(Bloomberg) -- Dairy farmers, already facing a drop in milk prices, are now bracing for pain from President Donald Trump's proposed tax on steel.
The tariffs may be especially acute for small producers that grow their own cattle feed, according to Trevor Wuethrich, president of Grassland Dairy Products Inc., which churns out one-third of the nation's butter. Those farmers typically own a couple of tractors, a plow and a combine -- all of which are made of steel, he said. Buildings, lawn mowers and milking equipment also use metal components.
“It's just not a good outlook for the farmers in 2018,” Wuethrich said in an interview. “Every task they do uses some kind of equipment that could potentially be affected.”
Trump is imposing tariffs on $50 billion of Chinese goods, fanning concerns about a trade war between the world's largest economies. On Tuesday, the U.S. Trade Representative said it plans to slap an additional 25 percent tariff on a long list of products, including metals.
Supply Glut
Higher prices for equipment may add another headache for milk producers that have seen demand tumble as consumers swap dairy for almond beverages and other alternatives. The combination of lower domestic consumption and a supply glut has sent prices at the supermarket sliding. The retail cost of a gallon of whole milk recently touched a 13-year low, falling to $2.92 a gallon in February.
Large producers such as Grassland, which is based in Greenwood, Wisconsin, won't be spared, Wuethrich said. The company is planning to build a new facility that turns dairy waste into dog food in the next 12 months. But it may now opt to make the structure, which will cost between $15 million and $40 million, out of cement rather than steel. Grassland is also considering adding a distribution warehouse in the next two years, and may have to make that out of cement, too.
“We just have to adjust accordingly,” Wuethrich said. “If there's a tariff on steel and it raises the price of it being equal or more than cement, then I guess we're putting a cement building up.”
While higher metal costs will hurt dairy producers, it might not be all bad news. Chinese retaliatory tariffs on U.S. soybeans will raise costs for Chinese hog producers. That means farmers might substitute that product with dry whey -- which is good for U.S. dairy farmers, said Matt Gould, an editor at Dairy & Food Market Analyst Inc. Falling soybean prices would also lower feed costs for U.S. farmers.
--With assistance from Lydia Mulvany
To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net.
To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jonathan Roeder
©2018 Bloomberg L.P.
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