Negotiations to revise the North American Free Trade Agreement (NAFTA) have been ongoing for months. At more than one point during the process, President Trump has threatened that the U.S. would withdraw from the agreement. Because Mexico is a massive market for U.S. dairy, the industry is on edge. Rightly so. Mexico is the No. 1 export market for milk and dairy products in the U.S. Dairy futures have been struggling for months, has a NAFTA withdrawal been factored in at this point?
Sara Dorland a market analyst with the Daily Dairy Report doesn’t think so. “The futures market is accounting for higher milk from Europe,” she says. “I think most hope that NAFTA will be successfully renegotiated at this point.”
According to Mark Stephenson, an economist at the University Wisconsin at Madison, there’s no way to know for sure, but futures markets may have noticed that Mexico is looking to other countries for dairy products.
“It is known that Mexico has increased purchases from other sources, including the EU and New Zealand, over the last few months,” he says. “Futures markets are information sponges and will have taken note of that.”
Earlier this year the milk powder markets felt the impact of rhetoric between the U.S. and Mexico over the potential border wall, Dorland says.
“Within a short amount of time, nonfat dry milk markets shed 20% of their value on no other news,” she says. “We have since seen the United States has ceded some milk powder exports destined for Mexico to Europe and Canada.”
Meanwhile, Mexico is exploring options for bilateral trade agreements with New Zealand and Europe, Dorland says. According to Andrew Novakovic, an economist at Cornell University, that’s the real issue at hand with NAFTA.
“It is not so much a question of whether Mexico will be buying dairy products but rather who they will be buying them from,” he says.