Wall Street cheers the US-China trade pause, but dairy farmers face hidden risks. Don’t be fooled-your milk check is still in jeopardy.
EXECUTIVE SUMMARY: The recent US-China 90-day tariff truce offers temporary relief but fails to address systemic challenges threatening dairy producers. While markets rally, China’s 10% tariff on US dairy exports still undercuts competitiveness, and feed costs remain volatile due to South American competition and an impending EPA biodiesel mandate that could divert soybean supplies. The article warns that the deal distracts from domestic policy risks and urges farmers to secure feed, diversify markets, and prepare for potential tariff reversals in August. It critiques the industry’s reliance on unstable trade deals and calls for proactive strategies to build resilience. The clock is ticking-dairy operations must act now to safeguard profitability.
KEY TAKEAWAYS:
- Temporary Truce, Lasting Risks: The 90-day tariff reduction ignores structural issues like China’s lingering 10% dairy tariffs and South America’s feed cost advantage.
- EPA’s Looming Threat: A pending biodiesel mandate could spike soybean prices, hitting feed costs harder than the trade deal’s minor relief.
- Act Now or Pay Later: Secure feed supplies, accelerate tech investments, and diversify export markets before tariffs potentially reset in August.
- Challenge Conventional Wisdom: The industry must rethink reliance on volatile trade deals and demand policy changes that prioritize farmer stability over geopolitical wins.
Wall Street is celebrating a 90-day tariff reduction between the US and China, but don’t be fooled by the headlines. This temporary truce doesn’t solve the fundamental challenges facing your dairy operation. While bankers and traders pop champagne, you still face compressed margins, limited export opportunities, and the looming threat of even worse conditions when August arrives. It’s time to look beyond the PR spin and prepare for what’s really coming.
Behind the Headlines: What’s Really in the Trade Deal
If you’ve been scanning the headlines this week, you’ve probably seen the jubilant market reactions to the new US-China trade agreement announced last weekend. The Dow jumped over 1,100 points, the S&P 500 rallied 3.3%, and commodities markets perked up. Wall Street is partying like 2019, but what does this mean for your dairy operation’s bottom line?
Let’s cut through the noise. This isn’t a comprehensive trade agreement – it’s a 90-day timeout in a much longer economic boxing match. The deal reduces US tariffs on Chinese goods from a punishing 145% to a still-substantial 30%, while China drops its retaliatory tariffs from 125% to 10%. But here’s what the mainstream press isn’t telling you: this temporary truce doesn’t address the fundamental issues that affect your dairy enterprise’s profitability.
As dairy producers, we must look beyond the market euphoria and understand how this trade development impacts our operations. Will it reduce your milking equipment costs? Maybe temporarily. Will it open export markets for your Class IV products? Somewhat, but with significant limitations. Will it stabilize your TMR ingredient costs? That’s complicated, and I’ll explain why.
But first, ask yourself this: When was the last time a trade deal delivered what was promised to America’s dairy farmers? The track record speaks for itself.
Dairy Exports: Still Fighting Uphill Against Chinese Tariffs
Let’s be brutally honest about our export situation. Even with China reducing its tariffs to 10%, American dairy products still face substantial disadvantages in the Chinese market. While this represents improvement from the previous 125% rate, it leaves us as a “last resort supplier” – a grim reality that agricultural exporters are already confronting.
According to export council representatives, such as Jim Sutter of the US Soybean Export Council, this reduction is “a step in the right direction,” while significant challenges persist. The same dynamics apply to dairy. Chinese buyers can still source whole milk powder, anhydrous milkfat, and whey protein concentrates from New Zealand, Australia, and the EU at more competitive rates due to their existing free trade agreements with China.
What does this mean in practical terms? The 10% tariff effectively taxes your components when they enter China, like deducting your milk check for quality penalties when nothing’s wrong with your milk. Competing against untaxed products from our global competitors, 10% can be the difference between making the sale and watching from the sidelines.
Historical Context: China Dairy Import Volume Before and After Trade Tensions
| Period | Average Monthly Volume (Metric Tons) | Year-over-Year Change | US Market Share |
| 2018 (Pre-Tariffs) | 18,750 | +12% | 16.3% |
| 2019-2022 (Trade War) | 12,420 | -33.8% | 8.7% |
| 2023-2024 (Phase One) | 15,830 | +27.5% | 11.5% |
| 2025 YTD (Pre-Deal) | 13,270 | -16.2% | 9.1% |
| Projected Q3 2025 | 14,900 | +12.3% | 10.5% |
This isn’t just about volume – it’s also about product mix. Our highest-value dairy products (specialty cheeses, WPC-80, and MPC-70 for infant formula) were hit hardest during previous trade tensions, while basic commodities saw less dramatic impacts. This tariff structure strategically targets our most profitable export categories.
And let’s call this what it is: a structural disadvantage that our industry leaders and policymakers have failed to address for decades. While New Zealand secured its free trade agreement with China in 2008, why are we still fighting for basic market access in 2025? When will American dairy farmers demand better representation in international trade negotiations?
Feed Cost Implications: When Your Ration Costs More Than Your Mailbox Price
Let’s talk about what drives your day-to-day profitability: feed costs. The trade announcement initially sent soybean futures up 2% before settling around 1.5% higher, with corn gaining just under 1%. That’s the headline number, but here’s where we need to think more critically.
The fundamental challenges affecting US agricultural exports remain largely unchanged. According to analysts like Arlan Suderman, Chief Commodities Economist at StoneX, “it’s not just about the tariffs overall.” Even with reduced tariffs, structural economic factors favor South American producers. Brazilian soybeans arrived in China at 70 cents per bushel cheaper than US Gulf soybeans, even before retaliatory tariffs were applied.
Your Feed Costs: A Perfect Storm?
- Global Competition: South American producers already land soybeans for less in China
- Tariff Roulette: The Current 10% tariff on US exports to China is temporary
- Domestic Demand Shock: Looming EPA biodiesel mandate set to siphon off more soybean oil
Why does this matter to your dairy operation? Because feed represents 50-70% of your production costs, this trade deal doesn’t fundamentally alter the economics of your ration formulation. Lower currency exchange rates in Brazil have driven massive soybean and corn acreage expansion over the last 15 years, creating structural oversupply that keeps pressure on US exports regardless of tariff rates. The math is simple: when your forage-to-concentrate ratio is optimized but your concentrate costs surge unexpectedly, your income over feed cost (IOFC) takes a direct hit.
What’s more concerning is what happens in 90 days. If negotiations collapse in August 2025, we could see tariffs snap back to their previous punishing levels – potentially right as you’re trying to secure fall feed contracts for peak-lactation rations. This timing couldn’t be worse for dairy producers making purchasing decisions. It’s like having your nutritionist reformulate your ration just before feed prices spike – painful and costly.
Here’s the uncomfortable truth: We’ve built a dairy industry that’s dangerously dependent on the whims of international politics. Is this really the foundation we want for a sustainable dairy sector? When did we decide that our profitability should hinge on diplomatic relations with China?
Equipment and Technology: A Brief Window of Opportunity
Here’s where there might be some good news. Reducing US tariffs on Chinese goods from 145% to 30% creates a temporary opportunity to source equipment components and technology at somewhat lower prices.
According to supply chain experts like Paul Brashier, vice president of global supply at ITS Logistics, “I have clients with dozens of containers loaded in Asia that are ready to come in,” describing the 90-day window as “pivotal for supply planning out of China.” If you’ve been holding off on parlor upgrades, robotic milking system installations, or activity monitoring technology, this 90-day window might be your chance to act.
Consider these specific opportunities:
- Replacement parts for milking systems that source electronics from China
- Precision dairy farming technology with Chinese-manufactured sensors
- Solar panels for dairy barn rooftops (many panels are manufactured in China)
- Construction materials if you’re planning freestall barn expansions
But be strategic – remember this is a temporary reduction. Business leaders like Bruce Kamenstein have observed that small businesses are “still being held to an uncertain policy.” The 30% tariff that remains is still substantial, and there’s no guarantee it won’t return to previous levels after 90 days.
So, ask yourself: If you’ve been putting off that major capital investment, is now the time to pull the trigger? With equipment costs temporarily reduced and interest rates potentially stabilizing, this narrow window might represent your best opportunity in years.
The Broader Economic Picture: How Market Sentiment Affects Your Milk Check
How this agreement affects the broader economy is potentially more significant than the direct trade impacts. Markets reacted euphorically to the news, with analysts suggesting the deal may have “averted a recession domestically and globally.”
This macroeconomic optimism matters for dairy producers in several ways:
- Consumer purchasing power: Economic growth typically means stronger domestic dairy consumption, particularly for higher-margin products like specialty cheeses and premium ice creams. Consumers with more disposable income are more likely to choose branded dairy products over private label alternatives.
- Food service demand: Food service represents a significant channel for dairy products. Improved economic conditions typically increase restaurant visits and cheese consumption. This matters because every 1% increase in cheese consumption requires approximately 10 pounds more milk per capita annually.
- Interest rates: Economic optimism may influence the Federal Reserve’s interest rate decisions, potentially affecting your borrowing costs for operating loans and capital investments. For a 500-cow dairy with typical debt levels, even a quarter-point difference in interest rates can mean $15,000-20,000 annually in financing costs.
- Energy costs: The trade announcement sent crude oil prices up over 3%. While this signals economic optimism, it also means potential increases in fuel and electricity costs for your operation. Fuel cost increases hit multiple areas of your budget for operations that run multiple TMR loads daily and manage extensive cropping programs.
The report suggests retailers may use the 90-day window to “stock up perhaps even on Christmas supplies.” This import surge could create short-term economic stimulus but also risks pulling demand forward rather than creating sustainable growth. For dairy producers, this means potential near-term strength in domestic markets, followed by possible weakness as the stimulus effect fades, not unlike the seasonal pattern we see with holiday cheese demand falling off in January.
But here’s what no one is talking about: This entire economic house of cards is built on the assumption that negotiations over the next 90 days will succeed. What happens to consumer confidence, restaurant spending, and your milk price if August arrives with a return to 125% tariffs and saber-rattling between Washington and Beijing? Are you prepared for that scenario? Are your cooperative leaders having these candid conversations about the long-term risks, or just celebrating the short-term tariff dip?
The China Deal is a Distraction: Is the EPA About to Drop the Real Feed Cost Bomb?
While global trade grabs the spotlight, a looming domestic policy shift from the EPA could deliver a far more direct and sustained hit to your operation’s feed budget. The EPA will announce new biomass diesel production mandates within 7-10 days. This could be more significant for feed markets than the China trade deal, like having your milk hauler tell you they’re doubling transportation costs when your components are finally testing higher.
According to industry sources and agricultural policy experts, the EPA is expected to increase the mandate from the current 3.35 billion gallons to potentially “4.4 or 4.6 billion gallons” or even “as high as 5 billion gallons.” A coalition of US biofuel advocates has urged the EPA to set the 2026 mandate at 5.25 billion gallons.
What does this mean for your dairy operation? Simple: More soybean oil diverted to fuel production means higher soybean prices and potentially higher feed costs. The increased crush demand will support soybean prices even if export markets remain challenging. This EPA decision could cancel any feed cost benefits from the China trade deal.
Let me put this in perspective: A 1.65 billion gallon increase in the biomass diesel mandate (from 3.35 to 5 billion) would require approximately 12.4 billion pounds of additional soybean oil. That’s equivalent to the oil extracted from about 826 million bushels of soybeans – or roughly 18% of the entire US soybean crop. This isn’t a minor policy adjustment; it’s a massive demand shock to the feed market that could affect your income over feed cost (IOFC) for years. When your nutritionist must reformulate rations to adjust for higher protein supplement prices, your cost structure changes dramatically.
And you must ask: Does it make sense to turn our feed into fuel when dairy producers struggle with margin compression? The renewable fuel industrial complex has captured policy at the expense of livestock producers, and no one in Washington seems to care.
Strategic Planning for Dairy Producers: Your 90-Day Action Plan
So, what should progressive dairy producers do in response to these developments? Here’s my action plan for the next 90 days:
1. Lock in feed supplies strategically
Don’t be fooled by modest price movements in grain futures. Combining temporary tariff reductions and the pending EPA biodiesel announcement creates significant uncertainty. Consider securing a portion of your protein needs now, while maintaining flexibility for potential market shifts. Think of it like strategic grouping in your lactating herd – you wouldn’t put your high-producing fresh cows on the same ration as your late-lactation animals. Similarly, segment your feed purchasing strategy based on time horizons and risk tolerance.
2. Explore export opportunities with realistic expectations
If you’re part of a cooperative involved in export markets, use the 90-day window to reestablish relationships with Chinese buyers, but structure deals to account for the possibility of returning tariffs. Consider shorter contract terms or contingency clauses that address potential tariff changes, like how you might use milk futures to hedge against price volatility in your milk check.
3. Accelerate planned capital investments
With tariffs temporarily reduced on Chinese imports, this may be the optimal time to execute planned technology upgrades or facility improvements. Focus particularly on equipment with significant Chinese components or that might face supply chain disruptions if tensions escalate again. If you’ve been contemplating that parlor expansion or robotic milking installation, the economics might temporarily favor moving forward rather than waiting.
4. Develop scenario plans for August and beyond
Create concrete contingency plans for three potential scenarios by August, like having different protocols ready for your transition cow group depending on their condition scores:
- Scenario A: Trade deal extended or expanded
- Scenario B: Return to pre-deal tariff levels
- Scenario C: Escalation beyond previous tariff levels
For each scenario, identify specific triggers for implementation and required actions related to feed purchasing, production levels, and marketing strategies. Your management team should have clear directives for executing each plan, just as your herd manager knows when to move cows between groups.
5. Diversify both input sources and export markets
Use this period of relative calm to reduce your operation’s exposure to US-China trade tensions. On the input side, evaluate alternative feed ingredients like dried distillers’ grains, cottonseed, or canola meal that might become more economically viable in your TMR if soybean meal prices spike. For those involved in exports, continue developing markets beyond China, particularly in Southeast Asia, the Middle East, and Latin America.
For too long, dairy producers have been reactive rather than proactive in the face of international trade disruptions. Isn’t it time we built businesses that can thrive regardless of political winds?
What the “Experts” Are Missing
The mainstream analysis of this trade deal fundamentally misunderstands agricultural realities. When commentators celebrate market rallies as validation of the agreement, they’re missing the disconnect between financial markets and farm-level economics, unlike how consumers entirely misunderstand the relationship between retail milk prices and what you receive in your milk check.
This isn’t the first time we’ve seen this cycle. Remember the “Phase One” deal in early 2020? China committed to purchasing specific quantities of US agricultural goods regardless of market conditions. While markets initially rallied, the implementation proved disappointing for many agricultural sectors, including dairy. By mid-2020, China had purchased just 23% of its promised agricultural targets – about as reliable as a genomic prediction on a bull with no daughters in milk.
What’s different this time? Frankly, less commitment and more uncertainty. The current deal doesn’t include specific purchase commitments like those in Phase One – it merely reduces tariff rates temporarily. Without binding purchase requirements, we’re completely exposed to the economic realities favoring our competitors.
According to international trade analysts and economic researchers, China effectively forced the US to alter its strategy due to domestic economic pressures, without making substantive concessions. Recent research published by agricultural economists demonstrates that China’s retaliatory soybean tariffs have created lasting structural changes in global trade flows that temporary tariff reductions won’t quickly reverse.
Let’s be blunt: Our industry has been a bargaining chip in broader geopolitical negotiations for decades. When will we demand better?
The Bottom Line
This trade truce offers a 90-day reprieve, not a solution. Smart dairy producers will use this window strategically while preparing for the possibility that tariffs return to previous levels in August, much like you’d use a 60-day dry period to prepare a cow for her next lactation.
The most significant impact on your operation may not come from this trade deal but from the upcoming EPA biodiesel mandate announcement. Keep your focus there, rather than getting distracted by the market euphoria surrounding the China deal.
Remember that fundamental economic factors – currency exchange rates, production costs, and competitive dynamics – favor our global competitors regardless of tariff levels. No 90-day agreement changes that reality, just as no short-term milk price spike changes the fundamentals of your cost of production.
It’s time to rethink how we approach international markets fundamentally. For generations, we’ve been told that “exports are our future.” But if that future means constantly being at the mercy of 90-day deals and 10% tariffs, is it the future we want, or just the one we’ve been sold? The conventional wisdom that more trade deals automatically benefit American dairy farmers has proven false time and again. Instead of waiting for Washington to deliver the next temporary fix, progressive producers must build resilient business models that weather trade disruptions.
What’s your plan for navigating these unpredictable trade winds? Are you prepared for what happens when the 90-day clock runs out? The thriving dairy producers will look beyond the headlines and execute strategic plans based on clear-eyed analysis of market realities.
The time to act is now – because hope isn’t a strategy in the dairy business, and 90 days pass faster than you think. Like a pregnancy check at 90 days, the future will soon be apparent – will your operation be positioned to capitalize on opportunities, or caught flat-footed when the tariffs return?
Don’t wait for permission to secure your operation’s future. Start implementing your contingency plans today, challenge the conventional wisdom that has failed our industry repeatedly, and demand better representation in trade negotiations that impact your bottom line. Talk to your neighbors. Share this article. Are we, as dairy producers, ready to demand a more stable and predictable operating environment, or will we just ride out this next 90-day wave and hope for the best… again? Your future depends on it.
Learn more:
- How the US-China Trade War Will Reshape Your Dairy Business
125% tariffs have slammed US dairy exports to China, collapsing key markets and forcing farmers to adapt amid global supply chain upheaval. - U.S. Dairy Farmers Unlikely to Cash in on Chinese Demand
Despite China’s milk shortage, steep tariffs and New Zealand’s FTA dominance keep US dairy from capitalizing-experts urge diversification. - 84% Chinese Tariffs Slam US Dairy: Why Whey & Lactose Exports Face Crisis
Escalating tariffs threaten over $500M in US whey and lactose exports to China, highlighting the dangers of over-reliance on a single market.
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