Could tariffs put U.S. dairy exports at risk? In this episode of The Milk Check, special guest Mike McCully, President of The McCully Group, joins us to slice through the uncertainty in today’s dairy market.
With trade tensions rising, could tariffs spook global buyers and push them toward alternative markets? We tackle some of the biggest questions facing dairy exporters today, including:
- Will tariffs curdle U.S. dairy exports?
- How are Mexico and China adjusting their buying strategies?
- What happens if tariffs push global buyers to look elsewhere?
Listen now to the latest episode of The Milk Check to learn what’s making waves in the dairy markets.
Special Guest:
- Mike McCully, The McCully Group
The Jacoby Panel:
- Diego Carvallo
- Jacob Menge
- Josh White
- Miguel Aragón
- Ted Jacoby, III
- Yara Morales
Podcast: Play in new window | Download (Duration: 30:53 — 42.5MB)
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Intro (with music)
Welcome to The Milk Check, a podcast from T.C. Jacoby & Company where we share market insights and analysis with dairy farmers in mind.
Ted Jacoby, III:
Welcome everybody to The Milk Check. So, today, our topic is going to be tariffs and how that might affect the U.S. dairy industry. We are recording this at 2:00 PM on Friday, February 7th, and we’re going to talk about tariffs. Very likely, by the time you listen to this, it might all be irrelevant because who knows what the Trump administration is going to do next? Joining us today from our team is Miguel Aragon, our Director of Latin America’s Sales for Cheese; Yara Morales, our Director of International Sales for Dairy Ingredients; Diego Carvallo, our Head of International Trading for our Dairy Ingredients Team; and Josh White, the Head of our Dairy Ingredients Team. Also, Brianne Breed is joining us, Head of our Cheese Team, and Jacob Menge, Head of our Risk Management and Trading Strategy. In addition to that illustrious group, we’ve got Mike McCully today, the founder of the McCulley Group, who is probably well known to most everybody in the dairy industry, at least in North America. Mike, thanks for joining us today.
Mike McCully:
You’re very welcome. Happy to be here.
Ted Jacoby, III:
Mike, where do we stand right now on tariffs, what is the Trump administration doing, and what do we expect them to do next?
Mike McCully:
Had a very different conversation just a week ago when it looked like we were going to start on February 1st with tariffs on Mexico and Canada and retaliation from both countries and then China. But then, 48 to 72 hours, all of it got put on hold. The China retaliation was not on dairy; Canada and Mexico were on hold, so we’ve basically put all that tariff discussion over in a box, and we’re just going to sit and wait here for a while. It’s evolving each day. I read something yesterday or the day before: “The best tariffs are ones that are not used.” Hopefully, that’s where things go, but we’ll just have to wait and see. Between this and H5N1 are two very unpredictable elements that we have to deal with in the dairy market, not just this week and next week, but probably for quite some time.
Ted Jacoby, III:
I couldn’t agree with you more on that one. Jake, are we expecting anything to happen next in terms of tariffs?
Jacob Menge:
I think something is happening as we speak. Trump talked this morning about, in his own words, reciprocal tariffs on unnamed countries. That is new as of this Friday. Trump and tariffs seem to have a cadence of news on Friday, which Wall Street really loves. That’s certainly new. I heard him mention Japan, I think today. So that is just wreaking havoc on equity markets and our markets. It’s this unknown. Markets just hate the unknown, and much of it is hanging out there.
Ted Jacoby, III:
Where we stand regarding tariffs, we’ve postponed putting tariffs on Mexico and Canada or any, let’s call it additional tariffs, the 25% tariffs, we’ve delayed for about a month, the possible 25% tariffs on those countries. But we have put 10% tariffs on China, and then China recently came back with some retaliatory tariffs of their own on U.S. goods, but it did not include dairy at this point, correct?
Mike McCully:
For now. For now, yeah.
Ted Jacoby, III:
For now, yeah, for now. So if we’re lucky, things will go quiet for about a month, and they’ll work some things out, and we’ll never get tariffs. But officially, we can say that at least directly tariffs are not affecting the United States dairy industry’s ability to export. Having said that, Miguel, how are our customers in Mexico reacting today? Are they getting prepared to import dairy products from somewhere else?
Miguel Aragón:
The talk about the town last month was to prepare, but also to look somewhere else. They looked at Canada; they looked at Europe. Some purchases were made from Canada and some from Europe, but the volume comes from us. They are of the mind of Let’s just wait and see, but let’s have another avenue. Of course, in Mexico, you have the volume, but you also have the peso. So if the peso devaluates, then everything’s more expensive. It’s a wait-and-see approach right now. They trust that the market, that the peso didn’t go to 23 or it almost hit 22, but it didn’t. They don’t think it will be as bad because there is a lot of pressure from the U.S. dairy industry not to do anything to dairy. So we’ll see.
Ted Jacoby, III:
So right now, both the U.S. and Mexico dairy industries have their fingers crossed that nothing happens, but obviously, we just don’t know.
Miguel Aragón:
That’s correct. That’s correct. It’s a wait-and-see approach.
Ted Jacoby, III:
Yara, what about your customers?
Yara Morales:
Customers think that if that happened, they would obviously think that the pesos would go up to 23 and maybe more. Mexico does all the customers say. Mexico needs the United States products; they want to stay in the United States. They are trying to see other places like Belarus, Poland, Europe, or S&P because they want to stay with the United States. We’ll see, like Miguel said, it’s early. We don’t know what’s going to happen. The market for Mexico is the United States.
Ted Jacoby, III:
Are we seeing good demand in Mexico?
Yara Morales:
January was fantastic. Everybody wants product. There’s no inventory in Mexico and the final customer, and there’s not too much inventory in the border either. So the customer needs the products. Even with all this situation that is happening in Mexico with the new government and what happened in the United States, everybody is cautious about the demand, and the consumption demand is very low. So that’s why the customer doesn’t need too much product that used to be. It is also slow at the beginning of the year because everyone in Mexico must pay taxes. They named it [foreign language 00:05:41], so it’s hard, but even though it was hard, I was surprised by the demand; it was really good. Really, really good. We have good sales, and everybody asked for products, but like always, Mexico is looking for prices.
Ted Jacoby, III:
Do you think they’re building inventory right now, Yara?
Yara Morales:
No. No, they don’t build inventory. They buy only what they need. Building an inventory is hard because the interest rate is high. It’s doubled in the United States. I mean, it’s so high. So they are buying only the product they need at that moment. They don’t want to purchase inventory. No building inventory right now.
Ted Jacoby, III:
With the risk of tariffs making the product more expensive, they still want to live hand-to-mouth.
Yara Morales:
Yeah, and especially now that we see the market is going down, the purchase is going down, yeah, they’re paying less than in January. Right now, the market is 1.30, 1.20. They’re expecting it to be 1.28. So yeah, they’re also waiting to see what will happen with the market. And what happened with the tariffs. No, they’re not building inventory.
Ted Jacoby, III:
Diego, what about China? Let’s just speculate and say that China ends up putting tariffs on U.S. dairy products. How will that affect our exports to China? I assume New Zealand will still tend to win most of the bids, but we’re still exporting many whey products.
Diego Carvallo:
The U.S. has always been a big exporter of powders to China. So I think overall, if you see a significant tariff in place, you will see a reshuffling, reorganization of international powder flows or pipelines. More products from New Zealand will probably find homes in China, and more products from the U.S. will find homes in other markets where tariffs make the arbitrage more competitive. My first impression is right now, the U.S., we haven’t been very competitive to China when it comes to non-pad, but when it comes to WPCs, the whey, the MPCs and other products, higher value products, I think that’s where the main risk is right now with those tariffs. So I believe European WPC80 will find a competitive advantage in China, and we’ll see more imports flow that way.
Ted Jacoby, III:
That would make sense.
Mike McCully:
And Ted, I’d add on to that. This is one where I’ve reminded people in the last few months, some of which we’ve seen in the movie before. You can look at 2018 and what happened when China retaliated against the U.S. whey. There was also African swine fever, which was another part of it. But if you look at the data from 2017 to ’18 and ’19, there is a very significant drop off in exports of whey products from the U.S. to China. The African swine fever is a part of that, maybe a relatively large part, but there are directionally lower and probably significantly lower exports. If that goes through, Chinese buyers will look for other sources even though there aren’t tariffs.
I can tell you that when I talked to folks selling to China on the Friday after the election, they said, “Find me other non-U.S. product sources.” Another one, just this last month, was, “Do not bring me a new supplier to qualify out of the U.S. for the next four years.” So those things are happening even without real tariffs; the impact is still there.
Ted Jacoby, III:
So, on the whey protein side, who is the biggest threat to U.S. business abroad? Is it Europe?
Mike McCully:
Yeah, Europe is going to be the main one.
Ted Jacoby, III:
Okay.
Josh White:
I think you bring up a good point. Although there might be a desire to shift to another alternative, we’re typically best positioned to supply particularly whey permeates and some of those products into China. So it won’t be an easy switch, I don’t think, for the Chinese, and that’s not to say this isn’t an issue; absolutely, it could be a potential issue. But it isn’t an easy substitution for the Chinese and their trade lanes, whereas on the milk powders, it’s a much easier, much more natural [inaudible 00:09:31].
Ted Jacoby, III:
Okay. Back in 2018, when this happened the last time, Josh, do you remember if China built up their inventories beforehand, and was that one of the reasons for the drop-off, or did they just shift?
Josh White:
It’s a rule of thumb that China goes through the stocking and de-stocking phases. However, as of late, I don’t believe we’ve been in a stocking phase; I think we’re coming out of a de-stocking phase. So yeah, we’ll see.
Arguably, you can say that demand in China has been terrible. Although their monthly imports were pretty decent, particularly for the whey products in the fourth quarter, that could be again the result of precisely what Mike mentioned, that the election was leaning one way, there were concerns. They did a little stocking on the whey product side, for example. Talk to people who are supplying that market or who are actively selling in that market. They’ll argue that China has been preparing for a potential trade war with the U.S. and importing whey permeate, building a little bit more days in inventory than they had throughout most of 2024. I don’t know if that argument holds true because the imports started before Trump won the election. Maybe they started taking some preparatory action, but generally speaking, we began to see an increase in imports of those products the whole second half of 2024.
Ted Jacoby, III:
So they’ve just been preparing already?
Josh White:
Perhaps.
Ted Jacoby, III:
Mike, do you recall whether China tariffed whey permeate and milk powders the last time we discussed this?
Mike McCully:
I remember mainly the impact on whey products in general.
Ted Jacoby, III:
Okay. Because it just occurs to me when we’re talking permeate, we’re talking something that’s 20, 22 cents a pound.
Josh White:
And a co-product. Co-product in its nicest way of saying it and a by-product in many other ways. Is it going to stop the shipment of permeate to China dramatically? Absolutely not. We need to ship it, and maybe the U.S. manufacturer unfortunately will have to eat that, but generally speaking, we must ship whey permeate to China.
Mike McCully:
Yeah, that’s been my simple response to some of these questions. It is okay if the tariff increases by 10%, adding $100 a ton. Guess what? The U.S. price will have to go down $100 a ton to make the sale happen.
Ted Jacoby, III:
However, if the price of WPC80 goes up 10%, that’s 20 to 30 cents a pound.
Mike McCully:
Yeah.
Ted Jacoby, III:
That’s a bigger issue. If the U.S. puts significant tariffs on incoming goods from China, will we have the containers to turn around and ship back, and will it affect freight rates as well?
Diego Carvallo:
The story tells you it will. The last time this happened, there were many delays, empty containers returned, and chaos, and that’s when we saw rates move much higher. I wish I had a better answer than citing what happened last time.
Ted Jacoby, III:
Everybody, we will be right back.
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We talked a little bit about China and Mexico. Mike, does the U.S. dairy industry need to worry about Canada regarding tariffs?
Mike McCully:
With Canada, it’s butter. It’s not a big number, but if you look at the grand scheme of things and butter exports, Canada is usually one of, if not the most significant export customer. It’s not tens of millions of pounds of butter in any particular month, but over time, it does matter, and there are probably some whey products in there as well. It’s not material to cheese or milk powder, so Canada’s the lesser of the concerns, I think, with several other countries. Mexico, milk powder, and cheese are the big ones, along with China and whey. Canada has a lot less material.
Josh White:
Let me ask another question related to that. What about the feed? Do we have an opinion on the potential impact of feed prices? And you’ve got direct things like canola meal fed into dairy operations, which impacts soybean meal and other things. I have no idea how material that would be for dairy, but what about the rest of the complex corn, beans, and different things that impact our input costs for making milk?
Mike McCully:
I don’t think it does much for corn and soybeans. That’s just going to be a U.S. trade. There might be some imports of Canadian wheat, and then canola would be the major one.
Ted Jacoby, III:
In the grand scheme, if you’re thinking of canola as a percentage of the feed costs per dairy cows, I’m assuming it’s not that big a number.
Mike McCully:
And it can swap out pretty quickly with soybean meal.
Ted Jacoby, III:
Okay.
Josh White:
Do we think that it’ll positively impact corn prices for the dairyman by hurting our exports of corn?
Mike McCully:
That’s a whole other can of worms there, and that’s back to a China question. I think if China would retaliate against U.S. grain, and again, we’ve seen this before, corn and soybeans would take a pretty big hit. You look at it with a narrow lens from a dairy farmer’s standpoint; you’ve got cheaper feed, but that’s a negative if it goes over into the grain side of it.
Josh White:
They’re not talking about grains at the moment. Has there been any discussion from the rhetoric thus far that’s mentioned grains?
Mike McCully:
At least the initial response has been not really anything related to food or agriculture. The U.S., we’ve got a lot of soft targets, so if other countries want to retaliate, they know where the pain points are. I’m already talking to people in Canada here in the last few days, they’re taking American products off shelves, they’re targeting products from red states. That could come if this gets more advanced as we move forward on it.
Jacob Menge:
Canada is actually probably one of the better examples. I was talking to a cotton trader for example. They’re just kind of willingly saying, “Yeah, find us a different source of cotton.” You just don’t want to be exposed to that risk again, what we kind of started with is that unknown. A lot of these commodities traders would just rather avoid the unknown and if there’s an alternate source close in price, they’re going to take it. I think in this case, they got the cotton from Brazil, pay a tiny bit more and avoid that unknown.
Mike McCully:
That makes sense.
Josh White:
When we think about the world market right now, I think that there’s a lot of different bullish and bearish variables on dairy prices that we’re all debating and I’m sure most are like me and can’t get my head around it. It’s the most uncertainty I’ve had on both the supply and the demand side of the dairy complex in my career, at least. When we think about buying patterns, I think it’s generally still received that the global market isn’t setting long inventory of dairy products. Do we all agree with that? And then as a result of that, do we think this uncertainty drives a stocking phase or continues to leave people buying hand to mouth? And where I’m going with this is I’m trying to determine whether or not all of this uncertainty means we miss important and export sales or we only miss the next spot sale?
Ted Jacoby, III:
I’ll throw my hat on that one. I would argue that the U.S. is now a big enough player in the world dairy trade market that if we end up not being able to export, the prices are going to be quite high to source from other places like Europe or New Zealand, and so I’m not sure going into a stocking phase, I’m not sure that those importers will come to the conclusion that stocking would make sense at high prices.
Mike McCully:
Yeah, I’d agree that in addition to higher interest rates, if you look around the world right now, you’ve got New Zealand growing in milk, you’ve got Europe, at least looking back here the last few months, have a positive number, largely Ireland. The U.S. is … Eventually, we’ll get back into some growth, modest growth. So from a buyer standpoint as and I talked to buyers in different spots around the world, I don’t get a sense that anybody’s very nervous about what’s going on right now that would go out and take a really big physical position.
I think that the actual trade really is the nuances between products and if you look from a U.S. standpoint, we just finished off a record year on cheese and I think we’re well positioned here for a while on cheese, maybe get a little soft in Q2, but that looks good. Butter, we’re very competitive there, given a really low price relative to Europe and New Zealand. Milk powder is the opposite and I think that’s the really interesting one to drill into is if you look at where the U.S. has been in recent years, we’ve been exporting 70% or more of our milk powder production. The export volume versus production in the month of December, it was down to 62%. I think that’s probably a product area and really November, December, the 2 lowest volume months of exports of powder since back in mid-2019. I think that’s probably an area or product line that we do lose sales for, not just in the spot basis but probably here for the better part of this year.
Ted Jacoby, III:
I think that makes really good sense. We haven’t talked about Europe yet, so Europe’s one where we could affect the U.S. dairy industry with Trump putting tariffs on incoming products from Europe into the U.S. and the one that comes to mind first is Darigold butter. How do we think it plays out in Europe?
Mike McCully:
This is another one where we’ve seen the movie before, that went through this back in ’18, ’19 when Trump threatened NATO and European countries to step up their spending and there were targeted tariffs on certain countries. It wasn’t a blanket-wide statement on Europe. Parmesan cheese is one that has been highlighted and this is one where all of a sudden you notice a pile of imports coming in. That’s happened before. There are going to be potentially some countries and products that are going to be brought into that. Kerrygold and Ireland and butter could be one of them. I would list other ones probably before that, whether that’s Parmesan cheeses or hard cheeses from different countries, maybe specialty butters or high-fat butters or what have you from other European countries, maybe some from German product or Dutch products. We’ll see. It’s a blunt tool that gets swung around quite a bit. For that one, it’s more on the import side than in is really anything for export markets.
Ted Jacoby, III:
Could those tariffs be a positive for U.S. dairy products or is it just we’re not talking about enough volume?
Mike McCully:
If I remember right back when it hit in ’18 or ’19, if we talked about higher import tariffs on Parmesan cheese and things like that, I do remember some increased production and demand for American-made products.
Ted Jacoby, III:
Okay, well that would be good. Yara, Miguel, both of you guys mentioned that the Mexican peso has gotten weaker and the tariffs would probably cause it to get even more weak. I almost feel like the peso’s becoming a bigger deal than the tariffs themselves.
Miguel Aragón:
That’s what you feel immediately because of the flow of payments. It’s something that we pay a lot of attention to because it does affect immediately, every day, we wake up and that’s the first thing we see. How’s the peso today? It has an effect on are we going to get paid on time? Are we going to get some delays? So yeah, it’s an everyday thing for us. To add a little bit of what Yara said about the Mexican customers being hand to mouth is because we’re so close, there’s not a lot of need to build inventories because proximity, proximity, proximity. It’s just like real estate here. Location, location, location. Mexican customers could keep taking product. If there’s tariffs, they will look for alternatives, but in the meantime, they may eat the extra cost, but then again we’re probably going to eat some of it ourselves too. But yeah, the peso definitely, it’s a bigger issue for us.
Yara Morales:
Yeah. I’m agreeing with Miguel. Is Mexico looking for another country? They are looking for $200 per metric ton discount from different country because by the time they’ve received the product, the market chain, that was the prices they are paying with a big, big discount buying for different country that is not United States. Even with the tariff, I think the closer that we are, it’s good for them, but there’s a lot of concern every single moment, what is going to happen with the peso? Every customer say, “No, no, I cannot buy dollars. I cannot buy dollars.” I mean it’s hard for them right now and for everybody.
Mike McCully:
I think that’s one of the under reported aspects of this whole discussion around tariff is that what it does to currency. If one of the justifications is to shrink the U.S. trade deficit by strengthening the dollar, you go to the opposite direction. That’s another one of the unintended consequences of this. Just recently, both the EU and Mexico agreed to a trade agreement. Now neither country has signed it, but if this is going to continue over the next four years, I would think at some point both Europe and Mexico will sign that free trade deal and all of a sudden maybe you have a different flow of product, more product coming in from Europe. I was just talking to someone a few days ago that they had heard that there was skim milk powder coming in from Europe to Mexico this week. We have to look at that as well, that Mexican market can’t be just the U.S. long-term, that there will be competition for it and this is a potential opening with the EU trade pact.
Jacob Menge:
My opinion is largely the market is pricing in tariffs not being implemented, at least nowhere near what has been hinted at by Trump. It’s just it’s not priced in.
Ted Jacoby, III:
Are you talking specifically dairy?
Jacob Menge:
I am talking across the board. I really don’t think it’s that priced in inequities. I don’t think it’s very priced in in our currencies we were just discussing. I don’t think it’s really priced in in dairy commodities. I think where we have started to see it be priced in is in the volatility metrics. If you want to go buy a [inaudible 00:22:56] to protect yourself, it’s a heck of a lot more expensive than it was a month ago, but as far as the prices on the outrights, I don’t think the market believes that we will have tariffs at the percent levels or on the products or you name it, that was put out there a week ago.
Mike McCully:
Yeah, Jacob makes a good point. I would argue that up until the inauguration, I would say dairy markets, both cash and futures really hadn’t factored in any risk to the market and then we flipped. The day after the inauguration, I think it was all of a sudden, “Oh, this is real and it may be coming sooner than what we think.” And I think to Jacob’s point, it started pricing in some volatility. We saw cheese drop from that low 190s down into the 180s, finally seeing a little break in the whey market or the sweet whey market at least, so it’s starting to price some risk in. But then you saw as of Monday when, oh, we’re going to 30 day pause and then it kind of recovered and just kind of wait and see. Definitely see this volatility swinging from day to day, week to week, which is … Some people like that for end users and others, it creates some headaches.
Ted Jacoby, III:
You can say that again. Jake, so what happens if tariffs are not really being priced in outside of volatility? What happens the day real tariffs get implemented or it gets announced in a way where we know it’s going to happen? Let’s talk about the dollar. Does the dollar start to weaken? Start to strengthen? How do these markets start to evolve at that point?
Jacob Menge:
Lovely economics theory question here because then the second they’re implemented, there’s the question of will they be walked back? Tomorrow? Will they be walked back the next week? There’s never going to be, in my opinion, a sure thing on this and so there’s always going to be some discount factored into that.
Ted Jacoby, III:
One way or the other?
Jacob Menge:
One way or the other. Exactly. Even once they’re implemented, then the pendulum probably swings to be, okay, well now we need to price in the scenario that they’re lifted. It’s really tough. I would not even try to put a number on what kind of move you see.
Ted Jacoby, III:
What about a direction? What direction does the dollar move the minute the U.S. truly starts implementing real tariffs beyond just 10% on China?
Jacob Menge:
We got to see it last week I would say, and the dollar rallied nicely. I wonder if the shine doesn’t come off after they’ve been implemented for a certain period, but the market’s initial take seemed to be bullish, the dollar.
Ted Jacoby, III:
All right, anything to add, Mike? Anything I missed on tariffs?
Mike McCully:
Good discussion. Very timely. A lot of questions that [inaudible 00:25:22] last week and they’re going to continue. I gave a presentation last week and I summed up by saying, “I’m confident in predicting that it’s going to be unpredictable.”
Ted Jacoby, III:
I think there is no more true statement on that. Let’s go around the room as we wrap up and we can share everybody’s biggest concerns on what may happen next and how it’ll affect our industry. Josh, why don’t you go first? What’s your biggest concern?
Josh White:
To me, it’s all about product mix and mexico. It’s very important, if the retaliatory tariffs, were to happen on what products they happen because it could be bearish certain products and bullish others.
Miguel Aragón:
My biggest concern is two weeks from now, two weeks from today, do we hear all Mexicans not doing enough? Then I’ll be concerned. The Mexican president is actually moving really fast on what they have agreed: putting troops at the border. Of course, we are only hearing and this is a little bit of aside, we’re only hearing to stem the flow of drugs and people. We’re all hearing that it actually is going to help Mexico to stem the flow of illegal arms going down to the organized crime. The way I see it in Mexico right now, it’s a win-win situation. As long as in two weeks from now we don’t hear like, “Oh, they’re not doing enough.” Then I think I’m good, but that’s the biggest concern.
Ted Jacoby, III:
Makes sense. I like it. Yara, how about you?
Yara Morales:
My concern is what is going to happen after the month that he say he’s putting in [inaudible 00:26:44]? So I don’t know what is going to happen after the month and the concern is every single day because Mr. Trump every single day has something new. Yeah, and I have a question for Michael or somebody else. Does anybody know about what happened in Germany with the mouth disease that they have, because Mexico is not accepting importation right now from Germany?
Mike McCully:
So there was a foot and mouth disease case in a herd of water buffalo outside of Berlin a month and a half or so ago. They quarantined the area around it, tested everything. Fortunately everything was negative. They killed all the water buffalo. There were supposedly three illegally imported ones that had it and it looks like this is just a one-off, but immediately other countries banned imports of German meat and dairy, at least for a while. Now some countries are starting to relax that a bit, but there still are countries that have that ban. It’s impacted a bit of trade here for a little while. It sounds like that if it was just a one-off, then eventually those trade bans will be relaxed and we’ll get back to normal flow at some point.
Ted Jacoby, III:
That’s good to know. All right, thanks Mike. Jake, how about you? What’s your biggest concern?
Jacob Menge:
I guess I’ll twist it into some advice and that would just be in general, I think in this environment you got to avoid emotional trading and just really have a risk management plan around your products and stick to it. Try to go to that 10,000 foot view and stay out of the weeds.
Ted Jacoby, III:
I like it. Diego, how about you?
Diego Carvallo:
My main concern is the impact on the freight, not just on the ocean freight, but also the impact that ocean freight has on internal trucking, so that could send the market higher like we saw it a couple of years ago. And if that happens, the U.S. would definitely be affected because we would be less competitive, so something to watch out.
Ted Jacoby, III:
Thank you and Mike, we’ll end with you. What are your concerns on how this all plays out?
Mike McCully:
All the above that everybody else mentioned. I’m also quite concerned longer term about what this does to the credibility of the U.S. dairy industry as a supplier. As the U.S. continues to have open window here to grow exports, to move into new markets, if your buyers in other countries, this is not a positive thing. That’s my long-term concern, the damage this is due to the ability for us dairy companies to export. I even hear every now and then, just in the last week or so for companies that aren’t really fully invested in the export business that we start getting some questions. They’re like, “Do I really want to do that? Do I just need to pull back and maybe just focus on the domestic market?” I don’t think it’s a positive for the U.S. dairy industry.
Ted Jacoby, III:
I completely agree with you, which kind of leads me to what my biggest concern is, which is that after six months, nine months of this tinkering around, everybody just finally … By everybody I’m talking other countries of the world, finally just throw up their arms and go, “We’re just going to ignore you. You raise tariffs, we’ll raise some tariffs, but we’re not going to spend our energy trying to cater to you,” and that creates an internal problem that really starts to erode the credibility of the United States, not just in dairy, but in just about almost anything.
Miguel Aragón:
I think probably Diego’s going to hear a lot about this when he’s at [inaudible 00:29:49]. I know we have a lot of listeners from all over the world and they should look up Diego.
Ted Jacoby, III:
Great timing Miguel. And Diego, good luck.
Diego Carvallo:
I’ll open up my schedule. But yeah, looking forward to seeing everyone at Gulfood in two weeks, we’re going to be at the U.S. tech stand, so looking forward to meeting you guys.
Ted Jacoby, III:
Perfect. All right guys. Mike, thank you so much for joining us today. We really appreciate it. This was a great discussion. Even though there is so little we’re certain of at this point in time, it is definitely a topic that everybody is discussing and glad you could join us to share our thoughts with all of our listeners. Thank you.
Mike McCully:
You’re very welcome.
Ted Jacoby, III:
All right.
Mike McCully:
Good seeing everybody. Have a good weekend.
Josh White:
Yeah, Likewise, Mike.
Ted Jacoby, III:
Hey, thanks Mike. Really appreciate it.
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 Keaggy. The Milk Check is a production of T.C. Jacoby & Company.
