The dairy industry has been worried since the Mexican government placed tariffs on U.S.-made cheeses in early June.

Ted, T3 and Anna welcome Yara Morales to The Milk Check. Yara, who is Director of Sales for Latin America and Mexico, shares valuable expertise on how the new tariffs will affect markets on both sides of the border.

Also, Ted, T3 and Anna discuss their expectations for milk prices this fall.

Episode transcript

Anna: Welcome to "The Milk Check," a podcast from T.C. Jacoby & Company where we share market insights and analysis with dairy farmers in mind. Today is June 14th, and we have Ted and T3 as usual. Today we need to talk about NAFTA and tariffs to Mexico. So, we've brought in Yara Morales, our Director of Sales from Mexico and Latin America. So, let's get right into it. Ted, why don't you start us off?

Ted: The question that we need to resolve or address is how this will affect milk pricing, if it will affect it at all. I would expect that NAFTA will be terminated. I guess from the dairy industry standpoint, yes, you don't wanna throw out the baby with the bath water, and, yes, the trade agreement is very important, but it does need to be renegotiated, it does need to have dispute reconciliation put into it, particularly that. And I think the dairy industry will survive very nicely under this scenario with possibly temporary disruptions in pricing, which in my view will probably not be that major.

T3: I think more specific to what's going on today, and this plays into the temporary disruption that we're talking about. The Trump administration increased the tariffs, the steel tariffs to include allies, so it included Canada and Mexico and Europe, and in response, the various nations implemented some of their own tariffs. I think the one that's been in the news the last couple of weeks has been cheese. It was included in some of the tariffs that Mexico have added. NAFTA when it was implemented in '94 over that five-year period, it basically brought U.S. cheese tariffs to Mexico to virtually zero. The new tariffs that will be implemented as a response to the Trump administration's steel tariffs are gonna be approximately 25%. The immediate reaction to most of the people that we've talked to is that, "Oh my God, that's a huge price increase. That's gonna have a major effect on our exports to Mexico." I think there is some important background knowledge that needs to be had about that. And the first is this. Cheese tariffs and Yara... We have Yara Morales with us today. Yara is our Director of Sales for Latin America and Mexico. And so, Yara, correct me if I'm wrong here.

Yara: Yeah, absolutely. Yeah.

T3: But cheese tariffs coming out of Europe are primarily already at about 25%.

Yara: Yeah, already, since we know for many years in a tariff...the United States doesn't have a tariff. They've had zero tariff.

T3: So, cheese coming from the U.S. has been coming into Mexico at 0% tariffs, but cheese coming out of Europe has been coming in at a 25% tariff. So, now we're on equal ground. We're at 25%, they're at 25%. But what's going on in Europe right now is the milk production in Europe is tight enough that the European cheese price right now is higher than the U.S. cheese price. And so if that's the case even with a 25% tariff I don't think we're gonna be losing a lot of cheese sales to Europe.

Yara: Yeah. The only concern in my opinion about Mexico, Mexico is gonna still buy in cheese and nonfat and all the products from United States because it's very convenient, but if Mexico approved cupos to those countries and don't approve cupos to United States maybe it's gonna reduce a little bit. But it's something that I don't think. So, it's very convenient shipping all the products from the United States most than the other countries.