American analyst Luca Fuess on Australian dairy opportunities

American analyst Lucas Fuess says the Beijing-Washington trade war has “thawed but not resolved”. We ask what it means for Australian dairy farmers.

Touted American tariffs on dairy are yet to flow through to real-life trade, a leading US industry analyst says, but farmers are keeping a watchful eye.

Chicago-based Rabobank dairy analyst Lucas Fuess, currently visiting Australia and New Zealand, said the implications emanating from tariffs announced in early April by US President Donald Trump were not uniform.

He noted trade remained uninterrupted with Mexico, while US-China trade negotiations were ongoing.

“Mexico is the number one destination for American dairy produce. Dairy is still trading under the US-Mexico-Canada free trade agreement that President Trump enacted in his first term, despite concerns earlier that the relationship was going to change,” Mr Fuess said.

“China is the number two market for US dairy products and we have seen some thawing in US-China relationship, we saw tariffs announced that were as high as 125 per cent, now down to that baseline 10 per cent.”

Despite the easing of Beijing-Washington trade tensions, Mr Fuess said the volatility of the trans-Pacific relationship may benefit Australian dairy exports into China.

“Key products that US sends to China are whey protein, whey powder and lactose,” he said.

“From Australia’s perspective, if the situation does escalate again or if China has general concerns about freedom of trade with the US, it does present an opportunity for other countries including Australia to take away market share from the US in the coming year.

“While the US-China situation has thawed, I don’t want to say it’s resolved.”

About 26 per cent of all exported Australian dairy went to China in the 2023-24 financial year, equating to 185,646 tonnes with a value of more than $1bn.

Japan was the silver medallist on the export league table with 71,687 tonnes of Australian dairy exported to the value of $477m while Singapore was bronze medallist in volume at 65,052 tonnes but further behind in value at $199m.

Rabobank dairy analyst Lucas Fuess

Mr Fuess said while tariffs had dominated the headlines, the success of the US dairy sector’s expansion in recent times was less known.

“The US is growing our milk production capacity by 1 to 1.5 per cent per year and there’s been lots of investments in new plants, in dairy processing capacity,” he said.

“One of the few, if only, key exporting regions where we’re seeing that milk production growth. So there’s plenty of supply coming out of the US right now.

“But we’ve seen some softer pricing from the US over the past few months versus the rest of the world.”

This week, the Global Dairy Trade index posted a modest decrease of 0.9 per cent to sit at $US4589 ($7113) per tonne.

However, dairy leaders noted the GDT had risen by a cumulative 25 per cent since the start of the financial year, boding well for farmgate prices in Australia.

Dairy Australia trade manager Charles McElhone said US tariffs were yet to have a direct impact on Australian dairy exports, although the April announcement by the Trump administration had an indirect impact of softening the Australian dollar.

He said Australia has worked to diversify its dairy export destinations in the past decade.

“Market access has really improved particularly in southeast Asia and Australian dairy has benefited enormously from that,” he said.