 have not been looking so good. Based upon weekly milk collection figures, German and French milk output, the two largest milk-producing countries in the EU-27 bloc, continued to lag prior year levels. I also noticed that Irish milk flows took a dive in February, down 3.5% year-over-year on a 30-day adjusted basis to account for the 2024 leap year. Irish milk flows were trending positive over the past couple months, so this was an unexpected turn. Dutch milk output was also down in February by 2.6% year-over-year when adjusted for a 30-day month. It is spring, so milk availability on the continent is rising seasonally, but it seems it may not be overly plentiful come past spring flush. The standout right now offsetting some of these losses is the United Kingdom, and I’ll say they must have magic cows or something because the growth out of that nation we have seen over the past several months is truly astounding.
(10:14) Alyssa:
I hear you, Cara. I think that is the big question. Where will Chinese buying turn to instead of the US if this trade war persists? Another question is how much will their purchasing really increase, if at all if their domestic consumption falls due to a struggling economy? If China’s exports decline, they may even buy less dairy, which could potentially negatively impact New Zealand as their largest dairy trading partner, who I might add, with all this tariff talk, does have a free trade agreement with China. The second April Global Dairy Trade Auction will be held next Tuesday, and it looks like we will get a firm result. The fact of the matter is that someone has to fulfill nearby demand, but New Zealand is already tight off the GDT platform, Australia’s production levels have been weaker, and as you said Cara, European production is starting off slow for spring flush. The GDT auctions are heavily exposed to Asian markets, so next week will really be a good barometer for how this region is reacting to the current headlines. If we look at the futures market for an indication of where things will go, SGX Whole Milk Powder futures are suggesting another stronger result, with the April contract finishing the week back at $4,000/MT, after dipping below that mark, with trade pushing as high as $4,020/MT during the last session of the week. Skim milk powder futures prices remained mostly unchanged from a month ago, trading within a $70/MT range over that period. New Zealand-sourced skim milk powder continues to hold a premium to European or US product with the expectation that this premium will remain somewhat intact over the sessions ahead as buyers pay for the security of supply of New Zealand product. And obviously when you factor in China and their huge tariffs, New Zealand still has a competitive edge. SGX traders have bearish expectations on milk fats for next week’s results, however, butter has been a fraught commodity to forecast in the last year.Even with prices at high levels, demand remains incredibly strong, so it would be remiss to count on a huge decline next week. Firm is probably the worst-case scenario. Anhydrous milk fat pricing has found support in the last fortnight, with SGX futures almost in a backwardated curve over the nearest four contracts, an important factor considering how flat this curve was just four weeks ago.
Well, that wraps things up for this week. What a ride it has been! For deeper insights on everything we covered and more, be sure to visit the HighGround Dairy website, where our latest market analysis is always available. We will be back next week with another episode of Let’s Chat Dairy, diving into all the latest moves in global dairy. Until then, take care and stay vigilant. I would like to remind you that our Global Dairy Forecast Report will be out next Monday, where we really take a comprehensive dive into what’s moving markets and why across the entire globe. So don’t miss that, and of course, tune in to our webinar on Tuesday at noon central, and we look forward to sharing our thoughts with you there. Cheers!
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