The Milk Check: Recent Episodes

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Milk production is up 4.2% year over year, components are climbing and prices are falling.

As holiday orders wrap up and we head into the long winter, The Milk Check team digs into whether dairy markets have already found a floor, or if there’s still another leg down to go.

With milk products everywhere (except for whey), the Jacoby team shares where the market is and where we’re going.

They churn through:

• Butter at $1.50 and what heavy cream and higher components mean after the holidays
• Why cheese feels like a calm before the storm, and how far Class III could grind lower
• Nonfat and skim: long milk, growing inventories and buyers shopping the cheapest origin
• Why whey proteins are the outlier, with tight supply, strong demand and GLP-1 tailwinds
• Global milk growth, clustered demand (Ramadan, Chinese New Year, Super Bowl) and who blinks first between the U.S. and Europe

In this episode of The Milk Check, host Ted Jacoby III is joined by Joe Maixner, Jacob Menge, Diego Carvallo, Josh White and Mike Brown for a rapid-fire market session on butter, cheese, nonfat and proteins.

Listen now for The Milk Check’s latest market read on butter, cheese, nonfat and whey.

Got questions?We’d love to hear them. Submit below, and we might answer it on the show.

Ask The Milk CheckTed Jacoby III: Welcome back, everybody, to The Milk Check podcast. Today we’re gonna have a market discussion.

It is November 10th.

We are in the last couple of weeks of the quote-unquote busy season, starting to get a feel for what we think is gonna happen to dairy markets as holiday orders are filled, and we transition into the long-term period of the year.

In the last few weeks, we’ve actually seen prices drop, but it feels like butter’s kind of dropped down to about a $1.50/lb and seems to find at least a brief floor. We’ll talk to Joe and find out if Joe thinks we’re gonna stick around here for a while. The cheese market was up in the $1.80s/lb.

It’s dropped to a little below $1.70, starting to hit a little bit of resistance. Jake will share with us a little bit about what we think is happening with cheese going forward. Nonfat dropped a little bit down to [00:01:00], about what Diego, about a $1.10/lb and had a little bounce off its floor. Meanwhile, the whey complex just continues to go up. We’ll check in with Josh and find out what’s going on there.

Well, let’s go ahead and start with milk production.

We just got released today, the September milk production, and it says it’s up 4.2%, which is a very, very big number. It’s November; milk is longer than it usually is this time of year. Usually, it’s quite tight, and it’s not quite tight, but I wouldn’t call it long. However, all the signs are there that once we get past the fall holiday order season, milk could get quite long. If September milk is up 4.2%, I think it’s safe to say that if that continues, we will be quite long milk as we transition from the typical seasonal tightness of the fall into the winter and the flush of the spring. 4.2% is a big number, and that’s not even taking into account the fact that the solids in the milk are up as well. That’s not the kind of tone that a dairy farmer wants us to set as we’re talking about what supply and demand looks like, but there’s a lot of milk out there, [00:02:00] Joe, does that mean there’s a lot of butter out there, too?

Joe Maixner: Well, there’s still a lot of butter out there; sounds like there’s going to be a lot more butter coming soon. If milk’s up 4%, cream was heavy all of last winter and into last Spring, extremely heavy.

If we have higher components, more milk, and we’ve got a full amount of milk coming outta California as well after coming off of bird flu last year, there’s just gonna be that much more cream in the system and more getting pushed back into the churns. So, it’s a very good possibility that we’re gonna go even lower than where we currently are.

Volume seems to be trading well. The cream demand has been fairly steady, going into cultured products and the shorter shelf-life products. Cream’s still long, but it’s not swimming yet.

Ted Jacoby III: Will we hold this $1.50 area through Thanksgiving, you think?

Joe Maixner: Yeah, it seems like we’ve hit a spot where buyers are willing to step in. So, there’s a good chance that we could hang around this $1.50 area for the next couple of weeks. Once the last little spurt of holiday demand is over, we’re gonna take another leg lower.

Ted Jacoby III: Okay. Jake, what about [00:03:00] cheese?

Jacob Menge: I think we had a little reprieve from some cheese bearishness with the holiday demand. It’s tough, though, especially with this wall of milk that’s headed our way.

Does it seem like the bottom’s ready to drop out? Probably not yet. But it still seems like it’s a possibility. It almost seems like the call before the storm.

Ted Jacoby III: What you’re saying is: we’ve already dropped quite a bit, but we’re in typical low points, but it’s possible, considering the amount of supply coming our way, that there’s still another cliff to negotiate, and we could go a lot lower when it comes to Class III milk and cheese prices.

Jacob Menge: If you zoom out a ways, going back to mid-2022, we’ve really not liked to go below that $1.55 level on futures.

We’re kind of at another support level at this $1.65. Those seem like our two support areas, historically, for the last 3, 4 years. So, it’s probably gonna be one of those grinds lower if we move lower from here, versus that $1.85 to $1.65 was almost an air pocket drop.

[00:04:00] It seems like the market’s gonna have to earn it if it moves lower from here, but it does seem like a possibility.

Ted Jacoby III: When we get down to these levels, this usually tends to form the floor, and if we have so much cheese out there and so much milk out there that we’re gonna go lower from here, it’s probably not an air pocket drop; it’s probably a grind lower from here.

Jacob Menge: Yeah, I think our lows, on the futures, for the past 4 years have been that $1.55. Don’t quote me on that, gimme a couple of cents on either side of that. But that means we got a dime from here to hit those five-year lows, you know, besides COVID. There’s a lot to be said for technical trading at those levels. So, it would take a big fundamental kind of wave supply to get us to crack that.

Ted Jacoby III: Got it. Thank you. Diego. What about nonfat? What’s the international market doing? We know we have a lot of milk in North America.

We have a lot of milk everywhere. And what does it mean?

Diego Carvallo: Customers are also seeing the data, and it seems like they’re in no rush to buy nonfat. Right. Nonfat seems to be the product that is 00:05:00 consistently available. We haven’t seen a very tight market in several years. So, it seems customers are more concerned about other products like WPCs or maybe cheese, other products besides nonfat. So, they’re staying very hand-to-mouth. They’re being very flexible when it comes to origin and just buying spot and from the origin that offers them the cheapest skim milk powder delivered price, which, in most cases, for the past few months, has been either European or New Zealand product because of the shipment time, transit time, and tariffs.

Ted Jacoby III: Has the inventory in the U.S. been building as a result?

Diego Carvallo: Yes, it has, Ted. Yep. Inventory has been building. I was looking into the milk production numbers for September. California was relatively stable compared to the previous year. I think we grew by 2.5% versus the previous year.

But the strong impact from avian [00:06:00] influenza was actually in October. So, that’s when we might see a big jump between California production for 2024 and California production for 2025. So, I thought the Milk Report was pretty bearish for nonfat. Next month could be as bearish or even more.

I still believe that we’re gonna see a lot of product going into the dryers, and that’s gonna add pressure, and that’s gonna increase inventories for U.S. products.

Ted Jacoby III: What does milk production look like in Europe?

Diego Carvallo: They’re actually up quite a bit. I think their September number was also stronger than expected. I can’t recall the exact number, but it was stronger than expected, even though they have cut down on the farmer price, the FrieslandCampina, which is the number one benchmark. It still seems like, with corn moving lower, there’s still a number that incentivizes more milk production. For the next few months until we see a stronger cotton price, we’re gonna see plenty of milk from the U.S. and from Europe.

Ted Jacoby III: [00:07:00] Okay, thanks. Appreciate it, Diego. Josh, so what about the protein market?

Josh White: Yeah, same story. I don’t know why everybody else is having so many problems with their products because whey proteins are in demand and it continues to be very strong.

WPC 80, WPI demand is outpacing supply. People are trying to book forward and can’t. By all reports, the demand on the consumer level remains pretty good. It’s a bit of an outlier. It’s definitely a mystery. A lot of the discussion centers around GLP-1 adoption in the U.S. Compared to a year ago, I think I read this morning, something like 12% of Americans are allegedly using GLP-1-related drugs for weight loss.

Assuming that’s an accurate statistic, that’s a noteworthy number of people. There was a lot of discussion last year that as people come on things like Wegovy and Ozempic, at what moment do we mature to the point that people beginning their cycles of taking the drugs equal those coming off of those drugs?

There’s just been a lot of headlines about more affordable access to these types of products. If that continues, that shifts this curve even a little bit further up. [00:08:00] What can reverse that trend or slow down the demand for the whey protein side?

I think it takes a production response. I can imagine that any manufacturer that’s making whey-related products as a byproduct of their cheese production is exploring how to access this demand, in particular, the whey protein isolate demand. I don’t have the impression that equipment is any easier to get, and there are still plenty of obstacles in terms of making production changes at the processor side.

It feels to me like at least through the first half of this year, we’re gonna continue to be under-supplied relative to the demand that’s out there. And I think it’s important to note that although we’re talking about good demand for these products, the GLP-1-related impact on the dairy market isn’t all positive.

It’s certainly a positive on the whey protein side. Still, I think, as it relates to consumer demand for butterfat, cheese products, and some of the other snack foods that dairy products are used in, in the CPG space, people are consuming fewer calories. Throughout the rest of the world, this health and wellness [00:09:00] trend and this appetite for quality protein are everywhere. Their demand continues to be very strong internationally.

Maybe a couple of other things that are noteworthy, maybe early indicators of the price stabilizing, it looks like Europe and the U.S. might be closer to parity for the first time in a while. So, we should watch that. We will see seasonal production levels start to increase a bit. I don’t know if that will one-for-one find its way into additional whey protein availability, but it certainly should help the situation as we get into heavier production months in the Northern hemisphere markets that produce these products.

But other than that, demand remains very, very strong. Prices are firm. They appear they’ll continue to be through at minimum the first quarter. And I don’t think it’s going out on a ledge to say through the first half of the year. And then we’ll see what happens on the other side of it.

But yeah, definitely a firm marketplace right now, Ted.

Ted Jacoby III: What about milk protein concentrate, milk protein isolate? Are we starting to see the value of those products increase and close the gap between the [00:10:00] whey protein, since the whey proteins have gotten so expensive?

Josh White: I’ll jump in and say we’re starting to see some early indications of that: people looking for substitutes where they can. If you’re not in these markets every day, you don’t know what products are available.

If you’re in the CPG space or using it as one of many, many SKUs that you’re buying, you’re not aware of the functional properties and some of these other things. And there’s also a decision-making timeline that people have to consider. Not only are there labeling concerns and other things, but there’s a lot of protein that’s consumed as an ingredient and maybe not the primary ingredient. And oftentimes, those decisions are not easy to formulate or change, and they’re also made over larger durations of time, like annual pricing. We’ve had such a wide gap for a long enough time now that we have customers asking questions, and customers that are on the lower end of the valorization for these products are looking for substitutes. Those substitutes come in a couple of ways. They can come from substituting away from dairy, substituting for other [00:11:00] dairy or trading down to lower dairy-related protein products. We’re seeing people investigate all of them.

Diego might be able to speak more precisely about what’s happening with the MPC prices. But generally speaking, the majority of people out there are starting to ask questions. I’m not so sure it’s having a material impact or moving the needle quite yet on substitution.

Ted Jacoby III: Okay, well, it feels a little bit like a broken record. Milk everywhere, product everywhere except for whey, maybe that’s exactly the loop we’re in right now.

Joe Maixner: We’ve talked a lot about supply and excess and whatnot, but demand, it feels like we’re increasingly teetering towards a crumbling economic situation with higher debt, people not having much discretionary income, and just overall demand being weak.

Ted Jacoby III: So, if you’re looking at the demand numbers that we track, restaurant traffic is definitely down. It is clear that the economic environment we’re in, people’s pocketbooks are being stretched thin, and they’re cutting back on how often they go to restaurants and eat at [00:12:00] restaurants.

Now, usually when that happens, there’s an offset into the retail side, and the retail side numbers usually go up a little bit. You are seeing that. Speaking to some of our branded customers, what they’re telling us is their sales are down, and the private label guys are saying, well, their sales are up, but frankly, not as much as they expected.

The bottom has not dropped out yet. I think everybody’s watching it pretty closely. I think the industry’s concerned. I’ll leave it at that.

Mike Brown: I think food service continues to be the big stickler on overall dairy sales.

Grocery sales are okay. Food service continues to be weak, and that’s gonna affect us. Mm-hmm. Particularly, I think some of the high-fat products.

Josh White: When we’re looking at it from the home front, it doesn’t feel real great, but if we’re looking at just how much additional milk we have globally, including out of Oceana and out of South America, and looking at how much of that surplus milk globally is being consumed in Asia right now, I mean they’ve been buying I wonder if that points to some brightness, at least some positives? Now, I also am a little [00:13:00] concerned that we have a consolidation of demand events, with Chinese New Year buying at the same time that Ramadan continues to move earlier and earlier every year.

And prices are low right now. Feels like we might have a big concentration of demand that’s meant to satisfy local needs in the early part of 2026, but there has been a lot of international trade.

Ted Jacoby III: I think you’re absolutely right. Ramadan and the Chinese New Year are both in February.

Diego Carvallo: The word in the street, Ted, is that most of the Ramadan and New Year’s demand is gonna be fulfilled by the middle of November.

Ted Jacoby III: In other words, by the time we get to January 1st, those orders are gone.

Mike Brown: Yeah. And Super Bowl is 10 days before the start of Ramadan in the Chinese New Year. So, they’re all pretty close together.

Josh White: I went back to saying that, hey, we’ve got a lot of milk globally, every surplus region’s producing more milk than expected.

You mentioned earlier, Ted, that doesn’t even account for the component growth that we have here. That’s been fairly impressive. [00:14:00] What’s been interesting about that is it hasn’t felt this heavy. You might believe, well, it doesn’t feel as heavy because the Northern Hemisphere is at its low milk production points.

Maybe it doesn’t feel as heavy because we’ve got a concentration of additional demand, but we’re trading a lot of anticipatory supply concerns. We’re really trading the fact that tomorrow we’re worried we have a lot of incremental milk, globally, that we don’t necessarily know where we’re gonna go with it.

That’s not a reason to get bullish, to be super clear, but I do think that if we’re thinking through vulnerabilities in the market, that might be one.

Ted Jacoby III: I would agree with that. I think there are three things that are probably keeping this market from going straight to the bottom.

One, as you said, we’re at the low point seasonally for milk production in the Northern Hemisphere. Two, we are at the high point for demand everywhere. And three, you get to a certain point, and I think we are there in all products, we may actually be passed there in butter, but we are there in cheese, I think we’re there in nonfat, where [00:15:00] in order to go lower, you need to build up supply to the point where the inventories become actually burdensome, and I don’t think they have become burdensome yet, but I would expect that sometime in the first quarter of 2026, they will. You’ll start hearing reports that warehouses are full.

You’ll start hearing reports that, from a cashflow perspective, whether it’s traders, whether it’s manufacturers, you have people who just need to dump inventory because they don’t have the cash flow to continue to hold inventory. Those are the things that drive markets to their lows.

And so, if you think about the old saying: the cure for high prices is high prices, and the cure for low prices is low prices, that’s when you find out what the low price is, and then you go to that place that sends the strongest supply signal possible to suppliers that they need to cut back.

Mike Brown: I was at a cattle show of all things this weekend and was talking with someone about feeding palm oil to get butterfat. His rule of thumb was that a pound of palm oil costs about a dollar, and you get about a 00:16:00 three-to-five-point increase in fat test from that. So, if you say 0.4 and you’re a 90-pound Holstein herd, that’s 0.36 pounds of fat.

So, you’re paying a dollar to produce, there’s roughly 50, 60 cents worth of butter fat. So, we may start to see that come into conversations on rations.

Josh White: And if we’re looking for optimism, I think that formula is pretty openly discussed in Europe as well. So, you’ve got a situation now where you have the on-farm milk price that is beginning to drop, the signals there that it needs to come down.

It’s moving at a decent clip, to Diego’s point, maybe not enough to make any major change yet, but for planning purposes, things like feeding for fat might be a bit more vulnerable going forward there. So yeah, if we’re looking for what could start to correct our oversupply situation or what could potentially stabilize or support the market, we need time.

I think that’s the most important thing that needs to happen, is we need time, and we need a milk price that curtails any additional production growth [00:17:00] for the moment so that demand can catch up. We talked about the U.S. situation and how the consumer spending situation doesn’t feel great.

But globally, per capita butterfat consumption globally is growing. Per capita protein consumption is growing. We just need to give the demand time to catch up. Inventories might be starting to build, but they’re nowhere near
cumbersome.

I would actually argue, our supply chain is still very thin. I wouldn’t even argue that we’re getting to a point where we’re normal by historical standards. I think that we have a pretty thin supply chain, and that’s everything from measurable inventory and reports, like cold storage reports and manufacturing stocks here in the U.S., but all the way through the pipeline.

I don’t believe that many end users are sitting on excess product or have too many days in inventory. I think they’ve been quite comfortable buying hand-to-mouth. And the only product they’re being punished on right now for that is whey proteins.

Ted Jacoby III: I think you’re right, Josh. I would agree with that statement.

I think butter [00:18:00] is somewhat of an exception.

Joe Maixner: I don’t know. Butter, it just depends on product mix, right? It’s CME eligible salted bulk. I think overall inventories are not burdensome. But we do have too much older CME-eligible salted bulk butter out there.

Ted Jacoby III: That’s actually where I’m going, Joe. What do butter manufacturers do if they’re worried about having produced too many quarters and too many solids? They’ll just produce bulk. And so bulk is the overflow because they know the worst-case scenario, they can dump it onto the CME. And so that is where we end up with excess surplus, just like we get the same with a cheddar block in the cheese market.

Josh White: How is international demand for U.S. butter at the moment, Joe, compared to where you would expect it to be and compared to where we were a few months ago?

Joe Maixner: It’s steady right now. New inquiries are still coming in, but inquiries have lessened compared to a month or two ago; there’s a lot being made and shipping right now.

International markets are starting to open their eyes to something other than [00:19:00] 82%. They’re starting to expand into the 80% because they are finally starting to realize that the numbers that they see on the futures don’t equate to the numbers they pay for an 82% product. And so anybody that’s really just using it for solids, for processing, is starting to convert, which is helping clean up some of that 80% salted butter, but it’s still not fast enough to really move the needle yet.

Josh White: So, if the outlook for butterfat really doesn’t have any material upside in the near future, and we’re currently looking at Class III and IV prices, where they’re at, when do we start to impact the U.S. producer’s decision on making incremental milk beyond just the fat component? Are we close or are we still a long way away?

Jacob Menge: Look at this Milk Production Report. We are up 268,000 head since June of 2024. That just keeps going up. There was an August revision of 71,000 head higher.

The answer is a pretty [00:20:00] conclusive, not yet. I’m looking at the last time, September milk production beat the prior month, so beat August, which was 2001. And it just did that; September just beat August, and the last time it did that was 2001.

Josh White: We’re not even talking about adjusted for components.

Jacob Menge: That is correct.

Joe Maixner: I can’t imagine that $16 to $17 Class III causes any worries right now for the farmers, with $4 corn and $1,200 feeder calves.

Mike Brown: As long as you’re in a Class III market, if you’re heavy Class IV, your price isn’t $17.

It depends on where you’re located, Joe. But for the most part, if you’re in a cheese market, it’s still decent. You’re right because the whey is also contributing a lot to that Class III price right now with a 70¢ whey market.

Ted Jacoby III: Yeah. And the cows are all increasing in the states where there is increased processing capacity as well.

Jacob Menge: These guys have had time to hedge this, and they still almost can hedge this, right?

Going into later next year, where I think it’s gotta be at a point where they can’t hedge at a profit, and then you’ve [00:21:00] really got issues.

Josh White: If we’re in a situation where the global economic outlook isn’t great, so that means we shouldn’t expect any major demand booms to pull dairy up We’re realizing supply growth in all major dairy surplus regions; the only correction for this is supply. And who’s the first to react? The obvious answer is it’s gonna be head-to-head with Europe and the U.S. Who breaks first?

These are very, very different markets with different drivers, and they’re actually experiencing growth for different reasons related to the big picture, but different reasons. Europe just went through a situation where its butterfat carried the day. And butterfat was incredibly high, much higher than the U.S. price.

They were an importer of fat from New Zealand, bringing in a noteworthy amount of product. And then now going into this year, they’ve seen a really significant drop, well below the support level that most traders would’ve held for butterfat.

You assume [00:22:00] that they’re not gonna import a bunch of that product, forcing that product on the rest of the market. They’re going through a pretty negative situation right now as well. One thing you can’t forget about the European producer is that if you kill cows, it’s really tough to replace them, not for the same reasons we have in the U.S., that right now it’s just difficult to compete with beef.

But they don’t wanna make those changes for a lot of regulatory reasons. So, they’re gonna hang on as long as possible. The U.S. model, we’re not in pain yet, generally speaking. Some smaller producers might look at higher beef prices and lower dairy outlook as an opportunity to exit.

But there is way more structural expansion in motion or down the line that I think that train’s moving down the tracks. So, it’ll be really interesting to see if and who breaks first between the North American market and the European market.

Ted Jacoby III: My hunch is it’s the U.S. market.

I still think we’re a minimum of six months away, maybe even 12 to 18. Now there are signs, like you look at the Milk Production Report, the state of Washington is down [00:23:00] 8.5%. So, there are places where we are losing cows. Even though the majority of the country has gained cows recently, I would argue that with the drop in the butter price and the weakness in the nonfat market, California is the next one that I think will follow.

They’ll struggle to get a decent milk price given that those are the two dominant price drivers for the California market.

Diego Carvallo: But if you look at Idaho’s strongly up. So, it seems like a movement between Washington and Idaho.

Ted Jacoby III: I think you could be right.

Joe Maixner: California, their numbers this month were slightly higher than their peak production year 22. They’re on the uptrend. That’s a large ship that takes a while to turn around.

Ted Jacoby III: I don’t disagree. I also think you’re still measuring against bird flu in California.

You could argue that it may be a little artificially high.

Joe Maixner: I actually questioned that because of the lower increase than I had anticipated for the September number, and bird flu didn’t actually start in California until October.

So, we will see even larger increases next month forward in California.

They [00:24:00] have that Class I plant that they opened as well out there.

Mike Brown: They’re also getting hit with a big assessment, a lot of the producers out there, because the butter market changed, there’s been a lot of inventory loss, and that’s gonna hurt some producers as well.

No one I talk to in California is worried about finding milk. They’re worried about finding a place to put it right now.

Ted Jacoby III: I don’t think that’s isolated to being a California problem right now.

Mike Brown: I would agree. You’re right.

Ted Jacoby III: On that note, I think it’s a good time to wrap. Thanks, everybody, for joining us this week.

Look forward to talking to you guys again soon. Thank you.

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Butter’s slipping, cheese feels heavy, but the protein complex is flexing hard.

In this Milk Check market roundtable, Ted Jacoby III brings together Diego Carvallo, Jacob Menge, Joe Maixner and Josh White to unpack what’s driving the mixed messages in the markets.

Listen to hear:

• Why butter could fall below $1.50 before year-end
• How global health trends are powering whey protein demand
• Why cheese exports are getting harder to move
• Whether dairy’s bearish mood could trigger a short squeeze

It’s a classic Milk Check market roundtable. Listen now to The Milk Check episode 86: Bears in Butter, Bulls in Protein.

Got questions?Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast.

Ask The Milk CheckTed Jacoby III: Hey everybody, welcome to The Milk Check. We’re gonna have an old-fashioned market discussion today. We’ve got a lot going on in dairy markets right now.

It’s the middle of October. Markets are moving, but not in the direction that they usually move in October. It seems like everything wants to go down right now, and we’ll start with the product that seems to be most bearish today, the one we’ve been talking about a lot lately. Joe, what is going on with butter?

Joe Maixner: Butter is interesting today because we’re actually up. Long-term Sentiment really hasn’t changed. There’s not really a whole lot new to talk about on the butter. Markets aren’t linear, so we’re gonna have these choppy trades here and there where some buying comes in and things get pushed. But there’s plenty of butter still out there. There’s plenty of butter being offered out there. Right now, there’s a good amount of demand, but we’re anticipating that that’s fairly short-lived. We’ve got [00:01:00] holiday demand for another couple of weeks here, and then that should probably tail off. We’ll see what happens after that.

Ted Jacoby III: So we’re a $1.60 and a $1.65 today. It’s Friday, October 10th. Felt like a little bit of a dead cat bounce after really dropping pretty hard earlier in the week. Is that what it is? Is it a dead cat bounce?

Joe Maixner: I wouldn’t call a quarter of a cent on spot a dead cat bounce.

The moves on the futures are 3¢ to 5¢ moves with a 10¢ plus move intraday. There’s no shortage of volatility.

Ted Jacoby III: What do you think will be happening in the next month? You think maybe we’ll bounce off this, go up a little bit for the next couple of weeks? Then all the orders that need to get filled for the holidays get filled? And then what?

Joe Maixner: I think we take another leg lower. I think we’ll be sub $1.50 before the end of the year.

Ted Jacoby III: I agree. We’re at prices so low that a year ago it would’ve been really hard to imagine we’d ever get here.

And the idea that we could even go lower from here just seems unbelievable, but that’s the market we’re in right now.

Joe Maixner: Less than 24 months ago, we were all talking about $4 butter [00:02:00] coming, and there was not enough fat to keep up with demand. And now we’re potentially going to the $1.40s. There’s so much fat that we can’t consume it all. But we also have to remember that this is all cyclical, and at some point, these low prices are gonna cure the low prices.

Ted Jacoby III: Meanwhile, let’s talk a little bit about protein. The more bearish we get on butter, the more bullish the protein markets seem to get. What’s going on in the protein markets right now?

Josh White: I think we gotta define which we’re talking about with protein because if it’s protein with over 34% protein, it’s pretty hard to find, particularly with the whey proteins. If it’s 34% or under, most unstandardized non-fat dry milk is quite a bit above 34%, so maybe let’s say 40%, it seems like we can’t find a bottom. So, really, two very different markets at the moment. So, if we start on the high end of the market, we’ve experienced over the past two years now a continued move higher and the appreciation per unit [00:03:00] protein for whey protein products, in particular WPC 80 and WPI. We want to credit certain things as catalysts, like GLP-1 adoption in the U.S., but I think we gotta be even bigger than that.

Health and wellness are worldwide. We’re seeing strong growth in demand. People are paying attention to what they eat. Clearly, they’re concluding that whey proteins supplemented in many, many products is a good way of increasing your protein intake. That doesn’t seem to be changing, and although we’re talking about very, very high prices in the U.S., Europe also has very, very high prices.

Josh White: And as of late, it’s leaving additional markets, other markets, the import markets for these products, wanting more. We’ll see an additional load or two of product available in the U.S., and it’s sold to a U.S. customer before the international customer even gets a look at the price.

I don’t see that changing. And the reason I can confidently say that is because we’ve got customers who are looking for purchases further out than they traditionally would. Normally, that’s a quarterly [00:04:00] traded product. About a month from now, in November, that’s typically when we’d be talking about Q1 prices, and as of today, we’ve got customers that are asking for any product available and willing to commit to the second quarter of 2026.

In addition to that, there are things that have disrupted the supply chain. In 2025, we had several new facilities coming online, and not all of them have come online as expected, so we’re anticipating some additional supply of WPC 80 and WPI. Some of it is materialized, and some of it has not yet. But this isn’t a supply-shortage-driven issue. This is truly a demand, new demand creation, and we’re seeing that in a lot of different areas. We’re seeing incremental growth in the normal segments like sports, nutrition, shakes, things like that.

We’re seeing inquiries on a weekly basis from consumer packaged goods products, looking to infuse protein into some of their traditional snack foods and products like that. Even this week, the headlines coming out like [00:05:00] Starbucks introducing new protein coffees. These are all new drivers.

This is all happening at the same time that we’re seeing increasing demand for acidified whey proteins going into beverages. There’s just more demand right now than we have supply. It’s gonna take the market a while to cure that issue. We have a lot of cheese production in the U.S., so it’s not an issue that we don’t have the whey solids available, but do we have enough processing of these high whey protein products?

Not yet. Also, when you’re in a very, very tight market, just like Joe mentioned, “low prices will cure low prices,” at some moment, lack of supply, high prices will cure high prices. I’m not sure how that’s gonna shake out as we go into 2026, but right now it feels like, at least for the first half of the year, we’re gonna remain very, very tight whey proteins.

Now let’s shift down the complex a little bit. Anybody who can’t afford to pay for WPI with these new applications is looking to trade down. WPC 80 is, as mentioned, very, very firm [00:06:00] and in very, very tight supply. Those that might have traditionally used WPC 80, maybe not instantized WPC 80, but regular WPC 80, are finding that they can’t compete with the new demand creation in that category, and they’re trading down. That’s already impacting alternative proteins. We’re seeing more inquiries for vegetable protein and other products in high concentration. The other half of that story right now is we are big producer in this country, traditionally of WPC 34 and then shifting out of the way complex into the milk protein complex, we are increasing our production of MPC 70s, MPC 85, MPI, but we still make a lot of non-fat dry milk, and that is a totally different story.

Diego Carvallo: When it comes to the non-fat complex, I think it follows the same story as most of the other products. There’s a lot of milk in the U.S. and in other milk sheds, and a lot of that product is ending up in non-fat or skim. We’re expecting that the price during the [00:07:00] first quarter of next year is gonna be heavily under pressure because the U.S. is probably gonna have 10% or 15% more nonfat production than it had in 2024 just because of what happened in California, right? It’s almost inevitable unless we go into a steep discount to European and New Zealand products that we start building inventory. Because Mexico itself cannot sustain the U.S. from building inventories if we have such growth. A lot of discussion around how much milk are the cheese plants gonna take out of that strong growth that we’re seeing?

And as a summary, the conclusion where we have arrived is that even with the cheese plants growing and taking 3% to 4% more milk this year, we’re still gonna have double digit growth in milk availability and milk going into the dryers. Yeah, definitely the picture is not bullish.

Prices could go and test the $1, maybe $1.05 during the flush [00:08:00] or maybe before the flush. And yeah, hopefully after that we see a demand reaction, demand creation, and some multi-nets, just building length, some traders building length and inventory starting to stabilize or move lower.

When it comes to the MPCs, what Josh has mentioned is something that we are already seeing. I was at a trade show in Mexico this week, Food Tech, and I had a very interesting interaction with a customer where they told me that they were in desperate need for WPC 80 and because nobody was able to offer a spot load, because most of the loads are staying domestic.

Because it’s easier obviously, to sell to a domestic customer than an international customer. They were desperately trying to buy something and when I mentioned that maybe there are some other options for them, maybe better protein or MPC, they immediately jumped and they were very proactive and very open to trying a new source.

That’s [00:09:00] the initial signal that we take for other products to start appreciating a substitute. Yeah, just very interesting conversations in Mexico where demand seems to be stable overall. But they’re seeing a little bit more milk around.

Ted Jacoby III: You know what, Diego, I had an interesting conversation with an expert I know earlier this week. He said, the reason there’s a bigger gap between whey protein prices and milk protein prices than you would expect is all of the nutritional research that was done was all done on whey proteins. And so, when they’re developing these high protein products using dairy proteins, because all the research has been done on the whey proteins and the whey complex, that’s what they want. They haven’t done the same level of research on the milk proteins, and his comment was: that research is coming. It’s started, and it’s coming, and that, longer-term, will contribute to narrowing the gap between the two as well.

Josh White: Let’s simplify it a bit and remind everyone that MPC does have whey protein in it.

Ted Jacoby III: But it’s [00:10:00] fascinating to me when you suggest, “Try milk protein.”

“What? What’s that? Milk protein?” In our business, you’re right, we tend to take it for granted that everybody knows that whey protein is a subset of milk protein.

So, the protein complex is strong, the butterfat complex is weak. The WPC 34 market is what, Josh, weak?

Josh White: Yeah, that’s a tough one to get your arms around today because there’s really two different classes of WPC 34 in the market. You have the infant grade class. And you have the calf milk replacer class of WPC 34.

And frankly, because of this draw on the liquid whey solids for WPC 80 and WPI, the calf milk replacer class of WPC 34 is on its way to extinction, it feels like today. There’s a certain portion of the market that’s always going to produce that, but, to be clear, if you’re looking for a 34% protein in the market today, the best buy is and [00:11:00] will continue to be non-fat dry milk or skim milk powder. We’ve seen over the last decade, a lot of the different feed applications that have been very willing to interchange those two products based on the best value per unit protein.

So, that’s why we think there’s really two segments of the market. There’s above 40% and below 40%. And when you say protein is strong, above 40% is quite strong. Below 40% is actually quite weak at the moment.

Ted Jacoby III: Mm-hmm. WPC 34 was originally developed to compete against non-fat dried milk and skim milk powder, which is 34% protein at a cheaper level. Well, as the whey complex and as whey proteins gained more and more demand, that ended up getting flipped on its head. And so for things like half milk replacer, financially, it just makes sense to use non-fat dry milk these days rather than WPC 34. What about cheese? Jake, I’ll go to you on cheese. What’s been going on in the cheese market?

Jacob Menge: Yeah, I don’t actually think [00:12:00] there’s a whole lot different than the last time we had one of these discussions involving cheese. It’s pretty hard market to move a lot of product in.

It just feels heavy, is the best word to use. In the immediate term, it’s not quite as doom and gloom on the surface as maybe the butter discussion we had, but it just feels like the storm clouds are over the cheese market for the foreseeable future, which is similar to butter.

All this really nice protein demand we’re seeing means we’re probably making cheese that otherwise we don’t necessarily need. Add on top of that a newly competitive export market.

For a while there we kind of had our run of exports. We could really get whatever cheese we needed to get out of the country fairly easily. We were the best price in the world for a while there. Not necessarily the case anymore. It’s becoming more [00:13:00] difficult to really make a nice bull case long-term for cheese.

Ted Jacoby III: This week seemed to be the week where the bears just really showed up in volume, in the cheese futures market, Class III market. My gut told me it was coming from two places.

One, there was a big trade show in Europe earlier this week, Anuga Food Fair 2025. Everybody was finding out that the Europeans were gonna get really aggressive on cheese prices. That spooked the market a little bit. The other is the time of year. This is harvest time. Dairy farmers are out there, and they’re harvesting their corn.

Corn yields are pretty good this year. Usually, at the same time they’re harvesting their corn, they’re usually starting to hedge their milk prices for next year. They already know milk production is up 3%. I think most people are talking about how that’s a sticky number; it’s not gonna suddenly go away anytime soon.

So, dairy farmers are a little bit desperate to make sure that they’re getting their milk hedged for next year, too. DRP programs are kicking in, and people are using those programs to get hedges on. So, there’s just a lot of sellers in the futures market, [00:14:00] and while they’re probably chewing through some of the layered in hedging programs for the buyers of cheese, it just seems like the sell side this week has been overwhelming the buy side.

Jacob Menge: I’ll just say all of the above. It is just really hard to even find somebody to have a bullish conversation with, almost across the board of our dairy products. It’s notably bearish out there for different reasons for different commodities. Probably the single most bullish thing that I can personally point to is just that so many people are on one side of the boat right now.

All it’s gonna take is one little flash in the pan to really set this thing off. That could be a black swan, it could be something that isn’t a black swan that we’re just all missing. But as far as I’m concerned right now if you are bullish and you really wanna make that bull case, I would love a phone call from you.

Josh White: Talking about cheese, Joe mentioned it earlier, when the price lowers for cheese [00:15:00] across the world, there is additional demand to be captured. So what price accomplishes that for cheese today? What finally drives more cheese consumption to consume the supply that’s available, particularly out of Europe and the U.S.?

Ted Jacoby III: I asked a major marketer of cheese this week. The way I phrased it was, “If the price of cheese on the CME goes below a $1.50 and stays below a $1.50 for six months, would we find new demand? Could we expect demand for cheese to go up two to 3%?” They said absolutely. They said if you’re under a $1.50, but you have to be under there long enough for people to start adjusting their formulations, for people to start maybe adjusting their sku prices on the shelf, the demand is there to be had. One of the challenges I think in the dairy industry is that you can get a wholesale price, go really low, but it has to stay down there for a while before those prices feed all the way through the system and the [00:16:00] end users start adjusting. Six months tends to be kind of that number.

Jacob Menge: A $1.50 CME spot market is a lot different than a $1.50 futures, as well. How our futures curve reacts to any drop we may or may not see is really the million dollar question. Right now, we’re inverted, we’re at least flat on our futures curve.

And that futures curve is really the thing that these export markets are looking at more closely than anything. If we get to a $1.50 on a futures curve lookout, you know, if somebody could go book that for the next six months, that’s gonna probably bring a lot of demand to the table.

Now, if our futures decide to hang out at a $1.65, even if our CME spot market goes to a $1.40, that’s tougher for the export markets to really capitalize on.

Josh White: We all know the supply chain takes a while and it takes a while for prices on the commodity level to filter through to the retail shelf in particular. Is it happening at the right time of year?

Are we doing enough [00:17:00] right now? Because this is the budget time of year from all the way through the complex into the consumer-facing markets. This is that time of year where there’s a lot of budgets. Are we showing enough of a signal today to potentially stimulate demand in 2026?

Ted Jacoby III: I will go on a limb and say, we’re there in butter. Those discussions are happening. We’re not quite there yet in cheese, but we may be there very soon. All right. I’m gonna ask another question, are we so bearish right now as an industry that we’re setting ourselves up for a short squeeze? Jake?

Jacob Menge: We need some catalyst for it to be more than just a one or two week, somebody playing a game with the market kind of thing. If we get an actual kinda sustained short squeeze where there’s actual panic of, “Hey, I might not be able to get that product that I thought I’d be able to get,” I think there’s gonna need to be some catalyst that we don’t know about.

Okay.

Ted Jacoby III: Makes sense.

Markets that get this bearish where everyone, and I mean everyone is on the same [00:18:00] side of the boat, what ends up happening is people just fail to position themselves to deal with the fact that the market’s going the other way.

You can get the smart money that’s short, you can get the big money that’s short, but in a market like this, you’ll also tend to get the weak money is short. And weak money can’t stand a short squeeze, and so the minute the market pops, everybody who’s not in for the long haul just gets spooked right out of the market.

Dairy products in general are relatively inelastic products because it’s food.

Ted Jacoby III: So it doesn’t take a big change in supply to create a big change in price. And this year, we hit the tipping point where we literally flipped from a fat-deficit nation to a butterfat-surplus nation, and we’re probably gonna be there for a long time. We’re in the middle this year of what I would call a generational shift in market dynamics when it comes to butter and butterfat.

Well, I’ll sum up the discussion as this. We’re bearish butter and butterfat. We’re bearish [00:19:00] cheese, we’re bearish anything with carbohydrates. We’re bearish with anything less than 40% protein, and we’re really, really, really bullish anything above 40% protein. Does that sum it up? Fairly well. Alright, guys.

Take care, everybody.

View Details

Does perfect weather mean bad news for dairy?

In this episode of The Milk Check, Ted Jacoby III and the Jacoby team welcome guests from Cefetra Dairy, Henk-Jan Bouwman, Head of Account Management; Martijn Goedhart, Managing Director; and Veljko Perovic, Commodity Market Analyst and Derivatives Trader.

Together, we unpack why the world is swimming in butter and what it means for producers, traders and processors heading into 2026.

You’ll hear:

• Why too much 80% salted has the U.S. sloshing in inventory
• How Europe went from record highs to €2,000-per-ton losses
• When demand might finally catch up with supply

Click play below and listen now to The Milk Check episode 84: Swimming in Butter – Global Insights from Cefetra Group.

Got questions?Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast.

Ask The Milk CheckTed Jacoby III: Welcome everybody to The Milk Check, a T.C. Jacoby & Co. podcast.

We have a really exciting episode today. We are going to be discussing the U.S. and European butter markets and how that’s going to affect global butter supply, global butter demand, and obviously price. We are joined today by our good friends from Cefetra Dairy.

We’ve got Martijn, Henk-Jan, and Veljko from Cefetra Dairy. Really looking forward to this discussion.

Joe, we’re gonna start with you. What’s going on with the U.S. butter market? We’ve just dropped in the last two months, what, 60, 70¢? I feel like the bottom just dropped out. What’s been driving this, and how’s this gonna play out going forward?

Joe Maixner: Well, long story short, there’s too much 80% salted sitting in inventories,

both in trader’s hands and in manufacturer’s hands. There was a lot of product built earlier in the year when there was a great carry in the market [00:01:00] and when cream was plentiful.

All of that product is coming back to the market because cream is still plentiful and manufacturers aren’t needing it for micro fixing. Demand has been good, but not great.

Ted Jacoby III: Is it safe to say that even if we’re having good butter demand in the U.S. right now, it doesn’t compare to the increase in supply we’re dealing with?

Joe Maixner: Absolutely. We’re so much higher year over year on fat component and milk production that we just physically can’t consume as much butter as we’re producing.

Ted Jacoby III: Mike Brown, my question for you is this, we’ve come down from $3.50 two years ago, $2.50 earlier this year, now we’re at a $1.75. We’ve talked a lot about on this program how the genetics have dairy cows producing a lot more butterfat than they have in years past, and that’s a trend that has really changed the supply side dynamic for butterfat in the U.S. At a $1.75, does that trend change?

Mike Brown: The genetic trend of course won’t change ’cause it’s permanent .

People have been making decisions to improve fat content of milk for a long, long time. It’s been [00:02:00] emphasized because of the high value of fat. And so it’s already built into not only the current dairy herd, but the animals that will be replacements over the next two or three years.

On the feeding side, that’s another story, but most folks I talk to say a $1.50, $1.70 fat probably isn’t gonna make a lot of change in feeding and management on a dairy farm. You may see some of those higher expensive fat additives that are used to increase fat used a little less heavily, but the trend overall will be there.

Will the rate of gain continue to be as high? I think is a good question, but I don’t think the trend toward gaining fat’s gonna change certainly in the next two, three years.

Ted Jacoby III: So, this is a question for both Mike and Gus. One of the rumors I’ve heard is that there have been some raw milk buyers out there who have been talking about putting caps on butter, fat percentage in milk, or at least what they’ll pay for.

If that does happen, is that going to affect the increases in butterfat percentages in the milk?

Gus Jacoby: I haven’t seen anything but your cheese make yield formula pay prices have some sort of discount for fat [00:03:00] at those higher levels. That’s the only thing that I’ve really noticed in the industry that’s in some way penalizing that increased fat in milk production. Other than that, I’m not aware of anybody who’s discounting fat in any other ways.

Mike Brown: What I’ve seen is consistent with what Gus has seen so far, but there’s lots of things going on in the background.

Federal Order fat is priced off the Grade A butter market, and that price is what it is. Most cheese plants can’t begin to recover that value of fat, particularly if they’re in the spot market with any extra cream or certainly with whey cream. So, they’ve been losing money.

I particularly have seen out West, where the added value for the extra fat has been decreased. There’s plants looking at: should we be pricing it off what our whey cream is worth rather than the butter market? ’cause that’s more what the value really is. The other thing you’re seeing, I think, is even within formulas, should we be deflecting from fat a bit and putting more weight on protein because that’s what we really need to make the cheese. Not necessarily lower the price, but try to send some signal to producers to focus more on protein. ’cause the focus has certainly been [00:04:00] on fat with the high-fat markets.

Most of your cheese plants cannot recover that value, particularly when you get fat that’s more than 130%, 140% the price of cheese. When butter gets that high, it’s a real money loser .

Ted Jacoby III: Joe, one last question you before we bring our friends from Cefetra into the conversation.

Milk production is up, percentage of butterfat in the milk is up. Looks like we’re gonna have even more butterfat next year than the excessive amount we had this year. What do you anticipate from this butter market over the next 3, 6, 9 months? Are we at the bottom now?

Can we go lower?

Joe Maixner: We probably need to go lower before we stabilize and rebound. I personally don’t think that we see a two in front of the butter price before second half of twenty six.

Ted Jacoby III: that’s an answer I can live with. I think dairy farmers can live with it probably at this point, too.

They’d love to see a 2 in front of the butter market. Having said that, it’s safe to say we’re swimming in butter right now. We’re swimming in butterfat on this side of the pond. Let’s switch to the other side of the pond. We’re seeing record-high butter prices as recently as nine months ago.

[00:05:00] What’s happened since what’s going on right now in Europe when it comes to butter?

Martijn Goedhart: I think what’s happened here is that we were underwhelmed by the output of milk in general in the first half of the year, driven by the aftermath of some diseases.

That pushed prices up to record high levels, especially on the fat side. At some point in time, we saw the spread between EU and U.S. butter widening. That also made us buy some U.S. butter for import into Europe. And that coincided with production going up, driven by good margins and cheese hampering a bit.

That basically gave us our perfect storm. In the last three months, we lost about €2,000 of value per ton on the butter, which is huge. And this is still lingering on because just like in the U.S., we almost call it like a second peak in terms of output because some cows started calving later due to the blue tongue aftermath. So, we definitely have more milk than in a normal season. This caught us a bit by surprise. That also means that now the liquids are trading below the commodity equivalent, which is also unusual for the time [00:06:00] of year.

I feel like we’re in a perfect supply storm at the moment because it doesn’t matter which region you look at, everything is looking absolutely perfect, and not even only from the milk side, but also from the bulk commodity side and vegetable commodities.

That also doesn’t help the sentiment, makes buyers wait, makes suppliers look for buyers because they also don’t want to store it. Supply pressure is still here. We stabilized a bit. But that’s what happened, basically.

Ted Jacoby III: So, if I’m hearing you correctly, in Europe right now, we’re getting perfect weather. Grain feed supplies are really good, therefore, we’re producing more milk. By the way, the same thing’s happening here in the U.S., and I’m pretty sure New Zealand’s in a pretty similar boat. They’re starting up their season and it’s going pretty smoothly so far.

We’re gonna have a lot of milk this year. A lot of milk solids, a lot of butterfat. That also means we’re gonna have a lot of grain, so we’re gonna be able to feed all the cows, all they need to be fed.

Ted Jacoby III: It just feels like we’re just going into that classic situation we go in every five or six years where we’re just gonna have a lot of everything for the foreseeable future.

Josh White: Can I ask a question though, on the European [00:07:00] side? It seems pretty clear that supply has outperformed expectations in terms of butterfat.

Like I think every one of us agree with that statement. Different reasons out of the U.S. than out of Europe. It seems, the U.S. is structurally, genetically producing more. Europe got tight, did not expect ample supply growth in 2025 and is now being surprised with outperforming milk production expectations. From that standpoint, this is a excess supply driven issue. How much of the radical price change in Europe is also a slowdown in consumer demand because of how high the price got or is that really not an issue?

Henk-Jan Bouwman : The demand is, I would say, not sufficient enough to absorb all the supply. And that’s internal European market. What we also see, in a little bit of a wider lens from a demand perspective, is that a lot of the export clients we used to have for butter, as European butter-producing countries, have switched to alternatives.

You don’t have enough demand within Europe. And additionally, your [00:08:00] export business has dried up significantly because people have looked at alternatives when the prices were at record highs

Josh White: Has the European per capita consumption of butterfat changed much in the past year or so? Historically, that’s very consistent.

Martijn Goedhart: Yeah.

Josh White: Has that changed much?

Martijn Goedhart: It’s stable, Josh. It’s stable, but it is elastic. Across the board, you see prices have eased: for cocoa, for milk, for all the ingredients.

But the shelf prices still need to react. So, how are these food processors gonna go about that? Because they’ve been losing, because they’ve been absorbing those high prices in their books. Are they now gonna keep the shelf prices high and get a bit of that loss back? Or are they gonna adjust it immediately and spark demand? With the butter market, the biggest market in Europe is Germany, it’s quite an elastic market. If people see package prices below two euros, they’re gonna stock up. But the question is what will retail do now?

Retail recently negotiated at much lower prices. At the market today, like €5,500 [per metric ton]. Will we see that on the shelves immediately or will we see it as volume promotions or something like that? That’s [00:09:00] gonna be the answer to the question, “How long will this take?”

Martijn Goedhart: That’s my opinion.

Josh White: Right now we’re in an oversupply situation and we’re feeling the price pressure. European demand is elastic, but relatively stable. And these price reductions over time will result in a return to normal consumption rates.

Right? So, we’re not seeing any decline there. The U.S. market has matured quite a bit in its butterfat consumption. Overall, butterfat consumption through all products is still increasing year-over-year in the U.S., but maybe it’s slowed it’s sloped down a little bit, but it’s still increasing.

What I’m worried might be covered up in the glut of supply of fat that we’re dealing with is the fact that the rest of the world now seems to be increasing its per capita consumption fat. And right now we are overwhelming the rest of the world with the excess out of Europe, the U.S. and that’s forcing New Zealand to compete, of course. Are you seeing that in the global markets that you’re selling to Henk-Jan?

Henk-Jan Bouwman : Yes, but

it’s not only capped to U.S., Europe, and New Zealand per se. We’re also seeing [00:10:00] fat coming out of originations that were, I would say, a little bit less known, where a lot of effort has gone into approving those origins, using them in recipes, and that has been found quite successful. And because of that, it dilutes demand away from the more traditional butterfat-producing regions.

Joe Maixner: Yeah. The emerging markets is definitely taking market share away from the big three regions, especially in the further processing type manufacturing where the product’s being made into another finished good, and it doesn’t need to have a specific color or visual appearance.

Ted Jacoby III: Joe, let’s expand on that really quick. Europe’s butter being 82% and also having a more yellowish, more flavor in the butter, let’s say, tends to command a premium in the marketplace. So, the U.S., as we’re switching from a fat deficit to a fat surplus dairy industry, is not competing really against Europe. We’re competing against New Zealand and even some of the developing markets [00:11:00] like India who are exporting butterfat. Is that what we’re saying?

Joe Maixner: Well, even New Zealand has a much darker colored product. So, even New Zealand and Europe can be used interchangeably in a customer facing product.

We’re really competing with emerging markets like India, China, and others that are primarily grain fed and produce that whiter-colored product.

Henk-Jan Bouwman : To put a little bit more flavor to that discussion, we do see in our export markets that there are clients who prefer the color profile out of U.S., India, even China, over the more traditional yellowish color of butter. It really depends in what sort of end application the fat is being used. As much as we sometimes think that the pure white U.S. butter in comparison to yellowish New Zealand butter there’s a value difference. It could even flip the other way as well, where a more whiteish butter is preferred over yellowish.

Martijn Goedhart: Yeah, we could break that down. I think what you’re saying, Ted, is you know, there are a few segments that butter [00:12:00] is sold to, right?

So, the first one is bakery confectionary. In that application, it doesn’t matter because you need the fat and you turn it into something totally different. Maybe there’s a little bit with melting points, but that’s not huge. Then you have your direct consumption markets, and that’s consumer preference. They consume the butter exactly as they see it. And that’s typically a yellow butter market or yellowish. And then, you have your processed cheese producers, who prefer the white one because your spreadable cheese is nice and white if you have U.S. butter or white butter. We are competing in some sectors and in some we aren’t. Chinese butter is also very white, so there’s always someone to compete to, but you’re not competing with everyone at the same time.

Veljko Perović : In general, the demand picture remains quite supportive. I think if we look at worldwide trade of AMF butter, but also bulk cream, we see that we made actually record high trade in the last 12 months on some pretty high prices from New Zealand and from Europe, but also from U.S. last year. The demand is there, and I think there’s gonna be people coming in to take it.

In Europe, specifically, a lot of elasticity comes [00:13:00] from us being able to export and import. I agree with Martin there that our domestic demand was actually solid even when prices were higher. Elastic to a degree. But we could slash all the exports and leave them to New Zealand, and at the same time, we could import a bit from New Zealand and U.S. to help us solve the tightness. The European producers are now gonna turn to export market once again to try to alleviate the pressure and the export markets are gonna be a way for producers — whether in Europe or U.S. — to be able to ship some volumes when the S&Ds get pretty bearish, like right now.

Josh White: With all four plus regions bearish butterfat, what does that do to the product mix out of New Zealand? Does that at all impact their decision making between skim and butterfat versus whole milk powder, particularly as they go into their peak season? Are we expecting any type of shift there as a result of the deterioration of the butterfat price?

Henk-Jan Bouwman : Anecdotally, Josh, what I’ve heard is that it might cause a demand shift, first of all. It might cause certain producers of end product, especially in my region in the Middle East to [00:14:00] reconsider their import model. Whereas, over the last year or so, they have worked on a combination of skim milk powder and AMF and they might reconsider that and start using whole milk powder.

There I definitely expect a bit of a shift in production, a bit of a shift in pricing and those kind of things, out of New Zealand.

Ted Jacoby III: Has the butter market, and this is a loaded question because the graph I’m talking about looks a lot different if you’re sitting in the U.S. than if you’re sitting in Europe, but has the butter price dropped enough where we’re gonna spur a lot of really healthy additional demand for butterfat, globally?

Martijn Goedhart: No, Ted, I don’t think so.

Because the global growth in consumption is not very much a price issue. With high prices in China, bakery was still booming, so people are still gonna consume those croissants. The margins are gonna be better for the bakery shops, but the consumers still want it. I would reckon that the home markets of butter, so where the butter is coming from and is consumed Europe, U.S., they’re more or elastic than the upcoming markets.

Ted Jacoby III: Interesting.

Josh White: What about other products capturing [00:15:00] market share away from other fats?

If we’re talking about bulk commodities being weak, is it safe to say that other fats have had an equal decline in prices, relative to the fat content, as butter has or is butter becoming relatively cheaper than other sources of fat?

Martijn Goedhart: I would reckon the contrary, right? I think all the vegetable fats have also made a step up over the last few years.

Veljko Perović : They did make a step up, although now we are also seeing steps down. I think the demand picture in global egg market is really bearish at the moment. So, I think it’s weighing on everything. I think also depends really on the region because we are talking about quite different milk fat prices right now in Europe and in the U.S.

But in general, I think price competitiveness of dairy looks quite okay if we compare it to some alternatives, such as the protein, that will be meat. I think dairy stays a competitive source for both milk fat protein on a global level.

More than that, we are seeing the bakery really booming in Asia, and I think it’s a trend to stay in the coming years. The aggregate demand is just gonna grow, and there’s gonna [00:16:00] be plenty for everyone to grow their sales.

Josh White: In the coming months in Europe is the relationship between the butter price and the cheese price going to dictate where the milk is processed?

We highlighted earlier that one issue in the U.S. is the Class III facilities that are bringing in milk right now are having a difficult time standardizing to the cheese, resulting in excess fat that they’re forced to move into the market. And that is having an impact on our fat market domestically in the U.S. Is there similar issues within Europe, and will it be influential over the coming months on utilization ?

Martijn Goedhart: The thing in Europe in general is that no one I think really budgeted for this second peak or whatever you would call it, or plateau. Whereas before you would see that surplus milk would be redirected to butter and skimmed, we have significantly ramped up the cheese capacity within Europe.

If you have a new factory, and you have milk, you’re gonna redirect it to the new factory. But we now reach the point that the cheese is almost already [00:17:00] too old when it’s delivered. There’s definitely some stock building up. We’re at the limits of this cheese market and what the market can take. More product is redirected again to skim and butter. At the same time, if you have a drying tower or a butter churn, you’re not totally filled up. So, it’s also an opportunity for powder dryers to pick up some cheap concentrate. Supply is still overwhelming because we’re trading below the commodity equivalent.

There is more supply of liquids than there is demand for the commodity that’s produced out of it.

Josh White: If we’re looking at too much butterfat, coming from good quality, milk growth across the entire world, we think demand for butterfat is good and growing, just not growing quickly enough to consume the amount of fat that we have.

You have a couple options. Slow down your growth rate and wait for demand to catch up. Experience some type of disruptor to supply. That could always happen. Last year, disease was a big topic. Weather can always be a topic. Or you bring a price down to the point where you actually slow milk production.

From both the U.S. and the European side, current spot [00:18:00] prices — which are lower than current pay prices to producers, right? The pay prices lag, I think in both continents — current spot prices. Are producers profitable at the current spot price or are we starting to flirt with decreased margins or something that could either slow or reduce our milk production quantities as we look ahead into 26?

Veljko Perović : If we are talking about the price of raw milk as a commodity,

it’s absolutely below the price where farmers are making money. Now if you are talking about the payout prices, which as you say, Josh are lagging behind, then there’s still a good margin for the farmers. I think in Europe, it’s now the matter of how long are the producers willing to take a hit?

Because with the current S&P and butter prices they are taking a hit, and at some point they need to transfer this to the farmers. Now a key difference in the U.S. and EU dairy at the moment is:

U.S. is built to grow. Well, Europe is not. In Europe, most of the bearishness does not come from us, like structurally oversupplying the market, but from [00:19:00] a short term surge in milk, which we are seeing, but we are still facing with structural problems that our herds are decreasing and we are not built to grow.

I think, in Europe, there is a likelihood that we will solve the S&D issue, the oversupply which we have, sooner than the U.S. We will have to see more milk price cuts for that to happen. But when it happens with the herds, which are still losing I think we might see an abrupt change from adding a lot of milk to suddenly losing it.

Ted Jacoby III: Do you have any idea how long it’ll take to get there?

Veljko Perović : I don’t think we are there yet. I’m not calling it the bottom yet. Producers also earned quite some good money last year and in the first half of this year, I think they can take a bit more hits.

We need to see the milk price drop. We saw 2.75 cents decrease for FrieslandCampina. I think we need to see two or even three more cuts like that before we seriously damage farm profitability. And at that moment, farmer might react.

Martijn Goedhart: Then I guess, Veljko, from a seasonal perspective, you’re past the point that you’re gonna [00:20:00] adjust your herds for the flush, right?

If it takes another two to three months, you have your cows set up, so then you’re gonna work your way through the flush before you do anything drastic, because anything else and that would be a waste of capital.

Ted Jacoby III: It sounds like both in Europe and in the U.S., by the time you start getting an appropriate reaction by the dairy producers, you’re gonna be past the spring, and that means we’re just gonna have a lot of milk for most of 2026 and it won’t be till 2027 where we see an adjustment.

Veljko Perović : That’s true. The farmer needs to make the decision how many cows to keep for the new season. I also think that when the incentive is gone to squeeze more out of the cow, they will stop squeezing because the amount that they’re squeezing right now in Europe is incredible.

Martijn Goedhart: That’s a good point. So there’s also your delta on components, right? With profitability diminishing, you’re probably not gonna do your best job there. Although, people are hedging their inputs now, and that’s also looking very bright, so that’s also already set up for profit.

Josh White: Seems to me like we’re in a game of chicken: who can wait longer between the [00:21:00] U.S. and Europe. My question is, the European model still has quite a bit smaller dairies than the U.S. model, as I understand it. And I also have the belief just in conversations with different people that, whereas Mike mentioned earlier that the U.S. will not likely turn down the way we feed and the growth that we’re seeing in our butterfat, that Europe is a little bit more sensitive to that, and if the butter price is lower, changes to the diet for the dairy cow can be made relatively quickly. Is that a true statement?

Martijn Goedhart: The main difference is that in the U.S. it’s much more common to hedge your input and your output.

If you would do that today for the coming season, you’re set up well. Whereas like you said, because we have a lot of smaller farmers, the average size of a farm is much smaller, people leave it floating, and if something changes, you’ll see more acute or abrupt reactions compared to when you’re hedged further out.

Yeah, maybe the milk prices here move relatively [00:22:00] slower than in the U.S. but the margins might move quicker because they’re still exposed. It’s not managed.

On the U.S. side with current spot prices, is the dairymen profitable?

Mike Brown: It’s how quick the response is.

I’m here at World Dairy Expo, everyone says, our revenue from the beef stream is $3 higher than it was four years ago. And that’s what’s saving everybody’s, necks at the moment. Lots of talk where your big commercial herds, if they can get a, delivered milk price that is north of

$16, $17, they’re doing great. They haven’t felt them yet in their milk checks ’cause a lot of this price declines the last couple months and it takes a while to get through the system.

But, I think for the most part, at current spot markets, yeah, I think they are still profitable, particularly on the Class III side. ’cause the whey value is so high. That’s putting a big kick on that Class III price. So, I would say they are, but we get butter below a buck 50, and if we get cheese hovering down $1.50, $1.60, then maybe it’s a little different, but I don’t see a massive exit. The other thing is we’ve had a lot of growth in [00:23:00] capacity in plants we have producers that are committed to fill those plants, and those projects are going to continue. Will we see some decrease on the margin? Possibly. In the dairy genetics business, semen sales in beef remains the strongest it’s ever been, and and it’s all for dairy cows.

They have herds anywhere from 20% to 70% using beef bulls on their cows, depending what the replacement needs are. If they’re growing, as you can imagine, they’re slower. And these are the big, well managed herds. So I don’t really think there’ll be an immediate response in our profitability.

I think they’re still okay. But we don’t know what the floor is. If we all know what the floor is, we’d be very wealthy but we don’t. So I think it’s a little hard to say Josh, but I think right now, yeah, they’re cash flowing fine.

Smaller ones are starting to struggle. They haven’t been sophisticated in their beef marketing and planning perhaps as the large guys have been. But in general, the bulk of our milk supply, I think is still pretty well positioned to do. Okay. Big exception is perhaps the Pacific Northwest.

Other than [00:24:00] that, I think people are doing okay.

Ted Jacoby III: Are the dairy farmers in Europe breeding to beef? And is the beef price as high? Is that dynamic going on in Europe like it is in the U.S.?

Veljko Perović : Absolutely, yes . We are also seeing in Europe record high beef prices. It is adding to the profitability of the dairy farmers because they can get more from the meat.

It’s a nice extra stream flow to keep the cash flow going.

Ted Jacoby III: I just can’t help but feel like we’ve got a dynamic right now where we’ve gotta go to a pretty low price point to cause a supply side reaction, and it might be lower than anybody’s willing to come to terms with at the moment.

Joe Maixner: Let’s keep in mind, on almost every product, too, we’ve increased or are increasing production capacity in the United States at a time where the markets are falling rapidly

Ted Jacoby III: Yeah. And it sounds like the same thing’s going on in Europe, too. They just added cheese capacity there as well. Correct?

Henk-Jan Bouwman : Correct.

But that’s mostly driven by the desire of producing high protein.

Martijn Goedhart: Yes, to some extent because that makes you win when it [00:25:00] comes to streams return. But you’re only gonna build cheese plant if you know you have the demand for it. But yeah, if everyone’s doing the same thing, then you might overshoot a bit. I think that’s what we’re seeing right now.

If you have a new origin, you also need to find customers to get it approved. Maybe one thing to add if you look at global commodities and here, we look a lot at weather and harvest, it’s looking absolutely perfect with all lights on green. The more macro commodity outlook also sometimes influences our little dairy world a bit, right?

Josh White: Going back to demand, the confectionary industry was awful last year, right?

Driven by the issues with chocolate, yet we’re still talking about consumption of fat being pretty good. We’ve just responded with great production. Where could we be missing pockets of demand growth on the fat side? Like confectionary, how’s that doing? Is that an opportunity to consume more dairy fat as we go into 2026 with lower prices?

Where can we capture fat business as a substitute from non-dairy sources. Is there anything we’re missing in terms of demand growth [00:26:00] for butterfat at lower prices?

Joe Maixner: In confectionary, I think that the demand shrinks for next year. I think that overestimated for this year’s and they’re gonna be carrying supply into next year.

And so I think that the demand is gonna be less. As far as other areas for growth? Emerging markets, we have to remain competitive in the U.S. specifically on exports. The longer we remain low priced, the more new markets we’re going to be able to penetrate.

That’s going to be our real opportunity for growth into next year.

Mike Brown: I’d agree with Joe. Same thing here with fat. Fat’s been a pretty low margin item in the butter aisle because they try to keep the price as competitive as they can. If we’re gonna have a dollar 50 butter, how much of that will be transferred to the consumer because then you still maybe have a chance to garner more of the margarine market away. You can get butter prices in that $2 range, And by the time you buy bulk butter and you package it and go get in a grocery store your net cost is gonna be, from my [00:27:00] experience, probably 30 cents to 35 cents over the commodity market.

It’s not that much really. But are they gonna be willing to do that when they finally trying to recover some margin that they haven’t had? We’ll have aggressive promotions for the holidays, that’s for sure. But how much new business that picks up versus stealing it from each other’s label is a whole other question.

Joe Maixner: Worldwide, we are entering the largest demand period for butterfat, right? The next three months is the largest demand period for butterfat, and then you’ve got an early Ramadan coming up at the beginning of next year, and those inquiries and orders have already started as well.

My fear is that we front load both on the retail side and all of the product for this demand period. And all those orders come in and then we end up in a global fat surplus once we get out of the holidays and prices just collapse everywhere.

Mike Brown: From my experience, supermarkets’ demand for butter is double fourth quarter than it is any other quarter.

I mean, it’s huge. A lot of that butter is pre-bought because there isn’t capacity to [00:28:00] make it in fourth quarter. So even though the cash market may be significantly lower, the cost of goods isn’t necessarily that low. It takes time for that to work down into retail.

So maybe we’re gonna have great butter sales in February, ’cause by then their inventory will be at a lower cost. But right now they’re blending the current market with some, pretty high price butter.

Martijn Goedhart: That’s an interesting point, right? You have the retail lag. When the raw material prices reach the shelves, it’s like there’s a lag of three to six months, something like that. We’re also discussing like it’ll take at least three to six months for farmers to feel anything in terms of output and then probably another three months before they really react. Those two points where the goods have become cheap enough that customers are gonna buy more, but at the same time the farmers are gonna slow down because they’re not making money anymore. Those two points, they might be very nicely overlapping at some points, and that’ll turn everything around, I think.

In my opinion, you’re talking post summer 26.

Joe Maixner: Yeah, minimum second half of 26 before we really start to see that.

Ted Jacoby III: Guys, is there any hidden demand in fat filled [00:29:00] powders? If the butter price gets low enough, could you see some of that fat filled powder business to Africa switch over?

Martijn Goedhart: No, no, it’s direct to consumer product, so people have gotten used to specific taste and profile of fat filled.

Ted Jacoby III: I understand. This has been a fantastic conversation.

Martijn, Henk-Jan, Veljko, thank you so much for joining us today.

View Details

Butter is down. Powder is heavy. Cheese is struggling.

But whey proteins? They’re the shining star.

In this episode of The Milk Check, host Ted Jacoby III sits down with Josh White, Gus Jacoby, Diego Carvallo, and Jacob Menge to break down what’s really moving the dairy market this fall.

We cover:

• Why WPC 80 and whey protein isolate remain in tight supply
• How weak butter, powder, and cheese are reshaping herd economics
• What today’s demand means for dairy markets heading into 2026

They’re the shining star now, but can whey proteins hold at $10/lb without burning out?

Listen now to hear Jacoby’s take on what’s in the stars for dairy this year and beyond.

Got questions?Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast.

Ask The Milk CheckTed Jacoby III: Welcome, everybody, to the September edition of the Jacoby Market discussion on our Milk Check podcast. Today, we’ve got Josh White, head of our dairy ingredients group. We’ve got my brother Gus to talk about what’s going on with milk, cream, and UF milk. We have Diego Carvallo on our international business and nonfat business teams.

And then we got Jacob Menge with risk management and trading strategy. So, Gus, let’s go ahead and start with you. It’s September. This is usually the time of year when everybody is shipping a lot of milk into the Southeast. How do things look in milk, and what’s going on in cheese and UF right now?

Gus Jacoby: Certainly, Ted, milk has gotten tight as it typically does this time of year. I wouldn’t say, though, relatively speaking, for mid-September that we’re all that tight. Obviously, milk production reports have been up recently; there’s more milk than we had last year. Yes, we’ve added processing capacity in [00:01:00] certain regions of the country, like the western portion of the upper Midwest, and, of course, the Southwest.

However, in many areas, early fall tightness does exist. But it’s a bit longer than last year. Where we really need to look at, though, is the component area and some of the products, such as sweet cream. That’s certainly very long.

We know about butterfat being much higher today than it was just a couple of years ago. And I would say the cream markets, which typically in early fall draw some pretty high multiples, those multiples are tempered to a fair amount. Cream can be had at a time when it is typically tough to find.

So, there’s no doubt that what we’re seeing out in the marketplace, and I would say from coast to coast, is more cream than what we’re used to. And certainly, more of a buyer’s market in the fall than it ever has been, at least in the history of the industry that I’ve seen.

Now, on the flip side, the protein markets are a bit interesting. I wanna let Josh speak on the powder side, but we are seeing that UF milk is having a strong comeback. People need protein, whether it be for fortification [00:02:00] needs and natural cheese, whether it be for health and wellness shakes, whether it be for what have you. That product is getting a lot of attention. And certainly, the one area that I’m seeing this fall that’s got some tightness to it.

Ted Jacoby III: Josh, what are you seeing on the protein side in your neck of the woods? Is what Gus is seeing with UF milk translating all the way over into dried proteins?

Josh White: The most interesting of the product categories right now and the one gaining the most attention is in the whey protein sector. We’re feeling pressure across a lot of the storable dairy products right now, but the one that remains very tight are the WPCs, in particular WPC 80 and whey protein isolate.

The storyline hasn’t changed a whole lot from prior discussions. We went into the year, and there was some trade disruption that masked how tight the market was. We knew a lot of capacity was coming online this year to respond to the demand signals that we’ve been seeing unfold over the last several years.

But where we stand today, in September, with a line sight to the end of the year, is [00:03:00] it doesn’t feel like our production out of the U.S. is meeting not only the U.S. demand, but the global demand. This is more of a global situation than just a U.S. situation. The key production regions for the higher whey proteins suitable for sports, nutrition, health, and wellness applications, and others come from Europe and the United States.

And in both markets, prices are very high right now. Whey protein isolate had stabilized as we went into the third quarter, somewhere on either side, at $10 a pound for WPI instant. Today, there’s a lot more discussion anecdotally that we’re seeing prices closer to $10.25 or even $10.50 per pound in certain instances.

Whether it’s the driver or it’s the entire market, that certainly had an effect on WPC 80 prices. WPC 80 is a product that we have seen more production come online. Whereas, with WPI, we’ve seen people really trying to drive yields, trying to [00:04:00] just push as much product through their whey protein isolate dryers as they can.

Whereas, WPC 80, again, new production coming online, but that hasn’t gone smoothly in every case. As a result of that, the market is now really responding with prices above $5 a pound. If we go back in history, that’s a demand-killing price. The question is, is that still a demand-killing price?

As the majority of market participants would argue that the per unit value of protein in whey protein products is continuing to appreciate, and the demand we’re seeing is that. The demand is not only strong demand in the sectors we’ve been selling to, but we’re also seeing a lot of inquiries for WPI and WPC 80 going into like consumer packaged good applications and a lot for trials, which suggests to me that people are really looking for new product development in that space to capture some of this demand movement that we’ve seen out there.

And that’s [00:05:00] also gonna change a little bit the elasticity of the product. Some of these products that it’s going into, protein is a very important price element, but it’s not as high an inclusion rate as you might see in protein shakes or something along those lines. So, it’s a bit unclear to me how that unfolds.

But right now, we’re staring into a market where the U.S. is driving prices higher. Europe is at a higher price, and the rest of the world is scrambling to catch up and get the protein that they want. What that means and how that drives decision-making for the dairy processor, in particular, the cheese plants, is yet to be seen, but it’s certainly impacting their interest in bringing milk in or making cheese in order to get to this whey protein. And so, I would kind of volley that back to you guys. How important is that from a cheese processor, as we look right now, in September, when milk is seasonally at its lower annual levels, and some of these plants can decide whether or not to remain full.

How [00:06:00] are the cheese plants handling this when they want the whey protein? But cheese feels like it’s a little heavy?

Jacob Menge: Ted, you wanna take that hot potato?

Ted Jacoby III: I look at it this way. When milk is plentiful, like it has been this year, they’ll grab the milk where they can, because worst-case scenario, you can dump the cheese onto the CME if you’re a big cheddar plant. And you can discount it at least to some extent as a mozzarella plant.

I think it’s been harder for the mozzarella guys this year because historically, you’re making low-moisture part-skim mozzarella, you’re spinning off all this cream, you’re getting $3 plus a pound on the cream. That makes it a little bit easier to make sure you still extract the value from the milk when you’re selling off the cream.

But now, the butter price is $1.85, $1.82 after today. And so, it’s a little bit of a different equation. There’s a limit to how much you can discount the mozzarella to make sure it clears. This year, however, I think there’s been an opportunity in that the export market has been strong enough, so they’ve been able to go ahead and move that [00:07:00] mozzarella into the export market, so they can keep clearing it and then continue to make money making WPC 80 or WPI. I think the bigger issue may be next year, 12 months from now, because if the cheese price and the butter price stay low, ’cause right now at 3.4% milk production increases and even more on the top of that in terms of components, I think there’s a very real concern that we’re gonna see some really low cheese and butter prices in Q1 and Q2 of next year.

And given how valuable those dairy cows are if they sell them for beef, I think we could see some very high slaughter rates, which will lead to some pretty significant decreases in milk. You may, by this time next year, have some very real competition for milk in certain sectors of the country.

In that environment, what’s a cheese plant gonna do if the cheese market is still relatively weak, but they can make money on the whey, they’re gonna have to pay a bigger premium for the milk, it’s the only way they’re gonna be able to get what they want. And so, I think you [00:08:00] could create a very real opportunity for those sellers of milk to really push for a higher premium and extract it because they can extract it out of the whey.

Jacob Menge: You both have said something kind of interesting. Josh said it without saying it, and I guess I wanna poke you a little bit, Josh, on it. You kind of alluded to it, but for now, this demand seems almost limitless.

Elasticities might be changing. And then, Ted has just hinted at: the situation kinda works today, but down the road it might not. And so, I’m curious, Josh, what do you see being the thing to take the wind out of the sails of this protein market, and I’m not talking necessarily over a 5 to 10-year period.

I’m more talking about what the next pullback looks like, and does that line up with the timing that Ted just brought up on the cheese side? Because if so, it could almost be a self-correcting problem, or it could add fuel to the fire if it doesn’t play out that way.

Josh White: I’m gonna start with what Ted said about where we could be a year from now. [00:09:00] And the problem is, as a trader, I can’t even think about that when I know that we’ve got increasing milk supplies at very, very strong levels in all major milk regions of the world, and going into our heaviest six-month to nine-month window of milk production. Right? So, that’s all I can see right now. And so, when I think about that from a whey protein standpoint, all I think about is that the cheese plants are going to have to process milk. As a result of that, they’re going to be making whey solids in some way.

And at the moment, it’s clear that you’re gonna maximize your production of higher whey proteins. That’s what I’m looking at going forward at the moment. Now, until milk changes, cheese likely will continue to win over milk. And the reason I believe that is a capacity-driven thing — where the milk is growing versus what type of processing is in those regions — and a nonfat dry milk and a butter market that just don’t feel very good right now. And okay, so butter, we can debate that and should debate that a bit more, but let’s just talk [00:10:00] nonfat for a minute. The global skim market is awful.

I don’t even know how to say it differently. It’s being driven down by Europe; it’s being driven down by New Zealand; and the U.S. is continuing to watch our price go down despite our production not being very, I don’t have the numbers in front of me, but not being all that impressive and our inventory levels, I think, are lower than a year ago.

I don’t, maybe someone can correct me if I’m wrong on that.

Diego Carvallo: Pretty stable compared to last year. Yeah.

Josh White: Yeah. So the weakness in nonfat prices in the U.S. It is not a supply issue out of the U.S. It is a global demand issue. Just watching some of the recent market reports, we have milk production growth in Europe, and milk production growth very impressively out of the U.S.

A good forecast for the heavy months of September, October, November, and December in New Zealand. The only regions that are down, I think, are China and Australia. And if we’re paying attention to demand, demand is sideways at best in most parts of the world. [00:11:00] So, there’s not gonna be a big pull, especially with weakening butter prices for Class IV milk, and we’ve got a lot of cheese capacity.

So, when I think about that as it relates to the supply side of the whey protein complex, things should only get better as some of these new facilities that have come on and have struggled to get up to capacity come on and start to produce. Now, the product mix from that is still a little confusing.

As to how many of them are going to be able to make a high-quality WPI, who’s making the clear whey protein isolate, the acified products that are driving really, really strong demand that feels almost inelastic, who’s making WPC 80s? That’s still a little abstract, but what I know is they’re gonna have plenty of solids in the months to come, as we’ve gotta process that milk through Class III facilities.

That didn’t answer your question, but that’s the clouds hanging over it. So then, as we think about what could change the price direction, I’ve said it before in many meetings, and I still don’t have a high level of confidence that we as an 00:12:00 industry know how to manage the supply chain extremely well on whey proteins. It’s a quarterly priced product. There’s not a tremendous amount of forward pricing — more now than ever before, but still, a low percentage of the total volume sold is sold beyond the next quarter. And as a result of that, the retail movements take longer to materialize.

So we don’t know until we’ve got at least one or two quarters of business done if we’ve overpriced this stuff. I don’t think we’ve corrected that. I think we may have softened that, though. Things like CPG companies at the lower inclusion rate, things like great demand growth relative to the supply growth, things that might have softened that cycle that we experienced before.

But if you look back, we’ve repeated the cycle multiple times. We go up, we set new highs, everything feels great, and the price gets cut in half inside of 18 months. We are on an extended cycle right now. We credit health and wellness-driven demand globally despite other consumer product trends pointing [00:13:00] lower.

All of that could be true, but I still believe that at some moment this thing cycles, and what could result in that cycle is overpricing it too quickly. And I think the market’s done a pretty good job of not doing that. If you really look at how tight it’s been, people just aren’t increasing by dollars right now.

I mean, it’s really been a methodical price increase over the past year, at least from the processing side, on the commodity side of this. Do we start to accelerate that when people just simply can’t get it and find a price that kills a lot of demand, especially for maybe those lower utilizations?

Maybe. When could that happen? Early 2026? Yeah, maybe. I mean, I would be betting we’re talking about the middle of the year. Another factor that could potentially reverse it slightly is a milk response, and what it will take for a milk response right now is a very low milk price.

Arguably, the non-milk income that these farms are receiving is real. These farmers have put a lot of equity away. The corn price continues to work down. The other input costs continue to go a [00:14:00] bit lower. We’ve got our heaviest production season in front of us.

I agree with Ted that there are a lot of cows vulnerable to slaughter if margins get bad enough. I would argue you’re not going to cull them unless it’s very, very bad before you get through your seasonally heavy milk production volume. So, post-spring. That’s when the response might happen. The storyline as a trader for the next six to nine months has to be supply, supply, supply.

We’ve got plenty of milk. How does that translate into the products that we have, and where do we process them? After that nine-month period, okay, we can start to really think about what the milk production response would look like.

Ted Jacoby III: I would agree with that.

I think it’s very easy to underestimate, however, how much a dramatically lower butter price is going to affect a dairy farmer’s milk check, cause we tend to think in terms of $15 Class III milk is bad. But the last few years, they’ve been getting 20, 30%, and I haven’t done the [00:15:00] math, so, for anyone out there listening that says, “Ted, those numbers are way too high.

It’s not that much.” I apologize ’cause I didn’t do the math, but they were getting a substantial addition to their milk check because of the components, because of the higher butter fat, because of the higher solids in the milk. If suddenly they’re getting half as much, not just a lower milk price per hundred weight, but also lower in terms of the components on top of that, that could be a really big number.

It’ll be interesting to see how it plays out.

Diego, one of the things that I think we really should be talking about is how so many of the issues we have are on the demand-driven side. We’ve got domestic cheese: demand is down, domestic butter: demand is down, and restaurant traffic is down.

Class I milk: sales are down. You’ve got this shining star in whey proteins. A little bit less of a star in other milk proteins, but everything else looks ugly right now. Yes, exports are good, but exports are good because our price of cheese is lower than everywhere else in the world, and that’s just exacerbated by the fact that the dollar is 10 to 15% weaker, too. So, what’s the status on nonfat?

Diego Carvallo: So, nonfat is feeling very heavy right now, Ted. As you guys have been discussing, it’s both a combination of the demand and supply. In the U.S., yeah, supply is relatively stable, inventories are unchanged versus last year, it doesn’t seem like it’s a heavy market, but when you add into the equation that demand and exports out of the U.S. have been very slow, and at the same time that most of the origins are making big improvements in their milk production and skim milk powder production numbers, that’s when you start seeing an imbalance. The market is anticipating that imbalance, and that’s why the curve is inverted. And everybody is feeling like we could see numbers that are still lower than where we are right now. The market has already moved a couple of hundred dollars lower [00:17:00] in the past 10 days, and we are close to levels that I would call historically very appealing and very supportive. But it seems like New Zealand is still gonna have plenty of product. Europe, same thing. South America. We could continue finding lower prices until those prices actually bring demand up.

Worldwide demand for nonfat has been unchanged, at best, in my opinion, while supply has been trending higher.

Ted Jacoby III: Jake, if we look at it purely on a technical level, where’s the next support point in nonfat?

Jacob Menge: Yeah, that, like $1.10 level has been a really nice long-term support level on the nonfat side. I think from what we’ve discussed, I wouldn’t be surprised if we test that at all. But it seems like it’d have to be a grind lower from there if we get to that $1.10 level.

Ted Jacoby III: And I think it’s fair to say that everything lower from here is a grind lower. You’re [00:18:00] at that point where you don’t have a free fall to anything anymore because you’re already historically low.

And so the only way you continue to go lower is by grinding lower.

Jacob Menge: Cheese is similar to that $1.10 in nonfat; it’s probably in the mid to upper $1.50s. So maybe you get a little bit of a move to there, but it would definitely be a grind through the $1.50s on cheese.

You look at butter, I think that’s a little harder to quantify just ’cause it’s been a while since we’ve been here. After we’ve seen what it’s been in the past month and a half, a 25% move, you gotta figure there’s a breather at some point there.

So, I agree. I think moves lower from here are gonna have to be earned by the markets.

Ted Jacoby III: Yep. It’s still hard for me to imagine that we’re having these conversations about historical lows for nonfat, for butter, even for cheese, maybe not quite yet for cheese, but we’re getting there.

We’re in shouting distance, and we’re in September, and so we’re in the front of the fall period where [00:19:00] demand is usually a little bit better. It just doesn’t bode well again, except for our shining star in whey proteins. That just doesn’t bode well for how these things are gonna play out over the next nine months.

Jacob Menge: You throw the curve balls in there, of we’re kind of this post-inflationary period, probably still in an inflationary period. And so you adjust for that, and the lows look even worse than they did last time we were here. You add in the dollar, that’s another factor in there.

The market’s just kinda ugly right now, unfortunately.

Ted Jacoby III: Josh, I’m gonna circle back to the question you asked me earlier. Given that butter has really low prices right now and demand just doesn’t seem to be there cause it’s been so overwhelmed by supply, and nonfat has low prices because demand simply isn’t there,

I think you still keep cheese plants full so that they can get the whey because your Class III price is still in the same area code as your Class IV price. And so, if you know there is a really nice, profitable demand for the whey protein, and you know you can clear your cheese, you’re gonna go ahead and process the milk and do it.

Josh White: So, we’ve spent a lot of time beating up what the butter market looks like when Class III facilities, particularly mozzarella facilities, win the milk. I don’t know that I’ve got a clear vision of what that looks like still, but as we think ahead to the next few months when milk volumes begin to pick up, and let’s go under that premise, that Class III wins that milk and that we’re in the near future, not looking at any major producer milk response, it’s gonna take some time for that to materialize. What is the demand outlook globally on the cheese side? Are we gonna continue to win business and clear it?

Another question is related to butterfat. This butterfat market, we’re talking about how bad it is and how weak it is. Correct me if I’m wrong. Aren’t our inventories lower than they were a year ago? And is this anticipation [00:21:00] because the world market, although it is under some pressure, is still significantly higher? Is there any chance that we’re overselling this butter market?

And what does that do to this decision-making model if we do find some support?

Ted Jacoby III: My strong opinion is that our butter market went to this level in August and September for a very specific reason.

And the reason is: historically, we build butter inventories up into July, and then we start pulling them down in August, September, October, and November. We have so much butterfat coming right off the cow right now that they’re taking the cream into the butter plants. And so even if we’ve looked at the last cold storage report, which I believe as of the middle of September is still the end of July report, it may say our butter inventories are similar to last year, but I think everybody who’s

in the butter market right now is saying there’s no way we can run our butter market inventory down like we usually do, and we’re gonna end the year at significantly higher inventory levels of salted butter than we [00:22:00] usually do. That’s what this market’s reacting to. Nobody’s buying bulk butter to microfix and process right now because they can buy the cream even cheaper, and markets are forward-looking.

That’s my strong opinion.

Josh White: So, then back to the cheese question, will we continue to win enough international business to clear the additional cheese, even if milk volumes continue to increase seasonally and Class III wins the milk?

Jacob Menge: I don’t think we have a choice, right? We have to compete on price.

Ted Jacoby III: If I reframe the question this way, if we have to go to $1.25 in cheese to clear our cheese, will we? I think we can go to $1.40, and we’d still clear the cheese. But once you go below $1.40 into the $1.25s, I think that’s a legitimate question.

But we still have some space below where we’re at today, at around $1.62, but yes. We’d go hit the bid.

Josh White: So, here in September, when our milk is seasonally lower, and we’ve added all of this production capacity, we clearly have the choice on where milk goes between Class III and Class IV. How much [00:23:00] of a discount does Class III need to be for Class IV to win the milk?

Ted Jacoby III: I look at that question a little bit differently in that the majority of all of our Class IV plants in the U.S. are co-op owned, which means they’re owned by the farmers themselves. So, I’ve always thought of it, whereas over and above their typical supply contracts, a Class III plant has needed to pay $1.50 to $2 more for the milk than the Class IV price in order to pull additional milk away. And the reason I’ve always used a $1.50 to $2.00 is the fixed cost of processing that they’ll still have to pay even if they don’t run the plant.

But now, if we flip it on its head and look at it the other way, and say, what kind of discount do the cheese guys need?

I would say this, I don’t think they’ll need to pay much of a discount. Maybe that marginal supply, that last 5%, is just by being opportunistic. But for the most part, if you can sell that cheese into a commodity market, if it’s a Cheddar plant, it’s that [00:24:00] CME cheddar block price, so, if you can sell that cheese into a commodity market, and you can still make money on the whey if you’re processing it into whey protein, and I think we all know that anybody making whey protein right now is making money, you don’t need to pay a discount to do it, and you’re gonna make money off of it.

But I think that equation is very different for a medium to small size specialty cheese plant in Wisconsin that’s selling a liquid waste stream than it is for a big cheddar plant that’s making WPC 80 or WPI, right on premise.

Josh White: Rewind three years. The argument was always that milk really doesn’t move that much between Class III or Class IV because, logistically, it didn’t make a ton of sense.

That I believe might be a bit different today, with a lot of new capacity in the Southwest and upper Midwest. When we’re at our peak milk supply, so if we’re in May, with all the capacity that we have and such strong milk production and anticipated milk production as of today, are we maximizing that capacity?

Or are we [00:25:00] still left with a choice between marginal milk moving between classes?

Ted Jacoby III: Assuming all of the new plants are running at full capacity and not having any production problems,

I think we can maximize all that capacity. Obviously, there are issues of whether there gonna be enough milk in each particular region to fill all the plants, assuming that there is, yes, you’ll fill all the plants up.

But I think it’s a really big if when I said if all the new plants are running correctly or running well.

Josh White: So, we spent a few minutes talking about what could change the firmness and change the direction there. What could change the climate for the other key pricing products: nonfat, dry milk, cheese, and butter?

Ted Jacoby III: I think butter is the easiest of those three to answer, and this is why.

Butter has, for the last 15 years, restricted demand through price. That’s why we’ve had $3 butter high, $2 butter for basically the last 10 years, and it’s [00:26:00] because there’s been a bigger demand for butterfat than there has been supply. I think butter is going to a place now where people are gonna start figuring out uses for butter that they had gotten out of over the last 10 to 15 years, ’cause the price was too high.

I think anybody who’s talking to someone who’s really fully involved in dairy markets will give advice that this is a long-term trend. And I think you can plan on having much more economical butterfat prices going forward, at least in the next five to 10 years.

Ted Jacoby III: If there have been people who have formulated away from butterfat, now they’re gonna start formulating back to butterfat. If there have been new product innovations that have been sitting on the shelf because the butterfat was too expensive, now they’re gonna get ’em off the shelf and start looking hard at ’em.

You could see over the next two to three years, some pretty nice increases in demand at these price levels. Cheese is a much harder one. The reality is, even at $1.60, we are not too far out of [00:27:00] the typical range of the price of cheese over the course of a year to two-year period, which means we’re not necessarily yet at a place where people are gonna start innovating in cheese in ways that they haven’t been.

Ted Jacoby III: Your biggest opportunity to increase demand is still international. And so I think the U.S. has to be really aggressive internationally, and I do think the international market is expecting us to be. I’m gonna throw nonfat to Diego because nonfat is the really hard one for me. I have really no idea where we can find skim milk powder in nonfat demand.

Diego Carvallo: Ted, I was really hoping that you would take that one. It’s all so difficult, right? Because the tendency is for greater demand in higher proteins and not necessarily in nonfat, right? But at the same time, I see that nonfat could get to a price, let’s say $1.10 or maybe below $1.10, where it becomes really appealing and interesting for different applications, which is gonna bring up a demand that we haven’t [00:28:00] seen at least in a strong presence, in several years. Right? There’s a level which we’re probably relatively close to, where we start finding additional demand that could all of a sudden shock the market to the upside.

Josh White: I think we need to pay attention to what we just experienced with the whey products as well. I mean, why is the commodity that is used in the milk price formulas, nonfat?.

Over the past year, we’ve actually seen pretty volatile whey production changes. We saw some plants go offline in lieu of producing whey protein concentrates ’cause the market is telling whey producers and cheese producers to make a higher concentration of whey protein. Why won’t we see the same thing in the milk powders camp?

It’s clear that people want a higher concentration of dairy protein. And the question is, will they value the milk proteins as they have the whey proteins? I think, arguably, they will. It is just gonna take a little bit of time.

Ted Jacoby III: Josh, I agree with you. Take nonfat and split it into two [00:29:00] parts: the lactose and mineral side, and then on the other side, put it on the casein side, the protein side. I think everybody’s been trying to find new, innovative ways to utilize the lactose and minerals for some time, and it’s been a very big struggle.

Not only is it not a valuable enough component for there to be good opportunities. You’ve also been in a food environment that has been minimizing sugar consumption rather than maximizing it. So, it’s just been decreasing in demand overall. That’s the hard part, to the extent that now they’re not even drying it and feeding it to the cows in many places.

The casein has been an interesting one to me because over the last 10 years, clearly, the value of the whey proteins has started to exceed the value of the casein. And if we’re maximizing the use of casein in cheese through cheese production, what else can we do with that casein molecule? Protein is valuable.

Amino acids are valuable. Just like I was talking about how we’re gonna start seeing probably innovation on how we’re gonna use [00:30:00] butterfat in products again, where we hadn’t for a while,

I think it would be very fascinating to have a conversation with a protein chemist about what you could possibly do with those alpha and beta casein molecules, those casein micelles, whether it’s applied as is, or whether you find an enzyme that can cleave them in just the right way to create a different protein that is highly valuable.

It’s probably one of those proteins, because it is such a massively large protein, there is value in that protein where the pieces probably exceed the value of the casein protein itself. I’m not a protein chemist, so I think that’s a good guest speaker to have on our podcast sometime soon.

Josh White: Ted, it sounded, during our low milk season, like we’re not very optimistic on the key drivers for dairy pricing.

Ted Jacoby III: Mm-hmm.

Josh White: I’m assuming that all are in agreement that we’re not expecting any major reversal in the consumer demand area in the coming months. It has to be supplied.

Jacob Menge: We need a milk production response.

Ted Jacoby III: We [00:31:00] do. I think we are headed that direction with some significant momentum based on what we’ve seen in price action over the last couple of months.

Josh White: I want to just revisit the point, even if we saw a pretty strong continuation of this lower milk price, when is the earliest we expect to see a serious response? Based on the equity producers have put up, the trend of genetics, the lower feed costs, the non-milk revenue that’s being created, and where we’re at in the calendar, it feels to me like that would be post Northern Hemisphere flush.

Ted Jacoby III: I will make two tweaks to that comment. The first is, don’t underestimate how drastically we could see a drop in milk production in California in the spring, given how low the butter prices dropped. Because if there is a group of dairy farmers who are just looking for a reason to exit the business, that’s the group.

On the West Coast, you could see some significant drops, less so, [00:32:00] especially in the concentration of larger farms in the Midwest, like the I-29 corridor or the Panhandle of Texas. I think you’re right. I think it’s less likely that you’ll see significant decreases in milk production in those areas. Wisconsin,

Eastern Ohio, Pennsylvania, it’s a lot harder to predict. You’ve got smaller farms; their cost of production is higher, and they may get hit harder. But those are also the regions where they tend to get some support from the local processing plants, who wanna make sure that they continue to produce the milk.

So, we’ll see.

I think it’s been a great discussion, guys. Thanks for joining us today, and all our listeners out there, thank you for continuing to listen to us. We’ve got a couple of great podcasts coming soon, with some guest speakers, and I look forward to talking to you all soon.

Thanks for joining us.

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Are you leaving calf money on the table?

Not long ago, a Holstein bull calf might have earned you 50 bucks, if that. Today, thanks to high beef prices and better breeding tools, that same cow might deliver a $1,000 calf instead.

Beef-on-dairy isn’t just a trend; it’s changing how progressive dairies manage their herds and drive revenue.

In this episode of The Milk Check, host Ted Jacoby III talks with CoBank’s Corey Geiger and Abbigail Prins about how dairy farmers are rethinking breeding strategies and how those decisions are reshaping herd structure, replacement numbers, and profitability.

• Why some farms are holding onto cows longer
• How sexed semen and genomics are guiding breeding calls
• And how beef calves are becoming a serious income stream

Whether you’re breeding for replacements, premiums or profit, this episode unpacks how to make herd decisions that pay.

Listen now to hear why the value of a cow’s uterus might be higher than ever.

Got questions?Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast.

Ask The Milk CheckIntro (with music):

Welcome to the Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III:

Welcome everybody to this month’s version of the Milk Check, a T.C. Jacoby & Co. podcast. Really excited today to have two special guests from CoBank, Corey Geiger and Abbi Prins. We are going to talk about breeding to beef and the profitability of the dairy farm, and how that dairy farm profitability has changed over the years as this trend has come about, and what it means for the future of dairy. Excited to have this conversation, Corey, Abbi, thank you so much for joining us today. So Corey, what do you do?

Corey Geiger:

CoBank is actually short for cooperative banks, so we’re the bank of cooperatives. We’re part of the Farm Credit System. Abbi and I are part of the knowledge exchange division, so we have a group of 10 economists who work in dairy and animal protein, consumer package goods, digital infrastructure, and farm inputs and crops. I’ve been at CoBank for two years now. I have just started my third year with CoBank, and Abbi joined our team about a year ago. She can tell you a little bit about herself.

Abbigail Prins:

Thanks, Corey. I also joined CoBank about a year and a half ago. I helped cover the dairy and animal protein sectors, come from a very heavy dairy and agriculture background, originally from Tulare, California, based out of Minnesota now. We’re excited to be on the podcast with you today, so thank you for the invitation.

Ted Jacoby III:

Abbi, Corey, thank you so much for joining us. Really appreciate it. So our topic today is going to be about breeding to beef and the dairy farm profitability, and how the whole breeding to beef trend has been affecting dairy farm profitability. Give us a little background on this trend of how more and more dairy farmers are breeding dairy cows in order to get cows to enter the dairy herd. More and more dairy farmers are breeding to beef and how is that affecting the dairy breed right now?

Corey Geiger:

I have a broad background, having been in the editorial team of Hoard’s Dairyman for 28 years and a past president of Holstein USA, and this is a journey. It really involves a triple play. The first part of that triple play was gender sorted semen coming onto the scene. Then genomics came on the scene, and then it all kind of came together with the beef on dairy movement. Now, economics always enters the equation because if I were to come back and have a conversation with my late grandfathers and say, “We’re breeding some of our prize Holsteins to Angus,” they’d throw me out the window, thinking I fell on my head. But gender sorted semen came along. Fertility rates really improved in dairy cattle, and I think that’s another part of the story for fertility and conception rates, and we landed up with more dairy replacements. Those prices dropped tremendously in about 2015 and almost fell to under 1,200 a head. At that time, beef prices started climbing, and a new opportunity opened up.

Abbigail Prins:

We start to see beef prices rise, followed by the introduction of beef semen purchases by dairy producers. Of course, this was not actually confirmed by the National Association of Animal Breeders, which started tracking this until 2023; however, the trend began in 2015, 2016, and 2017. We start to see more of these beef semen purchases,, and we see them being implemented into the dairy industry. We then yield these beef on dairy cross animals. They just start their career on the beef track right away instead of the secondary career after being in the milk industry and having that extra revenue generator I think was a very important piece for dairy producers to take advantage of and try to figure out strategically on the dairy farm, where’s the money going to come from and how can we best utilize the dollars that are coming back from all of our animals, whether it be from milk sales or cattle sales.

Ted Jacoby III:

The surprise to me was that the beef price started going up because if you think of it on a real, simplified level, if you’ve got more beef cattle coming into the beef herd, then why wouldn’t that cause an oversupply of beef cattle and cause the prices of beef cattle to start going down, but the opposite has happened since. What’s the dynamic that’s causing that? Is that simply an increase in demand for beef, or is there something else going on in the beef side of the business right now?

Abbigail Prins:

This, I would say, starts back to 2019. We see the peak of the beef cow cycle, so that was the most recent time that we had the highest number of beef female cows; that number we’ve been liquidating ever since. And when you have a low supply and high demand, that means the price is going to go up, according to a straightforward economic equation. So, where these animals come into it is that if we see this decline in the beef cow herd, if there are fewer females available, that means that fewer calves are going to be born in the preceding years. And then we’ve seen this transition since the late 1990s, where beef quality has skyrocketed.

We are seeing record amounts of prime and choice-grade beef, and as a result, we have extremely high consumer demand. We continue to see retail beef prices hitting records nearly month after month. They just keep going back to the meat case and buying more beef, which has caused cattle prices to really skyrocket and hit record levels nearly every week with regard to live and feeder cattle futures. And so that’s where we’re seeing this beef price really start to take off.

Corey Geiger:

Three bench posts to keep in mind total cattle inventory and that counts all beef cattle and all dairy cattle is at the lowest since 1951. The beef cow herd is the lowest since 1961, and feeder supplies the rest of us, which we would call those steers, are at the lowest levels since ’72. When you take those three data points and look at consumer demand and where we are today, limited supply, strong demand equals record prices.

Ted Jacoby III:

Did this really strong demand for beef start just before COVID, or has this increased beef demand been coming for a while yet?

Abbigail Prins:

I think it’s been a gradual shift in demand. I think the initial push started back in the 1990s to improve meat quality. Of course, that takes time, as we see gestation lengths in cattle are nine months, and then you still have to raise them until they can become part of the beef supply chain. I think that was the initial starting point where we see quality go up, and then just this gradual introduction back to consumers of we have this incredible quality of beef for you to be able to consume. I’d say it’s been a really big shift, probably over the past decade or so, and then moving into what it is today.

Ted Jacoby III:

When COVID hit, it was just kind of that perfect storm of everything is already tight, the demand for beef was already good, now everybody’s locked up at home, and all they want to do is cook steaks because they can’t go to the restaurant. They have a special meal, and the next thing you know, the beef herd drops a significant percent that just started the cycle, and when you’re talking about a herd, once it’s low, there’s no way to just snap your fingers and get that number back to where it needs to be, correct?

Abbigail Prins:

Sure. I definitely think that COVID kind of exacerbated the situation a little bit, and I definitely agree that COVID hits, you can’t go to the restaurant anymore, you’re going to buy a Pit Boss or a Traeger grill, and you’re going to start making all of those restaurant-quality dishes at home. I think because we’ve seen such a drastic change in price for food at home and food away from home, with regards to some of the CPI numbers that we’ve been seeing, that consumers would rather spend the money and “I can make a great steak at home. I don’t necessarily need to go out to a high-end steak house because I perfected it during COVID.” So I think that definitely brought it to an extreme very quickly. But yeah, I completely agree.

Ted Jacoby III:

Abbi, I think you’ve hit the nail on the head. I can tell you, for the last five years, when I go to a steak place, I don’t order steak. I can cook a great steak at home. I’ll usually order the fish or something that I’m not anywhere near as good at making as I am at grilling a steak at home. It makes perfect sense to me. So now we’re in a situation where the beef cattle herd is the lowest it’s been in, what did you say, Corey, 50 years?

Corey Geiger:

1. Almost 75, right?

Ted Jacoby III:

Jeez. So even though we are not only adding new beef cattle inventory from beef cows, we’re also adding new beef inventory from dairy cows. We’re still behind the eight-ball trying to catch up, trying to grow the beef herd back. Are we making any progress?

Corey Geiger:

When you look at the beef herd in general, where the source of beef is, a good thumb rule is about 20% or so comes from a dairy source, it might be a freckle higher, and then about 80% comes from native or purebred beef. Here’s a situation: the average age of a dairy farmer is about 58 years old, according to USDA data. The average age of a cow-calf operator, so the ones raising beef calves, is pushing 65 years old.

If I have nobody standing behind me to take over my farm, and I am now at the point that I can cash in my poker chips, beef calves, beef steers, and beef heifers at the highest price ever, am I going to breed them all back, or am I going to send some of those to the feedlot at these prices? And that’s really the biggest question that everyone’s asking: when will that reverse? Right now, you might see a percent or two, a few more heifers being retained, preliminary in this data, but for the last three or four years, they’ve been sending them, even the heifers, to capitalize on these record prices. This is a historic run.

Ted Jacoby III:

So how does it end? What do you think the scenario is? And we haven’t even gotten to the point where we’re talking about exactly how profitable this is for the dairy farmer, which is really the goal of the conversation, but I can’t help but ask the question: How does this end from a beef perspective? At what point does it need to be completely demand-driven, that for whatever reason, beef prices start to come down because the demand changes, and are we going to continually be chasing our tail, or can this scenario play out, and can beef prices normalize?

Corey Geiger:

Every bull market has an endpoint. The question is when, the reason we’re going to have a long run here versus poultry or hogs is the life cycle. You breed a cow right now, you’ve got nine months, and then at least probably another two years. So let’s just round this up and say three years here. We have that situation taking place, and I think equally important in the dairy space, we have this $10 billion of new investment in dairy plants. Dairy farmers have pivoted so fast that dairy replacements are at a 20-year low. We’ve culled 600,000 fewer dairy cows in the last 100 weeks. Heifer replacement prices are at a historic high. So now the dairy farmers are faced with a new option: do I make more heifer calves? Do I make more beef on dairy? But the reason that many I’ll tip towards that beef on dairy yet, “I can get 1,000 to $1,500 for a calf that’s seven days old, and boy, my risk is gone.” So where does it end, Abbi?

Abbigail Prins:

Well, I don’t think it ends with the consumer. They have shown us time and time again that beef demand is just absolutely superb based on USDA forecasts. When we were looking at those last year, we thought 2024 was going to be lower in consumption in comparison to 2023, and we were flat out wrong. They actually grew in consumption. I would say the same is very likely, again, for this year. What’s really been interesting is the question about when the rebuild is going to happen. What’s changing now is that we’re adding more weight to these animals. They’re staying longer on feed, and so we do see a little bit of reduced overall annual beef production, but not to the point where it’s really causing prices to go too far out of hand that the consumer’s willing to pay for it. So I do believe that beef is definitely a demand-driven market, and I think there are a variety of factors that could turn it around with regard to pasture conditions.

I think the age of the producer is something that definitely needs to be kept in mind. Who is the next generation coming to raise all of these animals? Do you have enough feed? Do you have pasture? Do you have capital? At the end of the day, we keep talking about record prices. Do you have the capital to be able to invest and ensure all of these animals that you own? So I think there’s a variety of factors that really play into this. I’m curious to see when the rebuild will actually happen, but when it does, I do think it will take longer to reach our next peak than what we’ve seen in the past.

Ted Jacoby III:

If it’s not going to end with the consumer, then it almost feels to me like, especially as we’re looking at how we’re probably going to see in the coming months, dairy heifer prices become really expensive. It almost feels like there’s always an end for a bull market, as Corey liked to say. But that end isn’t on the horizon at the moment.

Abbigail Prins:

I don’t think we are near it. No, even looking 12 months out, I would be pressed to say that we would be near the end. I think it’s going to be a little bit further than that.

Corey Geiger:

Different consumers buy different products. One of the other big things here is lean ground beef. The Burger Kings from McDonald’s to Burger King. If you’re in Canada, Tim Hortons relies on ground beef, and there was an article in the Wall Street Journal earlier this month that talked about Burger King. 25% of their costs right now is beef. It’s up 15% this year alone. That makes some of our fast food chains a little less cost-effective for consumers. Now we had been shoring that up with some lean ground beef from countries like New Zealand, Australia, and Brazil, but this is becoming a global phenomenon here on tight cattle inventories. This is beyond the U.S., and that’s why this bull market has a longer run.

Ted Jacoby III:

If feed prices are going to stay up here for at least the foreseeable future, how is that benefiting the dairy farmer? If we go back to 2005, a dairy cow calf, 50- 51% of the time, it was a cow. 50/50, 49-ish percent of the time, it was a bull calf, and that bull calf was usually sold for maybe $100. Gosh, am I a little bit too low? Was it maybe a little bit more than that?

Corey Geiger:

Maybe a little bit, but $100 is rounded to $100.

Ted Jacoby III:

Rounded to 100. Either way, what we’re saying is that on the balance sheet, it did not represent that much. Now they’re getting upwards of $1,000 for a beef calf. How has that changed profitability for the dairy farmer? If I’m a dairy farmer today, I’m getting income from my milk. That one’s pretty straightforward. We can more or less figure out what that revenue would be on a per farm basis based on how much milk they’re making. There would be revenue when it was time to sell their cows to slaughter. Now there’s revenue in many cases from their manure, and now there’s revenue as well from breeding to beef. How big a portion right now of that top line revenue for a dairy farmer is their beef revenue from beef calves?

Corey Geiger:

There’s some really good data out there from Farm Credit East and Frazer & Torbet that we just recently analyzed here. And you’re absolutely right, this wasn’t a big part of the ledger, but the numbers have really, really changed here in the last two to three years.

Abbigail Prins:

So the Farm Credit East data we’re looking at in Northeastern dairies includes some of their financial data. They break this down into milk sales and government payments. We have cattle receipts and then crop sales and things like that. So if you take all of that income and put it together, and you make a percentage of cattle receipts of this total income, we were sitting at about 5% starting in 2019. Even before then, it was a little bit smaller, but you can think of calf sales or cull cow sales falling into this category. Now that we’ve seen such a large revenue increase from what these animals are worth when they’re being sold, we’re close to about 9% as of 2024. It’s very likely this number will go up in 2025.

And if you look at it on a chart, you’re moving up and to the right with regard to what these cattle are worth with regard to total profitability. The same kind of trend line can be seen from the Fraser data that Corey mentioned. This includes states like California, Arizona, Washington, New Mexico, and Texas. So very much the western region of the United States. And what’s interesting is that the trend is very much the same. They were sitting at about 2 to 3% back in 2019, so just five years ago, and that number is over 6% as of 2024. The same trend is being seen there, and they’re definitely making an impact on profitability at the end of the day.

Corey Geiger:

And those numbers are revenue, and I think the listeners got to keep in mind most of that’s also profit because if you’re looking at it at the farm level, a dairyman or dairywoman can milk a cow throughout the year and the net profit that they’re making in 2024 on those milk sales or that beef on dairy calf is almost equal at this point. So we’re seeing unusual retention of dairy cows these days because if I’m talking to farmers in the audience, the value of the uterus is so important. The value of getting another calf out of there supersedes the value as a cull cow because you’ve got to remember her beef is also worth something too. But what’s the next best alternative?

Ted Jacoby III:

Everybody, we will be right back after these messages.

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Ted Jacoby III:

Where my head’s going as I’m listening to Abbi’s numbers, let’s just say 2 to 3% of revenue to nine, maybe 10% at the end of 2025, plus we’ve probably had some increases in manure revenue. Plus, as we transition into 2026, feed prices are probably going to be lower as well. I just drove from St. Louis to Michigan right through the heart of Illinois. We did not see one stock of corn that wasn’t absolutely perfect. The corn harvest this year is going to be phenomenal, and I mentioned that in the context that we just had milk production up 3.3% the last time we had milk production up over 3%, ultimately, the prices of milk really came down.

But now we’ve got a number of other income sources for the dairy farmer. Are we going to see a reduction in cow numbers? If the Class III price drops $2/cwt, that’s probably not enough. We probably need to see the Class III price come down to $3, $4/cwt minimum and stay there for a while before we see any significant change in the way they manage their herd. Compared to 5, 10 years ago, when we’d see big swings in cow numbers, when we’d see big swings in milk production.

Corey Geiger:

You haven’t run the numbers on what it would take to drop a milk price to change cattle numbers, but you touched on the most important part first. I also run a six-generation farm. I sold some of my corn crop futures on July 3rd, and corn is down 45 cents a bushel since this is called Independence Day. That really changes the input part of the equation here, and it will be a lot more cost-effective to feed dairy cows in the coming season. The other thing we have to keep in mind is that we’re going to see some pretty high milk growth volumes here in the second half of the year because we have to remember that the number one dairy state, California, had 18% of the milk production battling HPAI, pathogenic avian influenza. And so 80% of those herds were impacted by it. So we’re going to see some big gains here.

What will it take to reduce the dairy cow herd? I think it would be a significant shift in the milk price. Right now, we are on a record pace for exports, certainly something that your team works on each and every day. If my memory’s right, you opened up the first office in Mexico way back under the NAFTA days, so you were pioneers in that era. If we keep growing exports and domestic demand holds strong here, we’re not going to see a big run on cow numbers because if you look, again, come back to this pullback on dairy cow culling. There’s no national data, but cows are getting older. If we culled 600,000 fewer in the last 100 weeks, there’s a group of 20% that’s a lactation older now. And so we’re going to have to see some turnover, and based on semen sales, there are just so many moving parts that never happened in our lifetime.

Beef semen sales in the last five years to dairy farmers are up 58%. Gender sorted semen sales to make a heifer calf, a dairy heifer calf is up 43.5. And conventional semen sales, what we would call random XY 50/50 bull calf heifers, are down 46%. So farmers are planning their future replacements, but because dairy replacement inventory is at a 20-year low, the pen of heifers in the national herd, we can’t grow topside right now. In fact, some numbers Abbi and I ran, we looked at in 2025 and 2026. Those two years, we’re probably running 400,000 fewer heifers than the year before each of those years, just because of this dramatic shift. So even if milk production’s going up right now, we don’t have a lot of upside capacity to grow it because we just don’t have cow numbers, future cows.

Ted Jacoby III:

The only way to grow it is an older cow’s back-of-the-envelope estimate. I’m almost afraid to mention this on a podcast, and if you guys have better numbers, please contradict me. But my back-of-the-envelope estimate is we grew the average number of lactation in the past year that a dairy cow would put out by roughly a third of a year. And so I think it was roughly 2.3, and after a year, it’s probably about 2.6, which means we can maybe do this for two or three more years. And then we’re now getting into the point where we’re at 3.5 to four lactations per cow. That feels to me like the point where we’re going to start having trouble maintaining increases in milk volume because the cows are just getting too old. Does my back-of-the-envelope math sound about right to you, Corey?

Corey Geiger:

You’re back at the envelope math. I could go a third. I could go for half a lactation. And this is such a big issue that the American Dairy Science Association had a discovery conference in May. We had people from 17 countries around the world talking about this because we have spent a generation taking better care of our first lactation cows, because they’re, think about being in high school when you’re a freshman versus a senior, you’ve got to take care of them a little bit differently. And now we have a bunch of seniors in the pen who have different challenges. Older cows when they are in the cabin have more metabolic and fresh cow issues. So yes, every time we make another turn on that lactation, we need really good cow people on these farms to bring them around to that next lactation. Those are just some of the high-level dynamics there.

Abbigail Prins:

I think something else that we need to keep in consideration. So Corey mentioned avian being in the dairy cattle herd, which is how we’ve seen that large year-over-year increase in milk production. Something else that Cory and I have really been studying for the past year is milk component production. When you’re asking earlier about milk pricing, well, we have over 90% of milk priced on multiple component pricing. And so if we are growing butterfat and protein production, that’s, I think, the key to what is being reflected in milk checks that are sent back to the dairy farmer. We’ve seen in some of the early data that, of course, it makes sense intuitively that if you have the next generation of heifers coming on farm, they are supposed to have the best genetics of all of your animals. So now, as these animals start progressing through the herd, they become more of the sophomores, juniors, and seniors that Corey just mentioned, that very early on they have that really high component production, and that stays with them.

And as we keep bringing on the next best set of genomics and genetics on the farm, you’re going to see that component production start to grow, too. And I think that at the end of the day, to bring it back to your original question, what happens to the milk price to be able to shift cow inventories? I don’t think we’re going to see a bunch of declines in component production because that’s such a large part of the milk check, but anything is possible. I do think the health challenges that Corey mentioned are very important when talking about an older herd. You do need to manage them differently. And at the end of the day, it’s all about strategy, and you’re not going to take care of a newborn calf the same way you take care of a first-lactation cow or an aged cow. It’s going to be very different for each of those groups.

Ted Jacoby III:

I didn’t think of it that way, that you’re going to get more and more specialized in terms of how do we take care of these older cows and in the short-term we’re chasing it, but in the medium-term, they’re going to figure out how to take care of those older cows and they’re probably going to be able to keep them healthier for longer and get more milk out of them as well.

Josh White:

Listening to the whole conversation around non-milk income on the farm drives an entirely different set of decision-making rationale on the farm. You have a changing farm dynamic with certainly many larger style operations that have resources that the smaller farms don’t. And I just wonder with this income that’s being generated, do you believe the dairymen today are investing in these types of things? Are they in front of it, or did Ted mention chasing a moment ago? Do we think that the dairymen are out there really working with their nutritionists and others to make sure that the aging herd can perform? I’ll just preface it by saying there are a lot of people out there who will talk about the output of an older cow. That could be wonderful. It can be a great component output, it can be high-volume output. They’re just more vulnerable to illness, injury, and other factors. So do you think people are investing in that?

Corey Geiger:

Well, I absolutely do. People have different skill sets. There are regions of the country that used to run on high turnover rates in dairy replacements because you know what? When they were 11, $1,200 a piece, that’s a whole different fundamental equation. Now, the USDA’s July 2025 number is $3,000 average for dairy replacement. Wisconsin’s topping the country at 3,200, and in auctions in Pennsylvania, Pipestone, Minnesota, and over in California, the top Holstein heifers are bringing four grand. Well, that’s a whole different proposition level, and how you care for them and keep them around is you’re going to put more money into that. So that’s one part of it. The neat thing about beef semen on dairy, though, is that everyone can play. Everyone can play in that market. $4 I think would be a little bit on the high side for me, but I’ve seen numbers certainly touch $3 and crawl over that number.

Doesn’t matter. Five years ago, that number would’ve been under $1. None of us would be talking about it right now. So it’s a big time game changer. Reemphasize the value of the dairy replacement because spending time on beef, and we’ve made that proposition in April of 2019, you could have paid under 1,200 and got choice and privilege for any good dairy replacement out of anyone’s barn, and they would’ve sold every one of them to you. So if July that number’s at 3,000, that’s a 165% increase. And so if you’re planning an expansion or you want to help fill one of these plants that are coming online across the country, and you’re talking to your banker, that’s a bigger gulp of a number. So now you’re faced with, “I’m going to grow, and I know there are dairy farmers out there. I’m going to plan my dairy replacements for a three-year horizon because at that price point, I can’t run around and buy them all either, right?”

Josh White:

One thing that shocks us during every cycle, and this goes back before my time, and I think Ted will echo it through generations, is the resilience of the dairy event. We’ll put them through tough times, and the response on the farm tends to be much different from what we would think when trading the product or moving the products. I guess if I’m hearing this discussion correctly, they’ve only built more equity. They have the sensitivity to the milk price, although extremely important, and the number one thing is a little bit less than it was in prior years and generations. And as a result of that, it really feels like the U.S. is poised to continue growing milk continuously over the next several years.

Corey Geiger:

In the last five years, I’ve had a number of livestock groups call a dairy guy up and really want to understand this, and if that call had come in 10 years ago, I would’ve called it lunacy or heresy. But now people are really trying to wrap their heads around it because it’s kind of fun being a dairy farmer. Because you have these different options to make, and you can make more dairy replacements, and you’re going to do quite well on them, too. Part of it may be, “Hey, I don’t want to build another barn. Let’s make more beef from dairy calves. Hey, I’m going to grow. I can put up another barn and raise more heifers. Hey, I can call and get those shipped out somewhere.” So there are just so many options in a decision tree right now. It’s kind of fun to manage them.

Mike Brown:

All right, this is Mike Brown. Well, if you’re going to commit to growing a dairy, you’re committing to a long-term horizon because it’s a lot of investment. People are truly in it for the long haul and a lot of them, they’re greenfield, they’re really going for the long-term return. We’re increasing the cost of assets, which means that the commitment is bigger than ever going to reinvest to grow. You better be planning for a long-term horizon.

Corey Geiger:

Absolutely. If you’re going to build a new dairy today and you just look at what that cost was 12 to 18 months ago with inflation, we’ve seen double-digit increases in concrete, in wiring, in labor, in steel. We’ve had over 25 quarters of insurance increases. So all these little things add up and it affects not only dairy farmers, but dairy processors. If you are going to retool and revamp and build something for the next 10, 25 years or longer, it is a long-term play and it will impact how you approach this entire situation.

Ted Jacoby III:

Just doing the math in the back of my head, even if we’re up $3/cwt in terms of extra revenue, that’s not even showing up on the melt check. You have probably since 2019 an increased minimum of 30% of costs for a dairy farmer. That’s my guess. Plus you’re probably also selling fewer cows at the end of their second and third lactation. So the number of fully grown cows sales has gone down, so that’s a part of it. And even though your component prices are up, so maybe you’re getting a little bit more revenue on your milk check there in the last six years, I think most dairy farmers would tell you the break even price on the milk check is not the same as it was five years ago. It’s still gone up even with those other revenue streams.

Corey Geiger:

Correct. Everything’s shifted higher, exactly.

Tristan Suellentrop:

We mentioned that over the last 20 years there’s been a lot of variables influencing cow prices, and Abbi mentioned that aging farmers without a succession plan is one of those factors. I was wondering if you see them trending to follow a specific path such as selling their herd, or is it just kind of too varied to predict?

Abbigail Prins:

So I could speak a little bit more to this on the beef cow side rather than dairy, but I’m sure the similar concept applies that if you are an older individual, you’re looking to retire and you do not have the next generation to come up behind you. Well, why not get out while the market is high? I mean, it’s better than getting out when the market is at a rock bottom, right? So intuitively, that makes a little bit of sense. We’ve also seen where, I mean, this plays a little bit into the rebuild as well, that they’re not keeping extra heifers back. And I could say the same thing that dairy farmers are not going to expand if they do not have the capital to be able to invest in those animals or they have other debt that needs to be paid off.

When we talk about the dairy industry or even just other sectors of agriculture, it is very common to have a diverse business that you are not only raising dairy cattle or you are not only raising beef cattle, you’re doing crops or you’re growing trees or you’re doing something else to diversify your business. We’ve seen how crop prices have fallen over the past couple of years that you have producers in the beef sector that are selling off extra calves because they are at record high prices, sell them off and help cover some of that loss on the crop side. That also plays into this a little bit.

I would like to believe that happens on the dairy side too, that if you have other things that are taking precedence of what debt needs to be paid off first, where’s the money going to come from? And when we’re talking about diversification of income, I think the dairy industry has really been a beacon or a front-runner where you have milk sales, you have cull cow sales, you have beef on dairy calf sales, you have all of these other revenue generators besides just milk, and that’s helping spread risk across the business so that when volatile times hit, because it’s not an if, it’s a when, that you are better prepared for those situations.

Corey Geiger:

Costs have gone up over the last five-year horizon. But the other thing is milk coming off a U.S. dairy farmers has changed tremendously. If 90% of the milk in this country is priced on multiple component prices with 90% of that price fixed to butterfat and protein, farmers are shipping a lot more butterfat and protein and a lot less water. I had the opportunity to co-present with Jonathan Lamb on New York dairyman at the USDA Ag Outlook Forum, and he put data on the screen. This was a data set, same herds, same management. His fifth and later lactation cows were averaging a three six butterfat. This is a Holstein herd. His first and second lactation cows were averaging a 50, 50 versus 36.

Ted Jacoby III:

Wow.

Corey Geiger:

From protein. The young ones were averaging 36, and the older ones were averaging 32. Now, nobody sells percentages, but when you multiply that by pounds, that means that milk coming off of Jonathan’s farm and he’s really representative maybe on the higher side because he’s all in on genetics and genomics. But look how much more valuable his milk got per pound over that five years. And those who are being very aggressive in this category and aggressive in my mind means using the top end Holstein and Jersey Bulls are your favorite breed, getting heifer calves out of those best cows and for dairy replacements, and then looking at the bottom end of that bell-shaped curve and saying, “Hey, you guys don’t need to put a dairy replacement here. I’m going to harvest and send your calf to the second career right away at beef on dairy.”

There is a lot of revenue to be made not only on the beef side of this, but raising the component level. Because consumers, when we work the export market, we’re largely not shipping fluid around. We’re putting solids out there and processors want solids. And this story has just begun.

Ted Jacoby III:

Corey, I couldn’t agree with you more. I think Mike and I have already started talking about having an episode here in the next month or two where we’re talking about that very theme. And even more specifically, over 50% of all the milk in this country goes into making cheese and the fat component is growing faster than the protein component. And cheese plants are starting to really struggle with that. And so we’re traders here, everything’s about supply and demand, and right now we’re seeing a drastic shift in the supply-demand balance of butterfat as we speak because of that change. I’m very curious to see how that all plays out in the next three to five years as that fat percentage continues to go up. And also how cheese plants deal with the surplus fat that’s coming at them, especially as it relates to protein, because there’s more fat out there than protein, and it’s creating a very fascinating dynamic in the cheese plant right now.

Corey Geiger:

And from a genetic standpoint, so now you’re going to talk geneticy, but there’s a 80% correlation. So if you raise butterfat, there’s 80% chance you’re going to raise protein and vice versa. So these two traits are hitched to one another. Now the difference though is we can do more things through feeding to raise butterfat levels, and right now the dairy farmer is receiving signals that butterfat’s worth more in protein, and that’s where the processors need to deal with it on the next end of it. I agree though that long-term, when you’re looking to make cheese, half the milk in this country goes into cheese. We do need to be very cognizant of that fat-to-protein ratio because it’ll have some dramatic impacts long-term.

Ted Jacoby III:

Yeah. Well, and the math is simple, if I’m a dairy farmer. Whether the butter price is $4 a pound or $2 a pound, the formula still comes to a very simple conclusion, produce more butterfat.

Corey Geiger:

Bingo.

Mike Brown:

And over-exaggerate a bit on the cheese side because you can’t get the revenue quickly from the whey cream that you’re going to get from double-A butter, which determines the regulated price. And that’s part of the challenge as well. Grade-A butter is not the only value of fat, but is the one that regulates price and that’s causing some of the difficulty.

Ted Jacoby III:

All right guys, Corey, Abbi, this was a fantastic conversation. I learned a lot. I have a feeling everybody else in this call learned a lot. Look forward to seeing you soon.

Corey Geiger:

Take care.

Tristan Suellentrop:

Take care. Thank you guys.

Ted Jacoby III:

Bye.

Outro (with music):

We welcome your participation in the milk check. If you have comments to share or questions you want answered, send an email to podcast at jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check, is a production of T.C. Jacoby and Co..

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The school bells are ringing in some changes for milk. Are you ready?

Tune in to The Milk Check as the Jacoby team churns through the latest supply and demand dynamics in the August milk market, including:

• Why the usual summer heat dip in milk production feels normal, despite 3.3% higher year-over-year numbers
• Why cheese prices are holding steady and how New Zealand’s production could impact exports
• Why protein products are powering ahead with strong domestic and international demand
• Why nonfat dry milk remains stuck in a flat market

Whether you’re a farmer, processor, or trader, tune in to The Milk Check to learn where we are and where we’re headed as we head into the holiday season.

Click below to listen to The Milk Check episode 81: From Summer Heat to School Coolers.

Got questions?Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast.

Ask The Milk CheckTed Jacoby III: Welcome, everybody, to The Milk Check. We’re recording this particular podcast on August 5, 2025. We’re having a classic market discussion today, and with us are Josh White, head of our dairy ingredients group; Greg Sheer, who heads up our milk marketing group; Mike Brown of Jacoby dairy market intelligence; Tristan Suellentrop, and me. We’re gonna just quickly speed through all the products and talk a little bit about what the demand and supply looks like as we transition from the heat of the summer into the fall. This time of year, what we’re usually watching: the weather is hot, milk is starting to get a little bit tight, and then school starts up in a couple of weeks, so the bottling plants start needing more milk.

We start shipping milk to the Southeast, and that tends to start a progression of tightness, not only in the milk supply, but in the supply of all dairy products as we get into the fall and the holiday season. So, we’ll go ahead and start with Greg. Hey, Greg, can you tell us a little bit about what’s going on with milk right now?

Greg Scheer: We do see seasonally tightening milk supply. Production has been hit by the summer heat like it usually does. Maybe a little more heat in the Northeast than normal. We’re seeing that in the Mideast and Midwest and all the way into the South and Southeast.

We have some comments from some of our producers that maybe a little bit older cow herd has caused the heat to be a little more significant than normal. But we don’t see an overabundance of that normal seasonal weakness in milk production. We’re seeing solid demand, and we’re starting to see a draw to the Southeast as schools will be starting up soon in the South and moving North when the schools start. So, that filling of the pipeline is going to really tighten the market, as it normally does seasonally at this time. So, tight spot markets and premiums throughout the Northeast, Mideast, and Midwest. We have the normal heat in the Southwest.

Maybe a little less than usual in California, in the very west, but seasonally we’re trending where we typically are this time of year, and we’re about to get to the tightest time of the year when schools start to fill that pipeline for the school milk. So, expect firm spot market prices going forward. Even though production may bounce back a little from recent heat as we move into the end of August and September, depending on the weather this month.

Ted Jacoby III: The Milk Production Report for June said we were up 3.3%. Does it really feel like we’re up that much in a lot of the parts of the country, Greg, where we’ve got milk, or does it just feel like a classic deep summer transition into fall tightness?

Greg Scheer: It felt like that in June that we were up that much. It doesn’t feel like that now, which is normal. We had a heat wave in June, all of a sudden it went from being kind of cool and rainy to a hot spell that kind of kicked off the summer.

That may have hit production a little earlier than normal, and it wasn’t really a gradual warmup. It just feels normal seasonally as we head into the rest of August. I just feel like it’s gonna be tight like it normally is, and it’s gonna be hard to come by spot loads once schools start filling for school needs.

Ted Jacoby III: It almost feels like what you’re saying is that the increase in milk production generally has been offset by the increase in heat this year. And it’s just setting us up to roll into the fall feeling pretty normal.

Greg Scheer: That’s what it feels like to me.

Most of the milk supply that we know the best is that of the upper Midwest, the Mideast, the Northeast, and even sending milk to the Southeast. So, in those areas, for sure, it feels like a classic seasonal pattern that we’re in.

Ted Jacoby III: Got it. Josh, what do you think that’s gonna do to the butter powder plants?

Do you think it’s going to tighten up our butter and non-fat supplies, or do we have plenty of inventory out there right now?

Josh White: I think it’s a complete tug of war, Ted, because we went into the year feeling like we’ve got a lot of extra cream. We’re clearly feeling the impact of dairy farmers learning how to manipulate the components in milk, particularly butterfat.

That’s put us in a situation where we’re out seeking international customers for our [00:04:00] butter fat in the U.S.. Then, all of a sudden, we enter these summer months, and there’s a lot of anticipation over major processing plants coming online, particularly in the Southwest. And it’s a giant question: how quickly do those plants finish their ramp-up?

Where are they in their ramp-up process? Are economics driving the ramp-up process over the next six months? And where is that milk coming from? If you look at the U.S. on a 12-month holistic view, it seems like we got a lot of milk. To Greg’s point, as we get into the third quarter here, it feels almost like we could experience a bit of a whiplash.

From what we’ve felt over the past 60 days. The heat set in in July. Maybe it’s seasonally normal. The processing plants that I mentioned are starting to bring in more milk intake. Where is that milk coming from? We’re at our seasonal low in milk production. Our comparables for milk against last year were impacted by the bird flu, which affected milk production. So, our comparables are maybe [00:05:00] a little distorting at times. And when you aggregate all of that together, I’m not so sure that we’re sitting on cumbersome volumes of dairy solids in the third quarter. Now, measure that against the demand climate, and I think that might tell a different story.

Greg Scheer: While we look at milk production as volume, we see lower components, which is normal during the summer, so definitely lower milk production, but also lower components. That leads into what Josh was saying, too, about reducing solids in dairy products.

Ted Jacoby III: So, to clarify, Greg, when you say ‘less components,’ you mean seasonally, not annually.

Greg Scheer: Yeah, the heat in the summer, it’s typical for butter, fat, and protein to drop, and that’s definitely what we’ve seen this summer as well. Alright, cool.

Ted Jacoby III: I was listening to Josh speculate about demand, Mike, and it made me think of a question I should ask you and ask you to harken back to your Kroger days.

How much of an increase in milk demand would Kroger and Kroger’s milk plant see when we would transition into the fall? What kind of bump is that from a Class I standpoint?

Mike Brown: Really, very little because Kroger doesn’t bottle any milk for schools. So, milk is fairly consistent. You will see some seasonal changes in spring in parts of the Southeast.

For the most part, they’re more stable than most. But, interestingly, you’re talking about this ’cause I was just looking at that from the standpoint of working on pooling strategies for a couple of our customers.

From July to September, your demand for Class I goes up roughly by around 10%. As far as total milk supply, you think schools are what, around eight or so? That’s kind of what you’d expect it would be. Okay. Of course, they fall back again in the summer, and they fall back a little bit over the holidays.

As far as consumer retail sales, most of the shift you see in late summer is due to the start of school. There isn’t so much for home.

Ted Jacoby III: So, is there much of a change in fluid milk demand at the home level when kids are home for the holidays versus when they go back to school?

Or do they consume cereal pretty much in the same [00:07:00] volume during the school year as they do when they’re off for summer break?

Mike Brown: They bump a little bit, but you also counter that with vacations. People take vacations in the summer, and they tend to eat out more; as a result, food service establishments don’t use as much milk.

Milk is a product that is definitely consumed at home, unlike some other dairy products, which have a huge part in food service. I’ll have more on that because, as I’m working on figuring out how pools are going to look, Ted, I’m getting into month-to-month changes.

So, ask me next month, I’ll have better information for you.

Ted Jacoby III: August is the transition month every year. Maybe everybody goes back to school in September, but all the milk plants get ready for everybody to go back to school in August.

Mike Brown: That’s definitely true. That prep is starting. To Greg’s point, what we’re seeing out West, talking to some of my cheese friends out there, is: milk is still strong relative to a year ago. It’s seasonally weaker; components are seasonally weaker; that’s normal. They haven’t had quite the heat wave that the Mideast and parts of the East have had, or even parts of the Midwest, but they’re still very strong year-over-year. Whether it’s still 3.3%, [00:08:00] no one’s willing to say, but they still say it is a strong year-over-year. So, we should have adequate milk. I think it gets back to the point that’s been brought up, which is consumer demand and domestic demand in particular. If we’re going to have a strong amount of production or exports, we can continue to cover the production that we are enjoying.

Ted Jacoby III: Well, that’s part of where my head goes too. We’ve got extra capacity. We’ve got additional capacity in the Southwest primarily, but some additional capacity in some other places in the country as well. And so, even though milk production may be up 3.3%, that doesn’t necessarily make everything feel like it’s up 3.3% when you have additional capacity to fill.

Where are the big places where milk tends to shift around this time of year? It’s usually in the Mideast, but with the additional capacity online in other parts of the country, it is feeling quite normal. And so, they’re not feeling like they’re up 3.3%.

The result is they’re going through this summer and transitioning from summer to fall in an environment that feels pretty normal.

Mike Brown: The [00:09:00] overages on Class III last week, USGA reported a range of minus two to plus three. Keep in mind that Class III is more affordable, relatively speaking, because the price is lower due to the change in Federal Order pricing.

Mm-hmm. That kind of range is simple; the average is 0.5, or 50¢, which is not an indication of a really tight milk supply, at least yet.

Ted Jacoby III: Makes sense to me. I got a cheese question again for you, Mike.

Going back to your Kroger days, does cheese consumption at the retail level change significantly as we transition from summer to fall, or is it relatively consistent year-round?

Mike Brown: It goes up during holidays, as people consume more. We used to joke that people eat cheese in November and December, then they eat skim yogurt in January to shed all the extra dairy fat they enjoyed over the holidays.

Cream cheese is more seasonal. Butter, of course, is very seasonal. But cheese sales are — of the major dairy categories — closer to fluid milk in being more consistent; it doesn’t vary quite as much, but it does vary. It’s easier to plan for because your shelf life [00:10:00] on cheese is a little longer. But it’s pretty stable. It definitely goes up. You build for that. The cuts and wraps are being made now to sell in October. I can guarantee you that they’ll make the product in October to sell in November. That’s somewhat normal, but it is not extreme.

For example, with butter, you’ll see Q4 sales will be double what they are in some other quarters. With cheese, it’s 10-15%. Still significant, but not a huge number. Got it.

Ted Jacoby III: And then you also have the longer shelf life, so they can just move that.

Mike Brown: Yes. Yeah. And that’s getting longer with technology. You can sell in pretty much all package cheeses, six months, and summer, stretching that a little farther.

Ted Jacoby III: Thanks, Mike. I’ll go ahead and talk a little bit about cheese for everybody. Retail sales are flat. Food service sales are flat, at best, and possibly even slightly below flat. Cheese production is up due to the extra plant capacity and increased milk supply. Exports have been ensuring that everything continues to clear.

And that has left us in a position where cheese right in this range, we’ve been [00:11:00] in for a while, 15¢, 20¢ on each side of a $1.75. Cheese has been performing relatively well in that range for a while. The big question I think we’ve been asking ourselves is, as New Zealand milk production comes back online, are we gonna be able to keep all of our export sales?

I think that remains to be seen, but we are sensing that there may be some weakness at some point, not today. Today, if anything, the cheese market feels very mildly tighter. And I say it that way because it feels tighter, but again, it’s the first week in August. It always feels tighter in the first week of August as we transition and milk is pulled away from cheese vats to go back to school. But it actually feels, if anything, less tight than usual for this time of year. We’re anticipating the fall bump in cheese prices to be relatively muted this time of year.

And then we are watching closely the domestic demand [00:12:00] side of the ledger and the export demand side of the ledger as we transition into the fall. We have concerns about the market’s ability to maintain cheese prices, let’s say in the $170-$180 range. What about the protein side, Josh?

Josh White: Maybe we should work through all of ’em, but let’s start with the popular ones. The whey protein side is remarkably firm still. I think we’ve discussed the various demand drivers in previous podcasts. One thing I failed to consider is the seasonal dip in milk and its implications for cheese processors across the country, as well as the impact on effective yield for whey proteins. On the supply side, the plants coming online and the expected production from those facilities have, in some ways, been a little slower or disrupted from expectations, and that’s all happening in a climate where demand is very strong. We’ve experienced remarkable new demand creation for acidified or clear proteins in beverages, along with significant new product development. That then pushes the higher value products, forcing others to compete for the remaining whey protein isolate production.

That then feels like it’s cascaded and made WPC 80 still feel quite firm right now in the market, not just domestically, but also internationally. We have received some really nice inquiries for the entire third quarter. I think it’s starting to have quite an impact on the milk protein.

Every segment that uses higher-protein products seems to be doing pretty well right now. Even the snack foods and CPGs they’re all ordering slightly more than they did before. Even if those are low-inclusion-rate items, it aggregates to a noteworthy amount of product.

That’s the fun story in dairy right now: we have robust demand for dairy proteins. Now, as you go down below those higher concentrations of proteins and you get to the 34% and sweet whey powder and some of those products, the demand isn’t [00:14:00] quite as robust, but the solids aren’t there.

The pull to process in the WPC 80s and above is extremely strong. The storyline that really hasn’t been as much fun is non-fat dry milk. That’s just been a flat, flat market. It appears that globally, the demand for non-fat products is stagnant. That doesn’t mean global demand for dairy is stagnant. People, I believe, are just moving up the value chain and ordering more of the products they want and less of the commoditized version of it. We’ve seen a little price volatility in non-fat. It’s August 5th today. I think over the past week, the non-fat market has given up a nickel or so, 5¢ a pound. But that doesn’t mean demand has weakened.

I think that’s currency. You can tie it directly to the value of the dollar and the movement you’ve seen against our most significant competitor, the euro, in the global skim business. I think that the non-fat story has been a bit boring, while the higher concentrations have been a lot better. I’m not sure that will change much in the coming months.

Mike Brown: As we look at prices and some downside risk on some [00:15:00] markets, the revenue from beef on the farms remains very high, which is giving our producers a little more room to remain profitable with slightly lower milk prices.

The whey side, certainly helping on the Class III, as well, and Class IV remains fairly robust despite a little weaker butter. We just want to remember that when we’re looking at profitability at the farm, it’s more than just income over feed costs.

That beef revenue is affecting producer incomes in a very positive way right now. And that should keep them a little healthier. Prices are lower than we might have thought otherwise.

Josh White: You know, Ted, we didn’t really spend a lot of time on butterfat, and I think probably a large percentage of the market was paying a lot of attention to what’s happening there. Maybe unaware of the global situation on butter fat, but it should be noted that butter fat remains very, very tight in Europe. Europe is trading at a significant premium to the US. When we can put all of these storylines together in the international market, you have to think that that’s going to influence the product [00:16:00] mix out of Oceana and New Zealand’s new season coming up. I think most people who are listening to The Milk Check know that they’re entering their spring season over the next few months. The New Zealand milk production base, at least, is off to a nice start, but it is still a few months away from the truly important milk production months. And so, we’ll have to see, 1.) Does New Zealand continue the strong start into the big volume portion of their season? Number 2.) What product mix do the New Zealand processors favor?

And then what do we see happening in terms of any other disruptions that have gone a little bit quiet in terms of global trade and tariffs?

Ted Jacoby III: That makes sense, and I agree with everything you’re saying. There’s a lot to watch in the butter space right now, and it feels so much different in the U.S. and everything we’re talking about in the U.S. than it does in Europe. And then you’ve got New Zealand out there starting up, and they kind of sit in the middle, whereas they’re gonna have a much bigger effect on the global butter price.

Probably affect how much [00:17:00] butter the U.S. will export. But at the same time, they also have probably an even greater opportunity to export into Europe or into the places where Europe traditionally has exported and take some of that business because they’re not gonna be competitive where they’re at.

Josh White: Exactly. And their product is a little different. Our product is different than theirs, and when you talk about retail consumption globally, it’s a little bit easier of a fit to displace European product with New Zealand product than it is at the retail shelf of displacing a darker, higher fat, core product with a whiter, lower fat, based product out of the U.S.

Ted Jacoby III: Exactly. All right. We had a quick discussion today, but it was a good one.

Thank you, everyone, for joining us today. We’re at a point in time where we haven’t reached the stage of seeing a significant amount of milk moving to the Southeast yet.

And so, while things are starting to tighten up a little bit, we don’t necessarily know how tight they’ll get. Milk production’s been up quite a bit this year, and so we’re watching that closely. And then on the demand [00:18:00] side, it’s just been a weird year, and I think you can tell by the way people are talking, domestic demand is very flat, but exports have been pretty good in the umbrella of a whole bunch of conversations about tariffs, which has brought a lot of uncertainty to the marketplace, to say the least. Overall, prices are holding steady. Prices are still at a level where dairy farmers are making a profit, which means we don’t expect milk production to drop significantly anytime soon.

We’ll keep an eye on it for everybody as we move forward.

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GLP-1s like Ozempic and Wegovy are changing how Americans eat, and that has big implications for the dairy industry.

In this episode of The Milk Check, host Ted Jacoby III welcomes Paul Ziemnisky, leader of nutrition and industry growth platforms at Dairy Management Inc., and Dr. Chris Cifelli, vice president of nutrition research for the National Dairy Council.

Together with the Jacoby team, they unpack what GLP-1 appetite-suppressing drugs mean for dairy demand, and how our industry can win. We cover:

• How GLP-1s suppress hunger and how dairy’s fat + protein combo supports satiety
• How protein quality matters more than ever, and why dairy still leads the pack
• How R&D teams are turning classic dairy products into high-protein, low-sugar solutions

From gut health to GLP-1 support, this episode dives deep into one of the most important trends shaping dairy today. Join us for The Milk Check episode 81: The Ozempic and GLP-1 shockwave hitting U.S. dairy.

Intro with music:

Welcome to the Milk Check, a podcast from T.C. Jacoby & Co, where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III:

Hello, everybody, and welcome to the Milk Check. Excited to be here today. In addition to our usual suspects, Josh White, Mike Brown, and my brother guest, Jacoby. We’ve got two special guests today. We have Paul Ziemnisky, leader for nutrition and product science, technology, innovation and industry growth platforms at Dairy Management Inc. Again, we have Dr. Chris Cifelli, vice president of nutrition research for the National Dairy Council. Guys, thank you so much for joining us today. Thank you for taking time out of your busy days to talk about GLP-1s and how it’s affecting the dairy industry. We really appreciate it. What are GLP-1s and why are they good for dairy?

Dr. Chris Cifelli:

I’ll start with what they are and then Paul can talk about the consumer point of view. One of the key things whenever we eat food is that feeling of satiety, the feeling of fullness we get during a meal and then the satiation that occurs between meals until we get those body cues again that we’re hungry and we want to eat. Unfortunately, in the environment we’re in with stress and different factors, our body is a lot off schedule, so we tend to eat a lot more than we may need to on a daily basis.

What GLP’s are, glucagon like peptide is the official name, it’s an appetite suppressant. So, when you eat and especially when you eat fat and protein, the body will release GLP-1 naturally, and that’s what starts making you feel full. What these pharmaceuticals are, are ways to keep the levels of GLP-1 up in your body so you feel less hungry throughout the day more naturally. And what that’s going to do is you’re not going to snack quite as much. You’re not going to have those cravings maybe for sweet salty snacks during the day. But with that appetite suppressant, it means that every calorie really then matters when you’re eating throughout the day, and that’s really where dairy can win.

Paul Ziemnisky:

To build on that, what it means for dairy is, I think Chris used two magic words, fat and protein. I think fat’s been vilified since this early ’70s, late ’60s, and we’ve put a lot of effort in investment in proving the value of fat, especially dairy fats. I think you’re going to see in the next six months, the acceleration of an acceptance of fat into things like the dietary guidelines and other uses. And the protein side of the equation, we’ve got the highest quality protein by far. We’ve got science behind the highest quality proteins and the efficacy of that.

And then by the way, consumers, when they purchase anything, taste is number one factor. So, when you look at taste, price, value, health and wellness, we deliver on all those three sweet spots for that consumer. And so, you see things like yogurt on fire because of that, because they can have yogurt and they enjoy the taste and it’s got all those signs behind it with gut health and immunity. You see things emerging like cottage cheese. Cottage cheese is fermented, cheese is fermented, and I think we under market and under leverage that.

Chris and I have been on the road working with our cheese peers talking about let’s play up the protein and the fermentation, and some of the health benefits of that to drive new occasions. Then you see other things popping too in the space like creamers, which are adjacent to the GLP piece, but that fat in the keto and that satiety. And so, we’ve been working to dust off the decades of science to actually build a health and wellness playbook for the industry to use how to talk about these in a modern way with consumers. The great thing in the playbook is we actually tie the messaging and claims to science evidence, and so this is all the way approved through the USDA. So, we’re packaging out if you want to talk about weight management, you want to talk about performance, you want to talk about gut health, we’ve done quad studies with consumers at the different age cohorts. So, if you are a parent with a two-year-old, we’ve done studies with them.

If you’re talking to a boomer, here’s how you talk about dairy at these different needs states and moments. And so, worth this fulcrum where it all adds up to where about 60 plus purchase decisions at the home, is a health and wellness decision. And just to dollarize that for our farmers, that’s $350 billion being spent in these high priority areas. And our share in those $350 billion are small today. But if we get three share points of these spaces, that’s the size of the yogurt category today. So, we can double the yogurt category. And the great example of that is look at the probiotic sodas. They launched. They don’t have any science like we do on yogurt. But they’re the $2 billion category in five years, yet kefir’s only $250 million. Yogurt’s sitting around $6.5 billion. So, there’s a lot of significant upside us playing in some of these spaces and GLP’s one of those spaces. There’s even a bigger macro in the health and wellness space opportunity.

Ted Jacoby III:

Is protein really the biggest driver behind some of those health and wellness spaces that we want dairy to become a bigger part of? And why protein? You mentioned, Paul, when you were talking, he goes, “We’ve got the best protein.” Why is dairy the best protein?

Paul Ziemnisky:

I’ll let Chris answer the why and I’ll talk to the spaces if that’s okay, Ted. These spaces, when you start to carve out that $350 billion, you’ve got physical, athletic performance, sustained energy, childhood growth and nutrition, then you start to keep going around these areas of weight management. Those are $50 billion segments right there, and protein is the key driver. When you look at muscle growth, performance, protein is essential to fueling the growth. Then you get into the gen Y and millennials are recognizing they need that protein for that sustained energy. So, that’s where you’re seeing the growth of creamers and all this. They’re pounding it. They’re not drinking coffee, they’re drinking dairy with coffee.

And so, we’re seeing these other spaces of how do they stay satiety, energized, healthy. And then as you start to even age out, the boomers are recognizing they’ve got the most disposable income. You’ve got this big group of 80 million people, they’re trying to stay healthy. And so, you’ve got pre-aging occurring from the millennials and gen X, who don’t want to get to the point where they’re fracture risk and all that, so they’re consuming more protein because they’re seeing what’s happening to their parents. And then you’ve got the parents who are seeing what’s happening to their friends. And so, you look across all these age cohorts, proteins is this key driver for different needs states of each of these age cohorts. And Chris can talk through the science now.

Dr. Chris Cifelli:

From a nutrition point of view, I grew up building with Legos, so yeah, all these different pieces. For protein, there’s 20 amino acids, nine of which are essential, and dairy has all those. So, whey and casein are both complete proteins, so they have all the essential amino acids we need and they have them in the right proportions to support muscle growth and development, and all the other functions that protein do in the body. When it’s packaged, whether you’re talking milk, cheese, yogurt, cottage cheese or just isolates, it’s very bioavailable, so you’re not worried about any digestibility issues. You’re not worried about it being outcompeted by other nutrients. Our body takes it in.

What makes dairy really unique is you have the whey and the casein. So, whey being very fast acting, it’s absorbed very quickly. It’s great for muscle recovery after exercise. Whereas casein, a little higher in tryptophan, a little slower digestion, so you’ll feel a little fuller, but then at the same time a great protein before bed because of the tryptophan may help you sleep and recover overnight. There’s all this unique layering to it that really sets it apart from other sources of protein, even ones like egg that also have a lot of amino acids in them as well.

Ted Jacoby III:

How many different proteins are in milk?

Dr. Chris Cifelli:

Just the two main classes of whey and casein, and then a lot of different peptides and other things in there. But generally speaking, those are the two main protein classes.

Ted Jacoby III:

With whey proteins being a lot smaller, more easily digestible, and the casein being a lot bigger and therefore a lot slower to be digested.

Dr. Chris Cifelli:

Generally speaking, yeah, that’s a good way of thinking about it. Laddering it back or taking it back to the GLP-1 discussion, when you lose weight, especially weight rapidly, your body doesn’t care if you’re losing fat or muscle, so you’ll start losing both. And that’s why protein’s so important. So, as you’re eating meals or you’re needing that snack, all these dairy foods, whether they’re casein, whether it’s a glass of chocolate milk, whether it’s a yogurt, it’s going to provide that high quality protein you need to maintain your muscle as the body’s shedding the fat to help yourself on your weight journey. That’s one of the key attributes where dairy can win in this space.

Paul Ziemnisky:

What we’re doing on the R&D front is really focusing on investment to the isolates and things like that for functionality and products. And so, you see this heavy growth in nutritional beverage. You start to see these things like the Nurri at Costco, well on its way to a $100 million in its first year, and you see all the different, the Fairlife nutrition plans, the Orgains, the Premiers, that’s where you see this investment in R&D to make it function because otherwise the old used to settle in the products. And now they’re even adding it to water and other types of beverage.

Chris was over at IFT this week doing concepts in these protein-based mocktails. There’s investment on the nutrition science front, but there’s also heavy investment in the protein space for functionality, and bars and things like that. There’s a lot of things happening that is going to enable that protein of dairy to be placed in other growth sectors. I would expect you’re going to see the pizza crust. We’re looking at things to breads at Taco Bell. We’re looking to replace the shells with cheese as an examples of that, to meet some of these GLP consumers who are trying to cut back on those processed carbs and use dairy as the hero there.

Josh White:

What are the largest risks of GLP-1 consumption or GLP’s consumption for individuals? And is the demographic largely skewed to boomer or are you seeing equally as many millennials? Sorry to add multiple questions on here, but then the final question is I haven’t heard a whole lot about gen Z yet. From a healthy eating standpoint, as a parent of that demographic, I’m pretty blown away at how much they care about protein and what they eat. How does that demographic fit into this consumption profile for GLP?

Paul Ziemnisky:

The first thing we’re seeing is high sugar desserts, ice cream and things like that. So, we’re aggressively looking at high protein dairy. We actually took the IDFA forward this year. Cottage cheese, ice cream concepts is an example of ways to go in that low 22 grams, 25 grams of protein, 50% less sugar. So, you’re seeing a lot of players look at the ice cream space. How do they keep playing in that 7% of our sales in food service? So, how do we win there? I think that’s the biggest by far risk area. And the other one is just as we know, this $4 or $5 billion that’s being put out there in the cheese space, 750 million pounds of cheese coming online, cheese is going in some of these areas that’s carb driven. Whether it’s pizza, burger in that space. And so, working with the players, how do you bring thoughtful solutions to the food service players, a ways to use cheese and dairy. For us, we’re looking at ways to help them cut the carb side of that.

Consumers love the food. If you were to look at food service today, what’s slowing anything in food service down? It hasn’t been a GLP. It’s been primarily the inflation and that’s affected people who are living paycheck to paycheck. Taco Bell will tell you at the end of the month, people are coming in with change. And that’s not GLP driven, that’s economics driven. There’s winners though. Taco Bell, they’ve played that out because they’ve invested in innovation, keeping the consumer engaged and giving them solutions. Where McDonald’s, their traffic’s down, they walked away from innovation for a couple of years. There’s winners taking place and there’s losers in the food service world. But I would just say in the food service world right now, 90% was hitting food services is that inflationary piece hurting the consumer.

So, back to gen Z, you look at gen Z and the consumer segments. What’s interesting is really there is like five multiple segments who are going on GLP. There’s significantly overweight consumers. But there’s also people that are just looking to be fit to do it quickly to get back into shape faster. I think it’s like 25% to 35%. It’s an interesting fact. It is balanced across age groups, to your question. And there are a lot of younger people that hey, they’ve tried the diet. 80% of the US are always saying they’re on some sort of diet, but they’re finding this is a quick diet solution. When you look at the people who go on GLP drugs, the average is nine months, but you have some people that are going on for a month to two, that’s these younger generations who may need to lose 10 to 15 pounds. I’m like, hey, that’s an easy way for me to control it.

Because Chris will tell you on the science front, these side effects, the number one side effect is nausea. You’re just not feeling good. You can handle that for a month, but that’s where dairy plays in. That yogurt and the high protein helps offset that nausea feeling. That by far, if you start to segment it out, it isn’t really an age thing. It’s across all age cohorts. The risk though to GLP also favors dairy because the people who are obese going on it, you do lose that rapid weight, but guess what? You’re losing muscle and bone mass. When you go to any of the doctors today, especially people that are 50 plus, they’re hammering. You got to take dairy.

Chris and I were supposed to have a meeting tomorrow with two of the leaders of the industry on the GLP front and they actually postponed us. I was hoping we would’ve had some intel from them because the drug companies are going to feed in what they’re seeing and learning so far. So, maybe we have another regroup with you guys in three months. To answer your question, I think dairy across cohorts are going to have a significant solution, meeting these consumer needs. As you get older, it’s the bone mass. When you get younger, it’s the satiety and the nausea and maintaining fitness as well.

Center commercial with music:

Everybody, we will be right back after these messages.

If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby & Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.chacoby.com to get started. Thanks for listening to the Milk Check. Back to the show.

Dr. Chris Cifelli:

We have to remind ourselves that these are still relatively new pharmaceuticals and these companies are working, as Paul’s mentioned, IFT, and there was a nice session on this. They’re all working to release now drugs that won’t have the same side effects. Maybe you won’t feel that same nausea and digestive issues. They suggest that one company’s working on a once a month injection so you’re not having to take it daily. So, it’s going to become even more prevalent. And I think they said in the session, it’s 5% or 6% of the populations on them right now, which doesn’t sound like a lot until you realize that’s about 20 million people who are currently on the drug with something like 10% to 15% who have at least taken it at some point. So, you’re talking significant numbers of people.

When we think about dairy’s opportunity space, as Paul said, some people are going on it because they’re not happy where their weight is and they want to lose weight, but then they transition off. And this is where the protein fat combination of dairy can really then fit in. You want your appetite to remain that you’re not going back to snacking or overeating again. The satiety factor of the high quality protein and the fat that comes with four fat dairy products like cheese, can maybe help you keep the weight off that you maintain while maintaining muscle mass. There’s that opportunity to introduce dairy not just a nutrition solution while you’re on the pharmaceutical, but also that you be part of the management plan [inaudible 00:14:46].

Ted Jacoby III:

But a lot more than just those people who are on Ozempic and Wegovy are hearing that message, and they’re realizing that for all of us we need to increase our protein intake. It’s getting beyond just that segment of the population that is hearing how important protein is, especially for the baby boomers in the aging population.

Paul Ziemnisky:

Especially when you start to look at youth. I think something around 87% of youth aren’t getting all the essential nutrients. And so, protein’s the first. All those other 13 essential nutrients that dairy provides, we know especially with people of color, they’re way underserved in that space. They’ve been following a lot of the regulation of, Hey, you have to stay away from fat, stay away from some of this. So, I’m hoping we see some improved messaging to help educate because we’ve been on it with our nutrition affairs, educating the doctors. Chris’s team is working with the Mayo Clinic doing science right now around whole fat. And Mayo Clinic’s already started to publish, given the look of the evidence we’ve given them to start to talk about not whole fats are the same. I think the understanding of what dairy’s fat is different, how it acts in this perfect combination will not just help us accelerate protein. We offer this broader nutrient density combination that no one has.

Josh White:

Where do most people get their nutritional advice from, particularly when they all of a sudden become medicated? Where are most people going for this advice? And who’s giving the people on the GLP drugs the advice as to what to eat?

Dr. Chris Cifelli:

That’s a great question. I think we all have to recognize their knowledge that medical doctors, general practitioners, family practitioners, insert doctor there, nutrition education is just not something that they get, and just like the rest of us, they’re getting it from sources that may or may not be reliable. In an ideal world, their practices would have a registered dietitian nutritionist partnered with them that after the doctor leaves the office, the nutritionist comes in. But we don’t live in the ideal world.

As Paul mentioned, we have this collaboration with Mayo. One of the things we’ve been talking about with them is how do you over time, increase the nutrition knowledge of the primary care physician so that they are understanding of what are the current recommendations? What is the latest science? Acknowledging that NDC has done a great job. Katie Brown, our colleague, working with them to ensure that, at least at the Mayo Clinic, we’re providing them that information, because it is a frustration. There is a lot of education that has to go on. And unfortunately then you go to social media, which gets like only 2% of what’s on TikTok nutritionally is accurate. That is an opportunity space for all of us, the education especially around dairy foods of their health and wellness benefits and dispelling some of these myths that you only have to have low fat, or you got to cut it out or it’s not improving your health because it’s categorically false.

Paul Ziemnisky:

I think the way to think of it, medicine to date is reactive medicine. It’s shifting though, Josh, to preventative medicine and we win, because that’s where food is. Medicine comes in. That’s where we’re at the forefront. If you guys have the ability and the privilege to go through the Mayo Executive Program, anybody has $20,000 to play with, you go in there and they look at your blood, they look at all these other tests, they do to EKG.

But the great thing is Mayo, they’re developing algorithms and they can say she’s predisposed of these three or four things. They can tell you that now based upon the executive program. But their goal is with telehealth and technology because they’re passionate about the rural consumer. They recognize whether it’s farmers or the inner cities. They don’t have the access like the Suburbans do to all the high-end doctors and stuff like that. So, Mayo is aggressively saying, how do we develop modern systems and technologies? The great thing is that will get to the youth fast. They’re telling you that three to five years you’re going to start to see these things roll out. And then when they recognize they’re going to put you on a food diet versus a pharma diet. Like Chris said, it’s always been pharma and the doctors because it’s reactive. When it comes to preventative medicine, food is going to be the solution. That’s where we’re really investing in that space.

Mike Brown:

Those of you who’ve known me a long time know I’m a lot smaller person than I used to be and GLP-1s played a big role. My house much better. My diabetes is fully in control. My cholesterol is actually below average, below for the first time in my life. But the other thing I want to comment on is my partner, who is eating the way I eat now. And frankly my diet, even though I’ve been on Ozempic for two years, was not prescribed by doctors. I did the work myself, because they don’t provide information. Part of that I think is because health insurance doesn’t really cover it, so they don’t worry about it too much. But he’s lost weight, too. He’s healthier, he’s more fit. So, my question is, this role of dairy protein and fats in our diets goes far beyond whether or not you’re on an expensive pharmaceutical from Eli Lilly or Novo. And what do we see as far as that broader impact?

These benefits go beyond just the shot. A big part of my success has frankly been the diet change. And yes, Ozempic makes it easier. We just eat differently. And I think we don’t need to tie the success just with an injection. The point was made earlier. A lot of it’s just diet decisions and it’s how we educate our physicians and our health community to help people make the right decisions. Chris, what do you see as the best things that are effective in helping with that education? Because it’s more than just giving someone a shot. It’s got to do with changing the way you manage your diet.

Dr. Chris Cifelli:

Great question and point, Mike. There’s a lot of nutrition size out there. We’re pretty confident in what protein does, fat does, the different diets. One of the joys of being on Paul’s team and the innovation team is when I’ve thought about these things differently. Now, I think these things are wearables and these things are phones, are going to be our best educator. Because as we get better at reliably tracking what we eat through the day like they do your sleep and your blood pressure, that kind of data motivates you to make change. The biggest gap right now in technology is that we have no easy way of capturing what you eat. I’ll say to you, “Hey, what did you have for breakfast today?” Or the thing will ask you, but it needs to be more real time.

Imagine merging your real time nutrition data with what your primary care physician and your insurance company takes from a healthcare. Now suddenly, you can enact change. You can start manipulating the two things and marrying to drive holistic change. In the next five, 10 years, you’re going to see this technology and the ability of AI to scan through some of that and say, “Hey, you ate this. Your blood pressure’s this. Tweak this a little.” Maybe for you, yogurt and cheese is the best option. Maybe for you it’s whole milk. Maybe for you you need to go lactose free. And then you see those real time changes almost like a video game and suddenly you’ll see those health improvements. It’s a really exciting, innovative time right now. I think nutrition field is poised to take a leadership in health.

Mike Brown:

Yeah, speaking of wearables, because I have a long-term serious type two diabetic, thankfully now completely in control. But the thing that’s helped me as much as Ozempic has been a CGM. I know what my blood sugars are. I can tell you right now what it is if I looked at my phone, and when they get to the point where they can do that through the skin and not having an attachment, I change every 14 days, it’ll be better. But that to your point is a tool and I’ve learned what I can eat and what I can’t eat. And if I eat six servings of whole grains a day, I’d be back above an A1C 6.0. I’ll guarantee you.

So, those tools are going to help me as they become more accessible and affordable, it’s going to benefit everyone because cost of healthcare goes down if we’re healthier. As I’ve gone through this journey, the thing that’s been most exciting to me of all, what a big role dairy personally is paid for me in solving my health issues because of the proteins and the satiety of the fats. I haven’t changed my fat consumption. I tell people, if you’re a cheese maker, you still love me. If you grow wheat, potatoes or rice, you don’t like me so much. You do make changes in your diet.

Dr. Chris Cifelli:

For sure. And I think the exciting thing about personalized nutrition is… I’m Italian descent. I can’t give up pasta. I mean, I think my grandmother might come down from heaven and beat me. But how do I manage eating a portion of that or mixing it with Parmesan cheese or mixing in some ricotta so that I’m getting a little bit more protein and not overeating on the carbohydrate part? The more information, the more power then the consumer has and the more empowered they are to make these healthy choices. Like you said, continuous glucose monitoring is a great way. You do that because you have to link it to your foods. You want to know what’s spiking. Now the average person, they can make better and more informed choices and maybe stay away like I did right before this call because I was stressed and I grabbed a handful of Doritos. Maybe I’ll reach for the yogurt next time.

Josh White:

What are the next five years of this GLP innovation? What are the possibilities?

Paul Ziemnisky:

You’re seeing things in direct foods, high protein beverages, customs-focused products to help nutrition like PROTALITY from Abbott. Nestle is going big with Vitality. So, to give you food solutions that are higher protein, nutrient dense, low-processed carb, low sugars, you’re seeing food solutions. You think about the old meal kits that were hot a decade ago or during COVID, these custom boosters were GLP where they’ve got patented fiber blends. You got these online meal programs, high in fiber, low in fat, free of cholesterol, no added sugars. And this is where the dairy proteins, whether it’s dairy protein as a powder and different functional delivery vehicles are going to be put in. So, there’s going to be direct dairy as an ingredient on the pizza that Vital Pursuit has. There’s going to be direct milk as an ingredient in these beverages. But in these other meal pieces, these milk kits, these powder kits that you can be on the go take to the office, take it to work with you and do it yourself.

And then how do we attack supplements? We haven’t played deep in the supplement space, but we’re developing technologies like encapsulation so we can encapsulate and deliver things. So, right now, we’re in the ability to do encapsulated lactoferrin because it loses a lot of its efficacy when it hits either the liquid processing or even like a colostrum, holding that efficacy and bioavailability, by taking that next level down of dairy components and putting it back into dairy even, and adding functional things to it. Looking at different ways we attack the supplement aisle and bring added value. Because the one thing, Mike, to your point earlier, when people go on those diets, the households spend more on groceries. They’re spending more on food. And we know why. Consumer’s number one discretionary spending is health and wellness. We don’t often think about it, but that discretionary spending of, “I’m going to a health club. I’m ordering X and Y,” that adds up.

I remember when we helped launch Fairlife eight, 10 years ago, people said no one would pay $9.50 a gallon of milk and they’re paying 30 bucks a gallon of water that has no functional benefit. They will pay for high functional beverages for dairy and high functional foods for dairy, or just in an industry that’s been run by operations people. I come from the marketing side. You have companies like Procter & Gamble who make tons of money on margin on products on razors. They move people off a 10 cent Bic, into a $10 Fusion, $12 razor. I think the same thing’s going to happen in dairies. We’ve got to think value on top of the volume in these spaces because it’s a huge opportunity for us to look at the whole production line. It’s not just a cheese line, it’s not just a whey line, but we’ve got some great value added products that we’re going to be able to deliver.

GLP just as carve out piece, when I was talking to you guys about health and wellness, they’re spending as much money in these other spaces in health and wellness as their physical performance. Mental emotional health is going to be 10 billion this year. Chris talked about dairy, and tryptophan and casein helps sleep, There’s $5 billion. So, you start to go to these places, you’re going to see a combination, Josh, of innovation, very specific GLP, but broader dairy is a functional piece to deliver all those health benefits and high margin areas that we haven’t thought about playing before. And so, the question is do we want to be a supplier as an industry of ingredients? Or do we want to get down the vertical chain? I keep encouraging the industry closer to the consumers where you make the money.

Mike Brown:

You’re right, you spend more for groceries. We eat out less because I can’t get the foods I want to eat if I go to a restaurant. We’d bring Chinese carry out home so I can make my way of making a California rice edibles so I can have that with my cashew chicken. Do you see innovation on the restaurant trade side to accommodate some of the people that are trying to eat the higher protein, lower carb diets?

Paul Ziemnisky:

Right now, you’re seeing it happening like chicken.

Mike Brown:

How do we make sure that that chicken still has a little dairy on top of it?

Paul Ziemnisky:

Yeah, we actually do a lot of concepting in that space and then we share with the dairy processors, “Hey, here’s ways to pitch.” I’d say it’s probably one of the biggest complaints we hear from the food service side, is we focus a lot as an industry on retail, but food service has got a huge opportunity for dairy. You’ll look at chicken channel, you’ll look at some of these different players and as a side as an ingredient, I think you’re going to see, Mike, a shift. Cheese is a part of that, but you’ve got sour cream and other components going in there and different ways to deliver it. If you look at Taco Bell’s menu 10 years ago, the most expensive item was Doritos. Now we’ve got a $7.99 grilled cheese burrito, but we’re also testing cheese shells. And we’ve got dairy whips and freezes for us in food service, beverage is a big venue to attack the carbonate soft drinks. You’ve got smoothies, protein, coffee at Dutch Bros is a great example of that. We’re just starting to scratch the surface.

But in health and wellness, Mike, the top 10, QSRs control 45% of the sales and food service. Crazy. McDonald’s and Starbucks, all those guys. About 86% of food service sales go through the top 100 quick serve and fast casual places. And the rest are just the dine-in fine dining and stuff like that. It’s the emergence of these fast casual players that you’ll see move up that didn’t exist a decade ago. Chipotle is one, Panera is one. But it’s that next generation of player. Like Raising Cane’s is coming in and they don’t have a lot of dairy. It’s in their batter. How do you make it more prominent? So, there’s a huge opportunity just outside of GLP in the food service space.

Josh White:

I think we’ve covered the full circle in the conversation. Everything from infant to elderly, from athlete and sports nutrition, to overweight and pharmaceutically, and in all cases, it sounds like our products are superior.

Dr. Chris Cifelli:

And then a great point is dairy foods in particular, yogurt, kefir, cheese, are augmented end have tremendous health benefits. There’s strong science on its ability to help with gut health and lower inflammation as well. There was one area we didn’t hit on yet for GLPs that I think is important and maybe, I don’t know, Mike, if you’ve experienced this. But not only do you not want to eat, but you tend not to want to drink as much as well. So, hydration is such an important part of GLPs. And we know from studies that milk is more hydrating the water based on the beverage hydration index and other studies. So, it is the protein and all that stuff, but as you’re even trying to stay hydrated during the day and with older adults, this is already a problem. You can see where milk and the lower lactose ones for those who are lactose intolerant could be an awesome solution to get the protein, the vitamins, the minerals, and the hydration they need as they’re on these pharmaceuticals.

Mike Brown:

Well, the sports benefits of a drinking dairy are the same if you’re on a GLP diet. You’re absolutely right. The other thing is, lactose is digested differently. I’m not intolerant, a little bit slower. And now in our local grocery store, I have a choice of three high protein milks. I have Kroger’s brand, I’ve got Fairlife, and I’ve got Darigold FIT. They’re all lactose-free, too. I mean, they’ve all been treated with lactase. So, the options for that consumer are a lot greater. I think you got to get away from the amount of calories in milk to the amount of nutrition there is in milk for the calories you drink. And I think a lot of consumers struggle with that.

One thing I’m learned through my wellness journey is that if you eat high-quality protein and good quality fat, you will eat less because you won’t be hungry all the time. I can’t tell you the last time we bought a bag of chips. It’s been at least two years. It’s just is what we do. I’m from a family of large people and this is what you do if you don’t want to be large anymore. The whole balance of calorie versus nutrition, I think, is something that dairy has the most wonderful story to tell. Always has. And we’re doing a much better job telling it frankly, thanks to folks like you. Well, it seems like plant protein beverages have had their day, at least for now. Of course, the amount of protein in some of them is also suspect.

Paul Ziemnisky:

I think the industry’s gotten together and done a good job informing whatever farmers do every day for a living. I think that education’s gotten out there. And what’s shifted is the consumer, this younger generation, gen Z and Y, they’re more diligent. If you look at where we had headwinds the last decade where we had all the famous celebrities, private equity, the billionaires chasing alternatives, plant-based and cellular, that private equity and that money’s drying up. I mean, they’re still out there. You’ve got Europe doing their crazy things. But domestically and internationally, we’re set up long-term. So, instead of having headwinds the last decade, we have tailwinds, investment back into dairy, not just the 10 billion of assets our own industry is doing, but you see the private equity guys are looking, the brands are coming back, all the different health spaces, they’re putting more assets and more investment in it.

So, you’re seeing companies act. You’re seeing consumers act in the space and the tailwinds behind us now, the high quality protein, all these different growth spaces that the consumers are spending against. And that brain cognition. We’ve got research emerging there. We haven’t even talked about the future milk fat globule membrane, WPPC. Historically, they will waste products right. Now those are going to be the next value areas you’ll hear about in dairy in the next couple of years outside of lactoferrin because they’re meeting these functional needs. If you look at the macro at retail and at home, this area of food is medicine or precision nutrition. As you start to understand what affects each person personally, there’s going to be that component. But we also forget if you shift over to food service, it’s mental health. When you think about mental health also, it’s a relief. And so, that’s why still 60 plus percent of the decisions at food service, I’m going to go and just get something great.

I want to cook. I want to have something that keeps everybody happy. My friend grew happy, my family happy, whatever. And guess what? When you look at that list of products and you ask them, it’s mac and cheese, and pizza, it’s ice cream, and dairy by far is the number one ingredient product in the food service space for meeting that mental health space. I say we’re set up to win because the two areas of growth is going to be this health and wellness space in this space of taste enjoyment that drives our society forward. If you look at exports, you’re seeing we’re penetrating markets. Pizza’s still underdeveloped and burgers’ underdeveloped, and all these other dairy carriers are across growing economies. The tailwinds are pushing us in all these spaces, in the US the way we’re set up is really to win.

Ted Jacoby III:

Awesome. Paul, thank you, Chris. Fantastic conversation today, guys. Paul, Chris, really appreciate you guys joining us. This was just a great conversation about all the different ways that dairy’s got a really bright future. So, thank you.

Dr. Chris Cifelli:

Thank you.

Paul Ziemnisky:

Thanks for the opportunity to talk to our farmers. We represent all the US dairy farmers. And we’re the voice for nutrition, science and product science on behalf of them. And our job is to drive dairy growth incrementally, so we’re trying to find ways to do that. That’s our team’s role, so thanks for the opportunity.

Outro with music:

We welcome your participation in the Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Theme music is composed and performed by Phil Keggy. The Milk Check is a production of TC Jacoby & Company.

Dr. Chris Cifelli:

Rock and Roll.

View Details

En este episodio de The Milk Check, le damos la bienvenida a Ruth Aragon al equipo de Jacoby, quien se une a sus colegas de muchos años, Miguel y Yara. Es una reunión basada en décadas de experiencia, relaciones sólidas y un enfoque compartido: fortalecer la presencia de Jacoby en toda Latinoamérica.

Acompáñanos mientras el equipo analiza:

• Cambios en los patrones comerciales y el crecimiento de las exportaciones de queso en México, Centroamérica y Sudamérica
• Por qué más compradores en Latinoamérica están optando por importaciones directas — y qué significa eso para los productos lácteos estadounidenses
• Dinámicas de mercado: desde la incertidumbre arancelaria hasta la volatilidad climática
• Un apetito creciente por las proteínas lácteas en toda la región

Desde leche fluida hasta productos terminados, Ruth aporta una experiencia que abarca toda la cadena de suministro. Juntos, este equipo ampliado está listo para ofrecer más valor a los clientes de la región.

No te pierdas el episodio 80 de The Milk Check: Bienvenida, Ruth: fortaleciendo a Jacoby en Latinoamérica.

View Details

In this week’s episode of The Milk Check, the Jacoby team convenes to dissect a dairy market that feels balanced – barely.

From milk still trickling in past the flush to range-bound commodity prices, this episode covers the major trends shaping the back half of 2025.

• Cheese exports are keeping Class III in check
• Culling numbers are down as producers are keeping heifers longer
• Global butterfat advantage fading with tighter GDT spreads
• WPC, WPI demand stable, but new production capacity looms

And what if prices fall off the edge? From trade risks to recession fears, the industry feels one light push from price chaos.

Listen now for insights on margins, milk flows and market forces.

Got questions?

Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast.

Ask The Milk CheckIntro (with music):

Welcome to The Milk Check, a podcast from TC Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III:

Hello everybody, and welcome to this month’s version of The Milk Check podcast by TC Jacoby & Co. This week, we will have a classic market discussion. It is June 9th, so we’re approaching the midpoint in the month of June 2025, and joining me today are Diego Carvallo, our Director of Dry Dairy Ingredients Trading. Jacob Menge is our vice president of risk management and trading strategy. Josh White, our Vice President of Dairy Ingredients. Mike Brown, our VP of Market Intelligence. Joe Maixner, our director of dairy ingredients and resident butter expert, is also there.

I think we’ll go ahead and start with milk. It’s the middle of June. We’re past the flush, but milk is probably a little bit heavier than we expected. Milk production has been up. We know what is going on. The dairy farmers are making money, and they’re keeping cows. Their culling numbers are down, and so we’re seeing cow numbers up, maybe a little bit surprisingly, given what we know about the heifer replacement numbers, which means they’re keeping them for an extra lactation, that is keeping milk solids output maybe a little bit lower than we expected. But the solids are still up as well. So as a result, we’re seeing milk still on the long side, not too much out of what is normal for this time of year, and I wouldn’t be surprised as the weather in the upper Midwest starts to heat up, we start to see that milk production drop off a little bit and everything get a little bit tighter. We just haven’t quite reached that high temperature yet.

And so that’s what we’re seeing in milk. Jake, how does that translate into cheese? What are we seeing in the cheese market right now?

Jacob Menge:

It’s funny, I think from the last time we had a market discussion to today, the message will be very similar, which is a lot of mixed signals on the cheese side. You can talk to certain people who say, Hey, our orders are way down. And then you might talk to somebody else, saying, Hey, our orders look pretty good, meaning the demand is there. I think it’s a bit of a tale of two cities regarding how exposed you are to the export market.

Exports have been the thing that has been keeping us afloat on the cheese side. I think domestically, we’re not doing great. I would say that the prices that we’ve been seeing, this kind of upper 190s, mid to upper 190s, we’ve come off in the past week or two, but I think that mid to upper 190s did hurt demand on the export side. I think that’s kind of where we’re at. I would say good, not great. It just seems like we’re going to be range bound a bit on the cheese market just given this kind of pendulum swing of our prices move too high, which kills exports a little bit, but if we go down even just a little bit, you think the export market comes back in, so that’s the feel we’ve got right now.

Ted Jacoby III:

How is the dollar affecting exports?

Jacob Menge:

Yeah, I think it’s helped certainly. That is probably the biggest risk to hurting exports going forward, but we don’t have a particularly strong dollar. I wouldn’t say we’ve a particularly weak dollar, but yeah, I would say that has been a catalyst, if anything. If I had to pick a direction of whether it could hurt or help exports moving forward, I would say if the dollar strengthens, it’s much more likely to harm our exports than the dollar weakening further in helping.

Ted Jacoby III:

So, Mike, I have a question for you. You’ve been looking at some of our milk production numbers lately. Have we been seeing milk move from class four to class three with these new cheese plants, or even though we’ve built some of these new cheese plants, are we still seeing milk production remain in class four?

Mike Brown:

Well, more of it’s remained in class four I think, than some of us expected because some of the startups have been slower than expected, so you still have some class four plants, particularly in the south central US that are balancing some of that market. So I think that the opportunity to move more milk into cheese than we currently have exists. So much of this key is exports, and one thing we did see last week with the GDT is we saw how the spread between US and world cheddar prices get a little tighter, which makes me a little nervous about exports moving forward, but we have the opportunity to move more milk into cheese and that milk is basically ready to move into cheese when those plants demand it from what I’m understanding, talking to some of my powder friends in the Southwest.

I think that there is still some opportunity for that to happen. We’ve also seen the spread between three and four has remained relatively tight compared to some recent years, which means that the incentive to move milk one way or the other isn’t maybe quite as great. It will be demand-driven and in my mind, those cheese exports going to keep that milk moving into the cheese plants, because they have been the key to the growth of cheese sales.

Ted Jacoby III:

Thanks, Mike. So, Diego, on the other side of the coin, non-fat and our powder market, is there any reason to see powder prices strengthening in a way that would pull some of that milk away from cheese?

Diego Carvallo:

I doubt it, Ted, because of the investment and the medium—and long-term plans these companies have for those new facilities. My expectation is that milk will be pulled from class four.

Ted Jacoby III:

So, as milk tightens up, would you expect that the class four plants will lose milk and that the cheese plants will keep it?

Diego Carvallo:

Yeah, there’s going to be exceptions, but I think that’s a general rule.

Ted Jacoby III:

Okay. Have we seen any pickup or any strengthening of international demand for non-fat and skim milk powder?

Diego Carvallo:

Not right now, and it’s because Europe is significantly more competitive than the US, but whenever we see Europe, the market tightening up, we will probably see a market that could move higher fast. At the current moment, the Europeans are the most aggressive in Asia, and at the same time, demand hasn’t really picked up, so for that reason, we have been range-bound for the longest time.

Ted Jacoby III:

Joe, if we’re making skim milk powder, that means we’re usually making either butter or cream and the butter fat market in the US been the talk of the year with cream multiples getting down into the 70s earlier in the year. We’ve been having a fair amount of butter exports. What do you think this butter market’s going to do going forward?

Joe Maixner:

Well, I think we’re going to continue to have exports and we’re continuing to penetrate new markets with multiple products. It’s not just 82% anymore that a lot of these markets are taking. They’re taking 80%. AMF has been extremely strong in the export markets. As long as cream continues to be readily available, which it has been for the entire first half of this year, we’ll continue to be a player in the world market. That coupled with the massive discount from the rest of the world.

Ted Jacoby III:

So what would you expect the butter price to do? Are we going to stay right around here or you think we’ll get higher or are we going to have one of those classic years where everything stays right around here, but we have this one, two week spike sometime in September?

Joe Maixner:

It’s a hard question to answer, Ted. I think we’re probably looking at more of a traditional year only because of the amount of exports that we’re able to put on the books. Otherwise, I think that we would be significantly more flush with inventories because domestic demand has been good, but it hasn’t been great. I think that if we can continue to get product out of the country, we should have a relatively stable butter price.

Ted Jacoby III:

I thought you said it was a normal year? Stable butter price and normal year don’t go hand in hand.

Joe Maixner:

Normal pre-COVID, how about that?

Ted Jacoby III:

Joe, that still doesn’t work for me, but I understand what you’re saying. We’re going to stick right around here. We’re probably going to have a relatively stable market that people should expect to stay in this range going forward, at least right now.

Joe Maixner:

Yeah. Take 2016 to 2019, for example, we spent the better part of almost four years in about a 40 cent range.

Ted Jacoby III:

Got it. I like the sound of that. I think the market would like a stable butter price. Everybody, we will be right back after these messages.

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Ted Jacoby III:

Josh, we kind of skipped over the whey market and the protein market. The protein market right now might be the craziest market of all this year. What’s going on right now in WPC and WPI?

Josh White:

Well, on the higher proteins, I think there’s a lot of different things pulling on this market in both directions. I think on the bull side, despite consumer trends, we continue to see really good and resilient per capita consumption across a lot of the different products, not just your traditional protein-enhanced beverages and some of the new and innovative ones like the clear proteins going into different drinks, but we’re also seeing, I think pretty good orders from consumer packaged good type products as well. What’s unclear is it really bucking the trend that we’re experiencing across other food service related items and other things, or is it just lagging? That’s really unclear to me at the moment. I’m pretty confused about the direction, but I think on the bull side of the case, we continue to see strong WPC 80 orders. Whey protein isolate feels like it’s in a bit of a short squeeze right now.

People need product. Both of those products have recovered to near the highs that we saw ending 2024 and starting 2025. I don’t know that I would say across the board that we’ve set new highs yet, so we’ve had arguably kind of a stable quarterly price market despite all of the trade rhetoric in both headwinds and tailwinds that we’re dealing with. We can’t ignore the fact Europe is still quite a bit higher than us for our whey proteins. That combined with a weak dollar, I think we’ve seen some pretty decent international interest. What’ll be interesting to see is what happens when we start to print some new headlines. I am certainly not going to predict it, but I think we all can see a scenario where we’re going to start headline trading a little bit again as some of these trade deals wind up to some milestones.

It’s not just the bullish side. I think that there are some things that we got to pay attention to on the bear side of the case right now. We’re realigning our price relationships with the underlying sweet whey powder and that market is experiencing some big changes this year. I mean, you had several factories go offline with sweet whey powder production replacing that with WPC-AD predominantly production. You saw some WPC-AD facilities expand and you’ve got some new whey protein facilities that are in the process of filling up those cheese vats, that at some moment will add some extra protein onto the market and right now I think it’s a coin flip on whether or not the market quickly digests or consumes that additional product or not.

Generally speaking, I would say that the trade distortion and headlines probably lean bearish initially when they come across, and so we got to pay attention to that. It’s a fun one. I think it’s going to be an interesting second part of the year and don’t forget, we’ve got another one of these cheese plants coming online right now that’s going to make a fairly sizable amount of sweet whey powder. There’s a lot of things pulling on both the bull and the bear side of the whey markets at the moment.

Ted Jacoby III:

So I have a question on whey proteins. We had some pretty high prices in the fall and then the calendar flipped to 2025 and usually that’s a time when price increases would be passed through at the retail level. Did that happen this year? Are we seeing demand stay this high even in the face of higher protein prices to the consumer?

Josh White:

I don’t know that I have a great answer for that. I think I would start by answering that question that I think there was room to absorb some of those price increases and those price increases were being layered in over multiple quarters and we’re now entering our third consecutive quarter, where I believe that the quarterly negotiations from processor to large packer have been at similar type levels. We haven’t been talking about quarter-to-quarter dollar a pound or more price increases for all of this year. And to answer your question, yes, there still seems to be demand. Now if you start to really unpack that, I think there’s probably a lot more of the story that we’re not seeing quite yet. It’s a long supply chain, but some of the growth that we’re seeing is in healthy eating snack foods, things like that, where the inclusion rate as a percentage of the total product cost is smaller.

They’re not realizing such a dramatic price increase as you would see in maybe your sports nutrition drinks and things like that. If we start to peel the onion back, there’s a lot of explanations for it and I believe it all drives back to the fact that just consumers are paying more attention to the type of calories they put in their body, and protein is one of the gold stars of that, and whey protein in particular seems to be doing quite well in that environment. Less frozen pizzas maybe and take out there, maybe people are still willing to buy the higher protein snack foods and supplements.

Ted Jacoby III:

Mike, what do you think is going to drive this market over the next six, seven months? What’s the thing that we’re not really paying attention to, do you think is going to surprise everybody?

Mike Brown:

Boy, we are at a point with this older dairy herd that if we get to where margins drop significantly, IE milk prices do see some decline. We could see some insane [inaudible 00:13:19] worth a couple thousand dollars. Not too many years ago we were paying less than that for a herd replacement for dairy. I think that’s something we have to keep our eye on is just that overall margin. High [inaudible 00:13:28] prices are contributing to a good margin on the dairy. World demand, we’re in such a tumultuous world right now in trade and tariffs. Our price advantage under the world prices has given us a huge advantage in exports, particularly on the butter and cheese side. Obviously not so much on the powders.

If we don’t keep that when we have lackluster food service and retail demand, will that give us some weakness in market moving forward? As long as exports stay strong… So far our expansion of American style cheese and to a lesser degree mozzarella seems to be moving and prices are staying pretty stable, but if we reach a point where that export market starts to not be the outlet that has been, that’s my biggest concern, that world trade is extremely important to keeping the whole supply chain healthy over the next 6 to 12 months.

Ted Jacoby III:

I couldn’t agree more with that, Mike.

Jacob Menge:

Yeah, I’ll chime in. Mine’s just going to be macroeconomic factors. It feels like we are kind of on a knife’s edge right now, frankly with a light push getting us off that knife’s edge one way or the other. Could be tariffs, could be recession in the second half of the year, who knows? Could be the trade war heating up again with either in a region we’re not really focusing on or the opposite, who knows? It just feels like we’re probably range bound. It feels like that’s kind of a delicate balance though. That if the shoe drops, it really could swing violently. It really feels like we’re potentially range bound on a lot of our products, not because supply and demand is in perfect harmony right now, but rather because the market’s kind of waiting for that next signal. So that’s just kind of a gut feel. I wish I had more data to put behind that, but that’s just how the market feels to me right now.

Ted Jacoby III:

So if we’re on a knife’s edge, I can come up with three or four different scenarios that would tip us off that edge into the recession side. What is it that would tip us off the edge into the economy is now going better than expected side?

Jacob Menge:

Yeah, I don’t know that it would be that the economy goes better than expected. It would be that the clouds clear, those uncertainties get cleared up. There’s kind of a definitive resolution of some sort to the trade war. Maybe the dollar recovers a little bit as a result. That’s how I think we get to that more positive outcome. I think there is a lot of uncertainty weighing on the market and if that gets cleared up, I think it’ll drive probably better domestic demand, maybe better global demand, et cetera.

Ted Jacoby III:

Okay. Is this just one of those markets where in just about every product right now we’re kind of range bound and we’re waiting for some piece of information that would tip us one way or another?

Josh White:

I think we’ve got to pay attention to the timeline that we’re on, and what I mean is the same fundamental variables that have influenced markets and price over the past six months will have a different impact on markets and price in the next six months. We came out of our heavier milk production season. The majority of milk in the world is produced during the Northern Hemisphere spring season. We’re going into lower seasons both in Europe and the US, which makes us slightly more vulnerable to just risks to our forecasted supply. Right now, I think we’re expecting Europe to be flat to slightly better on either side of unchanged, correct me if I’m wrong, and the US we’re expecting year-over-year growth in milk as well as growth in components. All of that being true. We are going into the season where we make a little bit less. And at the same time, if you look around the world, I would argue that the world is facing a lot of economic uncertainty.

The world has been in a position for the last several years to buy hand to mouth and do that without having big risks to their procurement strategies. But the world is destocked. This is not necessarily to say we should be bullish. I’m not suggesting that at all. I just think that we’re vulnerable to volatility and to some price movements. You add on the fact that, again, as I mentioned earlier, there’s a lot of headlines and the headline impact on the market can be there. You add on that we have shifting product mix in a couple of key regions of the world. We know that Oceana has been shifting their product mix over the past few years. Certain markets are emerging as exporters of dairy products that traditionally haven’t been exporters, and the US has added a whole lot of class three cheese production capacity that will consume some of that available milk, and I just think it’s tough to evaluate tomorrow based on yesterday.

Ted Jacoby III:

Makes sense to me. All right guys, thanks everybody for joining me. I think this is a great market discussion. I think the message is loud and clear. Markets are probably going to be relatively stable, at least for the short term, until there is something that tells us that markets need to move, whether it’s weather, like heat or it’s something in the macroeconomy or it’s something on the demand side, like less exports. Let’s go ahead and head into this summer and let’s see what the heat brings. Take care everybody.

Outro (with music):

We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of TC Jacoby & Co.

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Are you missing the biggest leap in dairy performance since the milking machine?

From fertility breakthroughs to Holsteins with 4.5% components/5% fat, today’s cows are not your grandparents’ cows.

In this episode of The Milk Check, we sit down with Nate Zwald, president and CEO of Progenco, to uncover how genetics is quietly reshaping the dairy industry.

We tackle:

• Why genetic progress is accelerating and how that changes your herd strategy
• The rise of gender-selected genetics and the fall of dairy bull calves
• What makes a cow “better” — and how to breed more of them
• Why embryo technology could be the next big leap

Listen now to the latest episode of The Milk Check to learn why cows engineered for fire in the belly could have improved lifespan, higher fertility, better fat composition and a better life.

Got questions?

Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the show.

Ask The Milk CheckSpecial Guest:

• Nate Zwald, president and CEO of Progenco

The Jacoby Team:

• Gus Jacoby, president, fluid dairy ingredients & dairy support
• Mike Brown, vice president of dairy market intelligence
• Ted Jacoby III, CEO & president, cheese, butter & dry ingredients

Intro (with music):

Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III:

Welcome, everybody, to the podcast. This month’s version we have a special guest. We have Nate Zwald, former CEO of ABS Global and current president and CEO of Progenco. Joining us from the Jacoby team is Mike Brown, our VP of Market Intelligence, and Josh White, our VP of Dairy Ingredients. Nate, we’ve asked you on this podcast today because you’re one of the foremost experts in bovine genetics out there, and we’ve been talking a lot about some of the changes in cow genetics and how it’s been affecting our dairy markets. It’s something we’d love to learn a lot more about. Why don’t you start us off? Tell us a little about your background, and we’ll go from there.

Nate Zwald:

Yeah, sure. Well, first of all, a pleasure to be here. I appreciate being asked and appreciate that introduction. I’ve had a long career in dairy genetics, starting with growing up on a farm and learning about dairy genetics from where it should be learned about, in a barn with my dad, thinking about milking cows and recognizing that the next generation of cows was going to be better than the current generation of cows. And that was a pretty fun thing to see firsthand. When you think about having a daughter of a cow out in the heifer yard, that’s going to be better than the cow you’re milking today. And I think that’s the whole idea that we think about when we think about genetics is making better animals faster and trying always to make sure that the next generation is going to be more productive, healthier, happier, better for the farmers, better for the community, and better for the world and the next generation than the cows are in this generation.

And we’ve seen tremendous progress through time in doing that compared to when I was a kid milking cows thinking, “Hey, I hope the heifer is going to be better than the cow herself.” Because here we are, we’ve gone through so many technologies like selection for fitness, longevity, and fertility, and then we went through genomic technology that’s had a huge impact on the industry. And then more recently, sex semen and the use of beef on dairy cows have all had substantial changes to the genetic progress curve compared to what seems like not that long ago from my standpoint, just milking cows in the barn with dad.

Ted Jacoby III:

So, currently, what are some of the major trends in genetics that the dairy producer is either utilizing or needs to be aware of, that are coming down the pike?

Nate Zwald:

Well, I think some of those things that I mentioned, I mean, when you start thinking about the early 2000s, we were going through this time and the shift from selection really for production, which was primarily fluid milk production, and how the cow looks. From a dairy judging perspective, the show cows must be better than cows that don’t look like show cows to thinking about the data and saying what makes a cow live a long, happy life and what makes cows be more productive for their owners? And does that mean that she’s got to be taller and sharper and milk more in terms of fluid milk production, or does that take on a little different thing? Is it the cows that just love to live?

If you think about today’s environment, everybody loves those cows that are first to the parlor. They want to get milked. And those cows that are just always happy, they’re the ones that go and they eat, they sleep, they milk, and they love their life and they love doing it for their owners every day. And then not only do they eat, sleep, and milk, but they do it most profitably and productively possible. That’s been through a series of genetic advancements, and really, that started with looking at those type characteristics and saying, is it type that makes a cow more profitable, or is it things like, does she get pregnant quickly? Does she have an easy calf? Does she live a long time? Is she that kind of aggressive animal that has that fire in the belly to live?

And I think it’s more the latter, those things that you can’t necessarily see physically and phenotypically in the cow. And that was probably the starting point to a whole series of things that kicked off a tremendous amount of genetic progress, where when we think about cows today versus cows 20 years ago, it’s amazing the amount of change we’ve had. And that doesn’t mean they all look like show cows today, but it means they’re more profitable animals. They’re producing a tremendous amount of more components, which is probably something that you guys and your listeners deal with regularly now. And that’s because of the selection, what we’re selecting for, it’s how we’re selecting for with genomics, but then it’s how you implement those things. And that’s probably the most recent thing, probably something that kind of came about quicker than what anybody was ready for, is how dramatic the impact of breeding your best animals to sex semen and your worst animals to beef semen would be in how dairy cows change and how quickly that happened.

Ted Jacoby III:

And so what are some of the results you’re seeing from your point of view on that subject?

Nate Zwald:

So the first thing is we reversed the trend from what was perceived 20 years ago as Holstein cows that were difficult to get pregnant and didn’t live as long as we wanted them to. And a lot of that came back to their health, their fertility rates, and ultimately then because of those things, their longevity. So we’ve changed that trend. That was the 30 or 40-year trend where we were making cows that milk more and looked better, but they were getting less and less fertile, especially Holsteins. Jerseys, to some degree, too. And so you think back to that time, many people thought they had to cross-breed to solve that fertility issue in Holstein cattle. Through genetics, we can make better cows faster. When you define better correctly, and you say better means they have to get pregnant and they have to live a long, profitable life.

When we changed that and implemented that and redefined what was better, we made that progress. And so we reversed that trend and now cows are getting more fertile every generation and producing more pounds of milk, but also especially more pounds of components. And I think that was a lot due to the genomic revolution. So not only did the AI companies and the genetic companies make more progress with the bulls and the genetics that they had for sale and offer, but then dairy farms started implementing the genomic technology on their females. They started testing those females and that allowed them to make decisions. Any information isn’t valuable unless you use that information for something. And so for a while, there were a lot of farms that did genomic testing and didn’t use the information correctly or in a way that advanced genetic progress, meaning better cows faster.

But more recently, with the advent of sex semen, people started doing what they should do, and that is breed the best of sex and leave the rest for beef. And so when you think about a bell-shaped curve of your dairy, whether you have 10,000 cows, 1,000 cows, or 100 cows, you’ve got this nice evenly distributed bell-shaped curve of animals. You got the best ones on the right-hand side of the curve, and you got the worst ones on the left-hand side of the curve. And when you think about using sex semen and you just think about, I can get a female replacement from all my best animals and equally importantly, I don’t have to get any dairy replacement from all my worst animals, the progress of genetic progress, the speed of genetic progress absolutely doubles if not triplicates, because bell shaped curve has a lot of variation in it. There’s a lot of spread between your best animals, your average animals, and your worst animals.

And you think about that genetically, there might be up to a thousand dollars of difference just genetically between your best and your worst animals in your dairy. And before the use of sex semen and beef semen, there was an equal chance that that worst animal was having a heifer calf, and your best animal was having a bull calf as the opposite of that. And today, you can ensure that your best ones have female calves and your worst ones do not have a dairy replacement. And that’s the part that even I underestimated the impact that would be on the breed and on the industry in terms of genetic progress. And part of that reason is why we see Holstein herds that are averaging well over 4.5% components, potentially in some months, at the time of the year, up to 5% fat.

When I was a kid, these were component levels that not even Jersey dairy sometimes met, and now we got Holstein herds that are doing it. Not only did we solve the fertility issue in the Holstein cow, but now we are also really making what some people call a black and white Jersey because they got the component levels of a Jersey and the health and fertility of those Jersey cows, too. And Jerseys have made a lot of progress too, just not quite at the same speed as Holstein because of the smaller population.

Ted Jacoby III:

You just shared a lot of information, but I heard you say earlier that you hinted at the possibility that dairy cows, probably especially the better ones in your herd, can probably be high producers with a longer lifespan today. Did I hear that correctly?

Nate Zwald:

That’s absolutely right. And more fertile through it as well. Part of that is because we’ve changed the definition or the selection goal. It used to be better looking and more productive, but now there’s this big component in the selection goal that is a healthier, more fertile, longer-lasting cow, and I think that’s good for the owners of those animals, but it’s also really good for the world. Consumers want to consume products that are produced sustainably, and there’s probably no better story in the industry than genetics for sustainability. When we make more production, first of all, that’s more sustainable per unit of whatever output. Still, there’s also a real story for making just animals that are happier and healthier and more productive, love doing what they do, their job every day, for example.

There’s no reason to breed animals that aren’t good at doing that. Right? I think that’s a real story in and of itself. The amount of progress we’ve made in terms of the average dairy cow in the industry today compared to 20 years ago, we’re making three times as much genetic progress for those categories of more productive, healthier and longer lasting and then more efficient, and it’s three times as much progress as we were making 20 years ago, and that’s really, really impressive to think about that rate of genetic gain, and we just changed the rate of progress that dramatically over 20 years.

Mike Brown:

I worked for Jersey for years on the milk marketing side. A couple of things that I saw in my career at Jersey were, first, a productive life. You discovered that some bulls that didn’t make cows at one fair may live longer. We call them constitution. They just were tough, and you had bloodlines you could track that in. They weren’t necessarily high-tight bulls.

The second thing is net merit, which kind of ties everything together to the way we look at bulls now, and you can even look at net merits depending on how you sell your milk, different net merits for different types of milk markets. But when you look at that and you look at what’s happening with Holstein, efficiency, some of the work that was done with Kent Weigel at Wisconsin was working across the country on feed efficiencies, and now we have that as part of our selection tools as well. You got into that profitability. How has that changed what the modern Holstein cows are going to look like versus that true type ideal that we had back in basically from the 50s through the 90s?

Nate Zwald:

Yeah, it’s a great question, Mike, and it’s a great insight. I think you’re leading there because what those cows look like has already changed. And you mentioned Kent. Kent was my major professor during my grad school at University of Wisconsin. We worked on some of these initial studies, and one of the things we worked on while I was there was how to evaluate health traits in dairy cattle. So that was one of my grad school projects, evaluating is there a genetic component for these traits like early metabolic health in dairy cattle and things like that that honestly Jerseys were better at than Holsteins as a breed at that time. Jerseys have some inherent breed advantages, components, health, and longevity, but Holsteins have caught up. Jerseys have continued to make progress, too, which is great to see. But going back to your core question, what do Holsteins look like today?

They look a lot different than they did 20 years ago, and cows 20 years ago looked different than those 50 years ago. So I think we kind of went through 50 years of making cows really, really pretty and good for type. They were very, very functional. One of the ways I like to explain this topic of type is type is still important. It’s important to have animals that are functional. We don’t want big swing bags. We don’t want cows that can’t walk on their feet and legs, all of those things. But the genetics for those traits that made big swing bags and cows and udders that couldn’t be milked, they’re no longer present in the breed, so the average cow now is way better than functional.

And so one of the questions is, once you get to this level of utility, what extra value do you have to be better than utility? So if you can do your job really well and you don’t get called or you don’t leave the herd because your udder is poor or because you can’t walk anymore or things like that, then we can focus on other traits, those feed efficiency traits, longevity traits, fire in the belly even. That’s a hard trait to measure of course, but you mentioned the jerseys kind of have, and even that one is associated with longevity.

Of course, cows that live a long time in today’s commercial environments, they got that fire in the belly. They love doing what they do and they’re first to doing it every day, whether that’s eating, drinking, lying down and sleeping or coming to the parlor and milking. That’s a huge thing. And then I think when it comes to what they look like, they’re going to be smaller, they’re going to be more efficient, they’re going to be healthier, and they’re going to live a long time and they’re probably going to produce a lot higher component level in their milk than cows did 20 years ago. That story is actually quite incredible how different Holsteins are in terms of their component levels than what they were 20 years ago.

Ted Jacoby III:

Nate, it almost sounds like what you’re saying is that even though we’ve seen right now, one of the big topics is our heifer replacement numbers are too low and we’re not going to be able to continue to replace the cows that we’re sending to slaughter. But what you’re saying is the genetics are so good right now that that’s an easy leap for us to keep those better cows in the herd. And so the average lactations on the national herd, that’s just going to go up as the better cows stay in the herd and we continue to breed the beef, the cows at the lower end of the bell curve. And so what’s going on right now? This isn’t just kind of a 2, 3, 4 year phenomenon. This is probably going to go on for a while. Am I reading that correctly?

Nate Zwald:

Yeah, I think that’s partially true. First of all, the price of beef is really driving producers to have a different mindset towards how they make their money, right?

Ted Jacoby III:

Mm-hmm.

Nate Zwald:

The amount of profitability that’s coming from the beef side of dairy producers right now is astronomical on a percentage basis and in a total quantum basis, and it’s driving people’s mindset to be different. Now that said, I think it’s also important to recognize if we had more dairy replacements, that is going to drive the turnover rate. If there’s 9.4 million cows in the US right now, we can only replace as many as what we have heifers for. So if we had three and a half million heifers instead of 2.5 million heifers, we’d turn over that national herd quicker because the average heifer is better than the average cow. In every farm that you go to, if you say, “Well, if you had more heifers, what would you do?” Well, you’d call more of your crappy cows.

And so I think that’s a real trade-off. So is it possible that you can keep more of your older cows that are later lactation and things? Sure. Are those cows better genetically than they were five years ago or 20 years ago? Absolutely, but there’s still this trade-off between making genetic progress and phenotypic progress, which both come from having more replacements available than what you can do if you short yourself on replacement. Everybody’s trying to dial that in right now and saying, “Well, I need exactly 318 dairy replacements a month, for example.” Well, is that the minimum? Is that the optimized number? Or is that the optimized number plus some extras, right? In case you have some challenges with your heifer operation or your calf operation or whatever. I’m a proponent of a few extras that allows you to do a couple things. It allows you to have options.

You can sell springers, you can sell first lactation cows, or you can cull more cows. It’s an interesting dynamic and choice to make right now. The CFOs love to have the cash that’s associated with more beef calves, but what that does is it cuts off the options that you have two or three years down the line with what extra replacements can bring you. And so you can sell dairy replacement heifers, you can sell first lactation cows, or you can cull more animals that are older in the herd and need to be replaced with the next generation of better genetics and better phenotypes. I’m a big proponent of having a few extra replacements available versus cutting that to the bone and saying, “We only need X. I’d like it to be x plus 10%.” The other component is everybody that thinks they’re not going to grow in this business tends to find a way to add a few cows or figure out how to milk a few extra cows in their current facilities, and if they don’t have those replacements available internally, they’re pretty costly right now.

Ted Jacoby III:

Are we at the bottom of the trend yet where everybody is breeding to beef because the money’s just too good to pass up? Have you started to see anybody start to switch back to breeding more and get that plus 10% or do you think that trend is still running away from us the way it’s looked the last couple of years?

Nate Zwald:

Definitely, I’ve seen some people that have moved back towards more sex semen, especially those that think that they’re going to be in a unique position to grow and they value the genetic quality and superiority that they can produce internally versus buying effectively an unknown animal or worse yet somebody else’s bottom 10%.

Ted Jacoby III:

Right.

Nate Zwald:

If you’re a smart dairyman today and you’ve got extra animals available, you’re not selling your average anymore. With all the tools you have available, you’re literally going to sell something that you don’t want. And I don’t know too many dairymen that say, “Well, what I don’t want is my average or my best.” They don’t want their bottom end. Now, your bottom end could be better than somebody else’s average. That’s always an option. But really when you think about the progressive producers that think in their future plans they’re going to grow and they’ve seen the impact of what better genetics does, they want to grow with known genetics, known animals, and also a known background in feeding program versus just buying springers from wherever they can find them for a pretty astronomical price right now.

Mike Brown:

The bottom end though changes. If you’re breeding two thirds your herd to sex semen and a third to beef, that means that even your bottom end genetically is better than it used to be. Genomics has had a huge impact because we know before a bull can produce viable semen what his genetic merit estimate is. If you’re a professional in this, I’m an interested cow guy. How much has that increased that generation? But what are we seeing now in annual improvement in genetic value versus what we saw before genomics?

Nate Zwald:

Right now it’s reasonable to say the Holstein breed is making about a hundred dollars of genetic progress a year.

Mike Brown:

That’s amazing.

Nate Zwald:

Interestingly, when you think about that, a lot of the credit goes to the genetic companies for embracing the technology, and that probably doubled the genetic progress trend from say, $30 a year to 60 or 33 to 66, something like that. But that last third of the inflection point of why we’re making so much progress right now all has to do with the dairy farm community and dairy producers and how they’re implementing that technology in their operations. So we’ve seen more dairy replacement heifers going to feed that aren’t good, that are on the low end of the bell shaped curve genetically and/or don’t get pregnant on time because again, you can earn a lot of money from feeding those animals out. But we also just have the implementation of sex semen and beef back to that bell shaped curve that I talked about. And that last third, or say 25 to $30 a year is all because dairy producers on the female side, which traditionally we haven’t made any progress on because every cow got bred for the hope or the plan to make a dairy replacement.

Half of them had males, half of them had females. That last third of the genetic progress that we’re making today to get to a hundred dollars a year is really because producers are breeding their poor animals to beef semen and not giving them an opportunity to have a dairy replacement calf and breeding their best to sex, ensuring that those best genetics have a dairy replacement female calf, and that’s really driven the genetic progress curve forward. To the degree that done correctly, a dairy producer can make more genetic progress because of how they implement that plan with genomic sex semen and beef semen in their dairy than they can through the bulls that they’re choosing from the AI organizations.

And what that means is if you get a good genetic partner, they’ve got their bulls and they’ve got some bulls that are better than poor bulls, but that group of bulls is all really genetically pretty elite and preselected from the population to be a bull that produces semen that they’re going to market semen on. So there’s not as much spread between a genetic companies vast and average as there is in a dairy herd where you’ve got maybe a thousand cows and that spread between your best animal and your worst animal is like a thousand dollars genetically potentially. So that last part of genetic progress has really come from how these technologies and tools have been put to work on the dairy farm level.

Ted Jacoby III:

Nate, are any of the semen organizations using technology in CRISPR is the one that comes to mind to identify that semen which will produce higher butterfat, higher protein or something like that, or is it almost purely just selective, these are the better producers, we’re going to breed to these versus the lower producers?

Nate Zwald:

Yeah, so that technology is available. And interestingly now, some gene editing technology with CRISPR in pigs has been approved by the FDA now. So that’s an interesting step in the progress of how gene editing could be part of genetic progress in the future. But today, when we talk about bovines and we talk about what’s been done for genetic progress, that’s completely due to traditional selection methods, helping us with those traditional methods with genomics and with sex semen and things like that. When we think about butterfat for example, and the amazing amount of progress we’ve had for that, it’s simply selection multiple generations of the best butterfat producing genetics both on the male side and the female side, putting those together and making a tremendous amount of progress. And so when you think about gene editing, that potentially is another stepwise component where you could potentially use genetics from Jerseys and Holsteins or make a synthetic breed that could do that.

Personally, I think that the impact of gene editing is, it’s really good to see how it’s been researched and how it’s been implemented to this point in the porcine side because they focus specifically on a disease, PRRS, which is a really bad virus for a pork producer, and they’ve gene edited the genome, so basically they’ve got a genetic vaccine for that disease. And so when you think about that from that perspective, if you can use genetic tools and technology to make animals healthier and happier and less likely to contract the disease or impossible for them to contract the disease, that’s a really good way to implement it. I like that application a lot better than trying to insert genes for productivity or longevity simply because it takes a long time to get disease resistance and potentially you’ll never achieve the ultimate disease resistance without a gene edit. But that’s exactly what they’ve been able to do in pigs, and it’s good to see that technology being used for that purpose versus some other potential applications.

Ted Jacoby III:

Everybody, we will be right back after these messages.

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Ted Jacoby III:

My next question for you is how much higher can butterfat percent in milk go based on genetics? You look at the graph over the last 25 years, it looks like a hockey stick. Is that hockey stick going to keep going up at the 2, 2.5% a year increase in butterfat or is there a plateau at some point? It’s just beyond a cow’s body’s ability to get any higher.

Nate Zwald:

Yeah, so I anticipated this question because I’m sure as we think about the amount of butterfat in the industry today and the fact that it takes a pound less of milk to make a pound of cheese versus what we all learned of 10 to 1 and things like this is really dramatic for the industry today, but as we calculate out or project out the next 10 years, it has a tremendous impact on what we do. And the short answer to your question, Ted, is that I think it’s going to continue, and if anything, it is likely to go faster versus slower over the next 10 years versus the last 10 because of everything I just talked about with genetics and genomics and the application of those things.

And also, the other component when we think about breeding cows and what we said makes a better cow today and what we say makes up that hundred pounds of genetic progress we make each year, because we’re thinking about that more focused on keeping cows healthy and fertile as well as productive, what we’ve seen is a bit of a shift inherently that cows that are healthier and longer lasting, they probably aren’t going to make 180 pounds of milk per day, but they can make 140 with incredibly high component levels.

And so we’ve seen more of the progress on production due to the component levels as opposed to the flow, what my western friends would call flow, which is just pounds of milk. So we’re actually making more progress to make a pound of fat or protein. It used to come from another pound of milk. Today, it’s coming from higher component levels in that milk, and that’s partially because we’ve really changed the selection goal in genetics to make cows healthier and longer lasting and more feed efficient. So when we think about more feed efficiency, a little bit smaller cow, a cow that’s going to drive that feed efficiency through, it’s potentially easier to make her more feed efficient by getting another pound of components through the component level in the milk versus another pound of fluid milk or water, and I think that’s having an impact.

Mike Brown:

Well, when you look at water for the majority of producers in the United States anymore, particularly in the growth areas, which we’re all manufacturing, water costs money. Every pound of water you make and don’t increase components, you’re basically wasting your money because you’re going to pay the hauler, you’re going to pay promotion on it, all these other things. It’s illogical. The market has sent signals to producers as well to focus on fat and protein, particularly fat with our strong butter markets. Another question I have is that we’ve had relatively low herd replacements. We continue to modestly grow our herd. We continue to see growth in overall productivity. How much of the genetic improvement are we seeing looking at lifetime merit, nighttime profitability, whatever you want to call it, how much of that is due to that improved longevity, and how much longer do you think genetically our cow is going to last compared to what they were 10, 15, 20 years ago, if you just look at the pure gains in productive life and other such things?

Nate Zwald:

So sometimes productive life, it’s a good topic to bring up, Mike, and it’s a good thing to think about because I do think that part of the reason we’re able to use so much beef semen is because cows can live longer, but how long they live is also a little bit of a choice, right? So of course cows can live longer.

Mike Brown:

For sure.

Nate Zwald:

Each individual dairy says, “Well, if she’s not pregnant, milking below this level of hopefully components, but too often it’s on fluid milk production, then she’s replaced with a new better cow.” If a herd expands, generally they lower that threshold and they keep more cows longer, and if they’re kind of full with lots of replacements, they’d raise that threshold and make their herd better quicker. I like to think about it as not only longevity, but fertility, longevity, health together, those things all kind of drive that longer lasting cow.

Mike Brown:

Productive life is a function of all those other things.

Nate Zwald:

That’s right.

Mike Brown:

Productive life is a decision. It’s the time the cow leaves the herd. Unless she dies, that’s going to be a dairy manager’s decision when she leaves, and we can continue to be able to have a smaller heifer population to keep the herds where they need to be. When you’ve got 15, $1,800 beef cows, you’ve got a thousand dollars bull calves right off the farm, the alternative source of income, particularly look at risk of raising a heifer versus that bird in the hand with that cash up front, it has completely changed. Select sex semen, and the beef market has basically given farmers a way to manage their milk supply. I think we have the genetic tools today that are helping them do that. We can continue to need less cows to maintain. If you’re one of these outstanding dairymen, we all enjoy so many of them now in this country. It’s just amazing. How many less heifers are they going to need to maintain that herd before we even grow? How many less are they going to need just to maintain their herds?

Nate Zwald:

Is it comprehensible that we could have less in the future years than we have today? I think that’s going to be driven by the beef prices. So if the beef price stays really, really high like it is today, and those producers that you’re talking about, Mike, continue to get upwards of 15% of their revenue from beef, they’re going to continue to drive that number as low as they can. I think the balancing point is if beef price moderates and goes down a little bit, then it’s going to be more advantageous for them to have a few extra heifers and replace a few more of those cows. What they can get by with and what’s optimized is a different question. So could we get by with even less heifers than we have right now, which is at an all time low, right? 2.5 million heifers expected to calve this year, that would basically tell us that we’re going to only be able to cull 2.5 million cows from the dairy herd if we stay at 9.4 million cows, and that would be an all time low for culling rates.

Now, is that partially because of genetics? Absolutely. But I would contend it’s more because of the incredibly high beef price that those replacements didn’t get created, and therefore we can only replace 2.5 million cows. We’ve only got 2.5 million heifers there. Is it conceivable that we could go to 2.2 or 3 million heifers that calve in the next year? It’s conceivable. I wouldn’t say it would be a great plan because I think what ends up happening then is you just heat more cows that really should be replaced. To drive profitability of an operation, I want to have a certain turnover rate so I can continue to replace my worst producers or the animals that are the least productive in my herd with ones that are at least average productivity, if not better coming in as a virgin heifer.

Mike Brown:

Isn’t part of that, Nate, because of the improvements in fertility? All the things we’ve done, we have less involuntary culling.

Nate Zwald:

That is true.

Mike Brown:

You have less cows that have to leave the herd and you have more cows that you decide need to leave the herd.

Nate Zwald:

There’s no question that we get to make a lot more choices on what cows leave the herd than we used to, and that’s where that threshold comes in for pounds of milk or pounds of components where our herd manager or owner is deciding which cows to cull versus literally needing to cull certain cows because of functionality or because they’re just not a profitable production unit. So it’s a good situation to be able to say, “Well, we’re replacing a cow that had a certain level of profitability with a cow that we expect will have a higher level of profitability versus probably before where we had to cull some cows because they just weren’t profitable for one reason or another or weren’t healthy for that matter.”

Mike Brown:

Right.

Nate Zwald:

There’s also that component that we sometimes forget about. I mean, as a kid, there was more animals that just didn’t get through that post-fresh period, had larger calves. I mean, lots of problems that we’ve really bred some of that out of animals by extreme amount of genetic progress that we’ve made.

Mike Brown:

When I was in college, it was all about feed rations, and during the 80s, cow comfort really became a bigger part of the equation because we realized at some point only so much you could do to ration the cow, again, that happy healthy cow that you talked about, Nate. It’s so many different things, but to me, that’s been a big part of it too. We’re breeding healthier cows that people know how to take better care of.

Nate Zwald:

That’s exactly right. It’s the management cows get to live in today that do make them happier and healthier. Large scale production doesn’t always get held in the best light, but frankly, cows love living their life. If they’re in a great operation, they get to lay on sand bedding. They get feed all day. They get water all day. And we’ve done a lot of management as well, not only in the housing and the feeding part of it that you mentioned, Mike, but also in the knowledge side of things. You look at things like synchronization systems that give cows the best chance to have another calf on time and live another lactation. Those things extend the cow’s lives and that turnover rate as well.

Ted Jacoby III:

Nate, there used to be a saying among dairy farmers that you can only increase protein in the milk by increasing lactose in the milk. Is that still true today or has some of this new technology started to break that relationship?

Nate Zwald:

Some of it has started to break the relationship a little bit. The old saying was probably because the way to get more protein was to get more milk, and so more fluid milk came with more lactose, but now we’re seeing the component levels of protein go up. That doesn’t necessarily come with the lactose component level going up. So I think that’s broken a little bit, and it goes back to the same thing we see with fat. Pounds of milk used to have a higher correlation with pounds of fat and pounds of protein than they do today.

So genetically, we’ve broken that relationship where you don’t need to breed for more milk to get more fat or more protein pounds, and of course, there’s always been this negative relationship with component levels, percentages, and pounds of milk genetically on an individual cow basis. So yeah, I think the short answer is we’re starting to break that, and that’s all comes back to because we’re focused in selecting specifically on those pounds of fat and protein in combination with that health and longevity that kind of drives a certain type of cow that is going to be more efficient at producing pounds of fat and protein through component levels than just flow or fluid milk.

Mike Brown:

You’re letting me live my old life. I’m enjoying this immensely. This is a great conversation. I’m back at Jersey. I feel like I’m talking with you if I’m enjoying it.

Josh White:

I figured this group would really enjoy, Nate. Nate, I really appreciate you taking the time to be on this call. It’s really fascinating stuff. You see it from afar from where we’re at, we talk about it, but having you drill down a little bit on this podcast today was, I think a lot of fun.

Nate Zwald:

Yeah, very good. Well, I enjoy it. I love talking about this stuff. It’s fun. It’s fun to see the impact of genetics firsthand, whether I’m a little kid thinking about the next generation versus the current generation or in today’s world where you think about the amount of progress we can make and how much better next generation is going to be than this generation and kind of quantifying that and thinking about how the definition of what a better animal is today is quite a bit different than what it was 20 years ago. So that’s all exciting stuff, really good for the industry. It’s a very sustainable message as well. When you think about what genetics is able to do, it’s always great to be able to say, “We’re making better animals faster.”

Josh White:

Right. It’s-

Ted Jacoby III:

All right, Nate, one final question. From the seat that you sit in, is there anything, any technology, any trend that you see evolving that maybe the general population in the dairy industry isn’t seeing that’s going to really affect dairy cows and milk production in the next 10 years?

Nate Zwald:

The next step, honestly, Ted, is seeing this progress from this bell shaped curve where dairy producers have bred their top half to sex semen in their bottom half to beef, and how that’s transformed the genetic progress curve and really just put us on a different playing field. The next step of that is using embryo technology where instead of getting all their replacements from the top half of their dairy herd, they start to get all their replacements from the top 5% and that technology is coming and it’s being implemented by more and more farms because the embryo technology has gotten better. And so this is a technology that can be implemented both to make better beef calves, which is pretty valuable as well.

When you think about the impact of beef on the dairy herd, putting beef embryos that are not half beef, but potentially full blood beef, but also in the dairy replacements, so now you don’t need half of your cows to breed to sex semen to make your dairy replacements. You think back to that bell shaped curve. When you’re talking about the best 5% of your dairy cows, those are really elite compared to your average or your 50th percentile. So that could put genetic progress on a whole different playing field again, if that technology gets cost-effective enough to really be implemented across the industry on a wide scale basis like sex semen was.

Ted Jacoby III:

How far away from that do you think we are? How many years?

Nate Zwald:

We’re not that far. It’s probably the biggest threat to sex semen is embryos. There’s a lot of companies, including Progenco, my current company that’s working on that. You’ve got the long history companies as well that are doing that. And the key is that it’s being looked at now as less of a niche product than a niche system and more of a commercial opportunity to really embrace the embryo technology, I would say today. And so each form has to make their own decision on when it’s profitable to do so. But some really large scale producers have already been doing it for five plus years, and actually that’s the majority of the way they’re making their next generation of replacement. Something to think about today as opposed to how many years in the future.

Ted Jacoby III:

Wow.

Mike Brown:

It’s mind-boggling how quick you can make genetic progress, particularly with genomics, that you can identify at a very young age which animals have the most potential.

Ted Jacoby III:

Yeah, absolutely right. That’s pretty cool.

Well, Nate, hey, this was an absolutely fantastic conversation. Thank you so much for joining us today. Really appreciate it. Really enjoyed the conversation. Thank you.

Nate Zwald:

Well, anytime guys, I appreciate and I enjoy the opportunity to talk about this kind of stuff.

Mike Brown:

Well, thank you very much.

Josh White:

Right. Thank you, Nate. Appreciate it again.

Outro (with music):

We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Co.

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It’s May 8th. Do you know where your tariff is?

When the tariff winds shift, the Jacoby team is there to help you steer your strategy. Tune in to the latest episode of The Milk Check with special guest Will Loux from the U.S. Dairy Export Council, as we cover:

• Tariff tensions – How will ongoing trade talks between the U.S. and China impact dairy exports?
• Shifting trade strategies – How are global buyers adjusting to new tariff realities, and where does the U.S. stand in this complex landscape?
• Innovation and adaptation – What moves should U.S. producers and buyers make to adapt and thrive amidst tariff uncertainty?

Don’t miss this conversation as we explore how tariffs are reshaping the dairy trade and what the future holds for U.S. dairy exports.

Listen now to The Milk Check episode 77: Tariff talk with Will Loux from the U.S. Dairy Export Council

Intro (with music):

Welcome to The Milk Check, a podcast from TC Jacoby & Company where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III:

Welcome, everybody, to this week’s version of The Milk Check. It is May 1st, 2025. Once again, we’re going to revisit the topic of tariffs and international trade. And as everybody knows, it’s a shifting landscape. We have a special guest today, Will Loux from the US Dairy Export Council. Will is Senior Vice President of Global Economic Affairs. Will, thanks for joining us today.

Will Loux:

Thanks for having me, Ted. Good to be on.

Ted Jacoby, III:

We also have some of our usual suspects. Mike Brown, VP of Dairy Market Intelligence, Miguel Aragon, our director of Latin America Cheese Sales, and Josh White, our VP of Dairy Ingredients, and Tristan Sellentrup. Thanks for joining us, guys.

So Will, we’re going to start in the obvious place. What is DC’s attitude about everything that’s going on in tariffs, especially with regards to dairy? Do you see anything changing anytime soon? Is there anything in the works? What’s the landscape as you see it?

Will Loux:

There’s a lot of uncertainty. We were talking about several different types of tariffs that are effectively going on because we have our bilateral relationship with China where we have very high tariffs both for products coming into the US and China has very high tariffs for our dairy products going out, but we also have the 10% universal tariff. We have the steel and aluminum tariff. We have the USMCA question marks between Canada, Mexico, everything else.

So right, now I would say there’s about four different tariff balls being juggled all at once. And as far as where we’re going in DC, I think that’s anyone’s guess where obviously within national milk and the Export Council, very hard at work these days. Very grateful. Jaime and Shauna and Tony Rice on our trade policy team get to live this every day while I get to check out, I guess, what’s happening in the markets.

Ted Jacoby, III:

There’s been rumors that China and the US are talking and they’re trying to work out some things that could lower those tariffs. What are you hearing?

Will Loux:

Good question. Right now, at least what we’ve heard is there are talks, at least attempting to. I don’t know how far along these talks have gotten. When we look at the tariffs between the US and China right now, there probably needs to be some sort of path to de-escalation, but this is also something that when we had the first round of retaliatory tariffs between US and China, that lasted 18 months. So I personally don’t necessarily expect this to change overnight. That would surprise me. There are a lot of things that would surprise me these days in DC, but I would expect this to be in for the long haul. Whether it stays at 125%, I don’t know, but at the same time finding an off ramp for what seems to be at least somewhat of a strategy towards decoupling the US and China in a lot of ways continues to be at least very much forefront and likely to stick around.

Ted Jacoby, III:

One of the things that we’re curious about since roughly 17% of all of our weight production in one form or another has been going to China. And a lot of it goes to feed the pigs because 50% of all pigs in the world are in China, and keeping the Chinese population happy seems to be highly correlated to their access to pork. Is there any possibility that they’ll make exceptions to some of their tariff rules for things like whey permeate just to make sure that the pigs can continue to be fed and they keep their population happy?

Will Loux:

It’s certainly possible. They made that exception last time around with the last really six months effectively of that earlier trade war between the US and China. This time around, it is certainly possible but I’d also say China is also likely to seek alternate sources too just like they did last time. They can find at least some of that sweet way that they’re after from Europe. Turkey is now getting more involved. They still buy quite a bit from Belarus. Argentina ships them a decent amount of whey. They’ve also been stocking up a decent amount of whey before this happened that I think they’re actually sitting on ample stocks to at least see them through some of this disruption. Again, supplemented elsewhere.

Lactose is probably the one where they buy about 70% of their lactose needs from the United States. Again, I don’t necessarily anticipate them giving exemptions. It’s part of a much bigger conversation as to whether they start giving those exemptions, but again, they’re going to look to Europe who’s really the only other game in town. Europe could pull back from their sales to New Zealand, Japan, India maybe as well. That’s their biggest market outside of China. I think there’ll be some trade shuffling a little bit within this too. Permeate, we are probably the main game in town here, but again, it’s is this cost-prohibitive when you’re adding 125% tariff at least right now? And can they make due, at least for the time being? Because Chinese consumption isn’t all that great either. So it’s not exactly like there’s this huge surge to build up the hog industry within China today either.

Ted Jacoby, III:

Josh, what are you hearing on the ground right now with our contacts in China?

Josh White:

Yeah, a lot of mixed messages. I think that generally speaking over the past few weeks, it’s been a lot of paralysis. Most were saying the situation’s fluid. It’s changing. We don’t maybe fully understand it. I think the industry well recognizes that a big lever to pull in trade discussions is probably not whey permeate and the trade. But as you mentioned a moment ago, it’s a pretty important ingredient to the Chinese pork industry, particularly the younger animals, and that’s a recovering industry after the swine flu issues that have previously experienced. So there was some optimism that let’s let the situation evolve, let’s see if we can come out of it if there’s some type of resolution, and we can conduct business as usual, just with a pause.

A couple of things that have helped that most are reporting that at the end of last year around the time Trump won the election, the Chinese started to take action pretty quick. On some of the higher value products, they were out seeking alternatives, but on the ones, as Will mentioned, that they’re buying from the US like permeate, they did a little bit more stocking. We’re not talking stocking in the traditional sense of building large warehouses full but more days in inventory than they had been operating off of. At the same time, that sparked a price movement in the US and the whey permeate price increased significantly by about a dime and moved higher. Well, that allowed people to de-stock in the US as well.

So we entered this issue with inventory space. Within the actual processing facilities, that’s being tested now. We’re right at the cusp where some people are now running into issues or they’re a week or two away from running into issues. Many processors did their best to extend that by going out and making some sales or front-loading other contracts to other parts of the world, or in some cases feeding it back to the dairy cows where it makes sense to do so. But that just buys a little bit of time. There’s a lot of this co-product, as we like to say, but effectively the by-product of the by-product that has to find a home.

ADPI, for instance, has a task force out there right now that has been working on what are new innovative ways that we can use permeate, but none of those are going to be quick solutions. As a result, I heard at least this past week, was the ADPI trade show, a lot of people talking. I at least picked up on a few different processors that are resuming some shipments and working in conjunction with their Chinese customers to try to figure out how to make it work out of necessity, maybe not the pure economics of it. We haven’t experienced that capitulation point yet where we have to make a decision, but we’re really close to it for a lot of different US processors.

Another thing that I would ask Will on is we had also picked up a headline this past week. It’s a headline. I haven’t studied it at all, but that Walmart told some of its Chinese vendors to resume shipments. Any insights to what might be happening there? Do we think that these trade relationships are just looking to bear the cost out of a need, or is there at least some hope that there’s some positive dialogue happening between the two countries?

Will Loux:

I didn’t see necessarily that headline or anything else. I would be surprised if Walmart has any inside knowledge as to what’s going on. I suspect it’s probably out of necessity simply because the US and China are highly integrated economies and a highly integrated supply chain. And for a company like Walmart, you can’t turn on a dime where you’re sourcing from. There are select products that maybe you can shift some of that production if that one company has a plant in Vietnam or elsewhere, but it’s not necessarily a one for one. So I would estimate that more out of necessity than anything else.

And I think also if we look back to what happened in 2018 and ’19, dairy got caught in this, but as far as US-China trade, it was only really select products back then. But if we look at what happened in the US exports in China, it took a while before we really saw a hit outside of the low proteins. China was still buying at least for a while more high proteins and everything else, this time around because it’s much higher tariffs on both sides. I think that impact is coming much starker, but I do think the expectation, at least from retailers and everything else, is these will have to get passed on to the consumer at some point unless they can find an alternate source. And even then, they’d face a 10% tariff coming in unless there’s some US supply on those particular products.

Josh White:

Hey Ted, we went right to probably the worst or most painful part of that trade, talking about low value carbohydrates that are going into that industry, but it would be good to spend a minute on how everything else seems to be rationalizing. For instance, the whey proteins might be the second most impacted directly by this trade. China’s our largest export partner for higher protein whey products, but at the moment, because the alternatives such as Europe are so highly priced, it just seems to be shifting trade lane. The immediate impact was this could be potentially pretty bearish for US supplies of WPC 80 and WPI. That seems to be a little bit calmer over the past few weeks. We’re finding some alternative places to go. I’m not ready to celebrate that that just meant the world shifted its trade lanes and rebalanced. I think that similar to the remarks I made about permeate, it’s plausible that there was some internal inventory space that could be filled while we’re waiting on this situation to stabilize.

But that being said, it doesn’t seem to be quite as disruptive on whey proteins as it is on whey permeate. My question for the group is that even less disruptive as we go across some of the other key products in the dairy complex, some of the other powders and the fats.

Ted Jacoby, III:

My reaction to that, Josh, is the big, big difference between protein space and the permeate space is I think there’s a lot of demand in protein that sits on the sidelines just because they either don’t have access to the protein they need to make certain products or it’s just too expensive for them to use. And so if the price just has to adjust a little bit to pull more people into that market or you’re suddenly giving someone access that didn’t have access before, there’s a realistic alternative domestically for a lot of that protein. And then internationally, whether that protein’s being sourced from Europe or it’s being sourced from Oceania or somewhere else, or if they’re pivoting and making, whether it’s a slight change to a milk protein concentrate instead of a whey protein concentrate or some other kind of protein, I think there’s just better options. And so with all the disruption going on, it seems calm relative to a situation like permeate where if you’re not going to China with that permeate, you’ve got to figure out how to make it go away because you really don’t have a realistic sale.

Will Loux:

And I’d agree with that. China, at least on the low protein side, so sweet whey and permeate, is a third of the global market. Southeast Asia is the only one close. That’s if you combine all the countries, there is no other real option for a lot of our permeate sweet whey. We can move. I think sweet whey, we have an opportunity to move some more into Southeast Asia, Mexico, maybe some other places, but I think permeate is the one that’s really hard to find another buyer for, or at least quickly, at the volumes we’re talking about.

Proteins, they’re definitely our largest market, at least in the international one, but Japan’s not that far behind. Our teams also looked at the trade data and said there was some wonkiness in the unit value, so we actually think there’s a little bit less going to China than what the US Census and USDA reports. So there’s some of that going on too, that it is certainly our biggest market. I would expect Europe and New Zealand to be making a lot of calls to customers within China right now. But I think as you said, Ted, there’s plenty of opportunity for us to find other buyers, especially domestically right now.

And then everything else, cheese, milk, powders, those we sent quite a bit really before 2018, we had already started to decouple from China after that, and our market share never really picked up, and China’s buying a lot less milk powder in the first place here too. So I think for us, those other markets don’t feel the hit from the China discussion. I think cheese probably feels much more of a hit from the overall economic implications of this is really where I think the cheese market will feel this more so than any actual direct sale impacts.

Ted Jacoby, III:

So when we’re talking about cheese, obviously China’s not our top market. I don’t even think it’s in our top 10 export markets for cheese. The press is so focused on what’s going on between the US and China when it comes to tariff talks. I honestly have lost track of what may be going on with some of the other countries we’re exporting to outside of the 10% addition that has been put everywhere. Are there any other countries that you guys are watching closely that have handed tariff rates more than that 10%, and is it causing some significant disruptions to our ability to export to them?

Will Loux:

Right now, effectively the 10% universal tariff is across the board because all those other reciprocal tariffs, including the incredibly high ones on places like Vietnam and elsewhere, were put on that 90-day pause until July. So at least for right now, it seems like most countries have stopped any retaliation or at least paused any sort of retaliation. Europe had a list that came out, but otherwise they had put a pause on that as well. The only exception to that is Canada, and this is from before and really was the first tariff action that came out was a 25% universal tariff on Canada and Mexico. But that also got paused, at least for all USMCA compliant products.

On the whole, that doesn’t impact a whole lot. Canada has continued to retaliate against over-quota levels, but in practice, we’re not sending a ton over-quota into Canada today. So things like butter for import, for re-export, that is not being tariffed, and some of the whey products I believe are. But for the most part right now, the US is still outside of China able to export at the same tariff rates it was before. Now, I’m sure you have customers who are maybe asking questions or they’re changing their buying patterns out of an uncertainty when we get to July or elsewhere. We’ve started to hear rumblings of that, but at least for right now, it’s business as usual outside of that 10% or US consumers.

Ted Jacoby, III:

Miguel, is that what you’re sensing from our cheese customers internationally?

Miguel Aragón:

Yes, indeed. We were at CheeseCon a couple of weeks ago. We were at ATPI just last week. And at ATPI, we had conversations with a lot of customers from Mexico and the number one issue was tariffs, tariffs, tariffs. That’s what everyone wanted to talk about first. In regards to patterns of purchasing, they’re going hand-to-mouth, immediate shipment for immediate purchase. That seems to be how things are happening right now. However, we have two issues helping us not to disrupt the trade within Mexico, mainly Mexico. We haven’t gone above 1.80 a pound and cheese, and the Mexican peso is now 19.6 for the last couple of weeks. That is helping them. That is helping us get rid of product. But the minute we see 21 pesos per dollar, that’ll be a different story.

If you remember we had in one of our podcasts a month ago or something like that, we were talking about that they were expecting us as US suppliers to keep a lid on prices. So far, so good. In there, taking advantage. I have to take my hats off to the US DEC because they have helped us get into other markets, Central America, South America, where the disruption that is happening right now and it’s moving European product to other channels is given us a chance for those markets to actually taste US products, taste cheese, get a feel for it. Just like it happened with Mexico, I see it happening in Central America. I see it happening in Colombia, Peru, Chile, and we have to take advantage of that right now. With everything that is happening, at least something positive is coming out of it. Who knows how it’s going to last, but hey.

Ted Jacoby, III:

Everybody, we will be right back after these messages.

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Miguel, you’ve just taken me by surprise. What you’re saying is all this disruption, there’s a silver lining and it’s actually creating some opportunities for US exporters in dairy right now>

Miguel Aragón:

That is correct. That is correct. Some of the conversations we had with people from New Zealand is that they are saying the US producers are cheaper right now in cheese. We’re going to go ahead and produce more whole milk powder, put our fat on our milk and other products. That is giving us an opening. That’s a silver lining right now. We need to take advantage of it. If we go above $2 again in cheese and then the exchange rates start going all crazy, that’ll be a different story. Right now, we’re moving and we’re moving fast to try to capture that market for the long run.

Ted Jacoby, III:

Will, what are some of your other members saying? Are they feeling pretty good about how exports are going so far this year with all the chaos in DC regarding tariffs?

Will Loux:

In some ways it is, at least for right now, business as usual. The tariffs can be so overwhelming in a lot of ways. We see it on the ingredient side. But as far as cheese exports go, and we’re even getting a lot more inquiries for butter right now too, just given our big price spread compared to Europe and New Zealand, I would say those two exports are going to look really strong as we go forward, and I think we’ve already seen that. There’s probably some more questions maybe around whether we keep up the incredible growth that we’ve seen to Mexico because the last two years, Mexico has outpaced the domestic market in growth, like just total aggregate growth. So whether that continues, I’m not sure, but I think as Miguel said, Central America, the Caribbean looks really good. I think we’re moving more to Australia as well. Another one of our key markets, Japan arguably the most competitive cheese market in the world that we’re seeing sales pick up to as well.

So on the cheese side, we look pretty good. I would say butter’s going to have a pretty nice year just by necessity as much as anything else. The ingredient side, we one don’t have that much powder to export in the first place. We saw pretty weak sales to Southeast Asia, but that was more a function of pricing than anything else. That’s where I think we’ll see somewhere of the weakness. But cheese, butter, our fats really look good. Proteins, I think, will be somewhat mixed. It’ll depend on the price and demand for places like Japan, Korea, Southeast Asia, and some of that trade between us and Europe and how that looks on price, because we should be exporting it to Europe right now too.

Ted Jacoby, III:

That’s true, especially when it comes to butter.

Will Loux:

Yeah.

Ted Jacoby, III:

Okay. Well, from where you sit in DC, is there anything that you think our industry needs to be talking more about that’s going on right now that’s falling under the radar because everybody’s so focused on tariffs and specifically China?

Will Loux:

Yeah, there’s probably two things that we’re starting to watch a little bit more, and the first one I’ll say is what are the implications of a 10% tariff on European product coming into the United States and really what is that impact on both Europe sales to the US as well as their product mix? Because last time around, the US consumer was in a pretty good place. We didn’t see much of a dip when we place tariffs on Europe over the Airbus disagreement. This time around, I am curious. US consumer is pulling back on a lot of things. Do they pull back from your Irish butters? Do they pull back from your specialty cheese, et cetera? And does that help boost at least some of our demand domestically? That butter demand has been okay, but certainly that would help tighten the screen market cheese. I would say there’s an opportunity there.

I think the one thing we’ve pointed out to watch is if Europe doesn’t sell the US or doesn’t sell specialty cheese abroad, they tend to put a lot more into their Gouda and into their mozzarella. It is a delayed reaction, but effectively if the Italian cheese-makers aren’t making that specialty, the milk ends up in Germany as Gouda or something else. So that is something to watch on that front.

The other one is probably more longer term at the export council and everything else that we’re watching is everyone’s been talking about the fat percentage in milk, the growth in that fat to protein ratio. What are the implications? I’m probably on the side of, at least today, I don’t actually think we have a fat problem. I think we have an American-type cheese problem that would normally be absorbing a lot of this cream, at least when we look at the data. But with milk production now picking up, we might have a cream problem and an American-type cheese issue. So then our question is do we need to start thinking about other ways to export fat?

We really don’t have a release valve for our butter when we get long on cream. We export a little bit to Mexico, but frankly we’ve got a smaller market share than New Zealand and Mexico when it comes to butter. They are dominant in AMF as well. That’s a region that in general, we should be price competitive on with tariffs and freight. That’s something we’re watching pretty closely. The same would hold true for Central America. The Middle East has traditionally been our release valve for butter. We’ve often moved a lot of butter. The white butter is preferred in a lot of ways or can be used in processed cheese, but their butter demand is half of what it was 10 years ago because they’ve switched to palm.

So we need to go develop probably some new release valves even if we think this fat market’s going to tighten up because I think what we see today is the US industry takes a long time to turn the ship on fat from making 80 domestic style towards 82 unsalted export style, so how can we speed that up to tighten the cream market so it doesn’t take as long to turn this ship is something we’re talking about, especially with these components growing at the rate they’re growing. So there’s a lot of things we’re watching beyond just the tariffs that just keeps us pretty busy on the day job and everything else.

Ted Jacoby, III:

Well, I have to say, when it comes to butter fat, I think, Will, you and I are thinking along the same lines. I don’t think this trend with higher butter fat percentages in milk is going away anytime soon and there’s going to be a certain point, maybe we’ve already reached it, where we’ve reached a tipping point and we have more butter than we know what to do with in the US and we’re going to have to find those export places for. You mentioned palm oil in the Middle East. What’s the relative price of palm oil relative to butter? And at what point do you think they start to switch back?

Will Loux:

Oh, that’s a good question. I looked at the palm oil price the other day. It’s still fat to fat, still cheaper than butter. Really what happened is Europe and New Zealand butter got insanely expensive. We’re still sitting north of $2. We are a great value buy if you are specifically wanting butter. It’s not that we’re going to go take a ton of share from palm necessarily. We did see that actually a little bit. This would’ve been during the inflation run up back up in ’21. We more saw it in the fact that natural cheese took share from analog cheese. That was where we beat out palm because also it’s a much better product. And so that I think is where we saw it.

This time around, I haven’t heard a ton of switching back. Butter has traditionally been the most price elastic product on the international market because it is the most easily substitutable one. We hadn’t seen a ton of fat demand growth over the past few years. China has really been the one who’s been growing while the Middle East has declined, and they’ve basically canceled each other out. And so the opportunity is where else can we grow it, especially as incomes rise where a higher quality fat is there, as well as also where’s the cold chain for it? So for now, I think butter is still that premium fat, at least right now in the marketplace.

Mike Brown:

You talk about the cheddar cheese is going to absorb the fat. The challenge we have now is we raise fat so much faster than protein is extra fat, even if you’re making full fat cheddars for most cheese-makers. So we are still going to be spinning off some extra fat and that’s a challenge for them. They’re trying to figure out how to best market that depending on their volumes of it, but I think you can’t just assume that’s going to absorb into that, and that’s the challenge we have.

Back to the question of butter and butter fat and the demand for 82 versus 80, at what point does a world, at least as an ingredient say, “Well, US 80% butter is a lot cheaper per pound of fat even though it’s 2% lower.” What do we have to do to get world buyers more interested? Because 2% fat is different, but it’s not that different.

Will Loux:

I think we’re already starting to see it. We’ve heard a couple folks who are just launching butter with 80% fat and see enough consumers notice. I’d also say depending on the application, it’s really just a price point. They may not need the 82%. They can buy it. The question is the salt is probably the bigger thing. If you’ve got 80% salted versus an 80 unsalted, it’s probably the easier thing where there are some applications where salt’s already in there and that’s perfectly fine. I’m thinking of maybe some chocolates or something else that that could work well. The salt may be the bigger challenge perhaps in our base butter than necessarily the difference in fat content.

Josh White:

I also think moisture, moisture because I think that there’s restrictions going into Europe that moisture is our limiting factor that they can’t bring the product in above a 16% moisture, and so that’s created some problem to where I think there’s a lot of inward processing applications and processing applications that can deal with the drop in fat, but it’s restricted because we exceed the moisture requirement. So if there was a way to have 80% fat with the 16 max moisture, I’m pretty sure we’d be loading boats tomorrow for Europe.

Mike Brown:

It’d be pretty salty butter, Josh, if you would.

Josh White:

Right. Let’s some sugar in it.

Mike Brown:

So it’s a regulatory problem, not a users’ ingredient because most products that are going to use butter probably use some other kind of moisture in them, water, milk, whatever it might be.

Ted Jacoby, III:

Sounds to me it’s a non-tariff trade barrier, isn’t it?

Josh White:

With enough time, people will figure it out, right? It’s just like anything else. We know how much confectionary blends and things like that exist today coming into the US. That’s another area where this fat situation starts to adjust itself. In the event that we’re surplus fat or cheaper fat, then a lot less of these confectionary blends will come into the US from New Zealand. New Zealand and other markets will shift that fat elsewhere and will keep more at home. It’s just like anything else. The gap gets filled in so many spots other than just butter as well.

Will Loux:

Even whole milk powder should be pretty cost-competitive, right?

Josh White:

Right.

Will Loux:

Yeah. I think it’s something we may see pick up at least a little bit in the coming months based on that margin if you’ve got the ability to flex.

Ted Jacoby, III:

Well, speaking of whole milk powder, it seems like New Zealand has switched away from making as much whole milk powder as they used to. Will, do you think the market is out there for them to switch back? Because one of the things that I have to wonder is if butter gets cheap enough, both in the US and even in Europe, it’s going to put pressure on New Zealand to make more whole milk powder just to make sure they clear that fat, but they have to have a home for it.

Will Loux:

I think the question’s always on China. We’re back to this again. To me, there seemed to be enough rumblings that China is at least buying a little bit more. I still think China is structurally investing in their milk supply and have reached really a tipping point in that, but I think temporarily with their reductions in milk production, I think they may need a little bit more whole milk powder this year. I think there’s enough smoke around that to say that China will buy more. I don’t think they’re getting anywhere close to the highs that they had a few years ago though either. I think it’s just improved from this low end that we’re at.

It’s also the other markets that New Zealand tends to ship whole milk powder to Middle East, North Africa. They are really dropping off. We saw a lot weaker demand from Algeria so far this year and we’ve seen okay demand from Southeast Asia, but not as good as actually I was expecting. And then you’ve also got the Argentines and Uruguay who Brazil’s not buying as much this year either, so they’re a little bit more active. So I think New Zealand will make a little bit more of a switch to whole milk powder to feed China, but it may just come at the expense of the Middle East.

When I look bigger picture, I think New Zealand at a certain point is going to need to decide what they do with those old whole milk powder dryers. Their milk production is stable, but I don’t know if long-term that’s going to be the best return. I think you’ve already seen them invest in proteins and level up their skim side, and I would expect that to continue at least right now. And for now, China really wants their fat. They really want the cream coming out of New Zealand. They really want the butter. AMF is not quite as strong, but those two, butter and cream, to China are actually still running really hot.

I would expect New Zealand as much as they can flex because they only have so much flexibility in their flush, I would expect them to keep going towards that butter S&P because their butter value is still a lot higher than where ours is right now and more comparable to Europe. And they also have additional access to Europe now, too, that they got as well recently. So I think those two things will make them probably keep going in that stream before switching wholesale back to whole milk powder.

Josh White:

Is there any product that feels heavy globally right now? I understand that we’ve talked about whey permeate and its disruption short term, but is there any product that we feel like the world market is well stocked in? I have the view that for three years in running now, we’re running on pretty short global inventories of most dairy products, and we’ve been able to do that because global demand has been lackluster. But any spark in that, I don’t know how ready the global market is to respond to that.

Will Loux:

I would agree outside of the permeate side of the conversation that we’ve already discussed, I don’t know that anyone’s really sitting on heavy inventories anywhere. This has really been an era of under-demand and under-supply creating this balanced market. I think skimmed milk powder has been the one that I was hoping for more upside on. We’ll see what Mexico looks like this year and otherwise we tended to ship quite a bit of non-fat. If cheese got retaliated against, we’d expect non-fat shipments to Mexico to pick up. There are some of those trade-offs. Indonesia’s got a school milk program. China’s buying a little bit more. It’s still tough for me to really get to a super strong demand outlook for milk powder. I can come up with specific examples, but it’s tough for me to get too bullish on it.

I think quietly what we’ve seen here is over the last six to nine months, our metric of global dairy trade, which had spent three years basically languishing after China’s pullback, is now actually growing again at the same rate it was before COVID. So it’s 2 to 3%. It’s not a super bullish environment, but it’s a whole lot better than what we saw before. It coincides nicely with US milk production. Picking back up here, I think the question is how much can this last. And a lot of it’s being driven by China coming back, so I think these are the things we’re watching is there’s not a cushion right now in the market for most products from an inventory perspective. The question is how much do you believe demand’s coming back, and is supply coming back at the same time?

Josh White:

I wonder if the EU fat situation and the global protein situation might be some early indicators that you better make sure your supply’s secured. And you add to that disruption over global trade and how easily accessible it will be to get the products you need. Coming off of a period where people were able to return back to the just-in-time inventory model, I’m wondering if this trade disruption doesn’t change some business purchasing strategies a little bit. And then I would also be curious if anyone has a view on what the current trade environment may have from a logistical impact. We have a pretty real-world example of what happens when you stop trade flows coming out of COVID. We know what the outcome of that was afterwards when containers were just in the wrong parts of the world when people wanted to resume trade flows. Yeah, I think that is there an opinion across the group on what happens if we don’t reconcile with China anytime soon? And also, what happens if we do reconcile to our ability to execute logistically to the global demand?

Ted Jacoby, III:

Will, has the US DEC had any conversations with anybody about potential container logistical disruptions?

Will Loux:

Yeah, there’s a few different pieces here that I think is right. So one is on that inventory cushion, so going back to your question, Josh, that would be the logical move if folks believe that there is more disruption and demand is picking back up. I have broader questions around what the global economy looks like in this environment if we don’t sort this out in the US, which frankly even when we had high inflation, was really the best performing major economy in the world over the last few years. If we’re not driving this forward, what does that demand look like? But especially if interest rates come down, that calculation on inventory could change a lot as to whether you want to hold longer days in inventory.

On China and on logistics and everything else, I think there’s two pieces of this, is one, just the implications of less bilateral trade within China, but then also the new rules around Chinese vessels or carriers with Chinese vessels. This is still a highly fluid situation with where this is. I think I ran a back of the envelope calculation as to where this is of, well, it would cost potentially an extra half a cent per pound starting out, maybe picking up from there per container, or half a cent per pound of products within those berths basically being passed back to exporters.

If you have fewer port calls, if you have fewer containers, I think there is a lot of uncertainty within this market. I think we’re starting to hear it from our members already, questions and uncertainty. I don’t know if we’ve seen the full impact of this, but I think this is something that folks are watching and it’s something US DEC unfortunately had to become an expert in pretty quick. My colleague, Tony Rice, has spent a lot of time becoming an expert on logistics, working with a lot of the folks within USG, the US government to really understand what’s going on there. So US DEC is unfortunately ready for this, but we had the practice from three years ago to assess what’s going on.

Mike Brown:

We were talking about milk and whey proteins in the trade and those in the world, finding new markets or potential new markets, from my experience in manufacturing, you’re not going to take a spot market away and introduce a product to change your production or your sales strategy without making sure it’s longer term. If someone’s not taking those proteins, they get diverted to a new market. That could change not just who the buyer is, but long-term strategy on products. If China wants to continue these fights and they don’t take the product, they could lose it long-term and not get it back to lose the supply available. And whether New Zealand makes more proteins and makes that available long-term or what it might be, but there’s some implications just from the standpoint of a manufacturer’s decision. They aren’t going to take spot protein without knowing they’ve got a ready supply longer term. I would agree.

Ted Jacoby, III:

Oh, yeah. Are you all seeing anything within Mexico itself, and this is maybe a question for Miguel, how are consumers in Mexico reacting to a lot of this? Mexico’s economy has been one of the best performers along with the United States. I think those two go hand in hand, and we have, as an industry, developed incredibly close partnerships with our friends in Mexico. How are Mexican consumers watching what’s happening? Certainly the tariffs are a piece of this, but I also think of things like remittances going to Mexico as well, and some of these other pieces. What is that outlook and what does it mean for our demand from our biggest trading partner and closest partner?

Miguel Aragón:

That’s interesting that you mentioned that because remittances have taken a hit from the beginning of this administration. A lot of people going back to Mexico instead of staying put here, we could see agricultural production here. At the same time, given that Mexico has, and I’m just talking about cheese in this case, has that flexibility of going from natural cheese to analog cheese making, and given that we as an industry have different lines of production, we have number one product, we have under-grade product and we have trim, for example, and milk powder. Mexico has the ability to go from using all number one product to actually increasing their production of analog cheese product, which it goes to that market that doesn’t have that much money to get cheese. We’ve seen that flow between products reflected in the marketplace. The interesting part is that just like in Canada and Mexico, when I was visiting there, you saw the pushback on getting US products, not as bad as in Canada.

Also, you have agricultural products that are not identified of, oh, that cheese is coming from the US. That milk powder is coming from the US. Those products are coming from the US. It’s other things, so we’ve been lucky that close proximity makes products move really fast, so there is no time to identify at least food products as coming from the US and we’re going to reject them. There is a pushback. There is also lack of resources, but so far, so good. I don’t know by the time July comes if we see a big disruption, but so far so good.

Ted Jacoby, III:

Miguel, our Mexican consumers, is there an anger in Mexico regarding the US and the Trump administration, or are they going with the flow right now?

Miguel Aragón:

I would say there is an anger, but I have to think that the president, the Mexican president, she has handled the situation so good in the Mexico side that it hasn’t exploded. You do have a nationalistic team right now going in Mexico, but it’s more like less produce in Mexico. The US is our biggest commercial partner, so we have to live with both of those things. We can’t move. The US is not going to move. We’re joined forever despite what our administration thinks or says, or despite what nationalistic views in Mexico are. We’re joined forever. So we just got to live with it. This president has made a lot of efforts to direct that anger or that energy into something more positive, as in, all right, we got to produce more in Mexico.

Ted Jacoby, III:

Cool. No, that makes a lot of sense. Well, I’ll end with this. True or false? Despite tariffs, we’re competitive globally on every dairy component for the first time in recent history. Is that a true statement?

Will Loux:

Seems like a true statement to me. The US has, I think, a great opportunity here. The question is what else is going on? I feel pretty good, at least where we’re at today. Talk to me again in a week and who knows what’s happening.

Ted Jacoby, III:

I agree. All right, Will. Hey, thank you so much for joining us. This was a great discussion. I think our listeners will enjoy hearing everything that you had to say, and I think that last comment really sums it all up. One of the things that we’re really losing in all this chatter about tariffs lately is we’re continuing to export a lot of dairy products to every other country in the world besides China, in spite of everything that’s going on, because we’re competitive price-wise and because we make a good product. That gives me a lot of hope for the future of the US dairy industry. Thanks everybody for joining us today. Have a great weekend. Thanks, everyone. Thanks again, Will.

Will Loux:

Oh, this was fun. Sounds like a good time.

Mike Brown:

All right, thanks.

Josh White:

Thanks, Will.

Mike Brown:

Great.

Will Loux:

All right. Yeah, of course.

Mike Brown:

Nice to meet you, Will.

Outro (with music)

We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keagy. The Milk Check is a production of TC Jacoby & Company.

Ted Jacoby, III:

All right.

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In this week’s episode of The Milk Check, we strap in for a wild ride. From tariff chaos to spring flush milk surpluses, the market is anything but predictable.Join Ted Jacoby and the team of experts as we cover key topics, including: The spring milk flush and its impact on processing plantsCream demand firming up but still longButter market volatility and how cream shortages are affecting pricesTariffs and how they're impacting the international dairy tradeOur team of experts break down the current dairy climate and offer insights on navigating these turbulent waters.Listen now to The Milk Check episode 76: Tariff talk takes dairy on a wild ride.The Jacoby Team:Brianne Breed, senior vice president, cheese tradingDiego Carvallo, director, dry dairy ingredient tradingGus Jacoby, president, fluid dairy ingredients & dairy supportJacob Menge, vice president of risk management & trade strategyJoe Maixner, director of sales, dairy ingredientsJosh White, vice president, dairy ingredientsMiguel Aragón, director of international cheese sales, Latin AmericaMike Brown, vice president, dairy market intelligenceTed Jacoby III, CEO & president, cheese, butter & dry ingredientsIntro (with music): Welcome to The Milk Check, a podcast from T.C. Jacoby & Company, where we share market insights and analysis with dairy farmers in mindTed Jacoby III: Welcome everybody. It is April 11th, 2025. We've had a lot going on in the last couple of weeks. Trump initiated some tariffs, took some tariffs off, and raised some tariffs. I think we landed in various different spots when the dust started to settle, and I'm pretty sure that the dust hasn't settled yet. So, this market discussion could be completely out of date by the time we get back on Monday.I've asked a lot of my traders to join us for this discussion. My brother Gus is representing the Fluid Group and talking a little about milk and cream. We've got Diego with international sales and non-fat. We've got Brianne here to talk about cheese. We've got Joe here to talk about butter, and we've got Josh here to talk about whey, as well as Miguel to help Bri with cheese. And then we've got Mike Brown joining us.And so we're just going to go around the horn and talk about our various dairy products. Obviously, we can't avoid the topic of tariffs today. Let's start where the milk starts, and start with milk. Gus, what's going on in milk right now?Gus Jacoby: Well, we're in the middle of the spring flush. So, in areas like the Mideast, Northeast, and even areas on the Eastern Atlantic, you have some pretty long milk. But an interesting dichotomy for the discussion is that there are areas of the country that aren't so long. It's mostly areas where a lot of milk-processing capacity has been added, like the I-29 corridor up in South Dakota or down the Southwest.Those areas aren't quite as tight, but nonetheless, where it is long, for example, in the Mideast, there have been a number of plant shutdowns for periods that have made it really long for certain stretches. You add in some higher components, and you're in for some interesting times right here in the middle of April.Ted Jacoby III: So we're about a week away from Easter. Do we think things will get even longer over the Easter weekend before they maybe start to clean up a little bit?Gus Jacoby: Some plants that were down are coming back online, but not all of them, so I think you will have a little bit of both. It's hard to figure out exactly how long we'll be over Easter. But I think it's safe to say that you'll likely have enough plant shutdowns during that holiday weekend, and it'll still be ugly.Ted Jacoby III: And what about cream? Cream has been the bane of many people's existence this year, especially in the Midwest. Is it still ugly? Or is it starting to get better?Gus Jacoby: It's not as ugly as it was.

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In this episode of The Milk Check, find out why some dairy producers may be eyeing the exit. Sarina Sharp, risk manager at Ag Business Solutions and the writer behind TC Jacoby’s Weekly Market Report joins the Jacoby team this week. Sarina brings invaluable insights as we dig into critical topics like:Milk prices and financial stability: How long can dairy farmers survive with Class III prices dipping below $17?Supply chain shifts: How whiplash tariffs, changing federal orders, and fluctuating demand are affecting the U.S. dairy market.Bird flu and milk production: How the bird flu has changed U.S. milk production, and where it may strike next.Tune in to The Milk Check episode 75: Exit stage left: Why some producers are selling out while they can. If you like milk (and we know you do), then pour yourself a mug and tune in for insights on how to navigate this uncertain landscape and stay ahead in the coming months.Special Guest:Sarina Sharp, risk manager, Ag Business Solutions, and market analyst for the Daily Dairy ReportThe Jacoby Team:Josh White, vice president, dairy ingredientsTed Jacoby III, CEO & president, cheese, butter & dry ingredientsMike Brown, vice president, dairy market intelligenceGus Jacoby, president, fluid dairy ingredients & dairy supportIntro (with music):Welcome to The Milk Check, a podcast from T.C. Jacoby & Company, where we share market insights and analysis with dairy farmers in mind.Ted Jacoby III:Welcome everyone to the March 28th, 2025, edition of The Milk Check, a T.C. Jacoby & Company podcast. It is my pleasure to welcome a couple of special guests to the podcast this week, first, Sarina Sharp of Ag Business Solutions and the Daily Dairy report. Welcome to the podcast, Sarina. Most of you know that Sarina is also the writer of the T.C. Jacoby Weekly Market Report, which we publish every Friday. Sarina, we're honored to have you join us today. More importantly, thank you for the partnership. I can't tell you how often I get compliments on the weekly report that you write for us, so thank you very much.Sarina Sharp:Thanks for having me. Thrilled to hear it.Ted Jacoby III:In addition, we have a few of our usual suspects: my brother Gus, head of our fluid group; Josh White, head of our dairy ingredients team, and I am excited to announce that Mike Brown, formerly of IDFA and Kroger fame, is joining the Jacoby team as our new vice president of Dairy Market Intelligence. Mike, I am excited to have you on the team, and I look forward to having you on this podcast as a regular presence.Mike Brown:Well, thank you, Ted. I'm delighted to be here. It's good to be back in markets and away from government regulation. I'm very excited about the opportunity. And Sarina, I am really looking forward to working with you. I've been a fan for decades now. Appreciate that opportunity to work with you as well.Sarina Sharp:Time flies.Ted Jacoby III:It sure does. So my first question is this. We've been talking for probably a couple of years now about the heifer replacements and the issue that's been evolving because many dairy farmers are breeding to beef simply because it's really hard to pass up $700 for a black cow rather than spending $3,000 to raise that calf into a heifer. But we're getting to the point where right now, for example, our traders that sell into the retail space, they're telling us demand's not that great. Those who are selling into the food service space are saying demand's not that great. Even our traders who export are telling us that Trump's rhetoric about tariffs is having an effect and making it difficult for us to export. In other words, demand is not that great on the horizon. Milk prices have come down. Class III price is probably going to be in the low 17s, maybe even into the high 16s in April. Are we getting to the point that we're starting to reach that line where dairy fa...

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Dairy markets have taken a hit, with prices dropping across the board.Global economic uncertainty, tariff concerns, and weak demand have sent prices for cheese, butter, nonfat dry milk, and whey tumbling. Our team tackles this and more, including: Pricing market predictions by dairy product categoryTariffs and demand changes for U.S. productsGlobal strategies to diversify supply chains and potential long-term impactsA potential shift on feed strategies and butterfat productionDon't miss Ted Jacoby III and his expert panel's market discussion on what's going on and what may be coming next. Listen now to The Milk Check.Intro (with music)Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.Ted Jacoby III:Welcome everybody to this month's version of The Milk Check. We're going to have an old-fashioned market discussion this month. Joining me today is Diego Carvallo, Director of Dry Ingredient Trading, especially on the international side, Greg Scheer, our Milk Marketing Manager, Jacob Menge, Vice President of Risk Management and Trade Strategy, Jared Miklasz, Sales Manager for the UFC Group, UF Milk and Cream, Joe Maixner, Director of Sales for Dairy Ingredients, and our Head Butter Trader, Josh White, our Vice President of Dairy Ingredients, and Miguel Aragon, Director of International Cheese Sales for Latin America. We're recording March 7th.Before we get started, let me say this: stick around, and don't go when we start to say goodbye. We're going to have a Marvel version of this podcast. After we said goodbye, we ended up having another 15 minutes of conversation. That may have been the best part of the whole conversation. Thanks everybody.Pretty much every single one of our markets has been down 20 to 30 cents in the last month, whether it's cheese, butter, non-fat, or whey. They all seem to be down 20 to 30 cents. Jake, is this a function of all of the tariff rhetoric coming out of the Trump administration, or is there something else going on?Jacob Menge:It's tough to separate the components of what are really driving these markets. I think tariff talk is absolutely part of it. In our last podcast we mentioned that uncertainty just weighs on markets, and there's more uncertainty today than I would say. There was the last podcast we did. The can has gotten kicked on the Mexico tariffs. I'm not sure how many times you can do that.This time when it happened, we saw it in equity markets, they didn't really pop like they did last time. The can got kicked on tariffs and equities were like, "Oh, okay, good." And when it happened yesterday, equities really just continued. They're crying lower. I'm only bringing that up because this is obviously a macroeconomic-driven dairy and equities market.Tariffs are part of the problem, but demand is just poor, according to everything we've seen. I think we'll hear from all of our product traders. That is certainly a factor, but it’s tough to blame anything.Ted Jacoby III:All right, well, let's start with butterfat today. I'm going to ask Jared and Joe together. The butter market is down 20 to 30 cents, and the cream market has been ugly since Christmas. What's going on on the demand side? Will this market stay this way all year, or is it a classic seasonal phenomenon?Because if there's one market that's probably the most insulated by the tariff talk, it would be the butter market, but butter, if anything, it almost feels like the heaviest of all of our markets right now.Jacob Menge:There are certainly quirks in each market. Dairy is not the only one seeing that, though, so if I had to lean one way or the other, yeah, there are macroeconomic influences in that demand piece.Jared Miklasz:Butterfat numbers are still hanging out somewhere in the 4.5% range compared to they're about a year over year 2.

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Could tariffs put U.S. dairy exports at risk? In this episode of The Milk Check, special guest Mike McCully, President of The McCully Group, joins us to slice through the uncertainty in today’s dairy market.With trade tensions rising, could tariffs spook global buyers and push them toward alternative markets? We tackle some of the biggest questions facing dairy exporters today, including:Will tariffs curdle U.S. dairy exports?How are Mexico and China adjusting their buying strategies?What happens if tariffs push global buyers to look elsewhere?Listen now to the latest episode of The Milk Check to learn what's making waves in the dairy markets.Special Guest:Mike McCully, The McCully GroupThe Jacoby Panel:Diego CarvalloJacob MengeJosh WhiteMiguel AragónTed Jacoby, IIIYara MoralesIntro (with music)Welcome to The Milk Check, a podcast from T.C. Jacoby & Company where we share market insights and analysis with dairy farmers in mind.Ted Jacoby, III:Welcome everybody to The Milk Check. So, today, our topic is going to be tariffs and how that might affect the U.S. dairy industry. We are recording this at 2:00 PM on Friday, February 7th, and we're going to talk about tariffs. Very likely, by the time you listen to this, it might all be irrelevant because who knows what the Trump administration is going to do next? Joining us today from our team is Miguel Aragon, our Director of Latin America's Sales for Cheese; Yara Morales, our Director of International Sales for Dairy Ingredients; Diego Carvallo, our Head of International Trading for our Dairy Ingredients Team; and Josh White, the Head of our Dairy Ingredients Team. Also, Brianne Breed is joining us, Head of our Cheese Team, and Jacob Menge, Head of our Risk Management and Trading Strategy. In addition to that illustrious group, we've got Mike McCully today, the founder of the McCulley Group, who is probably well known to most everybody in the dairy industry, at least in North America. Mike, thanks for joining us today.Mike McCully:You're very welcome. Happy to be here.Ted Jacoby, III:Mike, where do we stand right now on tariffs, what is the Trump administration doing, and what do we expect them to do next?Mike McCully:Had a very different conversation just a week ago when it looked like we were going to start on February 1st with tariffs on Mexico and Canada and retaliation from both countries and then China. But then, 48 to 72 hours, all of it got put on hold. The China retaliation was not on dairy; Canada and Mexico were on hold, so we've basically put all that tariff discussion over in a box, and we're just going to sit and wait here for a while. It's evolving each day. I read something yesterday or the day before: "The best tariffs are ones that are not used." Hopefully, that's where things go, but we'll just have to wait and see. Between this and H5N1 are two very unpredictable elements that we have to deal with in the dairy market, not just this week and next week, but probably for quite some time.Ted Jacoby, III:I couldn't agree with you more on that one. Jake, are we expecting anything to happen next in terms of tariffs?Jacob Menge:I think something is happening as we speak. Trump talked this morning about, in his own words, reciprocal tariffs on unnamed countries. That is new as of this Friday. Trump and tariffs seem to have a cadence of news on Friday, which Wall Street really loves. That's certainly new. I heard him mention Japan, I think today. So that is just wreaking havoc on equity markets and our markets. It's this unknown. Markets just hate the unknown, and much of it is hanging out there.Ted Jacoby, III:Where we stand regarding tariffs, we've postponed putting tariffs on Mexico and Canada or any, let's call it additional tariffs, the 25% tariffs, we've delayed for about a month, the possible 25% tariffs on those countries.

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What will shape the dairy industry in 2025? Are you ready for it?In this episode of The Milk Check, we tackle the big question: what’s ahead for the dairy market in 2025? Spoiler alert: There’s no shortage of opinions—or uncertainty.🐮 Heifer shortages vs. USDA projections: are we heading for a reality check?🐄How will shifting cow populations reshape regional American production?🧈 What is going on with butter? What's ahead for 2025?🌏 Will export demand stabilize or shake up the market?Our team debates critical factors impacting the year ahead, including herd dynamics, regional processing capacity, and export competition.From farmers to Futures buyers, this is your go-to episode for staying ahead of the dairy market’s evolution.🎙️ Listen now to gain insights about cows, cream, and commerce on this episode of The Milk Check.Intro (with music):Welcome to The Milk Check, a podcast from T.C. Jacoby and Company, where we share market insights and analysis with dairy farmers in mind.Ted Jacoby, III (T3):Welcome everybody to our January 2025 version of the Milk Check podcast. Today, we will do a bit of a market outlook for 2025, and I've got most of our traders on with me to share their thoughts on what might be coming down the pike. That would include my brother Gus, who runs our fluid group; Greg Scheer, who's head of our milk division; Joe Maixner, who handles our butter desk; Don Street, who does a lot of our analysis in terms of milk production, heifer supply numbers, cold storage, those kinds of things. Josh White, head of our dairy ingredients, runs our whey protein desk. Diego Carvallo, head of our international sales and runs our nonfat book; Jacob Menge, head of risk management; and Brianne Breed, head of our cheese group. Today, the group of us will get together and talk about the different segments of the industry and what we think is in store for us in 2025. So, thanks for listening. I think you'll enjoy this podcast.We have been talking a lot internally about the heifer supply and the fact that there just may not be enough heifers to grow the milk supply, but I was talking to someone whose opinion I think pretty highly of the other day, and he told me that he knows of 60,000 cows that are going on new dairy farms in 2025, which makes me wonder if what we've been talking about with the heifer supply is true or if maybe the numbers we're getting from the USDA are wrong. Do you think the cows are really going to be out there? Do you think we'll be able to grow our milk supply in 2025, or do you think the shortage of heifers is real?Greg Scheer:Well, I think some areas may have a shortage of heifers. Obviously, some big farms have planned expansions that may not be counted in that number, but there are still tight supplies of heifers. Some of the bigger farms have their own replacements available. So, I do think it'll limit how much milk production can grow.Gus Jacoby:Yeah, it’s hard to argue with what Greg just said. I mean, the economics are there for Garmin to continue to go to beef, and therefore, we don't foresee the heifer supply growing, only shortening. Now, that doesn't mean that some larger farms that have some affiliations with calf ranches can't manage their heifer supplies as they need to grow into some new farms or current farms that require more production for new plant capacity coming on in their regions, but I don't think there's any doubt that we're going to have a limiting factor on cows that puts a lid on it.To be clear, Teddy, we had a big influx of cows in the middle of the year when some new capacity came on in the southwest. We only ended the year with 20,000 cows up, including over 300,000 fewer cows culled. So, to keep the cow numbers relatively the same, we must continue culling fewer cows. We're just going to find out whether that's something we can get away with for the foreseeable future because the herd will...

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Where is the global dairy industry headed? In this episode of The Milk Check, we’re joined by Andy Powers, vice president of technical services at the American Dairy Products Institute (ADPI), alongside members of the Jacoby team, to explore the future of dairy. Together, we tackle emerging trends, market forces, and opportunities for dairy proteins, fats, and other dairy products in the next 5 to 10 years.Emerging trends: The role of GLP-1 drugs in driving future global demandDairy vs. plant proteins: How the structure of dairy and plant proteins differ and what that means for nutrition and healthThe rise of butterfat: U.S. butterfat and the role of exports in future consumption Cheese’s global opportunity: How cheese production is ramping up to meet international demandDairy co-products: Innovations in whey protein, lactose, and milk protein isolates to address shifting market needsFrom health-conscious consumers to industrial applications, we examine how dairy is evolving to stay competitive.Plus, check out The ADPI 2023 ADPI Dairy Products Utilization & Production Trends report here and the ADPI Ingredient Resource Center here.Don’t miss this comprehensive look at the future of dairy with insights from Andy and the Jacoby team, including Ted Jacoby, III, CEO & President, cheese, butter & dry ingredients; Josh White, vice president, dairy ingredients; Diego Carvallo, director of dry dairy ingredient trading, and Tristan Suellentrop, sales associate, Into (with music): Welcome to the Milk Check, a podcast from TC Jacob and Company, where we share market insights and analysis with dairy farmers in mind.Ted Jacoby, III (T3): Hello, everyone, and welcome to this month's episode of the Milk Check. Today, we are excited to have Andy Powers, vice president of technical services for the American Dairy Products Institute, joining us. Joining us as well, we have some of our usual suspects. Josh White, vice president of Dairy Ingredients, Diego Carvallo, our Director of International Sales for Dairy Ingredients, and Tristan Suellentrop, our sales associate and resident 20-something on our sales team. Guys, thank you, and Andy, excited to have you with us. Thanks for joining us.Our topic today is: what's the future of dairy? Where do we think demand is going to grow globally in the dairy industry? What are the components that this industry is going to see the greatest demand and opportunity for as we look out over the next 5 to 10 years? Andy, I'll start by saying we just recently had a five 10 year vision conversation within our organization, and one of the things that we spent a lot of time talking about was how dairy proteins, specifically as you look at the way the developing countries and the way their diets are changing and growing and developing when you look at the aging populations of many parts of the world when you look at the addition of medicines like Ozempic and Wegovy, protein is just going to become a bigger and a bigger part of the nutritional profile of what human beings eat.I've got two boys in their twenties, and they are much healthier eaters than I ever was when I was in my twenties. That means they're consuming a lot more dairy protein.Andy Powers: Right.T3: What are your thoughts, and where do you think dairy proteins fit in that space?Andy Powers: First and foremost, because I've worked for the American Dairy Products Institute, you're going to hear me talk about dairy. I drank the Kool-Aid a number of years ago. I believe in dairy's value proposition, and I believe in its strengths in terms of nutrient density and complete nutrition. You talked about some of the driving forces that are going to influence demand for dairy in the future. We've got population growth as the baseline talked about an aging population. I think that's significant. The ongoing current modernization or GDP growth meaning that people can transition from the most...

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Today’s dairy market is global. In our latest episode of The Milk Check, we dive into the New Zealand and Oceania markets to understand how they may impact the U.S. dairy market. Join Jacoby and our two special guests Jo Bills, ag market analyst and director of global Insights at Ever.Ag, and Steve Spencer, managing Director at Ever.Ag as we dive into dairy.Tight global supplies of skim milk powder and strong demand will likely keep prices high through 2025New cheese plants in the U.S. market increase Class III supply and may drive cheese prices down and limit powder output, tightening global powder supplyNew Zealand enjoys tariff-free access to the Chinese market, but China's economic woes have reduced dairy demandLower Chinese demand pushed New Zealand to focus on skim milk powder, butterfat, and cheeseAnd lots more information on the global dairy market and our predictions 2025. We have a positive outlook for dairy in 2025, but cheese may be our wild card. Get the market scoop from the Jacoby team, including Ted Jacoby, III, CEO & President, Cheese, Butter & Dry Ingredients; Josh White, Vice President, Dairy Ingredients; and Diego Carvallo, Director of Dry Dairy Ingredient Trading.Intro (with music):Welcome to The Milk Check, a T.C. Jacoby & Company podcast where we share market insights and analysis with dairy farmers in mind.Ted Jacoby, III (T3)Hello, everybody, and welcome to The Milk Check. This month, we are excited to welcome special guests Joanne Bills and Steve Spencer from Freshagenda to share their thoughts on milk production and dairy demand in Asia, Oceania, and internationally for 2025. Joining us from the Jacoby team are Josh White and Diego Carvallo from our dairy ingredients team. Welcome, everybody, and thank you for joining us today.Steve Spencer:Thank you, Ted. It's great to be here. We enjoy these. We've done a few of these, so it's always good fun.T3:We're about to enter year two of China's tariff changes regarding New Zealand dairy products and how they are imported into China. For our audience, many of whom are dairy farmers here in the U.S., why don't you give us a quick overview of those changes? Then, we can discuss what that has meant for dairy markets in that region and how it affects dairy prices.Steve:In basic terms, New Zealand has tariff-free access to the Chinese market. That was preset for an extended period. They were on a slow rundown of tariffs over a long haul. A few years before that was due, they had a review, and it seemed to be that that was just a little period to push it out a bit longer, and that's in the rearview now. So, we're in a very tariff-free environment for New Zealand exports, which you'd think has freed them up to go wild. The only trouble is China's not a market that is allowing many people to go wild right now because that's come at the same time as China hitting a phase of the second wave after Covid; the second wave lockdowns were much harsher, much longer, much more damaging to the economy and so that's crippled demand for dairy in many parts of the market because spending, consumer spending has been depressed and many things are contributing to that right now and that's still a happening thing.So, that has freed New Zealand up to grow its share of the market in skim milk, powder, cheese, and butterfat and they've certainly done that at a time when the import volumes are a lot lower. So, we've got to sit back and look at the overall trends in China. We think they're just off the bottom regarding those import trends, but New Zealand has certainly picked up share, and their exports to China are falling.You could take the story of product by product because the products that China isn't producing or doesn't produce, skim milk, powder, butterfat, cheese, a small production of those, really the trade is probably following the pattern of demand we're seeing in that market.

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As summer fades, we're moving into peak demand season for the U.S. dairy market. Keep on top of shifting trends with The Milk Check. Guest host Josh White and a panel of industry experts discuss the latest trends and projections for U.S. dairy as we approach this critical period.💸 Blue tongue’s impact on European milk production.🧈 Butterfat is bucking the trend with a strong inventory.🍦 Cream prices have softened after a brief surge in the last few weeks.🧀 Cheese markets set record-high prices this year, but is the tide turning?🐄 Milk powder prices are on the rise as we head into peak demand season.Plus, we’ll look ahead to 2025: What impact will the expanded cheese production capacity have on milk prices in the second half of the year?Get the market scoop from Josh White and his team, including Diego Carvallo, director of dry dairy ingredient trading; Greg Scheer, manager of milk marketing; Jacob Menge, vice president of risk management & trade strategy; and Joe Maixner, national sales manager of dairy ingredients.Intro (with music): Welcome to The Milk Check, a TC Jacoby and Company podcast where we share market insights and analysis with dairy farmers in mind.Josh White: Hey, everyone. Welcome to The Milk Check. Today is Friday, September 20th. I am Josh White, filling in for Ted this week. We've entered that time of year when producers or processors, customers alike, we all put that summer fun behind us here in the Northern Hemisphere and focus a lot more attention on what's happening in the market today, closing out the year and thinking about what could influence the next calendar year. As a result, we think it's a great time to have what TC would call a good old classic market discussion.Today, I'm joined by most of our traders here at TC Jacoby and Company, and I'll lead that discussion in Ted's absence. So I'll do my best Ted impression and say, "Hey guys, where do we start?" Does anybody have a thought as to what we should cover at the beginning? I personally think it all starts with milk. Greg, I would love your opinion as to what's happening today and the market as it relates to milk moving across the country and what your thoughts are looking ahead.Greg Scheer: Thanks, Josh. Yes, we've seen tighter spot markets this summer and this spring compared to previous years. We have tighter milk supplies. We have a lack of replacement heifers. We have very expensive replacement cows. Producers have been holding back from culling as heavily as they usually do. We just don't have the replacements to increase milk supply. So we have firm spot markets. We've seen that this summer. We expect to see that this fall, but we are setting up for 2025 to be a tighter year for milk supplies because of those reasons.Now, that could be mitigated some. I've heard of very good harvests being put up, good quality, cheap feed, and producers will be able to feed those cows maybe a little better, but the fact of the matter is it's going to be hard to get cow numbers up. They'll probably decline, and the cost of any kind of replacement will be high.Josh: So Greg, you're talking through those dynamics and that doesn't take into account what the industry has discussed a lot about all these new plants coming on a new capacity. We've got another plant firing up any day now, another large one in the southwest that will likely start early in 2025, and a few plant expansions in the upper Midwest. How do you think that that influences this tightening milk dynamic as we go into next year?Greg: It will make the milk competition just that much stronger. For the producer, it should help get higher premiums for milk in those competition areas. Plants will have to plan ahead, and even in some regions where milk's traditionally been very long and can get all the milk they want, it will be harder next year. It's just more competition. It will maybe pull some milk from other plants, and some older,

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In today’s episode of The Milk Check, we’re joined by Tim the Dairy Farmer, a farmer, speaker and ag comedian. If you think dairy farming is no laughing matter, then you haven’t met Tim. Tune in for a special episode of the podcast, where Tim and the Jacoby team discuss:

• Strong harvest likely leading to lower feed prices
• Could dairy heifer prices rival Black Angus prices in the near(ish) future?
• Could the milk price reach $30?
• Things you should never plan near the cow pasture

Plus, learn how Tim got into the comedy biz and how he silences the hecklers.

Don’t miss this episode of The Milk Check with Tim the Dairy Farmer.

Intro audio (with music): Welcome to the Milk Check, a TC Jacoby & Co podcast where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby II (T3): Welcome, everybody, to the Milk Check. This month we’ve got a very special episode, we have a special guest, Tim the Dairy Farmer is with us today. Tim is going to ask us what we think is going on with these dairy markets, and we’re going to do our best to give him an answer, and we’ll see where the conversation goes from there. Tim, why don’t you tell us a little bit about yourself?

Tim the Dairy Farmer: I’ve been in the dairy business for 30-something years, taken my licks, started doing standup comedy as Tim the Dairy Farmer about 22 years ago, and I speak at agriculture events. I’m a standup comedian, I’m not a motivational speaker. I’m horrible at marketing myself there, Ted. So basically I’m a dairy farmer that does standup comedy, and they hire me to come to meetings, to wake up after guys like you talk. And here’s another thing, this podcast is called the Milk Check, correct?

T3: Yes.

Tim: All right. This is how you know I’m a dairy farmer, y’all call it the Milk Check, I’m just happy my last milk check had a comma.

T3: Well, that’s why we call it the Milk Check, because we want to talk a little bit about markets and what’s affected dairy farmers’ milk checks. Hopefully most dairy farmers do have a comma right now because prices are halfway decent. But before we go to markets, Tim, I’ve got to ask, tell me about one of the most interesting agricultural events that you participated in. I’d love to hear a good story.

Tim: Oh, man. I’ve got so many. It’s not the good ones that you remember, it’s the horrible ones. There’s three shows, there’s the one you planned to do, the one you do, and the one you wish on the drive home that you would have done. I’ve had all kinds of stuff go wrong. No, for the most part they’re always fun.

T3: All right.

Josh White: So Tim, how often are you on the farm versus having to hit the road for comedy?

Tim: I probably go off and do 30, 35 shows a year. Normally I fly out the night before and I’m back the day after. My brother’s always been my biggest supporter, he covers while I’m gone. I couldn’t have made it this far doing comedy without my brother’s support, because we’re partners in the dairy and he’s always covered for me when I’m gone.

T3: Where is the dairy located, Tim?

Tim: Central Florida. We’re actually over between Fort Myers and Tampa, where all the elderly people go to pass away, you take a right and that’s where we’re at.

T3: When that hurricane came through Fort Myers last year, that affect you guys at all?

Tim: No, it affected a few of my buddies. Nobody lost any cows, but barns were just crinkled up like aluminum foil and tossed around. I think over the years I’ve lost three barns to hurricanes.

T3: Oh, really?

Tim: Yeah. They tell you how it’s rated for 80 mile an hour or whatever, and then when the tornado or the hurricane comes through it wads it up like a piece of paper and chucks it 100 yards. You’re like, “Well, that wasn’t rated right.” Anyway. Go ahead, this is your podcast.

T3: Tim, if you have a question to get the market discussion started, why don’t you go ahead and shoot?

Tim: I’m just wondering what things are doing. All my buddies, my relatives are all in the commercial side of it. And don’t lie to me, if it’s going to hurt, just rip the Band-Aid off.

T3: Well, I’ll tell you what we’re having right now is we’re having an internal discussion, my brother Gus is convinced that all this breeding the beef that’s going on is going to create a heifer shortage of such magnitude that we’re going to have $30 milk by the end of the year. Gus, would you agree with that?

Gus Jacoby: Not by the end of this year, although I think it is plausible. I would say that within the next year, and maybe it’s 12 to 14 months, we’re going to be in for it. I think the contraction on cows is going to be fairly significant enough, and then any uptick in demand will send the milk price spiraling upward, and $30 milk is certainly a plausible scenario under those conditions.

T3: And Josh, what would you say is happening on the demand side? Are we able to sell any nonfat right now?

Josh White: Internationally it’s not real great, Ted. It’s a broken record, same thing every time. We’ve come off of tough times before for the dairymen, margins looked a little bit better now, but the one black eye in the whole product market remains to be the milk powders. And every day we get maybe some optimism or some hope or something that looks like tomorrow could turn around, but it isn’t happening yet.

T3: Our friends in Asia, any indication yet that China’s coming back and is going to start buying a little bit more powdered than they have been?

Josh: No.

T3: I think everybody’s in agreement on that. I know the two blogs that I read this morning, including BCA and Ross Rant, both of them have China in the toilet, and not getting out any time soon. They say India is where it’s going to be, that’s going to be the next hotspot. Not necessarily as a market for dairy products, the overall economy.

Gus: Yeah. Economically I believe it. When it comes to dairy though, India is stable when it comes to milk. They rarely are major importers of dairy.

T2: I think Gus is right, but the economy is the other side of that coin.

T3: So I was listening to an economist last week who basically said it looks like we’re going to go into a very mild recession. The asterisk on his comment was everybody’s hoping that interest rates come down. Interest rates are not coming down five points.

T2: They’re going to do a quarter on general principles.

T3: Right. They’re going to come down from the 6% to 7% they are right now to maybe 5%. The next thing he said was that we may spend most of 2025 there, because then we’re going right back up, because they are going to achieve a soft landing, the recession we will probably have will be mild, and there’s still a lot of pent-up demand and it’s just going to accelerate right out of it, and then we’re going to be right back where we were. If you think about that from a dairy perspective, everybody’s breeding the beef, Tim’s breeding the beef. Tim, are your cousins breeding the beef?

Tim: Oh, yeah. This is even a year or so ago, I’m getting $2.25 a pound for that beef calf, whereas I’d only get, what, $.96, $.98 cents a pound for the milk? I would take milk out of my tank and feed black calves, it was better for me to just put it in a calf and raise the calf. So yeah, there’s a lot of guys doing it. So let me ask you guys this, because I don’t follow the market like you do, and I’ve been in this business for 30-something years. So you’re telling me now that powered milk is what sets the market these days? Is that what you’re saying?

T3: The cheese price is probably the biggest factor setting the market.

Tim: Okay.

T3: You’ve got cheese that has a big influence, butter has a big influence, but you’ve still got to do something with the powder as well.

Tim: It amazes me, because back in the day you’d get a little bump in money if you had a higher butter fat, they pay you on quality of course, and then the stuff that they’re making the powder at, we all would either feed that back to the cows or put in on the ground. And now, all of a sudden somebody took a trash product and it’s one of the … I’m just shooting from the hip, but I’ve been in it long enough to know that that used to go down the drain. It kind of amazes me.

Gus: Tim, we have a pretty unique set of circumstances in our industry now. So the last milk production report we can track at about 1%, we look at certain areas of the country that are starting to lose that milk, such as the Southwest, and in the same time as they lose that milk they have cheese plants being built in those regions, and fairly significant ones. So as you analyze that, if the milk’s not growing that means that milk’s got to come out of somewhere to fill those plants, so obviously it’s going to come out of class four. We’ve seen it come out of class four a little bit just on the current contraction, but as we move forward and these cheese plants come online and start building up their processing capacity, I think that’s where we start to wonder what this powder market is really going to do and just how tight it might get.

Tim: I’ve been in Florida all my life milking cows, and we’ve always been class one. Everybody always wanted to come into the Florida market, so we had Texas, Maryland, Virginia, they all wanted to come in. And now, it’s no secret, Walmart’s getting ready to build a big facility there in I think Macon, Georgia. The guys here in Florida, they’re a little worried because it could really crush the Florida market.

Gus: I think that’s a legitimate concern, as Walmart starts to make their own bottled milk, that’s got to come out of some of the guys that are co-packing that for Walmart right now down there.

Tim: Right.

Gus: Then you add in the fact that if you lose those facilities, now that milk’s going in there, and I believe most of the milk that’s intended for the new Walmart facility is going to be coming from cows on farms that intend to expand quite a bit.

Tim: Yeah. Even so, it opens up the ability for Walmart to buy milk from other states and ship it into Florida cheaper than what we’re doing.

Gus: I don’t know if there’s enough transportation credits and zone differentials to make that still work, with the freight, the way it costs these days. But there’s always that time of the year when you have to do it, in that fall timeframe it always gets tight enough down there, where if they want to get enough milk to fill the orders, you’ve got to bring it from the Mideast or somewhere up north.

Tim: I have another question.

T3: Just yell it out.

Gus: I think you’ve got to yell it out.

Tim: Okay. So you guys are predicting $30 milk.

T3: Gus. Wait, Tim, Gus is predicting $30 milk.

Gus: But that’s, just so you know, I have an indefinite amount of time before we get there.

Tim: Okay. So now you’re a real consultant. Do you see heifer prices going through the roof then? Because they’re not too bad right now.

Gus: I can’t see how they wouldn’t. The beef market really is going to drive that, and it’s my understanding that the beef market doesn’t look to come down anytime soon, and yet the … Of any credible significance, I should say. And yet the dairy heifer supply continues to shorten. So under that scenario, I would say that means that certainly as milk price goes up, plenty of reason for the replacement heifers for dairy to continue to go up.

T3: And I’ll echo that. Tim, I believe dairy heifer prices are poised at some point in the next two years to go through the roof. Unless markets don’t work anymore, the market math says at some point we’re going to be really, really short of dairy heifers. The only other possibility is we don’t kill cows and we end up with 17-year-old cows.

T2: Tim, let me ask you a question. At what price, at what milk price would you stop breeding for black calves?

Tim: I don’t know, I’ve never put a pencil to that. But right now selling raw, no, I’m going to keep selling it raw. It’s got a pet food label. I think every farm is different, because who’s got a mortgage? Who had rich parents? Who’s expanding? I think what’s going to happen, as soon as you say $30 milk, and trust me, I was one of them at one time, when dairy farmers start hearing high prices they’re going to mortgage everything to the hilt and they’re going to expand overnight, and then there goes your price because you’re going to be swamped again. I’m just telling you my opinion on what I’ve seen, and it’s tainted, but dairy farmers are, “Oh, god. We’re going to get high milk, let’s expand, let’s mortgage the wife’s car too and see what we can do.”

Gus: Tim, I think 100%, I get what you’re saying. I think the only caveat is the fact that we haven’t had this short of a replacement heifer supply for dairy in over a quarter of a century.

Tim: Yeah. I think this is something that we’ve never encountered before.

Gus: And it doesn’t look like it’s going to end soon either. Right now the decisions that dairymen are making are the same as what they were a year ago, even under these circumstances, because there’s not enough there to influence them yet to change their decision process.

Tim: Yeah. Everybody’s a little gun shy because you don’t know what the economy’s going to do.

Gus: Yep.

Josh: So Tim, our job in the industry is to think about and pay attention to the things that Tim the Dairy Farmer, who is dairy farming and a comedian, doesn’t have time to pay attention to. And I can tell you there’s a lot of weird stuff. I sat on a webinar a week ago about Ozempic and how that’s driving dairy prices, and I guarantee that’s not something that’s probably on your radar. Ozempic, the weight loss drug, and how that’s driving whey protein consumption. Earlier in the conversation you mentioned the stuff we used to poor down the drain, and it’s driving whey prices right now to the point to where people in the US and even in Europe are talking about how the whey component price is as important as the cheese price.

Tim: That’s amazing. Maybe get some of this nut milk stuff out of the market.

Gus: Don’t get us started on-

T3: Don’t get us started on nut milk. And by the way, nut milk is not milk.

Tim: Well, I’ve got a joke about soy milk that I tell. When I do clubs and I say, “How many of y’all are drinking soy milk?” There will be a bunch of people to raise their hand. I’ll be like, “Listen, I don’t know if you know this but soy milk is made from a soy bean, which is the same bean from which they make ethanol and biodiesel fuel, and I tried soy milk but every time I farted it would smell like WD-40. But at least the toilet seat doesn’t squeak anymore, so that’s the good side.”

T3: That’s good.

Tim: Hey, can you tell me where all my check money goes to for dairy?

Gus: No.

T3: Did you just answer that by saying, “No?”

Tim: I’m going to go down that rabbit hole with you guys and see what we can figure out. I don’t know the answer either. Oh, well.

T3: I will say this, Tim, some of that checkoff money does go to fund things like the US Dairy Export Council. I’ll defend the US Dairy Export Council because dairy exports have grown over the last 30 years from roughly 3% of our dairy production to almost 20%, and that has really been a big factor in driving increased milk production in this country. So some of the checkoff dollars, I think rightfully so, we need to question what it’s being used for, but the money that’s been given to the US Dairy Export Council has definitely been well-used.

Tim: Good recover there, Ted. Somebody’s getting invited to the meeting in Chicago, I guess.

T3: If you’re a dairy producer or a cooperative looking for a better market for your milk, or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby & Co. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultant support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.Jacoby.com to get started. Thanks for listening to the Milk Check, back to the show.

We’re talking to Tim the Dairy Farmer today. Tim is an ag comedian, he owns a dairy farm in Florida, used to sell his milk to SMI and he’s currently selling grass-fed milk and is a standup comedian.

T2: Well, good luck.

Tim: Thank you. So $30 milk, high heifer prices.

T3: Yeah. But Tim, I’m going to say this, everybody is breeding the beef, what is going to happen if they have to pay $7000 for a freshening heifer in order to rotate their herd?

Gus: That’s right.

Tim: They’re going to end up in the beef business, and then you’re going to have a shortage of milk, and then the prices are going to go higher.

Gus: Tim, I’ve been trying to tell my brother about that simple fact that you just mentioned for quite some time. I think you just got him to maybe believe it.

Tim: I’m there, man. I don’t want you to think I’m some weirdo, but I remember I was at a co-op meeting here in Florida, this is 20 years ago, the dairy business used to be a circle. You’d have a couple bad years and it’d come back around, and then it just got to where it kept staying on the bottom, staying on the bottom. One guy brought up the idea, he’s like, “Well, if we’d all just dump our milk for two days, then there wouldn’t be so much milk.” And I was like, “Hey, that would work, but there’s going to be that one dairy farmer that ain’t going to dump his milk.” I’m not a market guy, y’all are the smart guys, I’m just out here telling jokes. That’s what I do. Well, what other else is going on in the market? Commodities going to go up? Feed prices going to go through the roof with this $30 milk, or what?

Gus: Well, it’s our understanding that the harvest is expected to be pretty good this year, and feed inputs would actually go down. Which in turn, if we can’t get the cows or can’t expand the herd or at least expand milk production to any degree, that means that the farm economics for what we have at least would be very, very strong over the next year or so. So we’re thinking the dairyman’s about to have some pretty good times, except that they just can’t expand like you insinuated earlier. If you can’t get ahold of the cows, what are you going to do? Even though you have a strong ambition to grow your herd.

Tim: Milk goats.

Gus: Yeah.

T3: I don’t think you’re going to be able to get 80 pounds of milk a day out of a goat.

Tim: I ain’t milking no goat. I did the Virginia Holstein Association, their 100th anniversary years ago, and you probably heard this joke, but they had Holstein people there, but then they also had Guernsey people there and Jersey people there, and one guy was all proud of his Jersey. I said, “You know what they say about people that milk Jerseys? They’re too proud to milk a goat.” Of course, the Guernsey guys, I can’t think of her name, but she was a famous painter that paints cows, I’ve seen her stuff in museums and in Hoard’s Dairyman and whatnot, they were auctioning off this painting that she had, of course it had all the top Holstein cows from Select Sires and whatnot in this picture, and they had me trying to promote the artwork, and I said, “Y’all don’t know this but there’s actually two Guernseys in this picture. You can’t see it from where you’re sitting, but if you go out behind this red barn that’s painted here they’re on the dead pile. That’s where the Guernseys are at.”

T3: What’s interesting, Tim, is we’ve had a lot more people milk Jerseys today than did 20 years ago. Maybe not in Florida, but in just about every other part of the country, because they give higher protein and higher butter fat. The cheese plants would rather have the Jersey milk than the Holstein milk.

Tim: Half my herd are Jersey cross.

Josh: So fortunately, our audience are people that get most of these jokes, but when you’re performing are you performing for agricultural people mostly? Or do you go around and actually perform in urban areas?

Tim: Oh, I do it all. When I do a club I have to dumb it down a little bit, explain it a little more. I don’t just talk about cows, I talk about family reunions and yard sales, whatever. Funny’s funny, I can talk to any group. I mainly specialize at agriculture companies or agriculture affiliate companies. I have noticed when I run into some of these ag organizations, it seems like some of these ag things you go to, they don’t want to laugh. Everything’s too serious. And I’m like, “You’re in the dairy business, you’ve got to laugh otherwise you’re going to be in the fetal position crying some days.”

I remember years ago they wanted me to put on a comedy show at the World Dairy Expo, the person that was in charge, he said that the dairy business was no laughing matter. And I was like, “Dude, you are so wrong.” Life can get so bad that you need to laugh, it’s good for you. That’s what I do is just help people forget about their problems for an hour.

T3: I’ll tell you, dairy markets, same thing. Everybody sees markets going up, so everybody does something just like the dairy farmers, they expand. And then they’re like, “Finally, I’ve got all the milk I need or I have all the cheese I need.” Well, guess what? They show up at the door ready to sell all that cheese, at the same time every one of their neighbors shows up at the door ready to sell their cheese, and what does the market do?

Tim: Crashes. And that’s the good thing about the dairy industry is you can milk the cow today and you’re not going to get a check for 45 days, and you don’t know what’s going to change between now and then, and you have really no idea what you’re going to get paid for it. Do you guys think, just like the hogs or chickens or anything, do you think you’re going to get to where dairy’s pretty much just contract?

T3: You mean at a flat price?

Tim: Yeah. I’d be milking cows for some big cheese conglomerate and I’m just getting paid to milk the cows, but I’m getting a fixed price. Do you think the dairy industry will ever go that way?

T3: Not as long as we have the Federal Orders system.

Tim: All right.

Ted: I’ll take it a step further, Tim. I think that’s a great question. I think the one thing that makes dairy different than whether you’re raising pigs or chickens or beef, or you’re growing crops, is those cows will give milk 365 days a year. Prices go up, they’re going to give the milk. Prices go down, they’re going to give the milk. And so you have this disconnect that always exists between how much supply is coming at you and what’s going on on the demand side. And if demand goes up it will be, as you said, 45 days, 45 days before that milk check goes up enough to give the signal to the dairy farmer to produce more milk. And of course, what does the dairy farmer need to do? They’re probably going to have to build a new barn, they’re going to have to buy another heifer, they’re going to have to maybe feed their cows a little bit different.

By the time that milk shows up it’s a good six months later minimum, because everybody’s milk’s showing up and now there’s too much milk and the market’s going back down. So this cycle of chasing your tail is ingrained into the market, and I think it will always be really difficult for a large percentage of the dairy industry to flat price their milk, because you get too much consistency in this-

Tim: Right. On the flip side, I’ve seen guys that go bankrupt damn near overnight because it’s 45 days before they figure out that they just lost their butt. It’s a fickle industry, I still like it.

T3: You like the adventure.

Tim: I like the adventure, yes. I’ve done a lot of shows at casinos, people have their corporate events at a casino, and they’re like, “Aren’t you going to gamble?” I’m like, “Dude, I gamble every day. Why do I want to go down there and lose more money?” Hey, speaking of which, I don’t know if you guys follow farm equipment much, but there’s a new tractor out, it doesn’t have a seat or a steering wheel, it’s not one of those autonomous ones, it’s actually made for that lost his ass and doesn’t know where to turn.

T3: Well, Tristan, you’ve been a little bit quiet. Tim, Tristan is our youngest member of our trading team. Do you have any questions for Tim?

Tristan: I was wondering what do you find most rewarding about dairy farming and making people laugh?

Tim: I don’t know, I just like cows. I’ve always enjoyed cows. I would rather be around cows than people a lot of times. Sometimes it’s just the challenge. I guess I like stress. As far as making people laugh, I’m not going to lie to you, I get an adrenaline rush from it. But I enjoy it, it’s fun, but it’s also a chance to get people to forget about things in their life that they’re dealing with, physical, mental, financial, whatever, just a chance where they forget about those problems for a little while.

Tristan: When you’re writing your jokes, where do you generally get your material from? Is it on the farm?

Tim: A lot of on the farm, I get a lot of people come up to me after a show and tell me a story. Everyday life, it comes from everywhere.

T3: Is it something that’s just intuitive, or is there actually a process?

Tim: Listen, I’m 55, I’ve got the mentality of a 12-year-old. It might just come naturally to me that way. Then there’s sometimes there’s a joke where you have to try it several times to get the timing right, the ending right. Some jokes you’re like, “That’s a zinger.” But then other ones it might take you 10 times trying it out before you finally get it right.

T3: How did you get to the point where the thought went through your head, “I might actually be a halfway decent comedian?”

Tim: I grew up, I always liked comedy. My parents on the way to church and whatnot, we were always listening to Jerry Clower, and then as I got older, of course good Baptist kid, I had Eddie Murphy, I had Pryor, I had all that good Christian boy material there. My mom was dying of cancer, I’d stop and see her at the house, I’d stop by on my way to a farm, and she’s like, “Just tell me a joke. Tell me a joke.” So I’d tell her a joke and she encouraged me. Before she died she’s like, “Listen, there’s more to life than just milking cows, and I know you’ve always liked this standup thing, I want you to try it.” She passed away, about a month after her passing I actually went to a comedy club where they had a “How To Do Standup” class. So took this class, I was horrible.

Tristan: Tim, what is the funniest thing that’s ever happened on your farm? Or one of the funniest things.

Tim: Now, this is how I actually became Tim the Dairy Farmer I think, because I used to just go under my name Tim Moffett, but I always would tell some stories about the farm. A buddy of mine had a farm down the road and his employees planted some marijuana plants in a wooded area on the other side of the fence, and these heifers had got in there and ate all the buds and the tops off these plants. These cows were stoned out of their mind. It was the funniest thing I’d ever seen I think. So then I wrote the joke about “My cows ate a field of marijuana, we had to sell it as organic though. Because it was really high in … Hell, it was just high.”

T3: Is that when you got into grass-fed dairy?

Tim: Yeah.

Tristan: This one’s a fun question, but if you could have any animal, real or fictional, as part of your farm, what would it be and why?

Tim: Fainting goats.

Tristan: Fainting goats?

Tim: Fainting goats, they’re hilarious. They have a defense mechanism, they stiffen up and they just fall over. But I would love to have fainting goats on the farm.

Tristan: Would you milk them?

Tim: No, I’d just laugh my ass off at them. They’re fun. I don’t know, $30 milk, I might start milking them.

T3: Fainting goats eating the marijuana.

Tim: I could have tours.

Tristan: Could you tell us about your background in dairy farming? How’d you get started?

Tim: I lost a bet is how I got started. No. My brother and I grew up in the heifer replacement business, our dad was in the dairy heifer replacement, and my brother and I had both figured out when we were pretty young that we couldn’t work with our dad. I love my dad to death, have all the respect in the world for him, but sometimes working with family is tough. So my brother and I actually started out, we borrowed some money from my uncle, we bought 100 cows, a guy that wanted to go out of business, we rented the crappiest dairy in the state of Florida. I think it was an old stanchion barn, and that’s how we got started. 100 cows and a flat barn, and then we were milking … I think we were milking 400 before we ever hired our first employee. The most we ever got up to was about 750.

T3: How long ago was that, Tim?

Tim: 1992?

T3: 750 cows in 1992 is a pretty big farm.

Tim: Yeah. 18 years ago we downsized, because it seemed like all my money was going to feed companies and everybody but us. I was bringing in a lot of money, I just wasn’t keeping any of it. We were not doing well, so we decided to go to all grass, and when we did that we downsized to what our farm and property could sustain. Right now I’m cutting grass silage, everybody’s putting up corn silage right now, we’re bagging grass. We went to all grass and we just started milking them once a day.

T3: Oh, wow. Okay.

Tim: That sounds sacrilegious to a lot of guys, but when I quit feeding the grain I didn’t have the production that I used to have, but I have no overhead now. I can literally take a cow to 11 pounds and still make money on her right now. It’s not what you make, it’s what you keep. That’s what we did for us, we’ve only milked our cows once a day for the last 15 years. I know people milk them four times a day, and you’ll wear a cow out in about four years. You talked about a cow with a 17-year lactation, I’ve got several of those right now. I have a geriatric herd is what I’m telling you. They should be getting Social Security checks.

T3: Tim, I’ve got a question for you. You’ve got to settle a bet between my brother and I.

Tim: Okay.

T3: The average number of lactations for a dairy cow in this country is what, two, two and a half?

Tim: Something like that.

T3: So one of the things we know is going to happen as everybody’s breeding the beef is people are going to have to keep cows longer if they want to produce milk. So you’re going to have that third lactation, that fourth lactation, that fifth lactation. In your experience, if you’ve got 17-year-old cows, let’s say that cow is on his fifth or sixth lactation, are they just as healthy as the young cow on his second lactation?

Tim: It all depends on the cow. But yeah, they’re just as healthy. Listen, what I do is so against the grain, people think I’m smoking weed. When I quit feeding such a high-powered grain, my herd health problems went away. I don’t have the blown out feet, I don’t have the retained afterbirth. My Jerseys, especially older Jerseys, they will still get milk fever, that’s just part of their genetics. I’ve got cows that are 13, 14 lactation that are just as strong as my heifers. They might move a little slower, but they give just as much milk as they always have. That’s me. I don’t know if I answered your question or not, but I hope we convinced your brother.

Gus: I’m not so sure, not so sure.

Tim: Well, what’s your opinion, smart guy?

Gus: I look at this more from a statistical analysis, I guess. This heifer shortage has been going on for a little while now, and we have slaughtered much less cows over the last year, a little bit more now, and my perspective is that we’re going to obviously slowly age the herd as a whole, and at some point we’re going to start incurring more illness or more health related issues, and when that happens we can’t avoid the culling, right? It’s just going to start cropping up again. What I struggle with when I discuss this with Ted is that when that threshold occurs, whenever that is, I think it’s going to hit us fairly heavy, and I don’t think that we’re going to have an ability to slaughter less before this heifer issue is resolved. So therefore, at some point I think we contract the herd size at a more significant tick than what we have already, just because we have to.

Tim: I think with high cull prices guys are getting rid of cows that they should have been getting rid of, so naturally when you cull part of your herd the rest of the herd, they’re not fighting for bunk space, they’re not fighting for free stall space. The help actually sees a sick cow now because there might be less cows and I think naturally the cows that are still there are going to be healthier. That’s just my opinion. I’m a cow guy, not a numbers guy.

Gus: You can’t argue with it.

Tim: But then again, you know what opinions are.

T3: All right, before we wrap it up, Tristan, do you have any more questions?

Tristan: Yes. Do you get a lot of hecklers at your shows?

Tim: I don’t get a lot of hecklers. There’s always at least one. People ask me, “Do you go after people in the crowd?” And I’m like, “No, I do not.” There’s always somebody in the audience, I don’t know why they do it, but they decide they want to be part of the show and they’ll say something stupid, and I’ll be nice, and then they’ll say something stupid again and then I’ll embarrass the hell out of them. It just happens. Normally that part of the evening, after these corporate events they’ve sat around and had a few drinks, and they’re like, “Well, I’m funnier than he is, and he’s going to hear about it.” Okay. But no, I don’t get a lot of hecklers, I get drunk people.

Gus: Yeah, I can see that.

T3: Well, all right, it’s time for us to wrap this up. Tim?

Tim: Yes.

T3: If our listeners want to know where to find you and find out where your next show is, where do they go?

Tim: Just to go TimTheDairyFarmer.com, you can find out everything you need to about me. I have social media, but I post just enough to let people know I’m still alive. Go to TimTheDairyFarmer.com, I’ve got a special on YouTube called Milking It, I’ve got a couple albums out produced by Larry the Cable Guy’s Git-R-Done Records. One of them is called Farm Raised, the other one’s called Corncobs & Chaos. Just go to TimTheDairyFarmer.com.

T3: Tim, we really appreciate you joining us today. Thank you very much.

Tim: I had fun. Thank you, guys.

Tristan: Thank you.

Gus: … appreciate it, thank you.

Exit Audio (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, email podcast@jacoby.com. Our theme music is composed and performed by Phil Keagy. The Milk Check is a production of TC Jacoby & Co.

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Today, we share Part 2 of a special two-part episode celebrating TC Jacoby & Co’s 75th anniversary. We’ll talk about the milk industry from the ’90s to the dairy world of the future. Join Ted Jacoby II, Gus Jacoby, and Ted Jacoby III for the conclusion of our special 2-part episode as we discuss:

1. The first TC Jacoby & Co. cheese desk
2. Our projection for future growth in U.S. cheese exports
3. Our forecast for the future of the global dairy industry

We love the dairy industry and look forward to what the future will bring. So, raise your glass of milk, and let’s celebrate TC Jacoby’s 75 wonderful years in the U.S. dairy industry.

Intro audio (with music): Welcome to the Milk Check, a TC Jacoby & Co podcast where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III (T3): Hello, everyone, and welcome to The Milk Check. Today, we have a special edition of our monthly podcast because this year, 2024, TC Jacoby & Co celebrates 75 years of serving the dairy industry. In honor of this special anniversary, we are publishing a two-episode edition where, in the first part, my father, my brother Gus, and I discuss and – in my father’s case – tell tales of the first 50 years of our history. In part two, we share the more recent 25 years as well as our thoughts on what the future of the industry may hold. Welcome to part two.

There are a lot of other things that were going on in the 90s. I mean, that all started in the 90s. We started our office in Mexico in the 90s. When I came to work for TC Jacoby & Co. in 1996, I spent about four or five months in St. Louis, and then I moved down to Mexico to help us start that office. That was quite the experience, living for a year in Mexico. Ironically, trying to move cheese to Mexico led me back to the States, and starting to sell it in the States. Eventually, I worked with risk management.

At the time, we were moving nonfat dry milk into Mexico. We had a company in Mexico then, so we were TC Jacoby & Co in the U.S. selling to TC Jacoby & Co in Mexico. We were warehousing the product in a warehouse in Mexico, selling whey powder, nonfat dry milk, and various other powders to multiple distributors in the area, but then also moving a little bit of cheese. I had one of my suppliers, the cheddar cheese, cancel on me, and so I was calling around looking for cheddar cheese, and another supplier said, “Not only do I have a load of cheddar for you to ship to Mexico, but I also have about 50 other loads of cheese. You should call the guy who canceled on you and see if he needs any extra.”

Next thing I know, I’m moving more cheese back and forth in the U.S. than I’m moving to Mexico. And that was when I called you and said, “Dad, I think I’m going to move back to the States, and I’m going to start up a cheese desk.” That was in 1997, and that’s how we started trading cheese.

We went through the 50s, 60s, 70s, and 80s, and just about everything you, Uncle Bill, and Uncle Tom moved was mainly fluid. Then, in the 90s, we started moving powder. Bill, I think in the 80s, had begun moving powder and butter in the U.S.

Ted Jacoby II (T2): Billy used to move a lot of cream from California to the Midwest.

Gus Jacoby: Well, remember that was a big time for us because his development of California and the cost to move fluid product at that time was economically feasible in making cream and condensed products supplied by the California Central Valley and delivered on an annualized contractual basis to places as far as the upper Midwest and even into the Mideastern U.S. at time. Understanding the CDFA and the arbitrage between that and the Federal Orders was another thing we took advantage of for a few decades. So that was a big and successful time for us from a trading standpoint of fluid products.

T3: And then he was moving non-fat to many of the mozzarella guys in the Midwest when the mozzarella industry was in its infancy; that was when it was just the beginning of the pizza industry blowing up and becoming what it is today. These mozzarella manufacturers could extend their yields because of low moisture parts; skim mozzarella means less butter fat relative to protein. So, adding non-fat dry milk to the vat could increase the plant’s throughput. And then, on the butter side, he would ship bulk butter out of California and out of the Northwest into the Midwest. These butter manufacturers in the Midwest would microfix that bulk butter into quarters, one-pound solids, and even whipped butter. That was when we got into the dry side of the product, which was probably Bill, who started doing it more than anything else in the ‘80s.

In the 1990s, we expanded into Mexico, and that was when we started doing things internationally. In the late 1990s, I started trading cheese and shipping it to many converters.

Then, it was probably right around 1999 or 2000, right in there, when these converters started asking me if I could figure out a way to stabilize their cheese price because the restaurant chains they were selling the cheese to wanted to commit to one price for the year rather than have this cheese market move all over on them. That’s when we started our risk management department and we grew from there.

Meanwhile, in the early 90s, a 2,000-head dairy farm was a massive operation. By 2005, 2006, and 2007, these farms had grown to 5,000 or 8,000 heads.

Gus: Nowadays, 10,000, and I’ve heard permits of 25,000. Yep. Yeah, they’re getting much larger.

Our aptitude on the international scene since 95 grew quite a bit. We figured out loopholes. We moved UF milk under different tariff codes to Canada for a while. We added the Class VI and a Class VII pricing mechanism for handling their surplus solids to compete with what surplus we were putting up there, as well as our ability to develop markets in Southeast Asia and the Middle East – all over the last 20 years. We’ve come a long way.

T3: Yeah, we exported 3% of our milk solids in 1995, and this year, there’s an outside chance we export 20% of our milk solids, so that’s a lot of milk that now leaves the U.S. border and moves internationally.

Gus: You can make a case, Ted, considering the issues with Europe and a lack of development of other milk sheds worldwide, that the U.S. will probably increase that number from a trend standpoint over time. We have some hurdles at the moment with heifer supplies and so on, but I still think the opportunity will grow.

T3: Well, I’ll tell you, I was talking to someone just yesterday, and I was telling him how one of our biggest frustrations continues to be as a cheese exporter that we’re not in the market 12 months out of the year, that sometimes we have the best price. Sometimes Europe has the best price, sometimes Oceania has the best price, and our inability to consistently be the best price in the market makes it difficult to be a consistent exporter.

Their belief is that within the next five years, the U.S. will emerge as the dominant exporter of cheese in the world, and that we will be in that market 12 months a year because we’ll be in a position to have the most competitive price every day, every month of the year if we want it.

Gus: Yeah. I’m of the impression – I don’t know if it’s five years or six or seven – that that notion is accurate. I can’t see how that won’t materialize unless there’s some developing milk shed that we’re not aware of that will have significant supplies to export here at some point in the near term.

T3: No, I think you’re right.

T2: I think you’re right, too. I think you’ve got two years on the futures market. There’s no reason why. If you’ve got any liquidity, you can’t book cheese for at least a year or more at a flat price and hedge it out.

Speaker 2: I would agree.

Speaker 3: I don’t think you have the liquidity to do that right now, but I think it’s coming, too.

Speaker 2: I think it is. I believe that as the exports grow, the market will continue to develop, and even though it’s bound not just by export markets but domestic markets as well, stability becomes more and more critical over time.

Center Commercial: If you’re a dairy producer or a cooperative looking for a better market for your milk, or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby & Co. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support, and we’ll develop a sales or procurement strategy that meets all your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show.

T3: And that brings us to an exciting part of the conversation. We started talking about the 50s and 60s into the 70s and 80s, a lot of changes in the 90s into the early 2000s when the risk management markets continued to evolve. Our ability to export products continued to grow through the 2000s and the 2010s, and now we’re in mid-2024.

We talked a bit about some things we see as we look forward 10, 15, and 20 years and what the industry might be like at the 100th anniversary of TC Jacoby & Co. We just mentioned that we’re probably going to be in the export market 12 months a year, exporting cheese every day of the year versus in and out of the market like we are today. Our risk management tools will probably increase in liquidity as we use them more and more. What are some of the other things that Gus, Dad, you see?

Gus: We’ve discussed this already, touched on it, and even told a story about vertical integration concerning our partners in Select and their successes. Still, I don’t see that going away. I think vertical integration from larger producers is going to continue. We sat here and touched on the fact that we have heard in the industry that some folks have permits for 20, 25,000 cows. I don’t think many people would’ve thought that was a reasonable forecast just a decade and a half ago, but now it’s coming to fruition.

And with that kind of milk, you will certainly have the economies of scale to run successful milk processing plants. And then you add that you’ve already mentioned a demand for dairy solids in areas outside of the U.S. I think vertical integration will play a big part in our future. I think we’re going to see that more and more and more. We already talked about a group of larger producers, whether it be Fairlife, whether it be Hillmar, whether it be some other ventures that we’ve heard of more recently that have come of a, I can’t see why we’re not going to see that going forward from other larger guys. I firmly believe that this industry will be that much more than it is now, so ten years from now, and we’ve already seen quite a bit in the last 20 years.

T3: I agree with you Gus. I think vertical integration will continue to be a more significant part of our industry.

But I also believe that we’ll see this industry evolve in both directions. Vertical integration will probably continue to grow, especially at the commodity level. I think specialty dairy products, whether specialty cheese or other specialty dairy products at a smaller level, will continue to be one of our industry’s most critical growth spots.

I liken it to the craft beer industry or even the wine industry, where for every beer that becomes mass produced like a Bush and a Budweiser or a Miller, you’re going to get one or two more craft brewers that pop up that like to make it on a small scale. The same is true in cheese in the specialty cheese industry.

You’ve got different custom butter businesses, specialty butter industries, creams, and yogurts; all these other industries are getting more and more customized with unique products for the marketplace. And I think that will also continue to play a significant role in our industry.

Gus: I agree, with the transformation of marketing, social media, and the number of niche retail products we see succeeding today. I think dairy’s undoubtedly going to have that same maturation, right? They already have it to a degree, but I think there’s more potential for more, and we need it. We need that creativity. We need more niche products in our industry.

Fairlife’s success, for example, has been great for our industry as an avenue to show people that you can change packaging, find that health and wellness feature, and isolate protein. You can create a product that people will embrace, appreciate, and purchase. I would see more of those things happening as we move forward. For

T3: Sure. I agree. I see another thing happening as this industry continues to evolve. We haven’t spent much time talking about everything that’s happened in the whey industry in the last 30 years, and that’s also been a massive development.

Gus Good point.

T3: We went from the 1950s, when most cheese plants treated whey as a waste product, to the 1980s, when people started putting in dryers for their whey powder to feed it to the feed industry, to the late 90s.

I remember 1994 or 1993, I believe, was when Jerome Cheese was built out in Idaho, and they built the huge protein fractionation plant to make what we now call WPC 80 and ship it around the world. That fractionation is going to continue. Not only will we be able to separate hacine from whey proteins, but we will be able to take all the various whey proteins and splice out the lacto albumin; some of the other smaller chain proteins in whey, find particular uses for those. And I think that will extend beyond whey. I guess we’ll see more and more things that we can do with all of the milk proteins, the beta casine, the alpha casine, all of the different fatty acids in butter, the palmitic acid, stearic acid, the oleic acid, and start fractionating those if those have other uses, different functionalities at different melting points.

And then I think the hope for everybody in the dairy industry is to find better uses for the carbohydrates in milk because that’s the lowest value of the different components. And right now, Gus, how many calls a week do we field from people looking for better value out of the lactose in the carbohydrates because we just don’t have good value there?

Gus: Yeah, that’s certainly something that I think you can make a case about how the industry has changed so much as it relates to whey and, therefore, the value of other solids and how that’s changed quite a bit. And I think, as an industry, we’re still trying to figure that one out, to be frank. But you’re right; there’s some maturation there that I think we’ll see, which will also be helpful to the industry. Whey has come a long, long way in the last 25 years or so.

T3: No, absolutely.

So, we’ve just spent this time talking about our 75-year journey from when our grandfather started this company through the 35 years dad ran the business to where we’re at today and where we think this industry may be 25 years from now when TC Jacoby & Co celebrates our 100th anniversary.

I’d be remiss if I didn’t take this moment to remind all of our listeners that TC Jacoby & Co. is a family business. We’ve been around for 75 years, and frankly, we plan on being around for a lot more. We love working with everybody in this industry. We love this industry. We think the dairy industry just has a fantastic future. There’s so much more opportunity for this industry to continue to grow and thrive.

We look forward to working for everybody for a long, long time into the future. And at that, I think it’s time to wrap this up.

Exit Audio (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, email podcast@jacoby.com. Our theme music is composed and performed by Phil Keagy. The Milk Check is a production of TC Jacoby & Co.

T2: That was a traumatic experience.

T3: Well, when you’ve been around for 75 years, you’re not going to spend the whole time walking through a bed of roses.

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A lot has changed in the dairy industry in the 75 years since Ted Jacoby, Sr. founded TC Jacoby & Company in 1949.

Today, we share Part 1 of a special two-part episode celebrating TC Jacoby & Co’s 75 wonderful years in the US dairy industry. From picking up 10-gallon milk cans on the farm in the 40s to shipping internationally, we’ve come a long way. Join Ted Jacoby II, Gus Jacoby, and Ted Jacoby III for part 1 of a special 2-part episode as we discuss:

1. How tank trucks fundamentally changed the US milk supply
2. Consolidation in the dairy industry
3. When computers came for milk

Plus, Ted Jacoby II shares his eyewitness account of the introduction of ultrafiltration (UF) milk. It all began with a coffee break.

Join us for a walk down the milk memory lane in our 75th-anniversary episode, Part 1: Dive into our history.

Ted Jacoby III (T3): Welcome and enjoy the show.

Episode Intro: Welcome to the Milk Check, a podcast from TC Jacob and Company, where we share market insights and analysis with dairy farmers in mind.

T3: Hello, everybody, and welcome to the Mouth Check. Today, we have a special edition of our monthly podcast because this year, 2024, TC Jacob and Company celebrates 75 years of servicing the dairy industry. In honor of this special anniversary, we are publishing a two-episode edition where, in the first part, my father, my brother Gus, and I discuss and, in my father’s case, share tales of the first 50 years of our history. In part two, we share the more recent 25 years of our history and our thoughts on the future of this great industry we work in. Dad, I’ll ask you: when Grandpa started the company in 1949, we still picked up milk in 10-gallon milk cans on the farm. So what was it like those first 10, 15 years of the company

Ted Jacoby II (T2): When my dad, your grandfather, got out of the Navy in 1945, I think he and two other fellas bought a dairy in Highland, Illinois, and you’re right, they had milk coming into that dairy in cans. He and his partners operated that dairy for a couple of years. They sold the dairy to Midwest dairies. Midwest Dairies was then taken over by a company called City Corp. And City Corp, and Midwest Dairies had consolidated almost all the dairies in southern Illinois. All these dairies were consolidated, then spun off to Prairie Farms, and Fletcher Gorley took over Prairie Farms and turned them into one of the premier co-ops in the United States. After they sold the dairy, he booked office space in St. Louis on the ninth floor of what was the commerce building. So he would act as a broker of barrels of this and drums of that and set up shop as a middleman for mostly dairy ingredients.

There was a relationship that developed between us and Prairie Farms that has extended over all these years. We know each other quite well. The relationship has been strong for a long, long time. In the 40 years between the sixties and the nineties, pardon me, 30 years, you had several things occur. First of all, the consolidation people were picking up milk and bringing it to receiving stations, and then you could go from the receiving station to your regular market, or you could go somewhere else. There were receiving stations, called bump overs, which would consolidate the milk from many small farms and put it in a position to take it somewhere. You didn’t have any dairies that shipped truckload quantities in the nineties in the Midwest. And then gradually, over that period of 30 years, you had large dairies that shipped truckload quantities, and that all occurred in the nineties and two thousand.

T3: Once those bulk tank trucks became common, when we started seeing milk move to the southeast in the fall when milk got tight,

T2: When tank trucks came in, it was about 1953 to 55, somewhere in that area, and the tank trucks were relatively small. 3,500 gallons was a big truck in those days, and when it became practical to move milk, it came from places like Jim Falls and Bloomer and Turtle Lake down to Florida, and Florida set up an inspection point. Remember, it’s very political. The states in those days were very protective of their agriculture, and the federal orders sort of helped them do it. They were structured to take care of the local producers basically, but if the milk supply ran short, they didn’t know what the hell to do. The Kirkoff family of Peevley Dairy needed someone to balance their milk supply. They had jumped all over that. He balanced Peevley’s milk supply and moved tank trucks during shard periods down to places like Shreveport, Nashville, Louisiana, New Orleans, and so on.

That’s where the balancing came in. So our job was to get milk in there and to navigate the difficulties in doing so, and we did. So Lake City had an inspection point set up in Florida, and anybody who went into Florida with any sort of agricultural product, including milk, had to go through that inspection point, and that was a bit of a minefield. But anyway, we got the milk into the users in Florida. Then, of course, the Southeast also managed to consolidate their milk supply to where they were beginning to move their milk out of southern Georgia, down to Florida, and so on. And so the industry down there matured to the point where the inspection ports weren’t necessary because they were regular supplies in that market. Anyway, by the time you reached 1965, the average tank truck was 5,000 gallons.

Today, it’s closer to six, but 5,000 gallons was a big tank truck in those days. And then, of course, balancing was still required because the suppliers had dedicated supplies pooled in St. Louis, and they had to move that milk. Then, often, milk would be moved from one place to another up in Minnesota, Iowa, and Wisconsin. And so we became very familiar with the options in that area. So then Gary Hammond prevailed upon the Kirkoff family to take over the Peevley dairy milk producers and turn them over to square deal milk producers that took care of Dad’s balancing operation with Peeley dairy. But that got the whole thing started concerning tank trucks and so on. With regard to the St. Louis market,

T3: When did TC Jacobin company start trading cream? Were we trading cream back in the very beginning, or was it something that we started doing a little bit later in our history?

T2: Well, we started, in the beginning, we were selling Zare in the fifties; for example, there used to be a tank on a railroad car that went from Bloomer to Abbotts in Philadelphia with cream. You can see that tank at the Museum of Railways in St. Louis on Barrett Station Road, and that tank used to move fresh sweet cream from Bloomer to Abbott’s, which was the big buyer of cream back in those days in the northeast. I remember the old pros time to tell us how we’re supposed to test cream in a can. They had a special tool that looked like a plumber’s helper that they used in the can to agitate the can, and you had to do it so many times to get a good test. It was primitive in the way it was handled. That’s why those 10-gallon cans are in museums today or used for people’s umbrella stands.

T3: That’s funny.

T2: We got it done. They used to have to wire the lids when you were shipping milk across the mountains; they’d wire the lids shut to keep it from exploding. It was very primitive technology developed cooling technology, 45 degrees on the farm. That was a big deal. Now, 33 degrees on the farm is a big deal, but it used to be 45 and eventually reached the point where if you got to the dairy at anything over 45, it was rejected, but it took them 20 years to get there.

T3: So back when milk went into those 10-gallon cans that were not refrigerated, was the milk picked up on the farm every single day?

T2: No, Those deals were made with the hauler. These haulers were a breed into themselves. You wouldn’t want to tan with them. Most of those haulers had covered trucks with doors on the bed. You could insert these cans in. Some haulers would pick up one of those 10-gallon cans with each hand and put them on the truck bed. Now, they’d run their route, and they’d wind up with a hundred of those cans. They were tough gizmos. So it was a tough crowd, those milk haulers, but a well-respected crowd because those haulers were responsible. They showed up on time, and they protected their customers.

T3: So, Dad, you joined the business in 1966. What was going on in the industry at that time? What were some of the significant trends? I know consolidation was one. Wasn’t that still a time when there were a lot of receiving stations that would collect the local milk before shipping it to a plant?

T2: Well, that was it. By then, the milk had been consolidated in truckload volumes somewhere other than the destination, a receiving station, a plant, wherever. Now, you could get your hands around a truckload of milk. So if the cheese plant or customer or milk plant was short, or if it was long, we dealt in the long and short positions and moved milk from where they had too much to where they didn’t have enough. So we’re on the phone all day, determining long and sharp positions in fluid milk and cream, condensed milk, and so on. And that’s basically what we were doing. And we had, I don’t know whether you recall, but we had a spindle in the middle of the table where we kept track of the schedule’s longhand.

T3: Oh, I remember that. In that office downtown, in the Marquette building,

T2: The computer system that occurred in the eighties. That’s very critical, not only for us but also for everybody else, in the way that they can keep track of their milk.

T3: Was it the eighties, or was it more the nineties?

T2: They had some computerization in the eighties, but they didn’t have it to the extent that they have it today, where they know where the last drop goes and how it was utilized.

Gus Jacoby: Dad, in the eighties, computers came in, and I assume that’s what took over as your primary scheduling communication tool. Right?

T2: The scheduling and the fact that it would give us the ability to share those schedules because one guy’s on the phone and you’re yelling on one phone, somebody else yelling on another, and you got a loud room and all that, and nobody knows what the other one’s doing

That solved that problem. Looking at it today, they were primitive, but in those days, they were state-of-the-art. We worked on a deal to develop software to solve the problems we described. So we would put in confirmations of the sale with the schedule and all that, and we would generate the confirmation of the sale to the customer, both the buyer and the seller. A printer in 1979 was the size of a Sub-Zero refrigerator, so we developed the prototype to print the confirmation and so on, and then we’re going to run a benchmark to trial to see how it goes. The only place to put the printer was in Dad’s office, your grandfather’s office. So we entered all the confirmations and got everything in there. Okay, let’s print. And I’ll never forget this damn thing erupted like a volcano, and paper is shooting out of it and bouncing off the ceiling. It was so loud. I mean, you could hear it three floors away, and Dad, I thought he would pass out on the spot. I mean, this thing was to make it all of a racket. And then, a year later, we came back with an HP 3000 model 3000, which supported a database management system.

T3: And if I remember correctly, that HP 3000, we were the first one to have one in the Midwest, and that became the first mass-produced server database server in the country.

T2: I think you’re right.

T3: So the business computerized, we probably had developed without realizing it, one of the first CRMs in the dairy industry, just so we could keep track of our milk schedules, right?

T2: That’s about right. And also to print the confirmations and send them to both the buyer and the seller. It worked out very well, and we were, what, 15 years ahead of the curve, something like that as far as our business was concerned as dealing in long and short positions. We were probably about there.

Gus Jacoby: Hey, Dad, in the eighties, we had California, I know, had some large dairies, but was it reasonably commonplace in other parts of the country to have full-load shippers at that point

T2: In the eighties? No, there weren’t any. They were very much the exception.

T3: So, really, the nineties is when it started to become more commonplace elsewhere, and we had many other things going on then, too. Right?

T2: Well, the hotspot of the nineties other than California was New Mexico, the Pecos Valley, which is where we got together with our partners and worked on developing UF milk and the cow, the large dairies, I’m going to say 95, 94, when we made those contacts, there were 2100 cow dairies, dry lot dairies, beautiful dairies.

T3: Well, I know I worked on one of those.

T2: So there were a few in Texas, I believe, at that point, but that particular group was a close-knit group out of California, so they stayed together in the same area. I think there were other dairies. The Chino Valley was a typical spot in California where the land values had reached the point that people were buying up the land for big bucks, and the dairy industry was being forced out. So they took the money and moved to New Mexico, and some of them also went to Texas.

T2: And not only did the industry kind of change a lot in the nineties, so obviously we had an office. We started in Mexico when NAFTA kicked in, and then we also had the Teddy. I think that’s when risk management started becoming a lot more commonplace in our industry.

T3: The nineties was a busy time. You had nafta. We opened up an office in Mexico. We started exporting. We had North American milk products, which was our joint venture, which started the single pass UF milk, where we put those systems on a lot of those dairy farms extensively to save the hauling costs. But what we found out was cheese plants loved it because it increased their throughput through their whole plant. And then we had risk management. We had the CME starting Dairy Futures and restaurants beginning to reach out to cheese companies, asking how they could stabilize their cheese and butter prices. And yeah, that started a lot of different things for TC Jacoby and Company that led to some of the things that we’re doing today. If you’re a dairy producer or a cooperative looking for a better market for your milk or food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please contact TC Jacoby and Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support, and we’ll develop a sales or procurement strategy that hits all your targets. Please visit us online@www.jacoby.com to get started. Thanks for listening to the milk check back to the show.

Let’s talk a little bit about UF milk, and let’s talk about how that whole program started in those relationships. That’s just really a great story. Yeah, it is.

T2: Well, it started at the A DPI or the Dairy Forum, one of the two with a cup of coffee. Dave Hibbard grabbed me by the scruff of the neck. Dave was membrane systems; as the name implies, he sold membrane filtration systems, and he said, I understand you all ship milk all over. I said, well, you might say that, so I’ll buy you a cup of coffee. I said okay. We sat down, and he said, why don’t we explore filtering the milk and taking the water out of it rather than shipping it with all that water? I thought about that. Well, it wouldn’t be a bad idea, but I don’t know how we will do it. There are a lot of complexities between removing the water, and that’s all we thought about was removing the water at that time. So anyway, Joe Hilton, who we knew well, had good relationships down in New Mexico, and Joe took me down and introduced us to the Select Milk Producer Group down in Pecos Valley in Artesia, New Mexico.

And in the course of conversation with Mike McCluskey and also the rest of the board, maybe that’s something we ought to take a look at. So I got together with Dave Hibbard and with Mike McCluskey, and we talked about, what would you call it, a benchmark or an investigation of how this filtration would work with regard to milk. And so Mike brought in Jimmy Caller, the head of the veterinary medicine department at UC Davis. So we prevailed on Jimmy to run an experiment where we put one filter on a little trailer equipped with a pump, and we filtered the milk. It captured the ate, which would be the milk protein and fat. The rest was water and lactose. So anyway, my job was the marketing. So we can’t very well develop this without spots to go. So I hooked up with Alzo at Kraft and talked about how we would concentrate the protein and the fat and what a good item would be for the cheese industry.

And he agreed. And so Mike went ahead and based on the markets, which we had set up a room with the filtration equipment on county line two, the deal was with Joe Schmucker of FDA, and his name was Ricketts, who was in charge of IMS. In those days, they had to approve it, and the system had to run under 45 degrees. That was the grade a standard in those days, so you couldn’t have anything in the system coming out at over 45 degrees. So this was a big deal. There was a lot of cooling equipment that had to go in to make sure that the raw milk going in there was cool. And then, of course, the alternative would be to pasteurize it and try to filter. I lobbied against that, as cold doesn’t denature the protein. A pasteurized product is of limited use to be pasteurized only once.

So do we want to do it hot or cold? Well, we want to do it cold. That was a decision that I made, and Mike and Dave bought into it, and so we cooled it down, and we ran it through, and of course, my rationale was the protein; the actual reason it worked out so well cold was that the butter fat went through there with almost no butter fat loss. If you picture the butter fat, it’s little water balloons, mini water balloons in the milk, and when it’s that cold, those water balloons are tough to fracture. So they just go right through and are rejected by the filter, and the water and the lactose go right through it because it’s all dissolved. That turned out to be an old single pass. The vision was to have the system hanging on the wall of the milk house.

Well, we began to realize that there’s more technology involved than you want to have the hired hand and the milking parlor dealing with. So, it was a separate room rather than a milk house system, and FDA and IMS were much more comfortable with that. The next hurdle was getting the product approved for use and cheese. We had a benchmark down in Artesia at Mike Starry, and Ricketts and Joe Schmucker were there, and Mike, Dave, and I were there, and we had a tank of melt in the receiving room, and we’re going to filter it, and load a tank truck. We’re going to do this experiment to prove to Dave Ricketts and Joe Schmucker that we’re not going to go above 45 degrees. Anyway, we got it running, and we got everything going perfectly, and then, okay, let’s turn off the refrigeration and let the temperature go up. Okay, so we threw the switch, turned off the refrigeration, and were all sitting there. There were five of us sitting there watching the temperature chart going up and up and up and up, and it was like a shotgun going off. When you hit 45 degrees, it would boom, and there’s milk flying all over the receiving room on the floor, but Joe Schmucker and Dave Rickett said, well, that pretty well proves it. You could keep it under 45 degrees. Well, then it should be fine with us.

The next hurdle was using it in cheese and ensuring we were not adulterating the cheese at the FDA. She agreed that this could be used in cheese on a trial basis, on a limited basis, and not have to label it, but it was a temporary permit. Okay? Twenty-five years later, they made it permanent, but it was a temporary permit. And so we got that done. We got a letter on that, and it was approved.

And so I said, “Okay, where do you want to go with this? You want to go to Melrose?”

And he said, “Oh, no, we’re not going to Kraft.”

I said, “Whoa, what do you mean?”

“Well, we’re not your Guinea pig,” he said. “We can’t do it.”

So we worked out a deal to go to the Bonguards, and they loved it. Suddenly, instead of getting a 10 yield on their milk, they were getting 12 or 14, depending on how far they wanted to go and what quality they needed in the finished product. It was terrific. So anyway, that’s where it came from. And then, of course, over the years, Mike continued developing designer milks, and that’s where Fairlife came from.

T3: Yeah, I like to tell the story that we were there initially helping them develop the technology. We told them that we would handle the industrial marketing side, and if they wanted to explore something on the retail side, they were welcome to do it. Little did we know what we were giving up so we could focus on the industrial side.

T2: We did all right in our industrial side. Yeah,

T3: I tease when I say it, but we’ve benefited wonderfully from that association and what UF milk has become today, so we’re very proud to be a part of that. Thank you, everyone, for joining us on this journey. Don’t forget to tune into part two, where we share some of our more recent history and our thoughts on the future of this great industry we work in.

Episode Exit: We welcome your participation in the milk check. If you have comments to share or questions you want answered, email podcast@jacoby.com. Our theme music is composed and performed by Phil Kagy. The Milk Check is a production of TC Jacoby and Company.

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The 2024 ADPI/ABI Annual Conference starts next week and will likely move the dairy markets. What does Jacoby predict for dairy production and demand for 2024? Join Ted Jacoby III and our guests Jacob Menge, Vice President of Risk Management and Trade Strategy; Joshua White, Vice President of Dairy Ingredients; Diego Carvallo, Director of Dry Dairy Ingredient Trading; Gus Jacoby, President of Fluid Dairy Ingredients and Dairy Support; Joe Maixner, National Sales Manager of Dairy Ingredients; and Ted Jacoby Jr.

We discuss:

1. Jacoby’s predictions vs. results for 2024 YTD
2. Factors impacting prices for Q3 and Q4
3. Continued downward pressure on milk production and lackluster fluid milk demand
4. The impact of the Avian Flu on dairy production

Plus, is whey the new canary in the coal mine? Find out more on today’s episode of The Milk Check.

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This is the first podcast episode in our quarterly Understanding Export series. Today’s special guest is Fernando Anaya, Director General at DILAC. DILAC offers powdered dairy products and has a 27-year track record within the Mexican dairy industry. Our Jacoby team includes Ted Jacoby, President; Yara Morales, Director of Sales for Mexico and Latin America; and Diego Carvallo, Director of Dry Dairy Ingredient Trading at T.C. Jacoby and Company, Inc.

Today’s episode discusses the Mexican consumer market for dairy products. Fernando shares his take on how drought, exchange rates, and political waves will affect Mexico’s milk importers in 2024. How has the extreme drought in Mexico impacted domestic milk and cheese production and consumer demand?

1. Inflation has increased dairy prices, but could a strong peso offset this challenge for Mexican importers?
2. The Mexican government, one of the largest Mexican milk powder importers, announced that it will not import any milk powder this year. How will this big player impact the Mexican milk import market?
3. Mexican presidential elections take place this summer. Is this likely to affect milk imports?

This plus what importers should know about changes in milk import procedures and Fernando’s opinion on the most important factor for milk imports in Mexico—dive in with us on today’s Milk Check.

T3: Welcome to this month’s episode of The Milk Check. I’m Ted Jacoby, president of T.C. Jacoby & Company. Today, we are joined by Yara Morales, sales director for Mexico and Latin America; Diego Carvallo, dairy ingredient trading director; and special guest Fernando Anaya, director general for DLAC. DLAC is a very good customer of ours in Mexico, and we’re excited to have him. Fernando, welcome, and thank you for joining us today.

Fernando Anaya: Ted, thanks for the invitation. I’m really glad to be with you and your team.

T3: This episode will be released in Spanish and English, the first in our Understanding Export series, which we will publish quarterly. Today, my first question, Fernando, to you, is when we think about the Mexican dairy market and how much dairy Mexico imports, what is the number one thing exporters to Mexico must understand about the Mexican consumer? Obviously, one of them is price, but beyond price, what’s important to the consumer in Mexico?

Fernando: Okay. Well, Ted, I think that’s a really good question. Well, just to have a rough number of the imports into Mexico, I will say that 15% of our needs have to be imported every year, and that really is not changing a lot. I think that’s the same number from maybe ten years into now.

So, what do the exporters have to be aware of to be in the Mexican market? The number one for sure will be price, the second will be price, and the third will be price. So that’s something that I guess you can agree on that. Of course, Mexican customers will always look to have a better price, but again, it’s not the only thing they are looking for. There are some things that the exporter has to be aware of, and one of them will be regulations. For the past two or three years, Mexico has been entering into new regulations.

For example, for non-fat, there’s this new regulation, the NOM-222, and I know there have been a lot of challenges for the exporters because they must be sure they will be ready to fulfill this regulation. It’s not that hard, but again, that’s something that the exporters, mainly in the US, had to make some changes in their COAs, registering some labs to fulfill these regulations. So again, that’s something that the exporters into Mexico must be aware of.

The other thing is logistics. The way that Mexican customers purchase mainly non-fat food is changing. Right now, the Mexicans are looking for the product to be available in the customs agent warehouses. Why? Because it’s very quick to get the product into Mexico. Let’s think maybe ten years ago, to get the product into our warehouses. We will need maybe three to four weeks because of the time they will take to make the contract and transit it to the warehousing and the water, and then the entire import process will take three or four weeks.

Right now, many customs agents are looking for the protocol and the documents in advance to obtain the health permit. So everything is just ready to import, isn’t it? Right now, for example, the unit product and the exporters have the product in our customs agent’s warehouse.

With the documents, we can have the import process the next day, and in two or three days, it will be in Mexico City, so we need less than a week to have the product available in the Mexican warehouses. So that’s something that is changing. And, of course, one of the reasons for that is that Mexicans are not having really high inventory levels. Most companies are just looking for the product they will need in the short term. So that’s something that’s affecting the way the exporters are seeing the Mexican market.

T3: Makes sense. Question, what would you say, with all of the skim milk powder that Mexico imports, where is most of it used? I know cheese manufacturers, fluid milk. What is the breakdown of the different places where skim milk powder gets delivered these days?

Fernando: Well, I think cheese is the number one application. I think that will be, and one of the reasons that we are bringing in more and more volume is that it is non-fat, low-heat, in bags. That’s the number one product, and most of that product will be going into cheese. But if I separate the different applications, I will say that’s one of the most important ones. The other will be to pasteurizers. And for that, you will see the import of skim or non-fat [inaudible 00:05:13]. So that will be another of the most important applications.

The other will be ice cream manufacturers. I think much volume is going into ice cream manufacturers, and the other, that is a big amount for sure, is going into [inaudible 00:05:27] onsite. We saw them as a separate entity. I will see the Mexican government is getting a lot of non-fat products that are going to be mainly going into social programs or even fluid, but I think that will be the most important application in Mexico right now.

T3: Okay, okay. Going back to the cheese manufacturers, one interesting thing to note is that because non-fat dried milk from the US tends to have higher protein levels than skim milk powder from other parts of the world, that tends to be the desired product for cheese manufacturers in Mexico. Is that a fair thing to say?

Fernando: Yeah, for sure. Yeah, non-fat will be the first need for cheese manufacturers.

T3: Awesome. Yara, anything to add?

Yara Morales: Yes, it’s interesting that the United States is Mexico’s market for non-fat dried milk. They can get the products very quickly. In a week or a week and a half, they can have the products there. So, they use a lot for Mexico’s exports and make a large [inaudible 00:06:22] for infant formulas. Infant formulas are the number one export from Mexico to other countries and the United States.

T3: Interesting.

Yara: Yep, that’s number one.

T3: Diego, what are your thoughts?

Diego Carvallo: I was going to ask Fernando a little bit more about the recent developments in Mexico, and one of the questions that most US manufacturers are trying to figure out is imports or US exports to Mexico for January. We saw a significant decline in the products that moved across the border, especially the non-fat. I believe it’s a 15% decrease. So, I wanted to ask Fernando what he believes are the main causes of that decline and his expectations for what’s left of 2024.

Fernando: Thanks for the question, Diego. I agree with you. The import numbers for January 2024 were less than January 2023, and I think 15% will be correct. But I believe we need to start reviewing the numbers for imports, maybe in the third quarter of 2023. If you see and compare the numbers from 2023 with 2022, you will start seeing the decrease in August and September of last year.

So, I think what we are seeing right now in January is the same decline that we have been seeing since August and September of last year. The reasons for that, I think, are several. One of them that I am pretty sure of is the impact of inflation on the finished product in Mexico. The inflation numbers are pretty high, and the impact of those inflation numbers on the end user’s product is pretty simple. So that will be one.

The other thing that I expect to affect the import number for the rest of the year is the participation in [inaudible 00:08:23] last year’s import of a lot of schemes into different sectors, especially social programs. And as far as we know, the Mexican government will not import any powder this year. At least, that’s the announcement they are sending right now. So, that will be one of the big players who will not be participating. And the other one I see with less interest in importing these ingredients is Lala, a large importer in Mexico. So, I feel the import numbers will be less this year compared with 2023.

Diego Carvallo: Do you think something that’s affecting also the non-fat imports is the recent increase that we have seen in cheese imports? A lot more cheese is crossing the border, do you think that’s somehow going into the end user as a replacement for some of the proteins and the solids on the non-fat?

Fernando: Well, I agree entirely, Diego. We have seen the import numbers of cheese getting a very significant increase in the last couple of months. And I agree, if you are getting more cheese into the Mexican market, and we do not see the rise in demand as the same proportion of the increase on the import of cheese, of course, what we are doing is producing less cheese because of that. So yeah, I agree that we will need less protein from non-fat because we have already imported a finished cheese product. So yeah, I agree with you. We will see less interest just because we are importing more cheese from the States.

Diego Carvallo: Makes sense. I have another question, Fernando. There’s a lot of noise and many headlines currently talking about the weather situation in Mexico. There’s a severe drought in Mexico and high temperatures for this time of the year. Has that impacted the local fluid milk production somehow, and do you expect it to have an impact in the next few months?

Fernando: Well, yeah, that’s true, Diego. We have been hearing that the drought and the high temperatures that Mexico will be dealing right now and in the future… So yes, to answer your question, we think that we will be producing less fluid milk, just because of the impact on the weather, even though we have seen in the past weeks a lot of fluid milk available in Mexico, mainly in the central and northern part of Mexico.

And of course, it’s partly because of [inaudible 00:10:50] for sure, but one thing that we have been hearing is that the demand for cream is decreasing just because of these high temperatures, that the consumers are not willing to take a lot of cream, and that the same time is decreasing the price of fluid milk, that it’s making for some producers to get more fluid milk, just because the cream is cheap. But in the end, I agree that because of the weather, we expect that the fluid milk should decrease their produce in 2024.

T3: If you are a dairy producer or cooperative looking for a better market for your milk or a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please contact T.C. Jacoby & Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited, free consultative support, and we’ll develop a sales or procurement strategy that hits all your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. I’m back to the show.

Diego Carvallo: What are you expecting in terms of the political situation? We have a presidential election in the summer this year. What are you anticipating regarding the impact on the currency and the general economic outlook? Do you expect any significant change? Is there anything that we should closely monitor?

Fernando: Okay. Well, I think that the change of government this year will be a soft one. We have three candidates right now, but the numbers are pretty clear about which one is at the top. I don’t think that we will be seeing a lot of changes from now until the election date, which will be in July. So that’s the reason I think it’ll be like a soft one, but I am pretty sure that there will be some indexes that will be affected. One of them will be the exchange rate. I think the exchange rate will be going up because we are getting very close to the election day.

But after that, I think that the exchange rate will decrease, and we will maybe get around the numbers that we are seeing right now. And if we speak especially into the impact of dairy, the first one that was a little surprise for most of us, we thought that just because of the election year, [inaudible 00:13:22] will be trying to get some powder to inject that into social programs, and that didn’t happen. On the contrary, they say that they won’t import any powder this year. So that’s something that I’m sure, if you see the political side, will affect dairy. But I think right now, the exchange rate will be the one that for sure will affect us because of the reference between the exchange rate from now into the election days.

T3: Fernando, I have to ask the question. It sounds like Mexico’s going to have a female president starting after the July election. What do you think about Mexico ending up with a female president before the US?

Fernando: Well, that’s interesting for sure. Yeah, I’m pretty sure that will happen this year, Ted, because of the three candidates we have, two are female, and they’re the number one and two if you look at the polls right now. So I agree entirely, there’s no way the third one will win. So, I am pretty sure that we will have our first female president. And yeah, I’m surprised that we are doing that before the States.

I see that Hillary was close on doing that. That didn’t happen, and I don’t think this year will happen for the States. So yeah, it’s incredible. I thought that the US would be getting their first female president before Mexico, but I think that’s the one thing we will be the first, Ted, [inaudible 00:14:43].

Yara: Yeah, Mexico gives surprises.

Fernando: Yeah, this year we give a big surprise with that. I agree.

T3: Well, that’s wonderful. Diego, anything else?

Diego Carvallo: I was also going to ask Fernando to talk a little bit about the exchange rate. With the current strength of the Mexican peso and the competitiveness or the low price of the non-fat, but I would expect that the end demand get some support, but I wanted to hear your opinion. What do you think on the exchange rate and do you think the current low prices are going to create and incentivize some additional demand?

Fernando: Okay, it’s an interesting question, for sure, Diego. If we compare the price for non-fat in the Mexican market last year, the highest price that the companies were willing to pay was 90 pesos. Last year, I think maybe mid-September, if I recall correctly, the cheapest price we had was 45 pesos, so it’s almost half. The reason for that is the combination of the price of non-fat and otherwise the exchange rate that, as you were saying, is very, very low.

But what is interesting to understand is the impact on the consumers. So the thing is that because the way that the products are distributed in Mexico is very hard for the end users, for the consumers to see the benefit of decreasing cost. So if you go to the supermarket, the prices will not go down. So what happened last year, and it’s happening right now, because if you compare these prices with the prices two or three years ago, the price is cheap. It’s historically below the average, for sure.

So that, of course, we’ll be interested. But this benefit is just getting into these distributors and manufacturers; it’s not really getting into the consumers. So, it may take time to impact the consumers. So right now, it’s not getting into them, but again, if you see the numbers and compare the price of fluid milk with powder with the exchange rate, the powder will be cheaper. So, I think that the demand for powder will be good because of the prices we are seeing right now, combined with the exchange rate.

T3: Fernando, I have a question about the exchange rate. So, from our perspective in the US, we’ve been very surprised by the strength and stability of the exchange rate between the dollar and the peso over the last four or five or six years. What is that stability and the lack of what we used to see, which was a regular decrease in weakness in the peso relative to the dollar, but the fact that it’s been stable and strong, how has that manifested in terms of inside Mexico, in the economy?

Fernando: Well, the impact is huge, Ted. Of course, Mexico is a larger importer of a lot of things, a lot of commodities. So, having a low exchange rate will help most Mexicans, for sure. And it’s really strange. If you see maybe in the last 30 years, it’s very hard to see the exchange rate going down. And We have seen that since 2021 and 2022, after the huge impact of Covid, the exchange rate has been going down, It went up to 25 pesos. Right now, it’s just below 17. That’s a lot. So, of course, volatility is impacting for sure. But again, seeing the exchange rate as you see right now, it’s like numbers; I think maybe in 2017 or 2018, we will have the same exchange rate.

So we are six years old and have the same exchange rate. It’s really strange. But for sure, it’s having a good impact because of the imports in Mexico. Of course, it will affect the other way around to the exporters. The exports are not very happy, but we know that Mexico depends on imports, and of course, just seeing the stable exchange rate is good for the manufacturers. That depends on the imports because they can easily see the cost in pesos, and the exchange rate is not moving much. So, having a stable exchange rate benefits the Mexican companies a lot.

T3: Have the Mexican dairy farmers been complaining because they haven’t been able to raise their milk prices?

Fernando: Well, they will always complain, Ted.

T3: That’s true everywhere in the world, Fernando.

Fernando: Yeah, they will do that, for sure. But the truth is that, yeah, of course, the farmers are not happy. Their fluid milk is not getting the price they were looking for, competing with powder; with this exchange rate, it’s really, really difficult. So they have a lot of challenges, for sure. So they will continue not being happy, that’s what I think. I don’t think the powder price and exchange rate will change to compete with fluid milk. I don’t think that we are really close to doing that. So yeah, we are having a lot of farmers complain.

T3: Got it. I will say one thing: If we think of it just in terms of dollars, six years ago, the price of powder was what, Yara, in the US, about 75 cents? Now it’s $1.20. So, the price of powder has gone up quite a bit in the meantime, even if the exchange rate has stayed stable.

Yara: And something interesting is that when AMLO, the President, was doing his campaign, he said that he was going to protect the farmers and not buy non-fat milk and not import products from the United States. In the beginning, it was kind of hard because Liconsa didn’t buy products because they were waiting for them. But in the end, obviously, they need the non-fat dairy from the United States. So, I think they don’t want it this year because it’s an election year. That’s why. Yeah, they want to show the farmers what they are not doing.

T3: That makes sense.

Fernando: I agree.

T3: Yara, do you have any more questions for Fernando?

Yara: Fernando was… No, I think we cover all the questions that we have scheduled. Thank you very much, Fernando.

T3: Diego, how about you?

Diego Carvallo: No, no. Thank you so much, Fernando. It’s great listening to all of the information you have and your experience, so thank you so much. It’s been great.

Fernando: Thanks for the invitation. It’s great having these discussions. Of course, I think it’s very important for US exporters, especially Jacoby, to understand the Mexican market, and it’s hard, for sure. It’s not learning to speak in Spanish; it’s more difficult than that. Now, of course, I appreciate the invitation, the time, and the interest in better understanding the Mexican market.

T3: Thank you, Fernando. We really appreciate you spending the time with us today, and thank you for the long relationship we’ve had over the years. We really appreciate it.

Fernando: No, I feel very, very, very good working with a company like you, Ted. For sure.

T3: Thank you, thank you very much.

Yara: Thank you, Fernando. That is very productive. Thank you always for your help.

Fernando: Thanks. You’re welcome, Yara.

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Este es el primer episodio de nuestro serie trimestral Entendiendo Exportaciones. El invitado especial de hoy es Fernando Anaya, Director General en DILAC. DILAC ofrece productos lácteos en polvo y tiene un historial de 27 años dentro de la industria láctea mexicana. Nuestro equipo de Jacoby incluye a Ted Jacoby, Presidente; Yara Morales, Directora de Ventas para México y América Latina; y Diego Carvallo, Director de Comercio de Ingredientes Lácteos en T.C. Jacoby and Company, Inc.

En el episodio de hoy se discute el mercado consumidor mexicano de productos lácteos. Fernando comparte su perspectiva sobre cómo la sequía, los tipos de cambio y las corrientes políticas afectarán a los importadores de leche en México en 2024.

• ¿Cómo ha impactado la sequía extrema en México la producción nacional de leche y queso y la demanda del consumidor?
• La inflación ha aumentado los precios lácteos, ¿pero podría un peso fuerte compensar este desafío para los importadores mexicanos? El gobierno mexicano, uno de los mayores importadores de leche en polvo de México, anunció que no importará leche en polvo este año. ¿Cómo afectará este gran jugador al mercado de importación de leche mexicana?
• Las elecciones presidenciales mexicanas se llevarán a cabo este verano. ¿Es probable que esto afecte las importaciones de leche?

Además de lo anterior, lo que los importadores deben saber sobre los cambios en los procedimientos de importación de leche y la opinión de Fernando sobre el factor más importante para las importaciones de leche en México; sumérgete con nosotros en el Milk Check de hoy.

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The T.C. Jacoby team got together to talk about a two-part phenomenon that we’re expecting to wrinkle the dairy markets over the course of the next year or two.

2023 through ’25, plant capacity expansions total 9% of all milk production. But heifers are short, milk production was flat in 2023 and we expect it to be flat (or close to it) in 2024. So who will be left out, short on milk? Or will dairies pull off a production miracle?

Director of Milk Marketing Greg Scheer, “Semi-retired member of the board” Don Street, Dairy Ingredients Vice President Josh White and Dairy Ingredients Sales Associate Tristan Suellentrop join Ted and his dad to speculate on how these issues will resolve over 2024 and 2025.

From high level discussions of price and premiums to granular conversation about regional dynamics and potential changes to the direction of milk flow in the U.S., the team covered a lot of ground in 20-ish minutes.

Give it a listen, and let us know what you think.

T3: Welcome everybody to this month’s edition of The Milk Check. Today, I am joined by Greg Scheer, our director of milk marketing, Don Street, longtime dairy trader and industry veteran, Josh White, head of our whey and dairy ingredients group, my dad, another industry veteran, and then Tristan Suellentrop, who is part of Josh White’s team and also part of our marketing.

So today we are going to try to answer a very interesting question, which is is the dairy industry about to embark on a very expensive game of musical chairs? Let me tell you what I’m thinking.

Two seemingly unrelated issues are starting to feed through the dairy industry. The first one is the fact that we’ve got a heifer supply shortage because since the pandemic, beef prices have been so strong that people have been breeding dairy cows to beef cows because the value of a beef calf has been a lot higher than the value of a dairy calf. This has created a heifer shortage where we just don’t have enough heifers entering the milk supply right now, and it’s going to be very, very difficult for the US dairy industry to expand milk production because we don’t have the heifers to do so.

And think of it this way, if you make the decision today to breed to have a beef calf, you’ve got nine months of pregnancy, then you’ve got over two years of growth before that heifer can enter the milk supply, which means you have almost three years before you can change the dynamic that has already started. And everybody we’re talking to today says dairy farmers, most of them, many of them are still breeding for beef calves and so this heifer supply shortage is not going away anytime soon. So that’s one side of the coin.

On the other side of the coin, there is a lot of plant expansion going on right now. In fact so much that since the beginning of 2023 through 2025, that three year period, we are building enough additional plant capacity to equal about 9% of the total milk production in the United States. And given the fact that we’re already done with 2023 and milk production was basically flat in 2023, it’s hard for me to imagine, given the heifer shortage, that we’re going to be able to increase milk production by 4.5% a year over the next two years. In fact, our experts, and we’ll let them talk about it, are saying that we think ’24 is going to be flat as well. So what’s going to happen? All these new plants, how are we going to fill them? Where’s the milk going to come from when we aren’t going to have the additional cows to fill these plants?

I’ll tell you what, Don, I’ll start with you. What do you think is going to happen? How are we going to deal with this issue?

Don: First of all, one can always count on delays in plant construction so that the time arising gets pushed back a bit. It never fails, right? So maybe that takes a bit off of the leading edge, but it doesn’t really answer the question.

I think if profitability is there for the dairy producers that you could see a recovery in milk per cow, and that can give you, let’s say 1% year-on-year. And we’ve been more or less flat to very, very low on any increases in milk per cow. So that’s one spot it could come from. The other way to expand the herd is simply keep cows longer. And you probably, in a rotational sense, actually get better milk production out of a fourth or fifth lactation cow than you do a fresh heifer. So maybe that’s part of an answer. And then finally, it’s just survival of the fittest on the plant side and do all the old plants keep producing. So three thoughts.

T3: Greg, what do you think?

Greg: Well, I do think the US milk producer is very resilient and they find a way. If there’s plant capacity, they’ll find a way to keep that cow longer to continue to improve the feed and the rations. And then like Don was saying, maybe some of the older plants have to close and then it’s just the more efficient ones are the ones that stay open. So we’re not actually adding that much plant capacity. We are adding plant capacity, but some of the old plants will maybe have to shut down or retool. So I’m under the impression that you can’t count out the US dairy producer, even with the lack of heifers that they’ll find a way to produce some milk.

T3: Josh, what do you think?

Josh: It’s a complicated question, and it’s so much easier to talk about the supply side because we’re so unsure of what the demand climate looks like today. So if we focus just on the supply side of this, I’m pretty sure that a lot of it can be solved in the margins in terms of how milk moves around, how milk’s traded. But I’m fairly convinced that we’re entering a new cycle with a change in our traditional milk movement paths throughout the US and that milk may move differently over the next several years than the traditional flow of milk that we’re used to.

T3: So how’s it going to change? What do you think is going to happen differently?

Josh: Yeah, I think it’s dangerous to try to predict it specifically, but there’s a few things that over the course of the last growth cycle, the last at least 10 years, a lot of the growth that we’ve seen has been in Texas, in the Upper Midwest and the growth in production has been in those areas. And as we know, that’s a cheese-dominated area. But when you think about trading some of the components, product historically liked to flow East. That Texas market has put on a lot of capacity to manage that additional milk. Where was the surplus milk out of that market going to prior years and are they a surplus market anymore or are they potentially even a deficit market?

So I think it would be ignorant of me to try to anticipate exactly how it’ll change, but it feels like it is changing and it’s moving in different directions. And we may see pockets or periods of time where milk could flow directionally differently than we thought before. And very generically milk would flow from West to East at different points in times with the big obstacle of the Rocky Mountains blocking some of that. Do we see scenarios or different movements now where you actually could see periods where milk flows South or West? I don’t know.

T3: With beef prices as high as they are, Don, there seems to be a lot of incentive for dairy farmers to continue to call cows because we still have really high beef prices, really high live cattle prices. And most dairy farmers aren’t out there saying, “Hey, we’re making a lot of money right now,” which tells me that the economic incentive is not there right now for them to keep the cows in the herd.

Don: I would not argue with that point at all. If the financial incentives are there, then you would have an inducement to keep cows longer. But I would guess at today’s prices, even with falling corn prices, that that’s not the case. The profitability per cow is minimal at best, if not negative. So the easier answer or the most expedient cash flow answer is to send her to slaughter.

T3: And if that’s going to happen, that means there’s some plants out there they’re going to be losing milk to fill the new plants.

Don: Yes.

T3: Is there any region of the country that will be better off than others, do we know? Greg, you probably understand where the milk is long and short better than anybody.

Greg: Well, that’s a good question because producers are going to look at where do they have land, where do they have feed? So that’s why we’ve grown in the Upper Midwest. That’s why we’ve grown in West Texas. So those are still going to be key growth areas, but with the new plants in other areas of the country, we’re going to have to figure out how to move that milk. And so as transportation has become so much more expensive, that becomes a much more daunting figure to move milk around.

T3: A lot of the plant expansion’s happening in the Southwest, so West Texas. And I think that if there’s one place where I think it’s going to be difficult, even though there has been a lot of dairy farm expansion in the area, my sense is there’s nowhere near enough expansion there coming down the pike to fill the number of new plants that are being added to the area. In the fall, a lot of milk in the Southwest tends to get shipped into the Southeast. Is that going to stop? And if so, where’s that milk going to come from that goes into places like Florida and Georgia?

Greg: Yeah, that’s the key. In the first half of the year, it’ll be fine, but when production’s down in the fall and schools start up and we have the big rush on milk, where is that milk going to come from? It’s going to have to come from… Maybe it’ll stair-step some, but it’s going to have to pull from the Northeast and the Mideast. Maybe some Mideast milk gets pulled to the Southeast and Midwest milk comes around to the Mideast to fill in. I mean, that’s likely going to have to happen.

T3: That makes sense. Dad, what do you think?

Ted Jr: Well, the first question with regard to the heifer supply, heifers are short. But the last time we looked at that, I think we decided that the heifer supply is sufficient to hold us even given a normal slaughter rate, given the dairy farmer’s pension for looking at cash flow first. Probably what will happen is that the slaughter rate will go down in order for him to produce additional milk, looking at his feed and so on and how to keep the cost down and all that.

I do believe that they’ll continue to produce additional milk. I don’t think we’ll see new dairymen getting into the business, but if someone wants to sell out at this rate, I think other dairymen will snap them up immediately to fill their barns. So I’m not particularly concerned about there not being enough milk. All it means, as far as we’re concerned, is that when someone needs an extra load, he’s going to have to pay for it. This is the traditional solution to long and short supplies in the dairy industry, which we have seen for the last 60 years. So I don’t think that’s necessarily a big issue.

The bigger issue in my mind is the overproduction of cheese. And given that cheddar cheese has become the base commodity that drives dairy pricing and given the fact that cheddar cheese is probably going to be overproduced to the point where we’re going to have to put it in the export market no matter what, I guess it’s hard to visualize how this affects everything, but the base price will stay down, but the market for milk will gravitate towards higher premiums to people who can pay for it, which are specialty cheese manufacturers, Class I manufacturers who need the milk. And I point out at this point that Class I’s decline seems to be leveling off a little bit.

T3: Sounds like what you’re saying is dairy farmers should be happy about the fact that maybe the days of milk discounted by $10 cwt just to get it moved in the second quarter in the spring, those days may be over.

Ted Jr: You’re right. It’s a good way to sum it up. But we may be back to where we were 20 years ago in that regard. So Greg, you got the ball. When we look at a milk shortage up at all these specialty cheese plants up in the upper Midwest, it’s up to you to make sure that they get it no matter what.

Greg: Well, we’re going to have to have good haulers and hopefully diesel fuel prices don’t explode because the cost to move milk has grown so much. But like you said earlier, Ted, they’ll have to pay for it if they need additional milk. They’ll just have to help pay for that transportation to get it to the right area.

Ted Jr: Well, to put things in a little bit of perspective, not that we are trying to support this, but how low did the discount go when milk was long? I guess I don’t want to even mention the number. But how high can the premium go when milk is short if someone needs the load to cover orders? I think that’s probably where we’re heading. And I think the base price given the supply of cheddar will probably remain somewhat suppressed.

Don: So Ted and Ted, I have a question, which is everything that Ted just said would suggest Class IV prices will be higher than Class III prices. Can cheese plants then no longer standardize protein to fat but standardize fat to protein so that you have more cream moving to a higher value? It’s not good for plant efficiency, I would say, but is that a possible work through?

Ted Jr: The way I would look at it, keep it simple, if the Class IV price is $2 cwt higher than the Class III, the first thing that will happen is you’re not going to move it anywhere unless you’re at least $2 plus premium FOB the seller, whether it’s the seller’s dairy or whether it’s this plant, probably the seller’s dairy these days. So you’re looking then adding the hauling cost onto that. And quite frankly, you’re probably looking at some pretty big numbers to get milk delivered, which benefits the sellers probably at the expense of Class IV making Class IV that much more dear.

T3: I agree with my dad. This is kind of how I would imagine it. What’s been going on, Don, to your point, is a lot of skim condensed and skim UF milk has been moving from, let’s call it Class IV plants or UF condensing facilities into cheese plants to standardize to the higher fat levels of today’s milk. But those plants are going to really struggle to be incentivized to do that because that milk is a lot more valuable being turned into Class IV than it is into Class III.

Ted Jr: Correct.

T3: And so they’ll keep it, which means now the cheese plants that are just taking in the milk off the farm, at much higher fat levels than 10, 15 years ago, are going to have to spin off that extra fat and then sell it in the form of cream.

The process is going to invert because of the shortage of milk. You’re going to have a much tighter skim condensed market. You’re going to have a much tighter skim UF market. And I’m going to say you’re going to actually still have a tighter cream market, but for a very different reason. And that’s because so much of this additional plant expansion is cheese expansion. And we’re going to end up with a flat to only slightly higher milk production. You’re ultimately going to have taken milk away from Class IV plants in order to get there. And now that’s going to shorten the butter fat supply in the Class IV space. And that extra cream is still going to be in higher demand. It’s just going to be coming from different places than it did a year or two before. It’s going to be coming from a cheese plant instead of a butter powder plant.

There’s another dynamic that’s going to be very interesting. Traditionally, when we talk about depooling, we’re usually depooling Class III milk from the order, but this time around we’re going to be depooling Class IV milk. And I wonder over a long period of time the dollars are going to add up in terms of that dynamic. It’s going to be interesting to see how that plays out because it’s a different set of people who usually end up with the benefit. I think it’s already started.

Greg: And that spread is very wide right now.

T3: Where I’m going with that comment is some of these co-ops that have a butter powder plant, geez, it seems to me they’re going to be more likely to say, “I want to keep that milk,” than sell it to some of their local cheese makers. I wonder how much of that is going to happen in ways that we just haven’t experienced before because we’ve been around long enough that we tend to just immediately make the assumption that cheese plants get all the milk they need. But I wonder if this time around that’s not going to happen.

Josh: There’s a lot of moving parts to that, but I think right now you’re talking about a very wide Class III/IV spread. And to be clear, we’re doing that in a firm butter market, but a not so robust powder market because international demand hasn’t been very strong. So a couple things that we have to consider is what happens if the international demand returns and they need product. We’re already talking about the milk gap between III and IV in a weak demand for global skim solids. The rest of the world isn’t poised to respond either to milk production growth signals. We are clearly the market that can respond the quickest. And all of that being said, when a new plant starts, I’m not convinced anyone’s going to short them of their milk because part of that startup plan is to make sure that plant has the milk. And to Greg’s point earlier, who’s left wanting?

T3: It’s going to get interesting.

Ted Jr: Another side to the coin is the corn price. The corn price is what? Mid $4 range right now? Low $4? I sort of lost track of it.

T3: $4.40, roughly.

Ted Jr: Yeah. So that’ll also make it a little bit easier to produce a little bit more milk and keep the barn full.

Josh: Beginning when is probably the biggest question. And Ted, I think you brought that point up before too. How much at this price is available to be put up and how much has already been put up at a higher price?

T3: You’re talking corn.

Josh: Just feed. Feed cost.

Ted Jr: Yeah, good question.

T3: Well, I think that’s a good point. If this corn price, soy prices, just call it dairy feed prices in general stay low and maybe get lower between now and the fall, you may have dairy farmers looking at late fall ’24 into ’25 expanding because now all of a sudden the math works because feed prices are low enough and who knows what beef prices will do between now and then.

Josh: Greg brought up a great point, every time don’t bet against the US dairymen to figure out how to make more milk.

Ted Jr: That’s right.

Josh: Proven to do a pretty tremendous job in the past, but the things that have been mentioned, the availability of the animals to do that, the competitive market for those animals and how we can do that by retaining, maybe you can already expect that dairy slaughter rates are just going to be tremendously down through the majority of 2024. And the real question for me is what is the earliest we can see a reversal in the US milk production direction? What is the soonest we can see a supply response at this moment? And given heifer availability, given the decisions to put on large dairies and to build new ones, that model is a little bit different and it is going to take a little bit of time.

Ted Jr: I agree.

Don: I always like to remind people to be aware of what we don’t know, and it’s always a lot, right? We keep peeling the onion back month by month as we get more data and understanding of the markets, but things can always surprise you.

Tristan: What about how Jersey cows have been added to the herd year over year because they produce a pound of milk components at a lower cost compared to other major breeds. To what scale does this counteract the lack of heifers versus the added plant capacity in the US?

Don: Let me take the first stab at that, Tristan. We’ve seen and now for several years fat components of milk increasing at 2% a year ago over the prior year and 1% this year. So it’s fairly significant to where total solids in milk are well over 13% at this point. So that is just like producing more of five-year-ago milk, right? It’s just more solids to process. And genetically, if we have a lower level of heifers entering the herd, it will slow that progression a bit, but it certainly won’t stop it because it’s already present. So those cows will keep producing until they exit the herd at a higher solids level. And I would further guess that the heifers coming in are more reflective of crosses between Jersey and Holstein or just pure Jerseys to where that trend will continue.

T3: Anything else on anybody’s mind on this topic that you think we need to address?

Ted Jr: I think we’ve had a good discussion.

T3: Sounds good.

Ted Jr: No, I don’t think so.

View Details

T3, Josh and Tristan sat down with Jeroen Lemmens, who joined Cefetra Dairy in Singapore after spending multiple years trading dairy in China.

We’d spent months looking for the right person to talk to about China’s dairy buying habits past, present and future. The conversation gave some color to the disappearance of Chinese demand for American milk and some backbone to the hope that some of that demand will return in 2024.

Discussion ranged from trade agreements with New Zealand and the state of the hog market to domestic macroeconomic factors like China’s property market and industrial challenges.

Give it a listen, and let us know what you think.

Ted: Our special guest today is Jeroen Lemmens from Cefetra. Jeroen lives in Singapore and handles the Asian operations for Cefetra. Jeroen, why don’t we start by telling us a little bit about yourself?

Jeroen: I’m glad to be here. Thank you for the invitation. My name is Jeroen Lemmens. I have now been in dairy for, I think, close to 24 years. I worked in various trading firms in Holland, dealing mostly in Middle East, Eastern Europe, and Russia.

Then, about seven years ago, I went to China. I was active in the China operation, importer-distributor dealing in dairy commodities, dealing with the biggest dairy companies in China, both in food and feed. I think that was a very valuable experience. China has a dynamic all of its own. I think that’s also showing in the market at this moment.

Also, during the dark times, the last few years during COVID, that was actually a very trying time. Then, early this year, I decided to leave the company I was working for and join Cefetra. For Cefetra now, setting up the operation in Singapore for Asia with, again, also a focus on China again.

Ted: Wonderful. China for the United States is a key dairy trade partner. Really, so much of what happens in China, all of Southeast Asia tends to follow that lead. A lot of times the dynamics tend to be very similar.

It’s especially an important trade partner for the US when it comes to nonfat dry milk, and whey powder and whey derivatives. There’s been a lot of talk lately about … The import volumes in China are dropping, and, of course, in the US, our questions are always, “What does that mean for dairy prices in the US?”

I want to start with a very simple question, which is, from a dairy perspective, what is going on in China? What is driving the decrease in imports of dairy products? Is it across the whole spectrum of dairy products, or is it just certain dairy products? What are your expectations, going forward?

Jeroen: I think at the moment there’s a lot of different things happening at the same time, all affecting the markets. I think a lot of buyers actually have been expecting that, with the reopening of China after COVID, there would be a boom in consumption. People were trying to take positions to be ready for this.

Actually the import values this year so far have been bigger than last year, year to date, whereas the consumption dropped away by a variety of reasons. One is local consumption took a hit, especially the consumption of, let’s say, higher grade, fresh products. That consumption reduced a lot, so that’s less consumption, more imports. That’s one reason early in the year.

Second one is that the local production of milk powder in China actually continues to be strong. It has been very, very strong last few years, but it’s still growing. You have growing local raw milk availability coupled with reasonable stocks and lowered amount, and I think that’s dragging the market down now to a certain extent.

Then, looking at nonfat for US, you have the other situation that’s starting this year. There will be no duty for New Zealand milk farmers, full year. Normally, there would only be a period in early Jan that the first 100,000 tons of product would be low duty. Now it’s no duty, full year.

That means that the incentive for buyers to go to New Zealand over US is a 10% duty advantage. That will at this moment limit interest in US products, because New Zealand is the cheapest source available by normal price, and then, after duty advantage, is the lowest cost by far.

Josh: Jeroen, I got tons of question. I want to jump on that last one for a moment. You would maybe know a bit more about this than I.

There’s very seasonal production, but they’re a large importer of these products. We know that their internal milk production is increasing, and that might have some impact on their overall demand for these products.

Where is the product stored? Because historically I had the impression like there’s a duty advantage that lines up with the peak season out of New Zealand. These products then flow into China, would maybe go into the traders’ hands and users’ hands to be distributed throughout the year.

Is there going to be a significant change in the net importation from a volume standpoint as a result of this duty change, or is it really just shifting when the product moves? Give me some thoughts on that, if you would.

Jeroen: I think, let’s say, overall, I would say my expectation for coming in, let’s say 2024, I think that the overall import volumes will be slightly better than ’23 for many products. Not specifically skim milk, but for many products. I think it’ll not be as good as 2022, so it’ll be less than ’22, more than ’23. I think there will be import requirements.

However, in line with what you’re mentioning, that’s quite interesting to see because then it will no longer be this perfect fit on the main season of New Zealand. Normally, New Zealand, you’ll have the peak production month, and that peak production month will fit very, very nicely into the peak demand in China. This year, that will not be the case.

Listening to people in Oceania, they claim to be very well sold. I think the O’Neill term has recently … They have helped them clear some of those stocks that normally would have gone to China. I think that will be an interesting thing to watch into Q1, whether that demand from China will kick in and whether, at that moment, New Zealand will actually have those volumes available or not.

Josh: Maybe to avoid making this purely about the components, there’s two areas that I’d love to talk about. Let’s start with the consumption side. It’s been discussed amongst our group at Jacobi multiple times that, over most of my professional career, most of the career of, say, some of the older Millennials, really, we’ve been balancing supply.

Demand for a lot of the dairy-related products has been somewhat predictable. It moves slightly above trend one year, slightly below trend the other, but very much, on a multi-year pattern, is falling within a very predictable trend line. For the first time in our professional career, as someone around my age, we’re now questioning demand across the board.

A big disruption historically to those price trends is Chinese buying. It’s my opinion, or at least I’d be curious to get yours, that we’ve gone through multiple periods in the past where China has stocked or destocked, but I don’t know that their consumption pattern has been so volatile year over year. I believe, just from what I’m reading, that they’ve accelerated their per capita consumption of dairy products quite a bit over the past 10 to 15 years, but it isn’t so volatile year over year.

Whereas, now, for the first time, I think we’re questioning whether or not the per capita consumption rate is growing at the same rate it has for the past decade. Do you have an opinion on that?

Jeroen: I do agree that you have seen a strong increase in per capita consumption in China over the last few years until 2021, but in the last two years we expect that there was no consumption growth, perhaps even a consumption reduction. Like you mentioned, the entire market, including stakeholders in China itself … Everybody was banking on this continued growth.

I think that didn’t really materialize. That, combined with a strong focus on growth of raw milk, they started producing more local full cream, but they were also starting using, for instance, local raw milk to replace imported skim milk powder, and so on. They were also supplementing.

I think that’s at this moment happening to some extent. I’m hearing stories from multiple sides that, actually, a lot of industries are facing a strong reduction in consumption at this moment. That’s sometimes even, let’s say, higher than 10% reduction in consumption over their finished goods.

Ted: Another way to describe what you’re saying is we have started to see a fundamental trend shift in consumption of dairy in China. After 20 years of significant per capita growth in dairy consumption, it’s starting to plateau and flat.

Jeroen: I expect that it will start growing again, because I think the authorities also are invested in growing a stronger local industry. At some point, I think they will start supporting the local industry again by either promotional activities like before, where they advertise the health benefits, or just by spread out promotions. I think that will start happening.

I think at this moment what we’re seeing is just the effect of a very, very bad economic situation on multiple levels, stock market, housing markets, industry. At this moment, China’s going through a tough time, which I think they will get through.

People were thinking that the worst was over when China reopened. Everybody was expecting this reopening and a bounce back to normal, and what they found was actually that a lot of problems now start surfacing which they thought were already passed.

To highlight, again, a little bit on that is that also a lot of Chinese dairy consumption is still out of house consumption. As soon as people are less going around, there will be less dairy consumption. You and me, we consume readily at home, like sandwiches, and pizzas, and so on. Those are, for most Chinese people, still more items they consume out of house, like food service.

Josh: Can we talk a minute about the scale of Chinese milk production? I went down a rabbit hole earlier on YouTube, and everyone knows everything on YouTube is very quality information.

One of the things that I was exploring is the size of some of the Chinese dairy farms. I was blown away by a couple of these, multiple farms of a 100,000 milking cows. The geographical area they covered, I think, was 65 million acres equivalent, like the size of Portugal. If I understood it correctly, the largest one in the northeast part of China, ultimately built in conjunction with Russia after Russia banned imports out of the EU … I just didn’t realize that connection. I did know that there was large scale there, but nothing like what I was beginning to research.

That growth over the course of the last decade has been enormous. Is that trend to continue, or is this economic environment that they’re in today really going to suppress that continued growth?

Jeroen: If you’re looking at the ROB milk price, that’s now more or less reported … It’s always a little bit of a mixed picture. Let’s say the milk price that’s now generally accepted as most likely the average milk price, that should not cover all the cost of a normal farmer.

However, I think in China, a lot of the farms are owned by the processor, who also owns the retail brand. The entire chain is in the hands of some big market players.

I think, on many, many levels, you see big local producer, but also smaller regional producers. Everybody has been investing in local farms. This is done by companies, but also either partly saying no to regional stakeholders or state shareholders.

I think these incentives is there. Those investments are made. This will continue to go. The only thing you see happening is that a number of the smaller private farms are not surviving in this situation.

Our expectation is that the grow of milk growth will slow down, but it will still grow. Our assumption is … Let’s say normally the last few years, you saw perhaps a growth of about 7%. This may come down to a growth of about 4%, give or take, but the growth will, in our opinion, still be there. They’re building this big industry up north, but the cost of getting dairy from the north to the south is actually not so much more economic than getting products from, let’s say, the US to the south, because it’s not a balanced geographic area.

Ted: I will say that I believe that, very much so, because we actually see the same thing in the US. It’s more expensive to ship dairy products from California to Wisconsin than it is to ship them from California to China. It’s just the logistics of putting it on a big ship is just cheaper than the logistics of having it in an 18 wheeler.

Josh: It’s a pretty good back hauling, also. It’s quite a bit of stuff coming here.

I want to be clear, too. I would love someone to debunk or fact check these stats I was hearing, because, in terms of their daily production per cow, it was enormous. They said in one of these articles I read the top 25 dairies represent 29% of the milk.

These are economies of scale that we have here today in the US. I imagine that they very well could have it in China, but I’m curious how factual that particular source was.

Jeroen: I think that’s one of the biggest challenges for almost everybody I’ve been speaking to in China the time I was there, or even now, at getting the correct figures.

Looking a little bit broader, I think at this moment there’s a lot of issues facing the Chinese markets on imports and consumption, but I do feel, like you mentioned before, that China was known for stockholding. I think at this moment they are chewing through stocks, so I do feel that, in the coming year, that situation will start changing and imports will be resuming again.

Then, looking at, if you, let’s say, set the time ahead for a few months and the situation start changing, then I think the US is actually quite well lined up to benefit from a possible revival of demand. Looking at the way, let’s say, New Zealand, then, will be going out of season, and Europe is actually struggling at the moment.

Josh: Jeroen, help us understand. China is a very important trade partner to the United States, particularly for our whey products, and growing across some other products. As we find, at different moments in time, when the US is competitive on price, we have opportunities to do a fair amount of business into the highly competitive region in Southeast Asia across many different products, help us understand the relationship between Chinese buying patterns and their influence on the rest of Southeast Asia, if you would.

Jeroen: At this moment, the biggest influence China has on the rest of Southeast Asia is, I think, that the rest of Southeast Asia has been waiting for Chinese tourism, for one, to get back to more normal. Because, yes, there’s a lot of, let’s say, Europeans and Americans going on holiday here, but that’s not the majority group. It’s the Chinese tourist which is the backbone for tourism is the region. I think that’s one thing they’re missing.

Secondly, a slow economy in China will affect the rest of this region as well because they are supplying raw materials, they’re supplying our finished goods. A slow China is affecting them in that sense as well.

On the purchasing side of things, I think Southeast Asia to a certain extent, and the Middle East now, definitely are actually benefiting from the fact that China is not there to do the bulk buying. They are able to step in and get their buying done at reasonable prices.

Ted: I want to digress for just one quick second. One of the reasons that the Chinese are not traveling at the moment is, in the beginning of 2023, they basically had a second COVID outbreak. They still today haven’t gotten back to normal and are traveling again. Is that what happened? Is that a fair way to put it?

Jeroen: Yeah.

Ted: What are your expectations? When will that international travel get back to normal out of China?

Jeroen: My personal feeling is that will be strongly correlated to the economic situation in China. I think, from people I speak to, a lot of people have just become more careful just in spending, in consumption in general, even traveling in China itself or consumption in China itself. It has just reduced a lot while people look for more direction of where things are going.

Property market is down considerably, just even in tier one cities, which is actually quite a shock. Stock market is not performing. Unemployment was bigger. There were pay cuts for all from … Overall, the entire spectrum is not that great. People are just taking a slight wait-and-see approach, I think.

Ted: It’s not like there’s going to be a moment where suddenly everything’s back to normal. It sounds like it’s just going to take a while for them to slowly evolve back to the way things were, let’s say, a few years ago.

Jeroen: Yeah. Saving in China is speeding up a lot. The money is there, but, just, people are not spending it. I think they are accumulating wealth, how you call it. I think as soon as they see that they’ve passed the worst moment, people will start investing and spending again, because that’s the moment when they see opportunities.

Ted: You and I, I think, are going the same place.

Josh: Sounds real familiar to what we experience.

Ted: In the US, everybody stayed home in 2021. Their savings accounts got really, really good, and then 2022 and even 2023, they were spending that money and going out of style with it. It almost feels like 2024 in China is going to be a little bit like 2022 in the US, where, by the time you get to the middle to the end of this year, things are going to be going strong there if they’ve got the money to spend.

Jeroen: I think China could be the accelerator when things start going better, let’s say not only in China, but more in the world. For instance, if US and Europe become little bit more positive, start consuming more, more orders going to China. As soon as that start happening, that things start going well, I think at that moment they could kick in with, let’s say, a more optimistic view and start spending as well. That could be, then, the accelerator of everything.

We have to go through this phase. We haven’t even touched on other things, because there’s more problems than only consumption on dairy. For instance, you highlighted earlier on the whey, and especially going into feed, whey, and permeates. The pork market in China actually is going through a tough time as well. Also, again, less consumption, which means lower pricing. AFS is still a strong problem in China.

All these things combined as well are not the most optimal conditions for the sector there as well. They have been losing money for a long time now because pork prices have always been lower than the feed cost, and that has drained liquidity from that sector.

Again, this sector will survive because it’s an important sector. It’s a sector with a lot of state or regional influence, but it’s a troubling sector at this moment.

Ted: Interesting.

Josh: I think the important takeaway for me was you don’t feel like this is a consumption trend change, this is an economic-driven or a disposable-income-driven slowdown that we’re seeing right now. That, in a healthy economy, the Chinese consumption per capita may continue to grow fairly rapidly.

Jeroen: I do feel. I think, talking to a lot of people in China, as far as I know dairy is still considered a valuable nutrition. It’s different than some parts of the Western world where people are looking at dairy as … Perhaps the trend to vegan, or whatever. In China, there’s still a strong focus on that dairy ingredients are a valuable nutrition.

Josh: One final question. Within the EU, we talk about environmental pressures on dairy production, and that’s impacted one of the variables that impacts the EU’s ability to scale production like we’ve seen in other parts of the world. I mentioned China earlier. We’re certainly seeing much more larger farms in the US.

We, here in the US, have less pressure than perhaps across the pond, but we still have pressures as well. We have the impression, I think, generically that there’s far less environmental driven pressure on production out of China. Is that an accurate statement?

Jeroen: That’s what we hear as well. Yeah. The incentive is to grow the self-sufficiency. The incentive is to be less dependent on the world.

Also, there’s a strong push within China to increase dairy as an ingredient for nutrition. I don’t see any, let’s say, hurdles to grow the local industry.

The only perhaps would be their access to breeding stock. There’s some countries now who are limiting the export of cows to China. That could, to a certain extent perhaps, take some limitation on their growth. But the incentive is there and their industry is there, so I don’t see that slowing down.

But, at the same time, I also feel that, once the consumption starts growing again, they will still be struggling to have that industry grow at the same time as their consumption is growing, because their per capita consumption is still quite small. As soon as they start consuming more dairy again, I think they’ll still be struggling to have their industry grow as fast as their consumption.

Ted: It almost feels to me like the first half of the year we could almost expect a little bit of a game of chicken, where the demand is not quite going to be there. The Chinese are going to play their cards close to the vest, buy what they need to, but not much more than that until prices come down to a place where they really feel confident building their inventories. Once they get there, they could be building those inventories from wherever they can grab product, whether it’s New Zealand, the US, Europe, wherever.

Jeroen: When I was there and the crisis started, I was expecting purchasing to go down. Because normally, as far as I always knew, in time of crisis, buyers would like to keep as much cash around as possible. In that instance, Chinese buyers did the complete opposite. They started buying a lot of product, because they would rather have product in time of crisis than cash. That was actually quite interesting.

Ted: That is interesting.

Jeroen: At this moment, I think they don’t have any fear that there will be no product. I think as soon as they fear that perhaps the product will run out, they will start buying. At this moment, they don’t feel that people are worrying about the availability of products.

You see some message coming from New Zealand that perhaps Q1 will be affected by El Nino, leading to less product available. I don’t think this fear has kicked into China. They don’t have that same fear.

Josh: Ted, maybe to say what you mentioned slightly differently, is … I’m not so sure that the price needs to go lower before the Chinese market will begin buying and stocking, it may be that they need to see the activity in their own consumption recover a bit. Regardless of where that price is, they’ll start to buy more aggressively. One would assume, without China, that prices will be relatively affordable at that time.

Jeroen: If more consumption, or a fear of missing out product in the coming Q1, Q2 … I think that could trigger buying. At this moment, the incentive is not there. At the same time, also in China, liquidity is also still an issue. If you don’t feel this fear of missing out, keep your liquidity with you.

Ted: I think that liquidity comment’s a big one. That makes a lot of sense to me.

Tristan: Production is increasing in China. Would you say that it’s more at the farm level, or would you say it’s just more about getting more cows at the farm and buying more land?

Jeroen: I think both. I think you see the shift from, let’s say, small farms to more professional, bigger farms. In that shift, you see more production per cow coming, and, at the same time, you see more cows coming as well. It’s a double.

Normally there’s two numbers of milk production you can see in China. There’s two different agencies reporting. I forgot the names, but there’s two different agencies. The number of one is always a lot higher than the other one, and the reason is they are tracking big farms. They only track big farms, and the growth of big farms is a lot bigger than total market.

Ted: Do you think more milk comes from big farms or small farms in a totality, Jeroen?

Jeroen: Tricky one. I think, by now, it’s switching to big farms. I think that a Yili, Mengniu together, some of the other bigger ones, they now control most of the milk, if not the vast majority of the milk.

Whether that’s only in big farms of their own, or also they have farms operating, they supply the milk to the … That’s possible, but I think that the big farms are not taking them.

Ted: Makes sense. Jeroen, really appreciate it. I am going to ask one last question. It’s a predicting question.

Where you sit in Singapore, seeing prices from Oceania, Europe, and the US, are you expecting to see higher prices at the end of 2024 than you’re seeing right now, or lower prices?

Jeroen: End of ’24? That’s a big prediction. I think that New Zealand will go up. I think that’s too low. I think that US now, what I’m hearing, is prices coming to Asia is quite reasonable for now. I think Europe is a little bit too optimistic. Especially looking into future’s Europe, I think that’s quite optimistic. At that moment, I start fearing demands. End of next year, I would say up.

Ted: I think the dairy farmers here in the US are going to like your answer.

Jeroen, thank you very much. Really appreciate it. Thanks for taking the time. This was a great conversation, and we really appreciate you joining us today. Thank you.

Jeroen: Thank you guys for your invitation. Happy to be here.

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Industry discussion surrounds a docket’s worth of changes to the Federal Milk Marketing Orders (FMMO), and we feel like it’s high time that we weighed in.

The USDA hearing on pricing formulas reconvened November 27, and the Jacoby team can’t help but feel that much of the hearings will amount to wasted or misplaced effort.

On this episode of The Milk Check, recorded in mid-November, a group from throughout the company discusses the potential changes that might help dairies with ongoing profitability problems. Then, they share their thoughts on the contents of the hearing so far.

T3: Hello everybody, and welcome to The Milk Check podcast. Today, we are going to tackle the famous, or maybe rather infamous, subject of federal order reform. I think you’ll find listening to our discussion, that you’ll find us a little bit more ambivalent about the process than maybe you’d expect from a group that is experts in marketing milk and the federal order system. But I’ll let the conversation speak for itself, as we talk about the different things that the federal order hearing is trying to tackle and what we think should be done. And hopefully, it’ll be helpful to everybody. I look forward to discussing it further, when they finally come out with their recommendations for how the federal order needs to be changed.

Dad, obviously, the federal order hearing is going on. And my suggestion is the reality is the path we’re going down really isn’t going to change a lot, and maybe that’s what we should discuss is how some of these changes aren’t going to have a big effect because the market is going to change to that. Things like, okay, they’re going to change the make allowances. How much of an effect are changing the make allowances really going to have on the farmer’s milk price?

Ted Jr: Zero.

T3: That’s my point.

Ted Jr: The real issue is qualification and not the classified pricing system. Instead of having bottling plant A, for example, responsible for balancing, you now kick milk back to somebody else, usually a co-op who has a butter powder plant and you give them the responsibilities for balancing and then of course you pay for that with an overrated premium.

And the alternative would be, in my view at least, to weaken the minimum price requirements and do it in such a way, and I’m not sure you’re going to get out of the box with something like this, but do it in such a way that you can transfer some of the balancing requirements back to the bottling plant so that they can run sales on milk so we can get some of our customers back. Something that promotes marketing and allows at least a portion of the balancing to be transferred to the plant, I think would be beneficial. Is that going to happen? No, they’re not going to touch that With a 10-foot pole, the minimum price requirements are the key to qualification, and so that’s where the thing meets the wall. In the meantime, our Class I sales continue to decline.

Anna: I think the biggest issue for me is that Class I is completely hamstrung by how everything is based off of their sales, their qualification, their everything else. It means that we’ve talked about them not being able to be innovative before, just how much it really sticks them in a certain spot where they can’t do anything new. I don’t really have a major problem with qualification. I think when you change those provisions, you end up devaluing the whole pool, which is kind of against the point, right? But my biggest issue is that we’re basing all of this on Class I and quite frankly, they’re not the most difficult customer anymore. Class III is in many cases way more difficult.

Gus: How is Class III more difficult? And I look at this knowingly from the standpoint that cheese plants tend to take a more consistent volume of milk and therefore they’re an easier customer to serve. But why do you say that?

Anna: I don’t think they’re as easy as they used to be. You used to have your Class I sales were your primary, and then you’d go to III and IV to take the balance, and now, I mean at least we have many contract customers that are Class III that require more balancing than are Class I.

Ted Jr: Allow me to make a point that Anna is of course right that the cheese has picked up where Class I sales has dropped off. But the way I look at it, the price we pay for the classified pricing system is qualification. Qualification is a cost factor. You have to ship, you have to make deliveries, and they’re different in different orders, but that’s the price we pay for the classified pricing system.

I think we should stipulate we, Jacoby, but also from an industry standpoint that the classified pricing system is beneficial to us and beneficial to the dairy industry as a whole and beneficial to the dairy farmer. Can you imagine what would happen, what the market would be like with a $3 difference in gross return one way or the other between cheese and butter powder without the classified pricing system? Yeah, you can drag in issues like depooling and so on into that discussion, but that still relates to the classified pricing system, so I’m not suggesting to anyone that we ought to eliminate qualification, and by default, eliminate the classified pricing system. I don’t think that would be to anyone’s advantage, particularly the dairy farmer. The classified pricing system and preservation of it is in my view, the key and how to jimmy the qualification in order to preserve it is where we ought to be going instead of monkeying around with the so-called make allowance. You don’t even need a make allowance, you just need a price that everybody can work off of and do risk management from. That’s all you need.

Anna: I don’t have any beef with the classified pricing system, but I also don’t have an issue with qualification. I think that if you require people to qualify and it’s more expensive and more difficult, because in certain orders it is, that usually ties to a higher return, right? The bigger issue for me becomes why are we letting people come in and out when they want to? You address your ability to depool and pool when you want, like order one does, you’re in or out.

Gus: Well, and I would also add, Anna, that in some orders around the country it becomes very difficult for certain people to qualify the milk. We’ve seen that. And for me, it doesn’t seem right that it should be so hard, but it’s obvious that because —

Anna: You say you’re in or out, then you don’t have to keep doing the qualification, right? You’re part of that.

Gus: Yeah, exactly. And basically what we’re doing is if you’re anybody who doesn’t have a balancing mechanism in certain parts of the country, they can’t serve the Class I account. And if they can’t serve the Class I account, then it makes it that much more difficult to qualify, right? You get to a point where it’s just kind of haves and have-nots and how does that really help the industry? I’m not so sure it really does.

T3: Qualification isn’t even on the docket in terms of what the federal order reform hearing is discussing.

Let’s organize this conversation and talk about some of the things that are on the docket. Obviously updating the milk allowances is on the docket. I think it’s worth having a really good conversation about the fact that updating the make allowances, as much time and effort is going into trying to figure out how they should be updated, I think it’s worth us having a conversation about how it’s not going to change really anything.

Gus: I’ll mention something on the make allowance that I think is important, an interesting point to discuss, I would hope that you would agree. I agree, the market is what the market is, right? And the values will change accordingly relative to supply and demand, Economics 101, so to speak. But one thing I am concerned about when it comes to fiddling with the make allowance is I think it’s safe to say, considering the varying types of cheese plants out there, size and style and so on, so forth, that pigeonholing or making one make allowance for all Class III milk, which I’m not suggesting anything other, I’m just saying that you basically have one processing cost that we’re going to fix it at. And how is that necessarily healthy for the industry if we want more than just large, big cheddar cheese plants, right?

T3: You make a good point that we’ve got, I don’t know how many, 500 different cheese plants in this country, and each one has a different actual processing cost. They make different cheeses, they’re different sizes, there’s different things they do differently. They’re all different, and so no one has the same cost, especially if you’re making mozz in one plant and you’re making cheddar in another plant, Swiss in another plant, feta or Parm in another plant, but they will adjust… what we’re basically trying to determine is what is the fair price for the milk going into that plant? And then they’ll adjust the cost of the product coming out of that plant to the market. And the reality is if they’re super profitable, they’ll try to produce even more of that cheese and the supply and demand of that cheese will therefore start to come down decreasing that profitability.

So I think one of the most important things that needs to be pointed out to people is the laws of supply and demand, at the end of the day, really determine the profitability, not just of a dairy farmer, but also of every cheese plant that’s out there.

Gus: In my mind, I think it does bring the discussion back to the market is what the market is and we have to figure it out. Kind of the point that I think I’m getting to is it doesn’t really matter, and by us even honing in on this and having these surveys to me is a fruitless effort. At the end of the day, cheese plants have to run their business and producers have to run their business, and I think we need to put some type of understanding in place and get away from these formula-driven prices with make allowances and let the economics stand on their own, if that makes sense?

T3: It makes perfect sense, and I couldn’t agree with you more, but it almost sounds like what you’re advocating is get rid of the system altogether.

If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to T.C. Jacoby & Co. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show.

Gus: I’ll go back and say that I agree with dad’s perspective that certain pool and blend mechanisms are important to make sure we have some sort of uniform pricing to a certain degree across the country so that we don’t ebb and flow relative to supply and demand specific product types. I think that could get out of hand. So I think something is necessary, but I do believe that it is a fruitless effort and not necessarily good for the industry as a whole to jump in these modifications on make allowances and analyzing production costs because at the end of the day, we need to accept that there’s a market from a standpoint of how much it costs to make milk and what’s needed for the producers to make money to grow their businesses just the same as it is for processors to make their products and grow their businesses.

T3: Let me ask you this question, do you think that the federal government should have a role in determining what that profitability is, or do you think they need to do their best to get out of the way?

Gus: As far as determine that level of profitability on a specific basis, meaning I, II, III and IV? The answer to that is no. But I think there is always going to be a need for some protection on the ebbs and flows of one dairy product to the other because I think you can get into a situation where the demand for cheese, for example, in one region gets extremely high, but if someone’s being paid off just cheese and another person’s being paid off just powder and those get out of whack and there’s no effort to blend the price, that can be an ugly situation. I think dad alluded to that earlier and we need to be careful there.

Anna: I agree with you theoretically.

Ted Jr: I weigh in on the side of Gus and Ted on this, Anna, that you’re not repealing the laws of supply and demand. You have a so-called premium on the producer pay price and what, 5, 6, 8 years ago, the premiums disappeared. Prior to that time, having a larger make allowance enabled the dairy farmer to reach out more for markets and increase competitive factors for his milk supply, but now with the increase in hauling costs and all the increase in manufacturing costs and so on, most dairy farmers are paid something under the blend price. So how does that make a difference now with regard to the make allowance, I would say that the make allowance is an arbitrary risk management number that allows dairy farmers and processors and co-ops to do risk management on whatever deals they’re inclined to make. So if you want to look at where the benefit of an adjustment might come, adding that kind of stability to the marketplace I think would be the biggest benefit.

Anna: You can take the make allowance out, you could bump it up, you can do whatever you want to it, everybody has the ability to change their premiums accordingly. They can bump them up because the make allowance is better for them or whatever it is. The only person who’s stuck, the only group that’s stuck is Class I, and we keep making them stuck, that’s the biggest problem.

Gus: You’re right there, Anna, but still, to make sure we convey it properly, the market provides opportunity to adjust, so premiums and so on and so forth. Now, obviously lately milk has been long in a lot of areas, it’s been a buyer’s market, so to speak. We’ve gotten used to that probably over the last decade, although you could make a case considering the adverse farm economics right now that perhaps that’s changing finally and shifting some leverage to the producer, I guess we’ll see. But whatever the case may be, I can’t agree with you more, that we have to put a system in place that doesn’t seem like everything falls to the bottom of the hill with the producers being at the bottom of the hill. If we just let the market do what it’s supposed to do, then at least we can say, “Well, dairymen, the market has too much milk and this is why the price has fallen to what it is. And you’re not missing out on any piece of the action because of some formula that the USDA has implored upon you. It’s just what the market is.”

T3: Let’s switch subjects for a second. So one of the other things that’s been coming up in the federal order hearing is a discussion about removing advanced pricing from the Class II in Class I markets. What are your thoughts about removing advanced pricing, specifically the advanced skim price? The skim price is an advanced price that’s published before the month starts versus in Class III and Class IV where it is announced after the month is over. Basically the idea is with Class I Milk, there is an advanced price so that bottlers know what their costs are so that they can price their milk to the supermarkets. The argument is, and it’s an interesting argument, is that dairy farmers don’t know their price ahead of time and they have to use the futures and options markets in order to achieve price stability. There’s no reason why Class I processors can’t do the same thing, and I think they’ve got a point.

Historically, the opposition to advanced pricing has been, well, if you don’t do advanced pricing, they don’t know their price beforehand, but there are risk management tools now to help them there. What used to be for me, something where I thought it was a no-brainer, of course you don’t remove advanced pricing because they need to know their costs so they can give the customers a price. Now, I sit there and I look at it and I go, they kind of got a point that they have access to the same risk management tools that producers do. Why don’t you put the onus on the Class I guys to do their own hedging?

Ted Jr: Well, one of the reasons that they’re talking about going back to the higher of-

T3: I agree, you can’t have one without the other. That’s a very good point.

Ted Jr: … that presents a big problem when it comes time to talk about hedging. So if we want to get out of the box a little here when they’re talking about advanced pricing and so on, you could have one number, one hedgable number, and then you could have Class I price based on that as well as III and IV to give that number hedgability, a milk number, so that it’s for all the different classes, I don’t think would be very complicated.

T3: There is a lot of conversation in the hearing right now from both sides, the side that wants the higher of, they’re just saying, “Hey, during the pandemic, Class III was way higher than Class IV, and we only got the average of the two rather than the higher of. We’d rather go back to the higher up so we can get that benefit.” And those who are opposed to it are saying, “Look, it’s a risk management issue. Is there a way we can resolve this issue you have because we’re not disagreeing with you, we just want to make sure it’s hedgable.” And my gut, knock on wood, saying it out loud may write it in stone that it won’t happen, but my gut is they’re going to come up with a resolution so that they end up with something hedgable at the Class I and Class II level.

Ted Jr: Well, I hope you’re right, but the devil will be in the details, as Gus alluded to, the zones, the qualification requirements and all that, no one’s talking about all that, but it’ll be there in the final decision as if it’s been talked about for the last year and a half. That’s something to be concerned about. And whether or not they’ll see the light to make everything more risk manageable, I guess remains to be seen. Frankly, I doubt it. I think a lot of people feel that that’s a liability rather than an asset

T3: At the producer level?

Ted Jr: Yeah.

T3: Yeah, unfortunately, I think you’re right.

Gus: Hey, Dad, I’d like to ask a question. An out of the box thought that your perspective might help either throw shade on or explode, one or the other, but considering the strong trend of Class I as well as the advancements in packaging and the ability for basically the Class I producers to put bottled milk into a package that provides some shelf life, in addition to the fact that now we have certain products replacing typical Class I bottled milk that are considered Class II because of the way their solids levels have been concentrated, are we getting to a point where maybe it’s fruitless to have Class I and Class II two different classes and maybe that we should combine the two anyway?

Ted Jr: No, just as a matter of my opinion. Class II is probably more appropriate in Class III as far as definition is concerned. You’re talking whips, dips, toppings and so on, and there are manufacturing costs involved in that. They’re not exactly the same as cheese, but on the other hand, there’s a lot of different manufacturing costs in cheese too. But I think you hit on a point that needs to be considered carefully. We’re suffering from a continuing decline in Class I sales, and from what I hear so far, the hearing that I read doesn’t really address that. They’re talking how to jimmy the price as if it makes a difference.

One of the issues that you talked about is UHT processing-

Gus: Packaging.

Ted Jr: … which allows milk to have six months shelf life and package and so on. To acknowledge that fact and allow for pricing, which is risk manageable to promote that kind of the inventory would go a long way towards eliminating the cost of balancing and would put money in the pockets of everybody, including particularly the dairy farmer. I mean, if you’re out of milk to Timbuktu for balancing purposes, that money comes out of the dairy farmer’s pocket. Let’s face it, it does. One way or the other, one time or another, it’s going to come out of the dairy farmer’s pocket. So if you got UHT milk that you can store for six months, or even longer, then you need to allow for risk management of that supply so that people like Walmart and Publix and Kroger and others can take advantage of that and eliminate these humongous balancing obligations.

T3: So let me ask one last topic that’s come up in the federal order hearings is they’ve discussed getting rid of the barrel price in the NDPSR survey, they’ve discussed adding a 640 cheddar NDPSR survey, they’ve even discussed adding mozzarella. It sounds like adding a mozzarella survey’s unlikely to happen, it sounds like adding a 640 survey is unlikely to happen, but there’s still a lot of discussion about getting rid of the barrel survey. What is everybody’s thoughts on that? Generally speaking, barrels tend to have a lower survey price, even with the 3 cents that’s added going into the Class III formula, it still tends to be a lower average price for the year than the block survey and barrels are a decreasing percent of the overall cheddar market. Does it make sense to get rid of the barrels or do you guys think they should stay in? Or does it matter?

Ted Jr: Let me give a quick opinion on that. I think it’s BS. There is a large contingent of people in the industry who think that if you want to raise the price to the dairy farmer, all you have to do is raise the regulatory price and that’ll wind up as money in the dairy farmer’s pocket. That’s false. It does not. They don’t like the fact that the barrel price is lower. “Well, let’s get rid of the barrel price and that’ll raise the Class III price.” Well, guess what? The market will adjust to that. It might take them a few months, but they will, and it won’t make a bit of difference as far as the money in the pocket of the dairy farmers is concerned

T3: I’ll even take it a step further and say it’ll actually have the opposite effect that they intend and it’ll lower their price. And you know why? Is because one of the things that happens is barrels become overproduced when the mozzarella market gets long. There’s a few processors out there have the ability to make barrels instead, and the reason they make barrels is because they want their whey to be white, they don’t want the colored whey from colored cheddar. Guess though, what will happen if they no longer have the ability to make barrels and sell barrels on the exchange, thereby lowering the barrel survey price? They’re going to go ahead and bite the bullet and make blocks, which means they’re going to lower the block price, which will be 100% of the cheese survey price rather than just 50% of the cheese survey price, and that will lower a dairy farmer’s milk price.

Ted Jr: Yeah, the road to hell is paved with good intentions, but particularly when it comes to the classified pricing system as far as setting these prices are concerned.

T3: Thank you for listening today, everybody. As we all know, the federal order hearing is not over yet, and so we’re looking forward to it as much as you are to find out what their suggested changes are. When that does happen, we look forward to having another discussion about federal order reform and our beliefs about what we think will happen once the changes are enacted. Thank you.

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Our team is (mostly) bearish right now. We’re seeing signs that recent Class III price rises aren’t supported by demand, and the lack of Asian demand for powders continues.

In the August episode of The Milk Check, we discuss a recent LinkedIn post Ted made and whether there’s any strong case against bearishness when looking at dairy prices.

Butter continues to feel like an exception, and Joe Maixner wants to go “on the record” with a bullish outlook for the rest of the year but also into 2024. The international outlook, according to Diego Carvallo, couldn’t get much more bearish.

Ted: Welcome everybody to the August version of the Milk Check. Today we're going to have an old fashioned market discussion. We have with us, Josh White, Diego Carvallo, Joe Maxster, Jacob Menge, and I. So guys, I thought I'd start this conversation simply by mentioning the post that I just put on LinkedIn and you guys can tell me what you think of the post and if you think you agree with me or maybe where I'm wrong.

So it's the middle of August, it's hot outside, you're seeing 100 degree temperatures all over the country. The milk supply is tightening as a result, schools will start up soon. So demand has picked up a little bit. The cheese market has popped, improving class three prices. And most of our other markets are starting to look like the bottoms are in. Does that mean the remainder of the year will be positive for dairy farmers?

My hunch is that domestic demand will not be good enough to sustain decent milk prices. I see subtle signs everywhere. Very few of our domestic customers are giving us glowing sales reports. Most are using descriptions like average at best or slightly under budget. And while Mexico continues to be optimistic, our Asian customers are using words like depressing and even horrific to describe their sales.

So even though milk production may turn negative year over year in the coming months, I just don't see enough positive demand to be bullish milk prices between now and the first half of 2024. Guys, am I being too bearish? Josh, what do you think?

Josh: Just talking to different people I would echo what you mentioned. I had a few calls where people have said to date their overall demand has been lackluster. Their coverage going forward is taking into consideration some of that uncertainty about their demand, but we're starting to notice a few more transactional type, a little bit more transactional type business happening in the recent weeks that leads me to believe that the forward coverage isn't as strong as everyone thought from these type of companies.

Ted: So what you mean by that is maybe the spot purchasing needs of some of the big buyers out there domestically between now and the end of the year may actually be a little bit stronger than it has been so far?

Josh: I don't know that I'm predicting it, but I think there's a real opportunity for that.

Jacob: The thing that I think is a bit of a black box still to this conversation is US demand, and I think you mentioned it in your LinkedIn post, Ted, but I think that's really the key here is that US demand piece. Because if you look at equity markets, for example, the US seems to be the favored child in the world right now where our markets are humming along, we're having the soft landing. Meanwhile, Europe specifically the UK, seemed to be on the brink or in a recession. And so again, will this kind of fiscal strength we've seen on the equity sides carry over into our household purchasing and as such mean we have good demand in the US. I think it remains to be seen.

We've seen a number of arguments be made that the decent demand we've had so far this year is going to kind of falter in Q4. I think I might be in that camp. But if it doesn't, you pair decent demand along with a contracting supply, and especially if what Josh alluded to comes true, you have multi nets come in and do some buying on products here or there,

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On June 12, we brought a group together to share perspectives on the dairy markets, along with thoughts on what we might expect moving forward.

And there wasn’t a strong consensus. Josh thinks supply-side factors point to a relatively quick supply-side response plying out over months that produces some price upticks to offer some cover in the short term.

Ted Jr. thinks price recovery will be slow and has his own counterarguments against the expectation of further production slowdowns.

Jake feels bullish about spot prices on every product right now, but bearish in relation to current futures prices. Gus thinks dairy prices would need to climb above current futures prices to $19 or $20 milk before dairy farmers started feeling good again.

And T3 worries that any recovery in the second half of 2023 will act as a “head fake” leading into fallout from macroeconomic weakness in 2024.

T3: Welcome everybody to The Milk Check. Today we're recording this Milk Check on June 12th. The reason I'm giving you the date is because we're going to have an old-fashioned market discussion today. I've asked Jacob Menge, our director of trading strategy and risk management, to join us. My brother Gus, president of our fluid milk group, my dad, and Josh White, our vice president of dairy ingredients, to join us.

In all of those markets, prices are low. I think probably the number one question dairy farmers are asking right now is, okay, these prices are really low. Are these prices going to stay down here for a long time? What are we dealing with?

Jake, I'm going to ask you the first question. Where did demand go? Are these prices low because we're having a demand problem? If so, how'd we get here?

Jake: I think pretty indisputably it is a demand problem, or at least that's a significant contributing factor. There's lots of little data points that support that, some anecdotal, some not. I know internally I've tossed a few of these out before. But exports out of China, way down. You look at foot traffic in stores like Target, that is significantly off. Those are things that are hinting at poor demand. I mean you can go as far as to look at the amount of cardboard boxes produced in the US, and it's a number that is significantly down year on year.

Demand is notoriously hard to measure, but it's kind of like a black hole. You can't measure a black hole by looking at it directly, but you can measure it by looking at what it's doing to things around it. So looking at the things surrounding demand, they're not good. They're trending in the wrong direction, I'll say that.

T3: How long do you think these demand issues have been happening? Has it just been 2023? Has it been the last couple of months?

Jake: It's interesting. I think it's probably actually started in 2022, and it's something that just takes a long time to feel on the supply side here. When you have a push on one side of the market, it takes a while to feel that on the other side of the market.

So my feeling is it probably actually started last year. We saw the stock market have a really negative year last year, and, so far, especially over the last two months in 2023, we've seen the stock market go gangbusters a little bit, and we haven't necessarily felt that bullish on the commodity side yet. So it's just got a long tail.

T3: So even though we have a demand problem, unemployment's still pretty good. It's still quite low. Sounds like the Fed is still talking a more ... That it's more likely going to raise interest rates next than lower interest rates next. That seems to be a disconnect to me. How can demand be bad, yet the economy ... At least the Fed seems to think it's good? Does it mean demand is going to continue to be bad until something does break and the Fed has to start reacting to it? How do we get to a point where demand comes back?

Jake: Awesome question. Wish I had an equally awesome answer for you.

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On Episode 57 of The Milk Check, Tara Vander Dussen joins us to talk about sustainable agriculture. She is an environmental scientist and fifth-generation dairy farmer known online as the New Mexico Milkmaid.

We celebrate some of the regenerative agricultural practices that people often take for granted, and Tara walks us through some of progress she’s seeing in New Mexico dairies today.

We discuss dairy’s image problem and the steps folks can take to help consumers see dairy in a greener light. Our favorite quote from Tara: “Agriculture sees a waste in their stream, they’re going to find a way to make it a value.”

T3: Welcome, everybody, to The Milk Check, where we talk about things that are relevant to dairy farmers. I’m really excited about the podcast that we’re putting together today. We have a special guest. Her name is Tara Vander Dussen.

But before I introduce Tara, I want to tell you who else is on the podcast with us today. Joining my father and I, we have Tristan Suellentrop. Tristan is in our sales and marketing department. And we have Josh White. Josh heads up our dairy ingredients division.

Tara, better known online as the New Mexico Milkmaid, she is a fifth generation dairy farmer, a farm wife, environmental scientist, mom to two girls, and a New Mexico native. She is a dairy advocate, a whiskey drinker, I like that, a fast talker, a lover of all things Southwest, and an avid boho braid enthusiast. Tara, I want to start off the podcast by asking what in the world is an avid boho braid enthusiast?

Tara Vander Dussen: I know. I’m kind of surprised I don’t have a braid in this morning. I almost put one in. No, I love braiding hair. Actually, when I first started sharing online, it was one of the things I shared about, and it was a great way to connect with people actually outside of agriculture and kind of bring them into the dairy fold.

T3: Awesome. Thank you. So what we want to talk about today is sustainability and how sustainability is relevant to the dairy farmer. From my perspective, we work with a lot of dairy farmers in this industry, and the idea that dairy farming as an industry is not considered sustainable, it just strikes me as something so counter to all of the dairy farmers that I know.

Dairy farmers work outside with nature. They care deeply about nature, they care deeply about animals. So when some of the things that I hear in the press about sustainability, about carbon emissions, and about dairy farming, more than anything else, what strikes me is if there’s one thing I fully expect dairy farmers to do is to resolve this, is to attack this issue and say it’s not just an economic issue, it’s deeply personal to the dairy farmers that I know. The last thing that the dairy farmers I know ever want to be considered is somehow anti-environment, anti-sustainable.

So my question to start this conversation off is what are the dairy farmers that you know, what are they doing, what is the industry doing to become more sustainable? You’re an environmental scientist. I’m sure you know the background there. And then once we become a sustainable industry, how do we go back to the media and the general public and convince them and send the message that it’s no longer relevant to consider the dairy industry unsustainable?

Tara: Yeah, so many good questions in there. I’ll start by saying I completely agree with you. That’s kind of how I started sharing online as I was working as an environmental consultant on dairies throughout New Mexico. And then at the same time, I was seeing so much misinformation online, and it was like if people could just see what I see every day, they would see how much dairy farmers are doing to be more sustainable. That’s really what led me to start sharing online.

And as far as how we’re like a piece of the land, one of the things I always tell people is the water that goes to my cows’ water troughs is the same water that goes in my house. So caring for their water ultimately means providing the same quality of water to my own children. That is of the utmost importance to me. I care about that just as much as anyone else cares about the quality of their drinking water.

So thinking about what dairy farmers are doing, I think sometimes in the media, we love a big flashy headline. We love a big project, we love something that’s going to have a big impact. And really, sustainability on dairy farms, sometimes it’s just making small management changes that have an impact every single day on dairy farms across New Mexico, across the country, wherever you’re at, that ultimately does have a big impact.

Here in New Mexico, obviously a big part of our focus is on water conservation. We do not have a lot of water. So limiting our water use, figuring out ways to recycle water, how to grow drought-tolerant crops, there’s a ton going on in that space. And for us, that’s truly the future of our dairy. We have to figure out how to dairy farm with less water.

But the possibilities are endless. I feel like across the spectrum right now, dairy farmers are doing so many different things. And if you’ve been following the USDA Climate-Smart initiatives that have been going on, I think the next five years is going to be even more exciting with research, technology, development of sustainable practices on dairy farms.

And then for your final question, how do we get that out to the public, I think that’s already a now problem. We’re already doing really cool things. We don’t have a product problem, we have a marketing problem, and we’ve got to figure out how we market what we’re already doing. And then as we’re building on that, take them along on that journey.

T3: I couldn’t agree with you more.

Josh: We jumped right into a discussion, but I think maybe one of the biggest challenges in the industry is people don’t really understand what is meant by sustainable. Can you help, I guess, define what sustainability means to you and how you would define that?

Tara: This week on the podcast that I co-host, Discover Ag, we talk about an article called greenwashing. I feel like greenwashing at this point goes side by side with sustainability. Everybody has a different definition of sustainability and then everybody’s throwing sustainable messaging at our consumers left and right, and it’s just really greenwashing it. So what is truly sustainable?

I think sustainability, I kind of like the regenerative ag concept. It’s not a label. It is what are you doing in your area, in your region, on your farm to be a little bit better than the last year? To be a little bit more efficient. I know people hate that word, efficiency, especially when talking about animals, because they think it means something bad. But efficiency is sustainability.

I think sustainability in New Mexico is going to look very different than a dairy farm practicing sustainable practices in Michigan. We just don’t have the same resource concerns. So it’s about consciously thinking about what your resource concerns are, what your region or area needs, and then working your farm towards that.

In New Mexico, I mentioned our drought-tolerant crops. Yeah, we are not growing corn and alfalfa like we were. We’re growing haygrazer, we’re growing oats and canola and all these things I never grew up with in dairy as a kid, but we’re trying them out because that’s what makes sense for our farm right now and moving forward, keeping the farm sustainable for the next generation of farmers that’s going to come after us.

Josh: So Tara, one of my favorite things is when you debunk some of the different misinformation that I would call it. And for me, I’m in my 40s. I grew up in an agricultural-based family. My grandparents all went through the Depression and post-Depression, through the war, and I can’t think of anybody that does everything that they can to be thrifty to avoid being wasteful than the agricultural community that I grew up in, and that’s not the message that the loud voices want to portray, the current dairy industry and the current agricultural community.

I’m not an environmental scientist and I certainly don’t have the education in that space that you have, so hopefully you can help me. And when you get into these conversations with people, I find myself stuck. And I have the impression, and maybe you could help me here, that the current larger dairy operation, that might be different than the hundred cow type dairy operations I grew up around, is more efficient and more sustainable than even we were 20, 30 years ago. Can you help me build the case to help educate people on practices, as you mentioned, that are done on the dairy farm today that many may not have in their tool belt when confronted with those type of conversations?

Tara: Yeah, you started that with kind of sharing about how people in ag do recycle. We’re super inventive with how we are able to utilize things. And one of the things I love to share about with dairies, as you guys know, the amount of byproducts that dairy cows consume and utilize on dairy farms, that is often missed in the conversation. That’s an area, I think, that I know I love to touch on, because when people say, “Let’s just remove animal agriculture,” it’s like you don’t even realize all the repercussions all the way down the food supply chain that happen when you remove dairy, because dairy is the ultimate recycler.

So you love your orange juice. What are we going to do with all the pulp that you don’t like in your orange juice? What are we going to do with all the citrus peels? Let’s move to California. You love your almond milk. What are you going to do with all the almond hulls when you no longer have dairy cows to consume them? I mean, the list goes on and on. You could pick a state and name a commodity or a byproduct in that state. Cottonseed. Tons of options. And people just don’t think about that as the greater food system.

Agriculture sees a waste in their stream, they’re going to figure out a way to make it a value and add value to the system, which is really incredible. We should get more credit, I think, for that piece of what we do.

I always laugh that people have Pinterest to save recipes. I use Pinterest to save different white papers and research papers on greenhouse gas emissions. I have it all broken down into, “Here are my facts on dairy cows and greenhouse gas emissions. Here is my methane facts,” and being able to pull those when you’re having conversations and being able to back up what you’re saying.

And again, it goes back, dairy does not have a problem with that. We have tons of research, tons of facts. We have really great lifecycle analysis assessments. It’s combining those facts with what are the practices. You can spew all the facts, but then you’ve got to say like, “Yeah, we save water on a dairy farm. Here’s how we actually save it.” We recycle water on our dairy farm up to five times, and here’s the steps and here’s why it matters to us that this is the future. The longevity of our farm is dependent on it. So it’s kind of that combination of combining all of those things whenever you’re trying to get the message out.

T3: These methane digesters and these gas plants are producing renewable energy that’s being used to power buses in major metropolitan areas. How great advertising would it be to have on that bus, “This bus runs on renewable energy produced from cow manure. Dairy, making the world a greener place,” forgive me for saying this, but “one turd at a time.” Whatever it is.

Tristan Suellentrop: Talking about the dairy myths, is there any particular one that you find frustrating to hear because it gets repeated over and over to you?

Tara: I feel like there’s too many to count. It depends on the day of the week. For some reason right now, rBST has been hopping back up. I don’t know what is going on with that. Other weeks, it’s antibiotics, the conversation around antibiotics and milk.

You mentioned, Josh, bigger farms. There’s a lot of misconceptions about bigger farms. I think some weeks, it seems like there’s that big is bad, small is good mentality, and it’s not that simple, as we know. Just because you’re bigger doesn’t mean bad. It takes all types of farms. It’s like a cycle. It seems like every six months, it’s like, “That’s coming back up again. There must have been some article that got posted or something going on.”

So I think at the point I’m at now is my followers, a lot of times, will send posts to me. So then it helps me really keep a finger on the pulse. Because the algorithm feeds you what you want to see, but if other people are sending you what they’re seeing, it’s interesting to be like, “Wow, four people sent the exact same video. It must be blowing up online. It’s a good time to address it.” So that kind of helps me keep an eye on what is relevant to people right now and how can I kind of set the record straight.

Josh: So I think you’re unique, obviously, in the industry, because you have the scientific background, you’re not afraid to voice your opinion and defend what you know and believe to be true. But if I’m generalizing, that’s not the typical dairy farmer. If I think about comparing to a Midwestern dairy farmer, they’re not a loud voice and they don’t want to scream at the mountaintops. They do their job. And the information that is flooding the market tends to be people who do scream at the mountaintops. So what’s the industry going to do about that? I guess we just need more Taras.

Tara: No, it’s funny you say that. When I first started sharing, my husband was literally like, “I don’t understand what you’re going to share about. Yeah, I don’t get it. Why does anyone care about this?” And I was like, “Well, I’m going to share about recycling water,” and he was like, “Cool. So does every single person that we know. Every dairy farmer we know does the exact same thing.” There’s really not anything special about our dairy. Our dairy is a cookie-cutter New Mexico dairy, and it was getting past that, that that’s not what it’s about. I’m not promoting any one product. I am literally like, “Choose milk, and know you can feel good about whatever milk you choose on the shelf. No matter whether it’s conventional, organic, you can feel great about the milk you choose for your family.” That’s always been my stance.

It’s not a natural characteristic always of dairy farmers to want to get out there and share, but the way I see it moving forward, and I kind of convinced my husband about this along the way as well, is it is kind of a part of our job now. Consumers want to hear from farmers. They want farmers to be more transparent about their food system. We can have every co-op, every brand we want out there telling our story and sharing for us, but it does not come off as authentic. And I know people hate that. Another buzzword is authenticity. But it’s true, it just comes across more forced. And when people can actually hear from the farmer, there’s a really great Farm Bureau study that showed that 88% of Americans find farmers trustworthy sources. So when they hear it from a farmer, they believe it to their core. It’s harder to shake them on those beliefs if they’ve seen it firsthand, talked with a farmer.

I know that we have enough jobs out there already, but I think it is part of our job now is to make the consumer feel a part of their food system and feel more connected. The further removed you are from your food system, the more you fear it. The closer you are to it, the more comfortable you feel. When people are like, “Well, how can you know conventional’s good?” And I’m like, “Because I know exactly what ingredients are going in my cow’s diet, and I feel so good about that.” The more connected you are, I truly think that in some ways, the less afraid of it you are.

Josh: So Tara, when I think about sustainability and agriculture, two things immediately come to mind. The first is, again, the misinformation that is infuriating. The other part of it is just simply education. I was at a board meeting not that long ago and listening to professionals in the dairy industry talk about what’s being done. It was framed in a way of saying, “Look at how much we’ve improved on our sustainability study over the last year.” But when I heard about the improvements, it was reporting improvements. There was no change in practice.

To your point before, we’re already doing good things and we’re helping people understand the good things that the industry’s doing. But there also is the other element about what we can do better and what we can do differently going forward. I think if we want to spend a couple minutes just discussing about two or three things that you think the industry will have to do differently or better going forward in this area, I would love to hear it.

Tara: I think we’re in a phase right now that’s data collection. We know what we’re doing is good, but we have to have data to back it up. We’re going to get stricter and stricter requirements on this greenwashing, trying to cut back on greenwashing. So we need to be able to prove our data. So I do think that’s kind of the phase we’re in.

But moving forward, what all can dairy farmers do? I agree with you, there’s always room for improvement. I don’t think we’re ever done or ever going to stop. I think there will be growing pains along the way. One of the things my husband and I always talk about is we’re a branding state in New Mexico, so we by law have to brand. And I always tell my husband, “This is just a practice that is not going to be around long term. I really think it’ll be something that has to be phased out,” not because I don’t agree with it, but because consumers are demanding different things from us, and we have to deliver on that.

So I think there will be things moving forward like that, that the consumers dictate… They have more power than we think. I always compare it to thinking about my grandfather dairy farming. He never thought about what the consumer thought or how the consumer was going to impact his farm, because he didn’t have to. But that is the world we live in nowadays, that we do have to think about, “Okay, this practice, how do we defend this practice? How does it look from the outside of the industry if you haven’t grown up in ag? How do we convey the messaging behind it, whatever that practice is?” I mean, you could compare it to GMOs, you could compare it to rBST, even. That was a safe product, but it was consumer perception that forced us to stop using it.

So just all of those kind of tools in our toolbox. How do we convey the message to consumers? How do we get them to trust it, know it, understand it enough that they’ll buy that product? And if they won’t buy that product even after we’ve done all that, is it time for us to face something out and move on? Because I think the black eye that some things give us is worse than the benefits of them.

Josh: When you talk about people that are green-focused, focused on our future, it almost feels like we have this opponent kind of view. And I really think that the average dairyman or woman is actually very much a teammate in that area. What I mean by that and what I’ve always enjoyed about the agricultural industry, and I think there’s a lot of other industries that could be commended in that same area, is this idea of finding an economically viable way of accomplishing a greener or less of a carbon footprint, just improving the overall business. I feel like if I think about all the practices over the years, again, as you mentioned, food waste being fed to the animals and stuff like that, that was a normal practice on our farm. And there’s a lot of things we can learn from the agricultural space and that we can learn from how the dairy industry works that can be improved beyond just the farm.

I’m rambling a bit in that area, but I just really feel like we need, as an industry, to continue to really educate people on all of the great things that are being done, because those can be case studies to go into other industries and other areas that will have significantly more of an impact than challenging whether or not a large dairy operation exists, in my view.

Tara: Yeah, so that’s interesting that you touched on that. If food waste was a country, it would be the third highest emitter of greenhouse gas emissions. And when people hear that statistic, it really shocks them, but it’s like you can make a difference right in your own home. And more food waste happens in your home than you realize. A lot of people like to look to restaurants and to hotels and venues, and yes, we need to address that too, but a lot of food waste happens right in the home. We waste one-third… It’s about 40% of our food in this country. Let’s cut back on that before we start cutting out nutrient-dense foods. That is a huge piece. But until consumers know that, it’s really difficult.

And then on the flip side of that, a really interesting study I just learned about is all of those byproducts, all that food waste and all the byproducts that cattle consume, if we composted that instead, which is best case scenario, if we’re being honest, chances are it’s not going to get composted, but we’ll roll with it, you would increase emissions by five times. If it went to a landfill, which is probably what’s going to happen, the most likely case scenario, it would increase emissions by 49 times. So you’re talking about cattle emissions, but if you’re, again, removing them, what are those impacts? So how are cattle helping us? In this system we’ve created with food waste and byproducts, cattle are helping us and they’re turning a food and a nutrient source that we can’t consume into a nutrient-dense food. There needs to be a little bit more credit on that side of things for animal agriculture.

T3: Tara, my question would be when we talk about greenhouse gases and carbon emissions on the dairy farm, a lot of it relates to manure. How much is carbon emissions reduced on a dairy farm that has a methane digester and then maybe has a gas plant on top of that? What’s the scale of reduction?

Tara: That’s such a good question. I don’t think I have exact numbers for you on that. I wish I did. I’m going to go try to find those now. I’ve never seen that. But yeah, I think that the key there is also looking at technology like that about how it makes the most sense for your farm.

I think digesters are amazing and do a really great job, but I don’t think they’re always the only solution. There’s a lot of steps along the way. You can do step one to reduce this much, step two to reduce… There’s other options along the way than just committing to a million dollar digester project right off the bat. But it is really cool. And I think in states like California where there’s a lot of tax incentives, there is a lot of opportunity there to reduce methane. It’s a really great PR conversation starter and it has some really great numbers.

I was following a dairy farmer in California who had a methane digester, and one of the things he was able to do was say, “Our digester powers X amount of homes. It’s the same as removing X amount of cars off the road.” You can relate it back to ways that people understand and things they understand. It sticks in their mind better.

So I’m sorry I don’t have an answer for you on that. I’ll have to look into it.

T3: Well, if you find the answer, let me know. I’m very curious.

Tara: Okay, I will.

Tristan: If consumers in the U.S. were going to learn one thing about agriculture, what would you want them to understand?

Tara: This is always my most asked question. I always say it’s not what I want them to learn. I would rather have them go find a farmer to follow online or someone local to them and ask them your questions. When you have questions, ask them. Find a farmer. And I just feel like in this day and age where we all have this free app where we can connect with people across the world, I always default to social media, but it doesn’t have to be social media. It can be somebody local you know, if you know of a farmer, and ask them your questions. Get it from the source. I think that so many consumers have questions across the board, that if they can just go ask those questions, that’s the best place to start.

Josh: What’s the lowest hanging fruit to help the industry not only improve, but help educate the consumer, in your mind?

Tara: I think we have to reach outside of ag. To me, that’s a low-hanging fruit. We have an ag echo chamber where we talk amongst ourselves. We think certain things are a bigger deal than they are, and then other things that we don’t even realize are happening, are happening, and we’re missing the mark. So I think we’ve really got to keep our finger on the pulse of what is happening outside of ag.

Right now, I feel like you can’t get on TikTok without seeing things about seed oils. In my mind, I’m like, “How can we jump on this as an industry and be like, ‘Dairy, no seed oils.'” That’s a leg up for us. We’re a single ingredient product. Keeping our finger on that of what are people talking about in the food space, what are their concerns. Just being able to stop caring as much about inside of ag and start caring more about outside of ag, and I think by default, we’ll end up educating them. We’ll end up having better conversations with them.

We actually covered this topic a little bit on Discover Ag podcast about Amazon having trucks that are powered by cow manure. And I’m like, “This is such a missed opportunity to partner with Amazon.” And I mean, we were rolling off the jokes about A-moo-zon, and all the ways this could have been clever and funny. And that, I was like, “We should have teamed up.” I don’t know if Amazon would’ve wanted to team up with dairy farmers, but I’d like to think maybe it would’ve been good PR for them. And I said, “This Amazon truck is powered by cow manure. How do we make that partnership?” Because that has a really cool implication, long-term, positive reinforcement that no one expects to see an Amazon truck drive by that’s delivering your packages that says, “Powered by cows.” I mean, I think about a really cool Holstein spotted truck with the Amazon logo. Lots of opportunities there. So it is about who do we need to talk to, how do we collaborate with them and get them to say, “Let your messaging and our messaging combine forces and really propel this forward.”

T3: Absolutely. Tristan, dad, Josh, any more questions for Tara? Tara, do you have any questions for us?

Tara: No, but I appreciate you guys having me on. We were all over the place. I loved it. We had really great conversation, and I feel like you guys… You challenged me on getting all my facts, so I loved it.

T3: Well, we really appreciate you joining us today. Thank you so very much. This is a topic that’s so important to everybody in our industry. And what you’ve been doing in social media and your participation on the DMI board, we need more people like you being involved in that kind of things, because you’re absolutely right, the dairy industry has a marketing problem, and the more that all of us can get out and be talking about all the great positive things that we’re doing in dairy, the better. So thank you very much.

Tara: Awesome.

T3: And thanks for joining us today.

Tara: Thanks for having me on.

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You don’t need technical analysis to tell you that dairy prices are low right now. But stocks are still high, which suggests demand is weak.

The questions are: What gives? And when?

In this episode of The Milk Check, we talk through the feeling that our current bearishness points to a strong price rebound later in 2022 or early 2023. But not before Trading Strategy Director Jacob Menge takes us through technical charts on dairy products and macroeconomic indicators like copper and the dollar index.

In the end, Jake suggests that a “max pain” moment would be necessary to kick off a violent upward price swing, and the team talks through what “max pain” might look like for different products.

Jake: I’m going to start just with one thing. For those of you that were on the call last Friday with Alan, that ITR economics presentation, we actually had talked about this exact graph, the consumer loans and how it’s a pretty eye popping number. He basically said it’s nothing. It’s really irrelevant. It’s more or less on trend, and I agree completely. That’s what we had been saying for months now, that this is showing up in a lot of newspapers, ignore it. The one thing I do have to add that I’ve actually learned in the past couple months, just talking around, that there is something to pay attention to on the consumer loan side, that is just not in this graph at all, and I had no idea about, frankly. It is buy now, pay later. Buy now, pay later was a 2 billion market in 2019. Anybody want to guess what it was last year? Any brave soul going to stick a number out?

Joe: 5 billion.

Don: 50.

T3: 30. 30 billion, isn’t it…?

Jake: Ted’s closest. Ted’s closest. It’s like 25. Okay, so we went about 10 x on the buy now pay later market, and it’s still going up. And here’s the rub. Of all buy now pay later users, about 10% have a credit card, the other 90% don’t. And that tells you they probably have such poor credit, they can’t even access the formal credit lending market with protections on it. And so, this is the exact kind of thing that preceded 08, where they basically had not enough checks and balances on a certain credit lending market, and eventually, it got overworked. And you know the rest of the story. So that’s the kind of thing to pay attention to. There are things in the background that are kind of sketchy. There’s a million apps that you can do buy now pay later on literally anything now. So it’s kind of interesting.

Now, it’s 25 billion. You look at total revolving credit here, which is 900 to a trillion. We’re not talking a huge percent, just call it two to 3%. Okay? Not huge, but still, it could be a domino, that starts some ugliness. Because the valuation of these buy now pay later companies is massive. The regulations around it are basically nothing. It does not show up on credit reports. So literally, you could have $2,000 a month in buy now pay later and go apply for a home loan or go apply for a credit card, and everyone pulling your credit report has no idea that you have these other bills outstanding. So that’s the kind of thing that, even though officially credit cards don’t look risky right now, how much else is tied up here? This is not the big one or anything to me, but it’s just something that I thought was kind of interesting and kind of indicative of the economy as a whole, that people are starting to really ramp up use of products like that. Over to the fun stuff here.

Going to start with cheese. We talked about this. We haven’t done one of these charting meetings in a while, but we talked about this buck 93 level, which I think, in Class III, was… What was it? Like 1980? We were right on that line, and that has been a sticky, sticky support or resistance line for a long time. And we cruised right through it. There’s a little bit of hesitation, but we are firmly below that now, and there’s just not a ton of support anywhere up until like a buck 80, I would say. So something to look at there, but this is a pretty notable change from the last time we had this meeting. Butter is funny. We’re on a hundred week moving average, and it’s really liked staying above that hundred week moving average. So that’s kind of bullish. The bearish thing to me, and this is the thing that we talked about last time, absolutely no volume here, none, between this $2.30 and $2 level, you really $2.10, call it.

You get one big player willing to throw some volume at this. I just don’t see any way it doesn’t continue down to at least 2.10, but it’s going to take that player. In the meantime, while we’re just trading sideways, this is probably bullish. In a kind of no pressure market, I would lean towards the upside of because of the moving averages there. And we’re oversold on relative strength and stuff like that. Hopping over to whey. Whey’s just cruised through this area of no volume. It just didn’t even stop for a breath, and now, we are at a point of a lot of volume, that 35, 36 level. It really kind of sticks out historically. We can scroll back, and the further we scroll back, we just get more and more volume trading around that 35 cent level. So I’m kind of thinking we’re there on whey, would be my 2 cents.

Nonfat? Not the same, actually. We stopped for not even a day at 1.25, which I thought we would at least pause there, because we paused there on the way up. But we didn’t. I could see it maybe retesting this, but I also could see it continuing down to 1.10. That’s the only technical indicator I could even point to right now, because everything else is just blown out, saying “sell, sell, sell.” But as far as some kind of a stopping point, yeah, 1.10 technically is it. Could it happen before then? Who knows? Sure. But I’m grasping at straws. If I had to point to some technical, that’s what I’m looking at, 1.10 or 1.25 as kind of your range, anything on these charts. Head on over here to our other charts. What is kind of interesting is our spot versus our calculated Class III.

So this basically takes all of our components, our butter, our block, and our barrel cheese, to calculate an implied Class III price, and then, it looks at the Class III futures. This is a long-term chart. This goes all the way back to 2019 back here. That’s actually 2018. We’ve been in this range though for a long time, for a solid two years now. I would be a little surprised if we break out of this range anytime soon, but what’s notable, in literally a one week period, we went from the upper end of the range to the very lower end of the range. So this thing’s been kind of volatile lately. The only reason I’m bringing this up is something probably has to change on either the auction or the futures, where we’ve either got to come off a little bit on these futures or the auction has to firm up, which could be in the form of barrels catching a bid, which we saw today, and blocks just stopping. But that was kind of notable.

But reverse barrel spread also pull up just for some perspective, hanging out at the upper end. This was a heck of a head fake, when we saw it pull back to the middle of that range. I, and I think a lot of others, probably would’ve bet, “okay, we’re probably going to go back to more middle range area around 15 cents.” Nope, right back up to 34 cents area and hanging out there, so keeping an eye on that. Going to talk about our non-fat carries. I think it’s amazing how volatile it was. We’re officially, I would say, in a carry. Again, not great, but holy smokes, what a dip there. That was just an insane two month period, really three, from June to the end of August. That was an impressive dip. I don’t know the last time we ever got there. I would have to go back way more on the chart.

So it would’ve been 2014. This was a violent, violent move on a carry, so worth paying attention to that. Finally, just for you, Josh, here, we got our whey non-fat ratio that we’ve been paying attention to. Nothing to note. Hanging right around that same level, implying probably still want to use non-fat. I would expect, before this is all over, just guessing at this point, that, if nonfat were to really collapse, again, I just don’t see whey continuing to move lower. That would actually pull it quickly back into the range. That is what I would expect, to quickly come back into the range, so worth paying attention to that. Really not much to say on eggs. Corn and soybeans both looking the exact same at those kind of lofty levels. We’re in the mid sixes on corn, really upper sixes on corn. Beans, we’re in the, I think, 15, yeah, 15, 25. Not much to say. Nothing weird going on with the correlations. The correlations on this broke down, as I said, maybe three, four months ago. So not much to say there.

T3: So while dairy’s bearish, the grains are showing stability?

Ted Jr: Can you pull up that Class III corn oil screen again?

Jake: Corn’s been outperforming oil and Class III for a little bit now, really since July. Oil and Class III have been moving together though nicely.

Ted Jr: Isn’t that amazing how close that is?

Jake: Yes, but as the numbers show, on a long enough timeline, there is just not correlation. They correlate in short periods, but it’s not like there’s any correlation you can depend on in the long term. Anything else on ags? Otherwise, I really didn’t have anything too much. I guess I will show copper and the dollar index. Copper is a classic economic indicator. That’s like the go-to that a lot of people always look at. I’ve never looked too close at it, but it, back in June, was kind of in panic mode. It retested this support level a number of times as resistance level, and then, just last month, really a couple weeks ago, had a really big move higher. And it actually went above its hundred week moving average. So somebody’s buying a lot of copper, which I don’t know what’s going on there.

I’m not a metals guy, but it peaked my attention. Because that’s economically pretty good, a good sign actually. And then, yeah, the dollar index is the one last thing I’ll show here. It seems like we finally found a bottom on this move lower. I thought maybe 1.04 was kind of our bottom. It kept going even lower, but there’s a lot of things, like volume coming into the dollar, stuff like that, that is making me now think this is the bottom, but I was wrong a few months ago. Could be wrong now. So we’ll keep an eye on it, but I think that the worst of this fall is probably over. What else? Any requests?

Don: Lumber, please.

Jake: Classic. It’s a disaster, I think. Oh, it popped. Had a move higher. I have no idea what caused that. Now, I need to go look.

Don: That would be correlated with copper, right? If you think of expected building starts maybe. I don’t know.

Jake: But I thought starts were poor.

Joe: Yeah, housing starts have been down.

Don: I know, but expectations of three to six months out, right?

Jake: Hey, I’m with you. What else? Any others?

Diego: Mexican peso?

Jake: Yeah, that’s right here.

T3: That’s been pretty impressive that the peso has been strong relative to the dollar over the last year.

Diego: When was it the last time it was this strong, Jake?

Jake: Just before the pandemic.

Diego: Okay.

T3: Do we have any good measurement regarding China, whether it’s economic activity or even just the renminbi?

Jake: Yeah, we can do the currency. I can put it up, but I will really caution against reading into it. It is such a managed currency relationship is the way I’d put it.

Ted Jr: If they’re trying to manage it, they’re sure not doing much of a job.

Jake: Well, that’s the thing. Sometimes they want it up. Sometimes they actually do want it down, as weird as that is. They have an agenda and they tend to be pretty effective at implementing it.

T3: I wonder if it would make more sense to measure the New Zealand dollar or the Australian dollar versus the US dollar, since that would be an indication.

Jake: Yeah, here, let me pull this up. So these are called risk on pairs. That’s typically what people look at when they’re looking to add risk to their portfolio, and they’ve been flat. The market is not particularly keen on risk, but they’re not shedding it either.

T3: Okay.

Josh: I think that we’re kind of done with the main discussion, but is anybody else starting to get the vibe, that that whole bearish train’s really slowing down and about to start shifting the other way? Here’s what I’ll cue in on, from the demand side, people aren’t talking about it getting worse. Now Jake’s showing some indicators, like some just general consumer spending type indicators that aren’t as gloomy, just a simple thing way, like whey. If whey does bottom out, I’ve said it, now Jake said it, from a totally different standpoint, and maybe it trades through that, that’s an early sign. Talking about China starting to get stimuli, but it really feels like this thing could turn a lot. Well, I think violent, we’re all agreeing that, when it turns, it could violently turn, but I’m wondering if it’s going to turn a little faster than we even think.

Jake: I still think you need what is typically in the equity space referred to as a max pain event, where you just cause a lot of pain. I think us having a violent move is actually predicated on a max pain moment, where you have people literally saying, “I can’t get any money for my Class III. I can’t get any money for a Class IV.” It’s just everything looks bleak, and then, you turn and rock it higher. I don’t think we felt that yet. That’s my 2 cents.

Josh: Is there any scenario where cheese gets shocked and just plummets? Because to me, if cheese were to plummet, that stimulates the biggest demand user. I do think people will buy more cheese domestically. That same thing would happen in Europe. Is there any possibility that that happens in your guys’ mind? Like a 50 cent cheese drop, it just boom…?

T3: Well, frankly, if blocks drop to where barrels are right now, in the $1.50s, you’re in a max pain place.

Brianne: Yeah. I think if we missed out on some export deals, because Europe’s been more aggressive the last few months. And domestically, we start making… Actually, we finally start filling up warehouses, then yes, I think it could happen.

Josh: If you get cheese and adjusted for inflation, let’s go back to pre-inflation days, you get cheese that drops into the lower somewhere at like the 1.25 mark globally, now maybe you adjust that to 1.50 today. I’m not smart enough to do this on the fly. Then all of a sudden, I think you stimulate a lot of demand growth. You put Europe in the US consumption back in recovery mode, you slow milk production even further, quicker. All of it lines up to a quick recovery.

T3: The one thing I’ll say, and this is kind of similar to what I was pushing Gus on, that max pain event, you can’t just hear dairy farmers talking about how bad it is. You actually have to see some go out of business. That has to happen first.

Josh: Does it though, if we drop low enough that we stimulate a bunch of consumption again, at the same time that Europe reacts before us? Could we just continue our milk production growth on this 1% and just skip right through it, because the equity was there? That’s kind of where my head’s going is, can you have a situation right now where it happens so fast you get a drop, Europe adjusts, New Zealand adjusts, demand recovers, and we just skim right through it, from milk production standpoint?

T3: If you argue that the max pain event was what China just went through, perhaps.

Josh: Each conversation over the past month, I’ve become a little bit more bullish to what’s coming. Is it that possible that we don’t have a production response here? It’s purely demand recovery, globally.

Jake: So Josh, I guess I have one question for you. Is the drop from $1.35 to $1.20 on nonfat, is that this really painful drop?

Josh: No, I don’t think so. I think we got to go to a dollar, which I think adjusted for inflation is more like $0.85. And then, I think that, at a dollar, and we stay there for a minute, I think we stimulate demand in Asia. I do.

Jake: I am not making the argument that we can’t just basically be done dropping and go higher from here. I’m just saying, for a really violent move higher, I think you also need a move lower, where people are kind of panicky. And that, we have not had in my…

T3: Where I think you and I are in agreement, Josh, is I think we’re at a place in both Class III and Class IV, where we’re loading a slingshot. The lower we go now, from this point on, the higher we’re going to go later in the year. We are loading a slingshot right now. That, I agree with.

Jake: I don’t want to get into the theory of it. Max pain is actually a theory related to options, and it goes, once you basically go beyond the protection level and you can look at options, open interest, that’s when you achieve max pain. And so, for non-fat, you can see puts are basically owned at $1.20 and $1.22 a little bit. Almost nothing is owned for the rest of the year, below $1.20 though. If you get down to $1.10, literally not a single person owns a put out… Okay? A single person owns a put in May and June. I shouldn’t say not a single.

There are two puts, two puts that are owned at $1.10. You go below there, people are going to panic. Truly, that will be panic. No one is covered. Class III, lots of puts are owned at $17 a ton, 500 a month plus, at 17 bucks. If we were to really quickly charge to 16, people panic. So you kind of have numbers in the back of your mind. I would say we’re pretty much there on nonfat. You get to $1.15, no one’s got coverage out there. So those are the numbers that I would look at for when the panic sets in.

T3: All right, any more thoughts? Questions? Cool. Great conversation, guys.

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The USDA’s milk production report for December surprised us and sparked some interesting discussion in a recent mass balance and charting meeting. We thought it made sense to pull back the curtain and share some of that discussion on the podcast.

What does the USDA revision of cow numbers tell us? Should we worry about falling Texas cow numbers with cheese plants coming online this year?

Director of Global Strategy Don Street talks through his expectations for Q1 milk production in the wake of recent numbers, which leads to some back-and-forth about the adverse economics facing producers now.

Don: All right. Do you want to get rolling?

T3: Yeah, let’s go ahead and get rolling.

Don: Okay. I’ve struggled to come up with a title. I finally settled on, Once You Count the Cows Before the Barn Door is Opened, which I realize doesn’t make any sense, because if you’re Nelson Freya, the cows are always in the barn. But USDA is having some difficulties on cows. So, November production was revised lower by three-tenths of a percent. And to do that, USDA reduced cow numbers by 9000 head, kind of spread over a whole bunch of states.

Nobody more than 2000 down a couple, or even a 1000 or 2000 up. And milk per cow was down 0.2%. So, given where margins are, not much excitement on pushing cows to really produce more milk. December, production was reported as up 0.9. Again, this is 24 states. I was at 1.7. So clearly, an overshoot because I was two-tenths of a percent off on number of cows at the end of the day. And then about again, a half percent off on milk per cow.

So, even though December of ’21 was weaker on milk production, it didn’t translate into a bump in December. The other interesting thing to note is that USDA dropped the herd 5000 head in Texas in December. And we continue, well, we, me, continue to think that Texas cow numbers have to go up with panhandle cheese coming online. But there again, counting cows is more of an art than a science, apparently.

All of this leads to thinking the milk supply will be more limited going into ’23. So, we’re at the end of January tomorrow. We’ll have January milk numbers in three weeks after that. But my projections now, down to 1.7. I think at one time, I even threw out the number it could be up 2.5 in January. That just simply isn’t going to happen with the downward pressure on milk per cow. Stated differently, the lack of growth in milk per cow.

Q1 2023, I’m now at up 1.1%. I think originally when we first started to look at this, I was at just over two. So, this is much less surplus milk in Q1 than I was expecting. And the next step from that is looking at Q2, not a lot of change. I think we’re going to be stuck for some months in about 1% overall growth in milk production, probably for the first-half of the year. January continuing to be the exception because it was down so heavily.

There will be a little bit of a bounce just from the math of that reality. If you assume, and this is where we ended 2022, 24 states, 8,918,000 cows, and just hold that steady for the whole year. You can see in January we’re up a half percent less than February. And then we’re just kind of even with the prior year, a tenth percent up down a little bit, up barely. So, without more cows coming into the system, all the growth after February is going to be dependent on milk per cow. And we already know that’s pretty minimal.

So, earlier this month, because of the delay in Christmas, we did talk about that you could expect 100,000 cows added to the herd for the two plants that are coming online in Q1 and Q2. If you actually had a 100,000 cows coming in, then your growth in number of cows would contribute much more significantly to overall milk production growth. I think at best, this is probably half of this number. So, I think even with that expansion, with depressed margins, non-aggressive feeding of cows, we’re going to be in a milk production environment where we’re kind of 1% up.

Just to review quickly, the plants that are coming online, panhandle cheese Q2, Agropur was supposed to come online in Wisconsin in Q1. I have not double-checked that. But that’s where you get 98,000 more cows. Quick word on components. This is unchanged from early January because of the USDA reporting cycle. So, nothing new here. But just that genetically butter fat is really getting the push. Nonfat solids less so. But protein somewhere in between the two.

So, I continue to be amused, if nothing else, by the fact that lactose content in milk, it continues to decline. When we go to the classes, I don’t think there’s any real surprises here. We’re updated for 11 months of data in ’22. Class I continues to shrink 2.4% for the year. I still think 2% annual declines is what we’re going to have until we don’t. Maybe a little more, maybe a little less. In the soft products’ category of Class II, I don’t think any real change here.

Cottage cheese down a little, sour cream up a little. Hard ice cream is maybe the surprise. It started the year down almost 10% on production, which I’m assuming is a reflection of demand and orders from stores, and it ends the year down only 1%. That is a real victory in the ice cream space. Class III, total cheese continues to be up. November was up one six, one seven for the year-to-date. I think the biggest change we’re seeing is that American types are becoming more of the growth piece of cheese, and Italian types are not as much of the growth.

They’re still ahead year-to-date, but slowing a bit in their growth rate. Butter was finally up in November. I’d been asking where the heck is all the butter? And it showed up in November. And I’m going to guess that we’ll see strong production in December when those results are published the first week of March. I wanted to try to look at a couple of different things, exports and stocks. So, when you look at exports, cheese exports were pretty healthy from a ’22 perspective over ’21, up about 12% year-to-date as well as in the month. Butter fat up strongly year-to-date.

I don’t really understand that given so much of the year that we spent over $3 a pound, and clearly, the most expensive butter in the world. So, I’m assuming that means some of our good co-op friends sold under market, which is typically what happens. The big jump in November was shipments to Canada. So, that must have been holiday demand in the short fat market in Canada, given the milk production scheme that they run there.

And nonfat and skim, down year-to-date, down a little bit in November, which without Mexico, this number would’ve been down a lot. But Mexico’s been very strong to offset weakness in Southeast Asia and China. And then finally, to look at stocks. So, cheese production’s up, exports are up, stocks are unchanged. That can only mean that the domestic consumption disappearance side of the market is doing pretty well. Butter fat production is down. Exports are up, and stocks are still up. But pricing seems to follow its own path relative to butter fat.

And nonfat, we had production down, exports down, stocks up, which to me, just continues to point to the very lethargic domestic market demand for dried protein at the 35, 36% level. So, I think all these numbers make sense in their own way for each of these three broad categories. And probably means we’ll see nonfat stocks continue to creep up for the time being. That’s the last slide. Any questions?

T3: Don, these stocks are end of December stocks?

Don: They would be for cheese and butter fat. They’re end of November for nonfat.

T3: Okay.

Joe: Don, regarding your comment on exports, the butter exports, you hit the nail on the head with Canada. That’s been the largest export customer pretty much all of last year, and looks to be a pretty large customer this year as well because they are just net short fat in general. For the other side of the picture, there was a lot of deals that were made in late of 2021 before the market ran away for 2022 shipments that had to be honored that were sold well under where it should have been sold at.

Don: And probably not really hedging the raw material values on that either, I’m guessing. We don’t know. You may know, but.

Joe: We’re being recorded.

Don: Oh, absolutely.

Josh: Just to make sure I understand, if it’s comparables, or what’s driving it. So, we had this milk production that was significantly under expectations for December, right. And then we’re expecting a pretty healthy bounce back to kind of the previous predictions, but just tempered a little bit. Is that more of comparable driven? Was there an anomaly last December? Or, do we think it’s the cows that just were yanked out of the herd sort of suddenly? Why is the trend kind of coming down and then moving back up again as opposed to that kind of steady climb and then steady decline of year-to-year growth?

Don: Year ago comparables were pretty erratic in terms of milk per cow. The cow numbers at a year ago were growing. So, it is milk per cow that is jumping around. And I think these are national numbers. So, the regional factors feeding into this are a bit all over the place. Base programs, margins, weather, potentially in certain parts of the country, although I can’t pinpoint that from memory. I think it’s more base programs, and margin, and feeding management by the producers.

Josh: If we think about the vulnerability in our predictions right now, like the California rain situation, could that have any influence do we think on our January predictions? And then number two, is there any concerns that feeding practices are starting to shift a little bit, and that that milk per cow growth rate we may have actually found a short-term high, and we might start to come off that?

Don: I think California was pretty wet in December, or flooded, or lots of rainfall. And any mud impact was baked into those numbers. So, California was actually up a little bit in milk per cow in December. So, will there be a negative impact in January? Have to be cumulative of trudging in mud for 60 days instead of 30, but I’m going to say maybe not. It will be flat on cow numbers in California. I don’t think we’ll see a big surprise out of California.

Don: So, where does all this leave us? If I can try to sum this up, we should be up on powder production. I would say low 1, 2, 3%. Where in a normal world, I think you could argue for a bottom on nonfat pricing, and maybe a bounce back, is all going to be limited by texture production of milk and dried solids in Europe. That’s really going to drive the pricing. And I think it’s going to do more to drive our pricing than the production side of the equation would suggest.

Gus: Don, and I know that the last time I challenged you, Don, I was horribly wrong. So, I’m getting that out there right now. But I’m going to challenge you again, that I really struggle to believe, is this model, if I’m looking at it correctly, showing that you suspect a 1.6% average increase over the course of the next few months?

Don: No. January I think will be the peak of production in 2023. And at this point, I’m going to hang my hat on 1.7. But I think the full quarter is up about just over 1%. And I think Q2 is going to be up about 1%.

Gus: Are we expecting the milk price to go up dramatically to influence something of this? I’m thinking that 0.9 is the top until prices rebound.

T3: Gus, I think it has nothing to do with what’s going on with the current trend in milk production and everything to do with what it did last year, because it was dropping into January last year. So, you’re measuring against the biggest weakness in January, and then it starts to strengthen from there.

Don: This January play is nothing but a reaction to a pullback in January of ’22.

Gus: Okay.

Don: Okay?

Josh: We’re now predicting cow numbers still to grow some.

Don: I struggle with that, Josh, because I think there should be more cows.

Gus: Don, haven’t we had some pretty strong calling in the recent weeks that are published?

Don: One week we did. If you look at the 12-week average, it’s one or two-tenths of a percent up on slaughter. So, it is up.

T3: But 0.1 0.2% means basically flat.

Gus: Yeah, but-

Don: It’s not a lot.

Gus: But recently published, which is what, two weeks ago now? Am I right?

Don: One week. But that was a screw, I mean, that was just the jacking around of slaughterhouse schedules for New Year’s holiday causing that.

Gus: Okay.

Don: I think. I don’t think it’s anything more than that.

Gus: Believe me, if I were Greg right now, I know he would say milk is extremely long. And he doesn’t see any contraction yet. But if you talk to producers, they are really struggling. And they get extremely frustrated when you tell them that the market is bearish.

Don: I appreciate that. But it’s the age old question of everybody’s losing money, so who quits first? Well, typically, producers would wait for someone else to quit first. Right?

Gus: The only thing I would say, and I struggle here because the last time I went down this road, dad, I was wrong. So, but what dairymen are facing today is more adverse than what they’ve faced in almost a decade. Their breakeven price and the actual milk price has more disparity than what we’ve seen in quite some time. I don’t think that if we have… What we’ve seen over the last eight years or so is not the same as what we’re seeing right now, is my point.

We’re going to have a real hard time. And I know that dairymen might have some money in the coffers at the moment. So, that’s why I slow to make any stern forecast. But I do believe they’re going to lose a lot of money in the next few months, predicated on what they’re facing feed-wise and milk price-wise. And utility-wise, and all that good stuff.

T3: Gus, are you having any conversations with any of your producers right now about their plans to sell all their cows and get out of business?

Gus: Well, the producers usually don’t approach us first on those type of discussions, Ted. That’s discussions with their bank. I think there’s other producers who are clearly conveying that they’re going to lose a lot of money, and are scratching their head as to how to deal with it right now.

I would say if those conversations happen, we’re probably a couple months away from them. But I don’t think you’re going to see them increase first. I think you’re going to see them start to cut cows, and start to figure out other ways to get around this, and then deal with it down the road.

T3: I think one thing that’s important to notice is let’s assume milk production trend-wise is flat for the foreseeable future, which is more or less the way Don is modeling it. You’re going to see the numbers kind of go through the path that Don’s predicting, not because of what milk production is doing now, but because of what it’s measuring against last year. And so, it’s going to look like milk productions up, when in reality it was just down that much last year.

Gus: I see your point, Ted. And I agree with that. That’s plausible perspective that we need to consider as well.

T3: The second thing I’d say is once some dairy farmers start having the conversation about, “Okay, I’m going out of business,” it’s still going to be three to six months before they actually go out of business because they’re going to have to get in line to sell their cows.

Gus: Well, I’m not suggesting that, I mean, we probably will see a number of the weaker producers go out of business. But that’s not really what I’m getting at. I’m getting at just beef prices are still strong enough right now where if you’re struggling and you need some immediate revenue, you’re going to call. And I think we’ve already seen that trend start.

Again, I just think it’s a very plausible scenario over the next few months. Not necessarily are you going to see waves of bankruptcy, although I think you’ll see some. You’ll see even large producers say, “You know what? Looks like we’re going to lose this much more. Let’s get a little bit more revenue, and call a bit more aggressively this month,” or what have you. I think that’s just going to come into play in the near-term.

T3: I agree with that. I think it is too. But I think there’s going to be a lot of talking about how bad things are before we actually start seeing the numbers show milk production actually starting to go down because of it.

Gus: It’s just gotten to that point where a lot of dairymen are showing a lot of frustration for a lot of things.

T3: The flip side of it is, as we talk about these numbers, the thing that really strikes me is, right now, I think we’re still underestimating how bad demand is. Because when you talk about how long things are, and the numbers we’re seeing show up like this, and we’re revising them down, and yet, we’re still talking about how long milk is, that just tells me that demand is right now not good. And I think that’s the real issue we’ve got at the moment.

Don: Well, I was going to throw out to this. That I think Gus is onto something in that you really get heavy slaughter of cows, fewer cows in the herd. And you get into the second-half of the year, or even 12 months from now, and at a certain point, you’re going to get a rebound in Asian demand, which is principally protein, but okay, cheese as well. And you’re going to have an increasing demand corresponding with the shrinking production base. Then you’re going to get a real price response. And let’s just say it’s January 1, right, of 2024, something like that. You can see this starting to set itself up for that.

Gus: I agree, Don. I think what we’re looking at in probably underestimating is a little bit more aggressive downtrend in the near-term, but certainly, we have the wherewithal. I don’t want to act like our heifer supplies are abundant. But they’re better than they have been. And we could rebound relatively quickly in the second-half of the year.

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T3 and Ted Jr. got together to talk next year’s milk pricing, and they made pretty quick work of the topic. Both have bearish outlooks to start the year. After Q1, their predictions start to diverge.

How far down will milk prices go? Will they jump back up above $20 next year? When? How will the market respond to recession? The duo works through Class III and Class IV supply and demand to come up with some answers.

T3 expects macroeconomics to stifle demand, and Ted Jr. puts his faith in butter to maintain its position as a staple spread. They skim the surface of an exports discussion, with China in lockdown but looming. Fifteen minutes and a friendly wager later, they settle on a confident outlook for most of next year.

T3: Alright. So, Dad, you tend to be bullish, especially compared to me, but lately it seems to me that you've been a little bit more bearish than me. So since we're sitting here in the middle of November, what do you think markets are going to be like in 2023? What are your thoughts right now?

Ted Jr: Well, I think it's rather scary that I'm the bearish one right now and evidently you're not.

T3: I'm not saying that I'm not bearish. I'm just saying I'm not as bearish as you are.

Ted Jr: First of all, let's look at the overall marketplace. We've got production now on the upside in the US. Cow numbers are up. Production’s up over 1%. We're heading into a recession. I think that's generally an accepted dogma. But the international environment is also changing. The European production is starting to mosey up a little bit. And evidently, feed is moving out of the Ukraine and feed prices are not on an upward trajectory anymore. I'm not saying that the feed prices are going to go down. I guess, the point that I'm trying to make is that the dichotomy has ratcheted up to a little bit lower level.

So if we go back a couple of years, pulling numbers from the air, the lower level was probably Class III somewhere around $15. And today with the corn price doubling or more, I'm going to argue that the lower level is probably somewhere around $19 on the Class III. That translates to cheese prices around a $1.90 and it translates to for whey prices to be somewhat higher than they are now, which my suspicion is even though China's got their own ration economic problems, they're still going to need to feed pigs.

And then the butter market is going to be stronger than normal, but it's certainly not going to be $3. So that also would translate to a Class IV price somewhere in the $19 range. So look at where we are. We're up limit today and evidently people are buying cheese and I don't really get the feeling that cheese is all that short. I think filling the pipelines for Christmas is more than likely still the reason it's going up. But with butter and with cheese and other dairy products, when we get to Christmas time, as far as I can see, it's over. So I'm not arguing that the bottom is going to drop out and we're going to get down into the lower teens, but I'm arguing that the market is going to settle to what I consider a lower ratchet level in the $19 range. So that's the extent of my bearishness.

There's obviously other things that could happen. I mean, you have a war going on in Europe and maybe the feed price situation changes and maybe a lot of cows expire and so on.

T3: And actually I would agree with you. I think we'll be right about in there too. So, Dad, here's my question for you. I've got my Class III and Class IV calculator spreadsheet out. So what do you think the butter market's going to be in the first quarter?

Ted Jr: I'm going to say $2.

T3: What do you think the nonfat market will be?

Ted Jr: It's hard to say bucking a quarter $1.30 maybe, somewhere in the area.

T3: I'll put in $1.30. So if we have $2 butter in 1.30 non-fat, you're talking a Class IV price of $17.48. Let's go ahead and round it up to $17.50. Now in this case,

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Geoff Vanden Heuvel of Milk Producers Council and Sarina Sharp of Ag Business Solutions and Daily Dairy Report joins T3, Gus and Ted Jr. for a discussion on California water today and moving forward.

Geoff enlightens the group on localized production cost challenges and shares some anecdotes about farmers dealing with expensive feed. Sarina and Gus talk about regional challenges to expansion and the adverse economics limiting dairy in much of the eastern U.S. 

T3 sees cause for Class IV prices to stay high, and, after a lively conversation, the group shares a healthy laugh at Ted Jr.’s expense.

T3: Welcome everybody to the Milk Check. This month we've got two guests. Welcome Sarina Sharp with the Daily Dairy Report in Ag business and also Geoff Vanden Heuvel. Geoff, why don't you quickly introduce yourself?

Geoff Vanden Heuvel: Well, Ted, it's great to be here. I'm a faithful listener of the Milk Check, so it's fun to see you guys by the power of Zoom. I'm not sure if our listeners will see that. But I was a dairy farmer in Southern California for 39 years, and at 2018, urbanization took my dairy. I was very involved in water and milk pricing issues as part of the Milk Producer's Council, which is Dairy Farmer Trade Association board. And when I sold my cows in 2018, I was going to move to the Central Valley because I had kids and grandkids here. Given my experience in water policy, the Sustainable Groundwater Management Act had just been passed in California and was being implemented throughout the Central Valley. And Milk Producers Board asked me to be the dairy industry's guy on water supply, and the implementation of what we call SGMA, Sustainable Ground and Water Management Act.

So since 2018, mid-year, that's what I've been focusing a lot of my time on. That particular Act is designed to be implemented at the local level. So what that meant was I needed to identify where we had dairies in the Central Valley that were in what the state had designated as critically overdrafted basins. That turns out that's pretty much all of the Central Valley. It's critically overdrafted. There were dozens of new groundwater sustainability agencies that had been formed as a result of that law. They were all in the early stages of organization, and then gathering data, with a goal of putting plans together for how they were going to bring their area into basically balance or sustainability. So in the course of that I cover, we have dairies from south of Bakersfield all the way up to Stockton that are in overdrafted basins. That's about a little over 200 miles. So north to south, I spent a lot of time on the road. But that's what I do, is focus on water supply for the California Dairy Industry.

T3: Well thanks Geoff and welcome. Dad, I know you've got a question that you're burning to ask, so I'll let you go ahead and start it off.

Ted Jr: I've bet every time you open the papers these days you're seeing pictures, and hearing dissertations on how miserable the water supply is in California. Just yesterday I picked up the Sunday edition, and I had pictures of parched land, perfectly brown, not a bit of green on it, but the last number we have on milk production is up 2.5%. So how do we manage to have all these dire predictions of drought? And we've had predictions about drought for 50 years. And every time we hear it, the milk production in California goes up. Is this the year that all of a sudden we're going to have a drought that really counts? Let me pose that question to you as a matter of getting the ball rolling.

Geoff: I hope not. We would hope that we can manage our way through it. But it's real. If we don't get some rain and snow, and we don't have any surface water, I think we are going to begin to bite down on the water availability, particularly in the Southern San Joaquin. Because those water districts there now, the groundwater sustainability agencies that I've described to you,

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With August’s milk production report in mind, the trading team gathered for another monthly mass balance and charting meeting. This month, though, we were blessed by two special guests: Steve Spencer and Vuko Karov from Freshagenda.

Don kicked the meeting off by modeling domestic milk production and mass balance expectations for the rest of the year, with special focus on Q4. Then, we handed the reigns over to Steve and Vuko, who guided us through a workshopping version of their Dairy Trade Simulator (DTS).

The Freshagenda team tested some ‘What if?’ questions on their model and argued that market fundamentals suggest that we should see cheese futures over $2 soon. T3 countered with some points about difficult domestic freight and contractual obligations forcing cheese from high-growth areas.

Then, to shift perspective entirely, Jacob suggested that historic correlations driving market fundamentals could break, and that there may be reason to feel bullish Class IV and bearish Class III after all.

T3: Welcome back to The Milk Check. This month we return to out mass balance discussion with Don Street and the rest of the trading gang, and this time we have a couple of special guests: Steve Spencer and Vuko Karov from Freshagenda, an Australia-based supply chain and market analysis firm with some great data about how milk production and pricing may evolve in 2023. Welcome to this discussion, let’s get started.

Steve: Thank you.

Vuko: Thanks so much.

Steve: Thanks for having us in your meeting. We appreciate the opportunity to join the discussion, let's have some fun and see what it brings.

T3: That sounds great. So Don, why don't you go ahead and lead us off.

Don: All right, here we go. Balance update, August, 2022. So in spite of Ted being more accurate than I am on these projections and winning bourbon from me, I just want to say that if USDA would get the cow numbers right the first time, I'd be much more accurate. But June was revised downwards to where it was flat. I had actually had a negative 0.02 prediction, so I think that's reasonably close. And for Q2, which we finished down an average of 4/10 for a percent on milk. July finally goes positive. If that holds through the revision, when August is announced again, I was 2/10 of a percent over the 3/10 that was actually reported. Steve and Vuko, these are all 24 state numbers, not national numbers. I think I'm reasonably dialed in spite of the revisions, which brings us to August.

I'm, at this point, thinking we'll be up 1% on milk, but the bottom line is that the cow herd will, in the couple of months, be higher than prior year instead of lower than prior year. Instead of being 60 or 78,000 cows below a year ago in August, when we see the numbers, we're going to be 25 to 30,000 cows below a year ago. And in September, we're going to more or less be equal. And then we start to see whether this grows or not. We're going to have more cows than we did in the prior year, which will contribute to higher milk production numbers. I've tried to recast this a little bit to just show you the impact, because June, July, we're up 8/10, one full percent on milk per cow, but fewer cows is the offset.

In August, I think we'll be a little bit higher, mostly because of the poor performance of August '21. So I think we'll be up 1% on milk for August, but then I don't want to say that we're just going to continue to move higher but these changes in milk per cow are going to be 1.2, 1.3, maybe 1.4, but we're going to be something over 1%. And then you start to add more cows. And this is of whole certainty, unless we all of a sudden see a shrink in the herd that we don't anticipate because slaughter rates still seem to be lower, not higher. You're going to wind up with 1.4% more milk, maybe as much as 1.8 but somewhere in that range, but it'll be a marked difference than what we've experienced so far this year. Maybe just to take a look at components.

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With the T.C. Jacoby & Co. trading team in the office for quarterly strategy huddles, we decided to record a special Q&A discussion for this month’s podcast episode. Each trader had the opportunity to ask a question of another trader, in order to gain some insight into expectations for the rest of 2022.

Their discussions, with some questions sent in by customers and via LinkedIn, produced a discussion that spanned cheese pricing, international trade and tight butter markets — among a number of other topics.Yara is bullish nonfat, Diego and Don see potential for the U.S. to move in on some of Europe’s export business, and Jared doesn’t see where extra cream for butter churns east of the Rockies might come from.

T3: Welcome everybody to this month's podcast, The Milk Check from T.C. Jacoby and Company. This month, we're going to take a different approach to the podcast. Seated around the table are most of the traders in our company. We are having our quarterly strategic planning meetings and huddles. As we talk about what we think markets are doing at this time and what we think maybe they're going to do for the rest of the year. And the approach I thought we would take is have each trader ask a question of another trader at the table of what are they curious about going on in the market. Not necessarily in the products that they focus on, but in some of the other products that we trade in the company. So I thought I'd start off. And I have a question for Yara. Mexico is the largest milk powder export market for the United States. What do you expect nonfat, dry milk sales to Mexico to be like for the remainder of the year, do you think they're going to be strong or weak and why?

Yara: I think it's going to be a strong and the Mexican buyers is going to support and buy a more inverse in the second half of the year. Why? This is different reasons because all the milk that Mexico produced has been reduced because it has been reduced the production. Besides the deficit, We have the production milk in Mexico. So I think it's about 3% went down the production mill in Mexico, and the weather is so hot so the cow doesn't produce more milk. Besides Mexico has been making product for export like infant formula that's increase about 45% exportation to another countries. And one of the countries, it was United States. So that's just another thing.

And the other one is because Mexico has been producing products to export to another countries like whole milk powder, known federal milk, cream, butter, and they export to South America, and in Caribbean, in Asia also, the whole milk, they sell it. So the exportation has been increasing inclusive cheese because they has been exploring cheese too. So that's the main reason that I'm thinking that the Mexican customer are going to start buying more products the second half of the year.

T3: Are you telling us you're bullish, nonfat, dry milk for the remainder of the year?

Yara: Well, you know what? The basic consumer guys increase all the costs because to fill in the cows, all the input, like a corn and soybean has been increasing. So the inflation has been increasing too between 10 to 15% everything. So I think the price is going to be...

T3: You think things are going to stay strong.

Yara: Yeah, I think it's going to stay strong.

T3: That's awesome. Good deal, Josh. I'm going to go to you next. You have a question for someone.

Josh: Oh man. I want to break the rules already though. Like, I don't like the one person question, but I'm going to start. I think this actually kind of goes to both Bri and Don, and this didn't come for me specifically, but I think it was a really good question. Someone responded on LinkedIn with this one. The question specifically was over the past couple years, we've seen a lot of additional cheese production capacity in the US. Additionally, we're expecting more capacity to come online over the next year or two,

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With the T.C. Jacoby & Co. trading team in the office for quarterly strategy huddles, we decided to record a special Q&A discussion for this month’s podcast episode. Each trader had the opportunity to ask a question of another trader, in order to gain some insight into expectations for the rest of 2022.

Their discussions, with some questions sent in by customers and via LinkedIn, produced a discussion that spanned cheese pricing, international trade and tight butter markets — among a number of other topics.Yara is bullish nonfat; Diego and Don see potential for the U.S. to move in on some of Europe’s export business; and Jared doesn’t see where extra cream for butter churns east of the Rockies might come from.

T3: Welcome everybody to this month's podcast, The Milk Check from T.C. Jacoby and Company. This month, we're going to take a different approach to the podcast. Seated around the table are most of the traders in our company. We are having our quarterly strategic planning meetings and huddles. As we talk about what we think markets are doing at this time and what we think maybe they're going to do for the rest of the year. And the approach I thought we would take is have each trader ask a question of another trader at the table of what are they curious about going on in the market. Not necessarily in the products that they focus on, but in some of the other products that we trade in the company. So I thought I'd start off. And I have a question for Yara. Mexico is the largest milk powder export market for the United States. What do you expect nonfat, dry milk sales to Mexico to be like for the remainder of the year, do you think they're going to be strong or weak and why?

Yara Morales: I think it's going to be a strong and the Mexican buyers is going to support and buy a more inverse in the second half of the year. Why? This is different reasons because all the milk that Mexico produced has been reduced because it has been reduced the production. Besides the deficit, We have the production milk in Mexico. So I think it's about 3% went down the production mill in Mexico, and the weather is so hot so the cow doesn't produce more milk. Besides Mexico has been making product for export like infant formula that's increase about 45% exportation to another countries. And one of the countries, it was United States. So that's just another thing.

And the other one is because Mexico has been producing products to export to another countries like whole milk powder, known federal milk, cream, butter, and they export to South America, and in Caribbean, in Asia also, the whole milk, they sell it. So the exportation has been increasing inclusive cheese because they has been exploring cheese too. So that's the main reason that I'm thinking that the Mexican customer are going to start buying more products the second half of the year.

T3: Are you telling us you're bullish, nonfat, dry milk for the remainder of the year?

Yara: Well, you know what? The basic consumer guys increase all the costs because to fill in the cows, all the input, like a corn and soybean has been increasing. So the inflation has been increasing too between 10 to 15% everything. So I think the price is going to be...

T3: You think things are going to stay strong.

Yara: Yeah, I think it's going to stay strong.

T3: That's awesome. Good deal, Josh. I'm going to go to you next. You have a question for someone.

Josh White: Oh man. I want to break the rules already though. Like, I don't like the one person question, but I'm going to start. I think this actually kind of goes to both Bri and Don, and this didn't come for me specifically, but I think it was a really good question. Someone responded on LinkedIn with this one. The question specifically was over the past couple years, we've seen a lot of additional cheese production capacity in the US. Additionally, we're expecting more capacity to come online over the next year or two,

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A special guest joins this mostly macro-level episode of The Milk Check. Dr. Andrew Novakovic compares today’s inflation with U.S. inflation eras past, and the group examines evidence toward the unlikelihood of another Great Recession as well as downward pressure holding back a forceful economic rebound.

Both Ted Jr. and T3 still see some upside in dairy markets, Dr. Novakovic sees a continuation of the trend toward larger farms finding more success and T3 expects inflation to “pull back significantly.” To close out the podcast, Ted Jr. and Dr. Novakovic talk Federal Orders, “urgent marketing” and the challenges in removing or updating federal regulations and/or terms of trade.

T3: Hello and welcome, everybody, to the Milk Check podcast. This month, we have the pleasure of welcoming Dr. Andrew Novakovic, professor emeritus at the Dyson School at Cornell University, professor of dairy markets and policy. Andy, it's a pleasure for us to have you on our podcast this month. Thank you very much for joining us.

Dr. Andrew Novakovic: Yeah. It's always a pleasure to work with you guys, and I'm anxious to see where the conversation goes.

T3: So we also have, besides the usual suspects, my father and Anna, Josh White, and Jacob Menge from our trading team are joining us as well. So I'd like to start off this conversation this month, Andy, by asking you a question that's been on my mind since you and I were talking a couple of months ago, and you mentioned this almost as a passing comment, but it really piqued my interest. And it was this. We were talking about inflation and how inflation was probably going to affect our economy. And you mentioned that the inflation we're going through this time in 2022 is a lot more like the inflation of the 1940s and '50s than it is like the inflation of the 1970s and '80s. What did you mean by that? What's the difference? What are we experiencing right now?

Dr. Andrew Novakovic: So of course, inflation means that prices pretty much across the board are rising, so it's not a sector event. It's not we had a bad corn crop, and that's having an impact on beef. It's something broad. So what kind of things have that broad sweep of effect? And like so many thing in economics, there's a supply side and a demand side that could theoretically be at play. And a lot of times when we look at inflationary periods, they come from a certain amount of government overheating, fiscal policy that's relaxed where money is kept in consumer pockets, as opposed to going into government coffers.

So we reduce taxes, and people get to keep more in their pocketbook, or we spend money in a way that gains income for people. It might be through jobs, it might be through direct income subsidies or what have you. Those people go out and spend that money, and that heats up the economy.

The other inflationary route is supply side, which is leading to cost. And there was an element of the '70s that for sure does relate to what we see now, and that's energy. OPEC had been around for a while. Their obvious goal was to monopolize, to a certain degree, world oil markets. The first time they tried that, it didn't really work. But in the '70s, they started to get their act together. And those of us who lived through that time can remember just this catapulting of gasoline prices going from 20, 30 cents a gallon to over a dollar a gallon. You had to change all the pumps to put on an extra digit. That was pretty remarkable. And of course, energy is a big part of what's going on now.

But when we were talking, what struck me is that when you think of all the supply chain stuff that's occurring now, lot has to do with labor, but computer chips and resin availability for plastics, and just a variety of things that are impacting supply chain. That reminds me a little bit more of post world war disruptions that we saw in the late teens, early '20s. Late teens also was a pandemic period,

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On this remarkably bullish episode of The Milk Check, the Teds bring in T.C. Jacoby & Co’s fluid milk team to talk about the market from their perspective.

Gus Jacoby, president of fluid dairy ingredients and dairy support, leads the discussion with help from milk marketing manager Greg Scheer and fluid sales manager Jared Miklasz.

Discussion lingered on tightness in the market, which points to a Q4 where we are short on milk domestically and internationally. Ted Jr. suggests the market is underestimating its own upside potential after being spoiled by long milk for about ten years. Gus agrees, and T3 teases the topic of discussion for the podcast's 50th episode.

T3: Welcome to the Milk Check podcast. Today, we have our fluid group joining us. While my dad and I like to get on this podcast and just debate back and forth what we think markets are doing, picking out certain issues, it's Gus and Jared and Greg and Anna, who really are in the trenches, working with the dairy farmers in the different processors on the fluid side that we work with.

And we thought it would be a great idea to have them lead the discussion today. And so I'd like to welcome Greg Scheer, who leads our Milk team, Jared Miklasz, who leads our Cream and UF Milk team, and my brother, Gus, who runs our fluid group. And really just give us their analysis of what they're seeing in the market today. With that Gus, I'll just turn it over to you.

Gus: All right. Well, thank you, Teddy. We have a very interesting marketplace at this moment in time. A number of months now we've seen contraction, but with respect to milk production. But we've also seen some other areas, some manufactured liquids that have been pretty dynamic. And I guess, adverse for some of those folks who are looking for solids in one way, shape or form.

And then we have that dynamic of Class IV and Class III, where Class IV is hovering above Class III which presents some challenges as well as opportunities for folks within our industry. But just to start with, I think what we want to mention is that at this moment in time, we've all seen the most recent milk production report showing that April was down a percentage point in milk production. We had a year ago, nine and a half million cows in the US dairy herd.

And now we have 100,000 less cows in the US dairy herd. So that puts things in perspective for what we're dealing with and what we're looking at as we get out of this spring flush so to speak and into the second half of the year when folks, I think are a little bit more concerned about finding the solids they need to fill orders.

To begin with, I think the Eastern half of the country is tight milk. And in addition to tight milk, we also have a major cheese plant that has come online in Michigan that has soaked up a bunch of butter fat, and that presents a prospect for cream supplies as well.

And then you have the freight impact of traveling product throughout our country, whether it be farm milk and the impact on the producer there, whether it be manufactured liquids and the impact on folks trying to get solids from one part of the world to the other. I think there's a lot of good information we can get from our leadership team here. And I think the best place to start is with Greg in milk, and then we'll move into some other areas. Greg.

Greg Scheer: Thanks, Gus. Yeah. And like you said, milk production down 1%. If you would've told us that milk prices would be where they're at today and we'd have declining milk, you'd say you're crazy. But you have the high cost of feed, the high cost of inputs, limited heifer supply, all those factors. And in some regions, a quota system that has really limited our milk production.

Most years, we would see a long market. When we're getting into May and Memorial weekend, right around the corner into June, it's less long than we normally see at this time. You just have tightening milk market where milk is not ...

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On this two-part edition of The Milk Check, the Jacoby team lets listeners in on a monthly mass balance and charting meeting. The meeting splits neatly into two episodes, one led by Global Strategy Director Don Street and the other led by Head of Risk Management and Trading Strategy Jacob Menge.

In part one, we evaluated milk production data and predicted what Q2 will look like in terms of overall milk production and class allocation.

In part two, we zoom out to talk inflation, interest rates and the macroeconomic factors impacting dairy markets. Jacob makes a strong case that farmers should continue investing in increasing their capacity despite an increasing nominal interest rate before presenting a bird’s eye view of various commodities markets and interesting trends to note in dairy and beyond.

T3: Hi everybody. And welcome to the milk check. This month, we recorded our monthly mass balance and charting meeting. It is a monthly meeting that we hold internally where our whole trading team gets together. We look at the milk production and cold storage reports, and we look at some of the technical charts and we share our opinions about what we think this data is telling us and what we think this data is predicting about what'll happen in the future.

We had some really interesting discussions this month. I think you'll really enjoy eavesdropping into these discussions. It was a long meeting. It was an hour long, but it was a really good meeting. So what we've decided to do this month is split it into two parts. And the second part is what we call our charting meeting led by Jacob Menge, our risk manager and trading strategy director, who talked about some of the technical charts and what they're telling us about our dairy markets and even other markets such as the interest rate markets. It was a great discussion, I hope you enjoy it. Thanks for listening in.

Jacob: So I'm going to start kind of outside of dairy and move rapidly into dairy here, but there's kind of a common theme at ADPI in before. And a lot of it was surrounding the dairy farmer and kind of the tough headwinds they're facing here. You've got rising interest rates, you've got rising input costs. And at first glance, you're going to say, "Hey, if I'm a dairy farmer that maybe is getting close to retirement, maybe now is the time to just get out." And again, at first glance that passes the sniff test. The problem is there's interest rates and then there's real interest rates. And while interest rates have been rising, which is our little black line right here as has inflation, which is our red line, real interest rates have been dropping. And I'll zoom back out a little bit more here.

We have not been at these kinds of levels since the inflation eras in the late seventies and early eighties, we are actually lower on real interest rate terms than we were back then. And so in these real interest rate environments, you tend to want to continue to invest. If you're a business, that is telling you just keep pouring money into buying machines. In the economics textbooks, they always frame it as machines, buy the machine to produce the output. And that output is making you more money than you are not making by just capitalizing on interest rates. Opportunity costs pretty basic there, those economics should apply to farms as well. You have a machine. It just happens to be a living, breathing machine called a cow, but you're facing kind of this classic economics example of real interest rates are telling us, invest in your machine to make your product.

And a really good example of that right now is happening over in crude oil. So we have the crack spread here and it's a traditional 3:2:1 crack spread where they're basically saying, "If you buy three barrels of crude and turned it into two barrels of gasoline and one barrel of diesel, how much money are you making?" And the answer is basically more money than ever before.

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On this two-part edition of The Milk Check, the Jacoby team lets listeners in on a monthly mass balance meeting. The meeting splits neatly into two episodes, one led by Global Strategy Director Don Street and the other led by Head of Risk Management and Trading Strategy Jacob Menge.

In part one, we evaluate milk production data and forecast what Q2 will look like in terms of overall milk production and class allocation. Ted disagrees with Don about supply-side expectations moving forward, and Don puts forward a modification to his predictive model.

In part two, we will zoom out to talk inflation, interest rates and the macroeconomic factors impacting dairy markets. Jacob presents a bird’s eye view of various commodities markets and interesting trends to note in dairy and beyond.

T3: Hi everybody, and welcome to the Milk Check. This month, we recorded our monthly mass balance and charting meeting. It is a monthly meeting that we hold internally where our whole trading team gets together. We look at the milk production and cold storage reports, and we look at some of the technical charts and we share our opinions about what we think this data is telling us and what we think this data is predicting about what'll happen in the future.

We had some really interesting discussions this month. I think you'll really enjoy eavesdropping into these discussions. It was a long meeting but it was a really good meeting. So, what we've decided to do this month is split it into two parts. The first part is Don leading the discussion about the mass balance. What we think is happening in Class I milk, Class II milk, Class III milk, and Class IV milk. It was a great discussion. I hope you enjoy it. Thanks for listening in.

Don Street: All right. You should see the PowerPoint for Mass Balance, April 2022. At this point, not completely, but all the data for Q1 that really counts we have. We'll get more early next week with dairy products. But we have it and now we're really at the point of what will Q2 hold. And I'm going to walk you through a couple of scenarios on that, and then we'll look for your guys' input.

So again, Q1s in the book, down 9/10ths of a percent on milk for the quarter. But clearly a steady progression towards trying to get to zero change year over year on milk. January was the big down, February less, March even less. We still have this reality that Q2 of last year was up 4% on average. And I think that's going to be difficult to be positive over it. It's just a question of how much negative under that will be.

But nonetheless, with these improving milk numbers, my projection is getting stronger. So, a month ago I thought we'd be down 1.7% for the quarter. Now I'm at 1.4% negative. You could argue, well, it's all in the same ballpark and I would concede that point. But nonetheless, two months ago I think I was talking over that we would have a reduction of over 2%.

So, when you add two months together, the second quarters not looking as dire as I once thought, but I still don't think the market's anticipating this very well. And to maybe add that, had several people tell me in Chicago this week that they thought we'd be even on milk production year over year by the end of the quarter. I just don't think that's possible. And mainly it's because of cow numbers.

Now, USDA really threw a curve when they restated the February numbers last week, adding about 10,000 cows that apparently shouldn't have been taken out of the herd. But I've now taken this forward projection and trying to listen to all the voices that will not see a strong change in cow numbers, but we should be past bottom. So, I've just added or increased this herd at 5,000 head a month from March. March is a known number until it's revised.

So, you can just see this as you go down on the 2022 column. It's 5,000 head more a month. And that puts Q2 down on cows at about 0.9%. So, two months ago, that was 1.3% down,

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The crew comes back to the mic to predict how demand will respond to milk prices approaching record highs across the market.

Between widespread inflation and rising interest rates, the economy hasn’t been in a remotely similar situation since at least the 80s. The discussion touches on potential for a European recession, how interest rate increases affect nonfat trade with Mexico, milk consumption expectations and the barriers to a rapid supply response to record-high prices.

The team comes up with potential answers and a few more good questions. Ted Jr. closes out by backing T3 into holding onto a bullish position.

T3: So, this week, joining my dad and I in the discussion is Don Street, our head of global strategy, Jacob Menge, our head of trading strategy and risk management, and Joshua White, our vice president of whey and feed ingredients, and we thought this podcast, the conversation that would be pretty appropriate would be, given the current economic environment we're in, dairy products are 50% higher in price than they were just six months ago, and interest rates are climbing. Are the combination of those two factors going to start stifling dairy demand, and if so, how is it going to play through the system?

The old adage has always been the cure for high prices is high prices, which means as dairy prices go up, there'll be pushback from those high prices, and ultimately, demand will go down and it'll correct itself. Meanwhile, producers are making more money at higher prices, so they increase supply at the same time. The increase in supply, the decrease in demand tend to start getting prices to adjust. But we're in a very different environment this time around. The kind of inflation that we're experiencing is unlike anything I think we've seen in this country since the 1980s, and the interest rate response by the Fed is going to be probably unlike anything we've seen since the '80s, and I think as demand will adjust this time, it's not going to be like anything we've seen in the last 10 to 15 years, so I think it's worth bearing a discussion. Jacob, how do you think high dairy prices are going to affect demand from your point of view?

Jacob Menge: I think the first and most important thing to address is, are these prices high? What is a high price? I think that's an important part of the question to address because you said the old adage is the cure for high prices is high prices, but I think there's a lot baked into that statement. Part of that is historically when prices are high, that's an indication that suppliers probably have good margin baked into that number because their costs didn't really increase that much. So, when these prices really increase, suddenly they've got a lot of margin. That's an environment that can't really stick around. I would maybe push back and say prices aren't even that high, quote-unquote, anymore because we've really had the inputs increase so much, and I think that's really an important thing to address here, is you just need to reframe what the definition of a high price is and reframe the market overall in your head. Let's just run with it, though. The consumer's still going to push back with the higher number. You add to the overall prices, you're going to get pushback from consumers.

I don't think we're there yet. Consumers are pretty flush still with cash, just looking at consumer sentiment numbers, looking at all the numbers that we could get. We have a very good economy still, as much as it might not seem like it to the average household. You hear your good costs twice as much, but at the end of the day, if the consumer has the cash to pay for the goods, it's pretty unlikely that they change their buying habits. So, taking this one step further, it's then what does change the buying habits, and I think it can either be recession hits, and suddenly we don't have the cash on hand. The consumer doesn't have the cash on hand that they do today,

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The Teds assemble a full crew to approach the primary question on the milk market’s mind: What does a war in Europe mean for the dairy industry? To help answer that question, they’ve enlisted Norman Oldmeadow, a dairy industry veteran and current managing director of Oldmeadow Consulting.

Norman fields questions about Russia’s commercial relationship to the EU – as well as Ukraine’s – what happens to freight, and how Ukraine’s position as one of the world largest grain exporters signals more trouble ahead for milk production numbers. 

Along the way, Norman discusses some of the UK’s dairy issues that hit close to home for US farmers as well.

T3: Welcome everybody to our March podcast. We have a guest speaker today. His name is Norman Oldmeadow. I'll give Norm, in a second, a chance to introduce himself. We also have a bigger group today than our usual suspects of myself, my dad and Anna. Jacob Menge, our risk management and trading strategy director is on the line with us, Gus Jacoby, president of our fluid group; Don Street, our director of global strategy, as well as Norm have all joined us. And our topic today is: How is the conflict in the Ukraine going to affect dairy prices? Norm, why don't you lead us off? Tell us a little about yourself.

Norman Oldmeadow: Okay. Well, I first came across Don a long, long time ago. I got involved in the food industry in the seventies when I joined what you know as M&Ms, but in the UK it's called Mars. And that got me involved in the milk and dairy industry amongst other things, sugar and cocoa and so on. But once I left Mars, I got involved in the dairy trading world and subsequently ended up starting a business in 1992, which was called Meadow Foods. And Meadow Foods was started by me doing the trading. And I was financed by two guys, a chap called John Kerr who may be known to some of you with his company called Fairfield. And my immediate partner then was a chap called Simon Chantler, who I think at the time was milking about two and a half thousand cows on three farms. And I stayed with that business, running it for 17 years before I retired.

However, once I retired, the people that I'd been working with in various manufacturers and traders and the European market asked me if I'd like to set up a consultancy and do some additional work, which is basically what I have been doing since about the mid – well, I was 65 then, so 10 years really – and I'm trying to stop, but they keep asking me to carry on. I think I just get very interested in the topic. So that's me. I'm doing consultancy now. So I'm in everybody's pocket learning as much as I can and trying not to confuse too many people.

But I mean, the topic about Ukraine, the first thing you would say in Europe is: Ukraine, now, what do they do in the dairy industry? And you have to go back to the way in which the European Union is set up in the sense that nothing gets in unless they want it in and anything can get out that they can move. And for a long time, business with Ukraine was quite small, but over the last few years, the cheese business has improved, mainly from Poland and partly from Germany. And I think at the last count, they were importing about 50,000 tons. Not much else, a bit of whey probably, and I think some butter.

But in terms of absolute trade between Europe and Ukraine that's more or less it. There are much, much bigger fish to fry with dairy, of course, than there would be there. Now, I mean, you've got to remember that Ukraine is a huge agriculture-based country. I didn't realize until the other day that it's even bigger than France, and France is quite a big place when you look at it on a map. And they are probably one or two of the biggest wheat and grain exporters in the world. I can't think who the other ones might be, but they're certainly either number one or number two. And again, the product doesn't generally come into Europe,

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With milk production low and showing no sign of turning anytime soon, the dairy industry is bullish about 2022. 

What type of bull market are we in for? That’s up for debate. Inflation and continued logistics issues have roles to play.

Ted and T3 agree on the strength of Class IV milk and the shock buyers are in for next year. They disagree on most everything else, including the proper way to do math. 

In the end, Ted enlists Anna as reinforcement.

Ted Jr: I'm not sure what the right approach is. Sort of a rerun of what we had the other day with regard to the potential, the upside potential of the markets right now might be useful. We've got a dichotomy between hedgers and actual market demand, I think, which is useful to note.

T3: I would agree with that.

Ted Jr: I don't want to profess to be an expert of the hedging side of the issue, but the other side of the issue is the overall world marketplace is very strong. We have a continuing decline in milk production because of a number of factors, but primarily high feed costs worldwide. Barring some economic, call it black swan or whatever you want to call it, the market for dairy products is going to be a heck of a lot higher than it is right now. It could be a lot higher than the current world market price. I know interest rates right now are low, but we have dairymen basically getting out of the business, and when interest rates go back up, it's going to be that much harder for them to get back in. At the expense of sounding too bullish, my position right now is very bullish.

If we look at the gross returns on the GDT and the world markets and the continuing decline in production in Europe, $27, $28 of gross, not net. That transflates to the dairy farmer in the $22, $23 range. Right now, the futures market is two and three and four dollars lower than that. Now, we've got a couple of cycles to go through before we get to anything, but we're in the middle of, or actually, at the end of stocking for Christmas and Super Bowl. We're supposedly going to see some sort of a decline after those markets are fully satiated. Whether we see it or not I guess remains to be seen. Months later, we have the flush right before us, and whether or not that's going to actually amount to anything, that remains to be seen, too.

But we have a scenario which is extremely strong as far as the future is concerned, and even if we do have some blips in there, for the reasons that I just described, odds are we're going to look at pretty strong markets the second half of next year. A lot of things can go wrong: economic collapse, stock market collapse, a resurgence of the virus. I mean, all of those things are threats, but from my perspective I think those threats are pretty distant. Tell me about it from the standpoint of the futures market, which is considerably lower than that.

T3: So, I would look at it this way, and I've been pretty consistent on this topic. I think you can make the case that we could touch $25 cwt for Class IV milk at some point next year. Now, I'm not going to say it's the second half of the year because I think markets can be anticipatory, and so they often tend to find their peak before the real problem occurs, but I do think it's possible when you're talking about butter and you're talking about nonfat dry milk, you can plausibly create a market scenario where we've got milk in the $25 cwt. At the same time, though, I struggle with math that would bring Class III milk over $20 cwt. I'm just not as bullish Class III as I am Class IV, for a number of different reasons.

My approach to looking at next year is that just because the demand is in the second half of the year doesn't mean our highest prices are going to be in the second half of the year. I think that the market is already bullish. If you talk to marketers of dairy products today, almost everyone is bullish. Not the buyers, the sellers,

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Slipping milk production and residual COVID-related volatility could cause something truly rare in dairy: An average Class IV price for 2021 that’s higher than the average for Class III.

This last happened in 2013, when the market was powered by a dramatic increase in exports.

Ted and T3 explain why the financing model for massive new cheese plants is a partial contributor to the phenomenon and try to predict farmer and agency responses.

T3: Let me start by throwing a couple of overall milk production numbers out, so we can establish what we think milk production is going to do in general in 2022. So the challenge with talking about milk production, especially when you're talking about it in terms of year over year right now, is we're measuring against last year. And last year was the pandemic, and everything was a mess, and I'm not sure if measuring against last year with all its volatility really helps us understand the real situation. So I went back really quickly, and I actually calculated what milk production has done so far this year relative to 2019 rather than 2020, and it was kind of interesting. In the first quarter, milk production in 2021 was up 4.3% over 2019, so a little over two percent a year of milk production growth. In the second quarter of 2021, milk production was up over 2019, 4.3%, the exact same number as the first quarter, and a little over two percent.

The third quarter, which we just wrapped up a little under a month ago was only up 3.1% over 2019. Now the fourth quarter of 2020 was up 2.9% over 2019, but it's starting to look like we might go negative for the fourth quarter of this year — which means on a two year basis, we may be up less than 2.9% over a two year basis. And so when you're comparing everything against 2019, it becomes a lot more clear that we're seeing overall milk production shift into an almost negative decline, rather than measuring against the year over year noise that we've been trying to figure out when we're dealing with a pandemic year last year from 4.3% to 4.3% to 3.1%. And I'm going to guess in the fourth quarter we may end up at 2.7%, so it's clearly declining at an increasing rate.

Ted Jr: I think it would be useful to discuss the dynamics of that. And referring back to Jacob's chart where he charted all the prices for agricultural commodities: corns, soybeans, sorghum, cotton, you name it. And then in the same chart, he included the milk pricing and it showed 25-30% increase in agricultural commodity prices but only a nominal increase in milk pricing. It was very stark. We have had increases in production that basically have caused us to have inventory, up to now at least in both powder and cheese. Class I sales have been less than lucrative. They've been declining on an annual basis. We've built new cheese plants. And when we build a cheese plant, we're building a multi hundred million dollar plant these days which requires that it be kept full. Cheese plants need to be balanced just the same as class I plants need to be balanced.

The difference comes out in the class IV market, and class IV is butter and powder. So we look at the last month's results, then we see that there is in the last several months a decrease in production. And I think the reason for that is probably pretty simple: the costs of making milk have not warranted increasing the production for the milk. We have increased feed costs. We've got increased maintenance costs on equipment, everything, land, you name it. The cost of running a dairy have gone up. It doesn't make any difference whether you're a big dairy or a small dairy, but I would guess that the costs of running a small dairy percentage-wise are a heck of a lot greater than running a big dairy, where you've got economies of scale. This dynamic, based on what we're seeing with inflation and so on, is likely going to continue.

What we'll see, I believe, will be increases in a butter and powder particularly.

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On this bite-sized episode of the Milk Check, Ted Jr. and Ted III take a look ahead to discuss one of the industry’s most pressing questions: how will deflating premiums and rising labor and manufacturing costs affect market inflation? 

Ted Jr. begins by observing how decreases in Class III and IV premiums over the past five years have exacerbated the domestic industry’s reliance on exports, and Ted III follows by outlining the encroaching dangers of inflation to the domestic and international industries.  

The hosts go on to predict the timeline of market inflation, the dangers imposed by international supply chain issues and the reformations needed to counter rising prices. 

Ted Jr.: What we were talking about this morning was the change in the hauling rates and how it affects the dairymen. Talking with our milk group, five or six years ago, the norm on hauling from picking up the milk on the farm and delivering it to the usual handler or a plant, let's say. Call it 50 to 75 cents depending on location. Maybe less up in Wisconsin and maybe the handler, whether it's a co-op proprietary, is picking up part of the tab on the hauling. But today that hauling cost is pretty much double. And you're not going to have, even if the manufacturing plant is across the street, you're not going to really have it for less than a buck, and a buck and a half we decided is probably the norm. Well, the issue is, and this relates also to Ted's meeting on how to handle Class III and IV. Five and six years ago, the norm was to sell the milk to the manufacturing plant at a premium, and premium over the Class III or IV as allocated.

Ted Jr.: And today premiums are difficult. If we get any premium at all, they're relatively small. Five and six years ago, maybe a buck in some cases, a buck and half over delivered. Today, 25 cents if you're lucky to deliver it to a manufacturing plant. Then in addition to that, you have operating costs not only for the manufacturing plant, but also for the handler who happens to be handling the milk, whether it's cooperative or proprietary, and those costs continue to go up. So, we're asked from time to time, when are we going to get back to a premium? Well, I don't see it coming. I do see the price possibly going up, the net return to the dairyman. But if you do the numbers right now, you've got Class III and IV at roughly $20, a hundred weight. Hauling costs in a buck and a half or so. The dairyman is lucky to wind up with $15.

Ted Jr.: It's a rare dairyman who's going to make money at $15. Yeah, there's some very efficient, large dairyman who could probably do it, but the everyday dairyman is going to have a problem with that. I think this is a reality which needs to address, which of course is one of the reasons that…why you had the meeting. Obviously the people who call the meeting are feeling the same heat that I'm detecting with regard to how much money is actually being filtered back to the farm. And we're becoming more and more reliant on exports. And what a mess that is when you look at the logistics for getting containers, whether it's cheese or powder or whey or whatever. Getting it to the port and then there seems to be quite a bit of controversy on who's the problem at the port, whether it's the port facility or the trucker or the steamship line, it's a mess.

Ted Jr.: You wind up losing business. You wind up with much, much higher costs and very little margin left when you're done. So this is an issue that I think we need to deal with. I'm not sure how we're going to deal with it. I think inflation will probably take care of it and the result of that would be that there would be continuing diminishing milk supply. We dropped to 1.1 last August. It's still pretty high compared to two years ago, but if dairymen are going to continue to lose money with these costs, I wouldn't be surprised to see that supply drop significantly for the next several months. And if that occurs,

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Will the U.S. dairy market grow fast enough over the next five years to sustain 2% milk production? 

The Milk Check crew welcomes back directors Don Street and Diego Carvallo and Jacob Menge, our futures & options trader, to take on the million-dollar question.

The crew dives in deep on a vital point of growth for the industry — U.S. exports and their ability to keep up with foreign markets. The conversation jumpstarts with a discussion on the impact of Cooperatives Working Together (CWT) and its effect on buyers foreign and domestic. 

Anna: Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.

T3: Hi. This is Ted Jacoby. I'm joined as usual by my father and Anna Donze. Today, we're also joined by Don Street and Diego Carvallo from our milk powder team, who handle the majority of the exports for T.C. Jacoby & Co., as well as Jacob Menge from our risk management team. We start by asking a question. Will U.S. dairy exports be able to grow fast enough over the next five years to sustain a two percent milk production increase?

T3: Because if we continue to grow milk production at a two percent clip, we're going to have to continue to grow dairy exports at a record clip. Now, the truth is we never end up answering the question specifically, but we go off on a tangent that ends up in a very interesting place.

T3: As usual, this podcast is about food for thought. This is a question of whether or not the dairy industry in the United States is set up properly, structurally to encourage exports. I hope you enjoy this conversation as much as we did. Thanks.

T3: I was reading that Matt Gould's Dairy Market Analyst over the weekend. And he mentions at the beginning of his write-up that the price of cheese is weak. One of the factors that is contributing to weak cheese prices is weak exports. Then later on in the letter, he mentions that June exports as a percentage of milk solids is 8.1%.

T3: I did some research, and in April and May, it was 8.9%. The Q2 average as a percentage of total milk production, we exported 18.6% of our milk solid, which I believe is a quarterly record for the largest percentage of milk solids we've ever exported. It just occurs to me that there's a real disconnect right now between what we're hearing in a lot of places that we need to export more in order to get prices up, and at the same time, we're exporting more milk solids than we ever have.

T3: It would lead to a really good discussion about what's really the issue here. If we're going to continue to have 2% milk production growth, and milk production growth continues to look strong. It means we're going to have to export a larger and larger percentage of the milk solids that we're creating in this country.

T3: The question is the export market capable of handling and taking on that additional volume? I think even more importantly, is it capable of handling that additional volume at decent milk prices? Because it's one thing to say, "Hey, we're going to export a ton of milk powder, and we're going to do it at a dollar a pound."

T3: It's another thing to do it at a price like a dollar 28-29, like we are today, or even a dollar 50. I don't think most dairy farmers are really interested in massive increases in export volume, if we're doing it at super low milk prices because that really doesn't add to the profitability. We've invited Don Street, who's the Head of our powder group who handles the majority of the exports for our company, as well as Diego Carvallo.

T3: Then also joining us today is Jacob Menge, who manages the risk management for the company and usually has some great insights on markets. As well as the usual suspects, myself, my dad, and Anna Donze. Well, why don't we start there? Do you think CWT, Don, is inhibiting us from growing our dairy exports?

Don: I don't think it helps because it limits who can sell.

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Last year didn't end up being too bad for the dairy industry. Even still, a massive milk supply and reduced processing have caused terrible premiums, and some producers are starting to feel the pain.

While strong export numbers show growth for the industry, it's little solace for many farmers. A big reason exports are up is because domestic pricing is so low.

Can the industry turn increased exports into healthy competition for milk from the farm or is market volatility too much to reign in?

This is the second of a two-part episode. If you haven't listened yet, hear how the labor market is affecting the dairy industry in part one.

T3: I think most dairy farmers would agree that 2020 and the pandemic was actually pretty good for the dairy farmer. Not only did a number of farmers have pretty high milk prices, especially in Class III markets, but there was also some government money, whether it's PP money or other money that went directly to the dairy farmer. So, their equity, most of them have pretty good balance sheets. And by the way, the real estate market right now is really hot also. And so, you know, the banks are probably looking at most dairy farmers and are more than happy to lend them money. To me, that's a little bit scary because it means there's no financial pressure right now on dairy farmers to reduce supply. And as much as nobody wants to talk about how dairy farmers going bankrupt would be a good thing, because it never is a good thing, that's usually what needs to be happening for us to reduce our milk supply. And right now I don't think that's happening, which means even if we have a lot of farmers talking about how they're not increasing their herds, it's unlikely that there are a lot of dairy farmers leaving the business, or maybe the best way to put it is cows leaving the business. There may be some dairy farmers selling out, but the cows are probably just moving down the street.

Anna: I think it was fair to say that a lot of people were in really good shape. I don't know that that's as true now. I think that the pain is starting to make its way down the pipeline.

T3: What are the silver linings? Exports have been good. And I'll be honest, we're recording this podcast on July 7th and just lately, we've made a number of good and high volume export deals, which is good, but there's a downside to that. I believe exports are very, very important for the future of the dairy industry so I want to make sure everybody understands what I'm about to say. Exports are necessary if we want to keep growing our dairy industry, but there is definitely a relationship between lower milk prices, especially futures prices and higher exports. The lower the prices in the U.S. typically, the more competitive we are in the international market. We're really competitive in the international market right now because prices are low. And so, we're exporting a lot. Well, that's great we're exporting a lot, but we're exporting a lot because prices are low, especially relative to other parts of the world. We are pricing our exports delivered to various parts of the world a lot higher relative to U.S. prices than we used to because our freight costs to get it there are a lot higher too. You know, whereas maybe we used to be able to get powder to Asia for 4 cents a pound. Right now we're pricing it at 8 cents or 9 cents a pound. Ultimately, that backs into what the dairy farmer gets for his milk, but that's where we need to be in order to be competitive. And so, even if you priced it differently ultimately, the dairy farmer would receive the same value for his milk. It would just maybe look like a different equation. So, exports are good, that's great, but they're good because prices are low.

T2: Well, exports are going to continue to be the driver, and maybe the solution to the problem is for us to do a little better job dealing with the exports. I think we have been, I think particularly the U.S.

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The dairy producer feels like they're between a rock and a hard place as premiums remain low while feed and shipping costs keep going up.

"So, what do we do about it," T2 asks on this edition of The Milk Check, a two-part deep dive into what the industry can do to get more money on milk checks.

In part one, we discuss how the fierce competition for labor in rural areas has reduced hauling and processing capabilities, decreasing the demand for milk while the cost of feeding the nation's large herd remains high.

Can rich Class III prices make up for low premiums and high input costs?

The conversation continues in part two, where we discuss the effects exports have on competition for milk from the farm.

T3: Welcome, everybody to the July podcast. We thought this would be a good time to have a discussion about markets. But not about markets the way that we usually talk about where we're talking about cheese prices, or we're talking about Class III prices or butter prices or powder prices. This time, I think we'll focus on the basis. How we're finding this market right now in the dairy industry throughout the dairy industry, from feed prices to milk prices, to finished product prices like cheese and butter, we're seeing major changes and big differences in the basis prices, the premiums for milk, the overages for cheese. It is just so different, especially in the spot market from what we're used to because it bears discussing because I think that's affecting how people's milk checks look, and I think it would be an interesting thing to discuss. Where should we start? Anna, Dad, do you guys want to start at the milk or should we start maybe with feed costs?

T2: Well, if you want to look back at it historically, we're taking the bull by the horns here, six or eight years ago when we delivered milk to a buyer's plant, we delivered it at class price, using Class II as the most obvious example plus a premium. And usually, the premium covered the freight, sometimes covered the freight and then even more in certain times of the year is that they'll be from the dairy or the farm, and the buyer paid the freight. Today, we're not doing that. And I guess the question is, why? Why are we delivering milk at prices considerably under-class? Does that mean that the people who are buying the milk are taking us for a ride and they're making all the money?

Well, I do think that the people who are buying the milk and taking it from the processing plant to the converter to the grocery store shelf, I think that's where the margin is. And we're not getting a piece of that margin right now. So, why not? First of all, is the margin really there? In some cases, it is. If we look at 18-month-old cheddar in Costco, $6 a pound, especially cheeses in Whole Foods that I look at, some of them exceed $20 a pound. Now, that doesn't necessarily tell the story in the cheeses that I see often, since we know who makes them, I bet you they are not running more than 100,000 pounds of milk a day, that's 2 truckloads of milk a day into a certain kind of cheese, and maybe they only run that certain kind of cheese once or twice a month.

So just saying that there's a big sale price on the cutting rack doesn't necessarily tell the full story. But it would seem to me today that the margin for the industry is in the marketing side. And we'll describe, for the purpose of this conversation, the marketing has been from the plant to the grocery store shelf. If you look at that, the dairyman is lucky to get 20% or 25% of the value on the grocery store shelf. The processor, manufacturer, if you will, he may get another 20% or 25%. It's hard to say to be so categorical depending on whatever product that you're looking at, and what the class price might be for that product. But the marketer may be getting 50% or more of the actual price that shows up on the shelf.

T3: Well, let me clarify that, and I can speak to cheese to help with that a little ...

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Market analyst Sarina Sharp, of Dairy Business News, joins The Milk Check crew to talk about the lacking rain in the West, labor shortages and demand expectations for the second half of the year.

While the drought won't drastically affect overall milk production, it will put Western dairy producers in a bind as feed prices and hauling rates increase. California producers also have to weigh the rising cost of scarce labor.

The crew also discusses issues like the accuracy of Class III price forecasts and how freight uncertainties continue to challenge exporting efforts.

T3: Welcome, everybody. Today's June 10th. And welcome to our June podcast recording. Today, we have a special guest and great friend, Sarina Sharp, who is the market analyst for The Daily Dairy Report. She also writes the Jacoby Weekly Market Report. And we spend a lot of time, you know, talking to Sarina about markets and getting her insight and what she thinks, and we thought it would be a great time to have her join us today.

One of the things that we've been reading a lot about, I woke up this morning and I read an article in "The Wall Street Journal" about the Western drought and how low Lake Mead is. It's like the lowest it's been since 1933, I believe. And it made me wonder how much this drought was going to affect the dairy industry.

So I think my first question for you, Sarina, and I know my dad has a bunch of questions for you, but how serious should the dairy industry be taking this drought that everybody's talking about?

Sarina: Well, like most weather issues, it's gonna be localized, but it will also have a national and an international impact. The thing to remember is that the drought is severe in the West and it will impact feed costs for dairy producers in the West, there are certainly some key dairy states there. But we've actually had really good rains in the Southern Plains, including in some large dairy states like Texas.

And then we have had good rains up until a few weeks ago in most of the Corn Belt. The Northern Plains are very dry as well. And it is just starting to get dry to an extent that it's a concern for farmers in Iowa, which has obviously a very big corn state. And then in the Northern tier of the Corn Belt, so Minnesota, Wisconsin, Michigan. Those latter three, those are not where you get your big, big crops. Minnesota is a very significant corn state, but Michigan much less so.

So the weather impact on feed prices, I think right now is actually less significant than the demand impact on feed prices. We just had the USDA crop report today and they estimate that we will use more than 15 billion bushels of corn in the current crop year, which ends September 1. That's by far a record high. We are planting a lot of corn acres this year, but feed costs are going up because of demand.

Getting back to the drought and its impact on dairy producers and to milk production, we will see feed costs rise because of the drought, but I don't think that the immediate impact will be less milk production. In fact, in the Southwest where a lot of cows are on dry lot pens, they're very comfortable. The heat would be a greater concern for their immediate impact on milk yield.

T2: Sarina, this is Ted. You know, for 50 years, we've been hearing about droughts in Western California, low water supplies, and the effect that it has on a dairy and feed for dairy and so on. So you have to almost excuse us for not being very concerned, but is there a real concern this time as opposed to the other times we've seen the reservoirs in California and in the Sierras go down a little bit at this time of the year and everybody has their heart in their throat?

Sarina: So this is a very significant drought. We've seen severe back-to-back drought in California as recently as I think four years ago, but the impact on farmland is gonna be more significant this time around because California has enacted a long-term water manageme...

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We welcome our Jacoby trading team back to discuss the rapid increase in milk production so far in 2021, compared to 2020 in which the national herd decreased by 30,000 cows. 

Don Street, our director of global strategy, explores production issues like the hefty 3% increase in cheese as compared to last year, driven by American and cheddar. 

Jacob Menge, future and options trader, leads a discussion about what inflation could mean for dairy as foreshadowed by the increasing cost of many commodities, from lumber to diapers. 

T3: Welcome, everybody to our monthly mass balanced discussion. Today, we've got my father, Ted Jacoby. We've got Joe Maxtor, who's our butter trader. We've got Don Street who tends to lead the mass balance discussion and heads our powder group. We've got Diego Carvallo, also from our powder group. We've got Gus Jacoby, who heads our milk and fluid team. We've got Greg Scheer from our milk team. We've got Jacob Menge, who's gonna lead the charting discussion who also heads up our risk management group.

We've got Anna Donze who handles pooling for the milk group. Welcome, everybody. Don, why don't you take it away?

Don: I think we have a real roller coaster that's getting ready to happen, certainly on milk production. And I'll just get right into this, we’ve seen a very tight protein market in the last 10 days. Cheese has been a bit more sideways but price-wise hanging in there. When you just kind of look where we've been for Q1 we had 2% more milk, and we were running 90-some-thousand cows more than a year ago. The roller coaster starts because in Q2 of last year, the cowherd shrunk by over 30,000 head. When you look at when we start in April, instead of being 90,000 head higher than a year ago, April is going to be 110,000, let’s say, it's going to be a significant jump up. That number only grows to when we get to June, we could be 150,000 cows ahead of one year ago.

T3: Don, has that jumped because we shrunk the herd at this time last year because of the pandemic? Are we expecting the herd to grow over the next three to four months, or is it a combination of two?

Don: I think mostly the drop of Q2 last year when the pandemic really began because we had from 5,000, 13,000, 9,000 cows every month. Take that times 12, you have 8,000 on average, you get 96,000 more cows every year. So most of this is simply the drop that took place a year ago. Plus, milk per cow a year ago was also pulled back as more co-ops instituted base programs. So my milk gross projection for Q2, it’s a really solid 3% out, which is 50% more than the growth we had in Q1. To me, that's the biggest change that's coming down the dairy road in this Q2.

T3: Is it fair to say, Don, that the number is going to be twice as big in Q2 and Q1, but the real trend from Q1 to Q2 isn't more increased milk, it really reflects what happened last year because the pandemic hit and we shrunk the milk supply?

Don: That is correct. If I look month-on-month, you're clearly going to have more cows. Productivity growth seems to be pretty reasonable. Ignoring the seasonal trend on milk, Q2's gonna be just a really quarter for milk. Try to think about this in terms of what we do with the milk that's produced. In Class I, bottled milk, same old story, for the two months that we've reported in 2021, were down about 2.5% over the prior year. Last two has been really strong with the exception of cottage cheese, sour cream, ice cream, yogurt has just been on a tear production-wise, 8% to 10% up, which even on a small class of milk is significant.

Total cheese production was negative in January. February was really up strong. And when you look at the two months together, we're up about 3.5% over January, February of '20. It's a big change and it's all driven by American and cheddar cheese. Q2 of 2020 was up 2.1% on total cheese while Q1 was flat. So I think the growth in cheese will pull back a little bit but will still be up a ...

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On this edition of The Milk Check, T3 and Anna join our dairy market sage and patriarch, Ted Jr., on a trip down memory lane to talk about how the dairy industry has developed over more than 50 years.

They discuss changes in trucking, processing and entrepreneurship, among many other topics.

The trio also debates how the Federal Order System has impacted the industry, whether it still holds water in today's market and the perception that dairy producers are often the most impacted by market downturns.

T3: I thought this podcast would be a great opportunity to just talk a little bit about history. Talk a little bit about what were markets like back in the '60s and how have they evolved into what we're dealing with today? And maybe what are some of the things that are still the same and what are some of the things that are different? And I just thought it would be a great perspective to talk about how milk and cheese and whey and cream, how it all moved back then, and how it all moves around and gets balanced today. We really haven't talked about things from a historical perspective, and I thought it would just be a great conversation.

T2: Well, let's start in the '50s. Tank trucks came in in the mid-'50s. They were relatively small, they were about 30,000, 35,000. By the time you got to 1960 or so, you're up to a load somewhere between 45,000. In those days, the Class 1 utilization was paramount. Depending on where you were located, you had basically 60%-plus Class 1 utilization and milk move from upper Wisconsin, Eau Claire and Bloomer and Turtle Lake, during the short period of the year, we...back to almost everywhere, to Florida to Louisiana, New Orleans, Dallas, you name it, St. Louis was a big market. Indianapolis in the '60s had 20 to 30 loads a day moving out of basically the Fond du Lac area down to Indianapolis, which is why Foremost is prominent in Indiana these days is because a lot of that milk was Foremost Milk, they actually had an office in Indiana, which wasn't closed until a few years ago.

The market was much different. Class 1 utilization was the big item and we had a much more cyclical milk production profile, if you will, where in the fall of the year when it got hot, and it seems to me, if my memory serves, it got much hotter in the '60s and '70s than it does today. And production really languished, particularly down in the Southeast. And so huge volumes of milk moved and most of that milk was moved directly out of plants. It wasn't moved directly from the farm, never moved directly from the farm until, oh, probably sometime in the '90s. Farms got big enough and the technology of dairy farming reached that point. That was the way the industry was structured in those days. And it's a much different structure today.

T3: To be back in the '50s and 60s, you also had a lot of Grade B milk, we don't ever talk about Grade B milk anymore. How did that affect the industry?

T2: Actually, we didn't have that much Grade B milk, and most of what we had stayed home. Yeah, we moved a little, it wasn't really that much. There were quality standards when you moved. Acid was the primary quality standard, acid and temperature. And you expected the milk to show up at a bacteria count of something less, basically, than 750,000 or half a million. Again, depending on where you were, and temperature less than 45 degrees. So that was the standard. And it wouldn't make any difference whether it was B or A in those days. Quality was not a matter of somebody saying that it was B or A, it was a matter of what showed up at the plant. And if it wasn't suitable when it showed up at the plant, it was rejected. It wasn't a question of arguing about it, it was rejected. That fell back upon the seller, in our case, usually as the seller's agent, us, to dispose of it accordingly, and we did.

As time went on, the volatility in certain areas caused a lot of construction. In late '70s,

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This time on The Milk Check, we welcome a leading mind in international trade policy and personal friend of the podcast.

Jaime Castaneda is senior vice president of policy strategy and international trade for the National Milk Producers Federation, where he oversees the development and implementation of domestic policy. He also leads international trade negotiations for the U.S. dairy industry as senior vice president of trade policy for the U.S. Dairy Export Council.

Jaime joins the Teds in a discussion of how trade policy developed over Jaime's 22 years in the industry, from dairy farmers' early reluctance to accept imports to the industry's ongoing efforts to improve and enforce trade agreements.

Among other topics, they also debate whether the Federal Order System and tariff rates are holding back U.S. dairy in international markets, or if the problem is our slow response to short-term international economics and low customer loyalty outside of domestic markets.

T3: Hello, everybody. Welcome to the "Milk Check," episode 35. It is March 16, and our guest today is Jaime Castenada from the U.S. Dairy Export Council. But I believe you wear multiple hats. So, I'll let you describe what roles you fill with USDEC and National Milk.

Jaime: Yeah. Thanks. Good afternoon to everyone. I am actually the senior vice president for the National Milk Producers Federation. Under that capacity, I oversee the development and implementation of domestic policy, an area of different issues, including from the initiative of Foundation for the Future, that was the preload to the dairy margin coverage to Farm Bills to just name it. At the same time, I served in my capacity, as senior vice president for policy and trade, I also lead our partnership with the U.S. Dairy Export Council and serve now, for almost, actually, next month is going to be 22 years that I am with the industry and that I have been serving as our partner with the U.S. Dairy Export Council.

T3: Well, wow, we're lucky to have you. And T.C. Jacolby & Company is one of the founding members of the U.S. Dairy Export Council and we've been involved with the U.S. Dairy Export Council from the very beginning. Have you been involved with the U.S. Dairy Export Council the whole time?

Jaime: Yes, yes. In fact on Suber, really, I discuss joining the U.S. Dairy Export Council. The way that we work is that we operate everything that relates to policy under National Milk, specifically related to trade, just to make sure that, if you remember, the U.S. Dairy Export Council, it's a cooperator for USDA, which receives monies from MAP, the checkoff funds as well as MAP money. So, in order to make sure that advocacy is properly and it's done using membership dues, then we created this ability. And I do remember sitting... And now at U.S. Dairy Export Council is a large organization, 150 members more or less. And I do remember when sitting with Ted Sr. in a small table, Lei Jensen and a few other folks that were the original founders of the U.S. Dairy Export Council.

Ted: Those were the days. I remember those days very vividly. It goes back, what, to the '90s?

Jaime: Yeah, 1999. 1999, and that's where we began developing the trade policy. If you remember, prior to 1999, even dairy farmers, and this is a lot of credit to folks like yourself and Tom Camaro that look at the vision and the future. And if you remember, dairy farmers were not very keen on trade. In fact, if you talked to them on trade, in the 1990s, it was all about, "We hate imports." And it was the development through this small group of folks that were the visionaries that we developed this trade policy and this perspective, that you're not going to be able to just fight, fight, fight imports. You're better to use your capital to get better at exports. And that's what we have done over the years.

Ted: Well, that's sort of the route that we took too, and NAFTA kicked in about that time.

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On this two-part edition of The Milk Check, listeners get a seat at the table during our mass balance report meeting, held after the release of monthly milk production numbers. Our traders gather to evaluate the data, forecast class allocations, share what they're hearing from buyers and sellers, and chart price data to predict market developments. 

Our regular cohosts, Ted, T3 and Anna, are joined by Don Street, director of global strategy; Gus Jacoby, executive vice president of the Fluid Dairy Group; Jacob Menge, director of risk management; Brianne Breed, vice president of cheese and butter sales; Joe Maixner, cheese and butter sales manager; and Diego Carvallo, director of dry dairy ingredient trading.

In part one, we evaluated the fundamentals of the dairy markets and what the monthly production numbers mean for different industry sectors.

Now in part two, we look at anecdotal evidence in the wider marketplace, such as the consumer price index and international trade, to forecast dairy's future in the global economy.

Anna: Welcome back to part two of the March episode of "The Milk Check," where we're going to continue to listen in as the team participates in our monthly mass balance report. If you missed Part 1, make sure to go back and listen.

T3: Thanks, Anna. In this section, we'll rejoin Jake and our dairy product trading team as we talk this time about things on a much more macroeconomic level. Jake gets into a fascinating discussion about what we think inflation is going to be doing over the next few years and, from that, we'll dovetail some of the more kind of higher-level issues that we're paying attention to and how those issues might affect dairy production. Jake, take it away.

Jacob: Alright. Let's kick off the product trade discussion side of things. A lot of times when we discuss the product group, we'll start kind of with a macroeconomic outlook. And I think today the obvious place to start is inflation. And we've been talking about inflation for a while. This week and last week, some really notable things happened on inflation, so I have to talk about it for two seconds here because it actually relates directly to milk in my opinion.

OK, so let's talk about the consumer price index for just one second, right? It's what everybody uses to gauge inflation. You've probably heard, like, "Oh, for the last decade, we've had very low inflation." And if you use the CPI as your gauge for that, then it's true.

I think the CPI is broken for gauging inflation and here's my reasoning behind that. Over the past 10 years, the wealth gap has gotten larger between the top 25% and the bottom 25%. And the CPI is terrible, terrible at capturing inflation on the assets where the wealth is actually growing.

And so here's my example. CPI. What is it? It basically looks at a basket of things like fuel, of food, of housing, stuff like that, OK? I'll be very blunt. If one person makes $100,000 extra in a year or 10 people make $10,000 extra, it turns out that person that made $100,000 extra doesn't go buy extra bread with their $100,000, right?

And so the CPI does not reflect that. What does the person that made the extra $100,000 buy? Stocks. They invest it. That, in my opinion, is where inflation has existed; it's the stock market.

And that is actually pretty well-reflected in P/E ratios, right? Everyone these days is saying like, "P/E ratios are worthless," blah, blah, blah. Well, why is that? It's really a function of inflation. It's a different type of inflation but that is really, really, really, really important to commodities to understand.

So when the inflation was kind of happening for the rich but not necessarily the poor, it's not reflected on things that the government uses to gauge inflation. And so the government hasn't really done anything to deal with the inflation because it's inflation that makes people happy. People think they're investing geniuses.

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On this two-part edition of The Milk Check, listeners get a seat at the table during our mass balance report meeting, held after the release of monthly milk production numbers. Our traders gather to evaluate the data, forecast class allocations, share what they're hearing from buyers and sellers, and chart price data to predict market developments. 

Our regular cohosts, Ted, T3 and Anna, are joined by Don Street, director of global strategy; Gus Jacoby, executive vice president of the Fluid Dairy Group; Jacob Menge, director of risk management; Brianne Breed, vice president of cheese and butter sales; Joe Maixner, cheese and butter sales manager; and Diego Carvallo, director of dry dairy ingredient trading.

In part one, we evaluate the fundamentals of the dairy markets and what the monthly production numbers mean for different industry sectors.

In part two, we will look at anecdotal evidence in the wider marketplace, such as the consumer price index and international trade, to forecast dairy's future in the global economy.

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 on "The Milk Check," we're doing things a little bit differently. Every month, the T.C. Jacoby & Company, we have a conversation that we call the mass balance report, and it happens right after the monthly milk production numbers come out. We get all the available traders in the company together to discuss what the most current reports and numbers mean. This month, our listeners will get an opportunity to eavesdrop on that conversation. This edition will be released in two parts, so be sure to listen to both to get their thoughts on a variety of topics, from production and utilization to inflation.

T3: Thanks, Anna. And thank you everybody for listening today. So when you're listening to our traders talk, the thing to keep in mind is a lot of times when we're trying to get our head around what we think prices might do, there're really three elements to that process.

The first element is evaluating the fundamentals. As you hear Don Street talk about what the milk production report has done and what we think milk production is going to do and where milk is gonna be allocated between the different classes of milk, you're really gonna be hearing us talking about the fundamentals.

The second part that goes into our evaluation is what I call the anecdotal evidence, which is the fact that our traders are talking to buyers and sellers of dairy products in the marketplace every day. And what we're hearing from those buyers and sellers also goes into our opinions of what the market might do.

The final thing that comes into play is where we are evaluating what we call the technical information. All of the futures and options markets we have in the dairy industry today and all of the spot auctions that we have in the industry today ultimately create a series of price data. And as you chart that price data, those charts often give you signals as to what you think this market might do next. And when you hear Jacob Menge, our director of risk management, talk, that's mostly what you're going to be hearing, him looking at those charts and telling us what those charts are hinting at. So I think this conversation today is gonna be a very interesting conversation, and I hope you enjoy it as much as we do.

T3: Joining us today is Don Street, our director of global strategy.

Don: Hey, Ted. Glad to be here.

T3: Gus Jacoby, executive vice president of our fluid dairy group.

Gus: Hello, thanks for having me.

T3: Jacob Menge, our director of risk management.

Jacob: Pleasure to be here.

T3: Brianne Breed, our vice president of cheese and butter sales.

Brianne: Hi there. Thanks for having me.

T3: Joe Maixner, sales manager for cheese and butter

Joe: Hi there, everybody.

T3: And Diego Carvallo,

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The Milk Check welcomes guest J. David Carlin to discuss the role of dairy lobbyists in Washington, how they've adjusted to the pandemic and industry outlooks during the Biden administration.

Carlin is the International Dairy Foods Association's senior vice president of legislative affairs and economic policy.

Ted, T3 and Anna talk with their guest about issues like how lobbying via Zoom allows for additional public input, the importance of enforcing international trade deals, volatility in dairy pricing and much more.

T3: Good morning, everybody. Welcome. Today, we have a guest. I'd like to introduce everybody to Dave Carlin. Dave is senior vice president of legislative affairs and economic policy for the International Dairy Foods Association. Dave, welcome. Thanks for joining us.

Dave: Thanks, Ted. Glad to be with you.

T3: Why don't you just, kind of, tell everybody a little bit about what you do? What's your job in Washington?

Dave: Well, I'm one of those lobbyists that probably keeps the town running in a lot of different ways, but we're not very popular outside the Beltway. So, that's what I've been doing in Washington for the last, oh, I guess, 30, 35 years. And I came to IDFA about six and a half years ago; grew up on a dairy farm in central Kansas. So, a little bit of a homecoming for me and decided at least that I could, if I'm going to lobby, I could lobby on behalf of an industry that I care about and believe in.

So, I'm part of a team of folks over here at IDFA that advocates for policy positions with the Congress and the administration that we think will benefit the dairy industry. And we work with our members to prioritize those policy requests and make sure that whatever we're working toward is going to be impactful and meaningful.

So we've, of course, been very active in the COVID policy debate. We work a lot on nutrition issues and trade issues, given how important trade is to our industry, and a lot of other issues that come up here in Washington. We also do little work in the economic policy area as my title, kind of, indicates. So, milk pricing issues and FMMO issues or other things that we sometimes focus on, and I get involved in here.

That's, kind of, a 30,000-foot view of what I do. I'm not walking the halls of Congress these days, that hasn't been possible since COVID started last March. So, my world, like everybody else's, is very virtual, but we've managed to create some new pathways and make it work, from a virtual standpoint. So, advocacy continues here in Washington, and hopefully, as I said, it will benefit our industry going forward. So, that's my 30,000-foot overview of what I do.

T3: As I was hearing you talk, Dave, you provided what I thought was the perfect segue. Tell us about what lobbying Congress was like during COVID, because so much happened in the last 12 months as this pandemic evolved. Kind of give us a walkthrough of how that played out, from your perspective.

Dave: Yeah, and I will start by saying it played out much better than I would have ever expected when we first got into this mess. Typically, as I said, I'm able to go to the House and Senate office buildings, I can set up meetings with staff and see members, and we did fundraisers and events in the evenings on the political side. That was what I did for 30 years and then COVID hit. And the Congress basically shut down like everything else shut down, all the buildings were closed, members were working from their home states and districts a lot of times, staff were scattered to the wind.

And I really thought, "Gosh, how are we going to find people?"

First of all, they don't typically give out their cell phone numbers, and you're at the mercy of an office email account. But what was fascinating to me, and I think it's been true across the board for all of us, is how accessible people have been including Congressional staff, and policymakers and members of Congress for that ma...

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Did you rediscover the joy of cooking this year?

You're not alone.

There's no doubt that dairy consumer behaviors have changed in the COVID era. Who does it help and who does it hurt? Who can capitalize and who's in trouble? Ted, T3 and Anna debate.

Also, T3 observes an even more worrying trend among Millennial and Generation Z consumers on the horizon—and it's got nothing to do with the pandemic.

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.

Ted: You know, we're heading down the road from fall into winter, and temperatures are dropping and worried reports of the virus picking up speed in various parts of the country. Do we expect to have another debacle of dumped milk because of it? Obviously, my answer would be no.

T3: Mine would too.

Ted: And I think that there may be a silver lining, you know, not because of the virus but because of the fact that we now have some experience with it. I think it's correct to say that retail cheese sales are up. And I think they're up by, I saw, I've seen a number of different reports but anywhere from 1% to 3%.

T3: Oh, I think it's more than that. I think most assumptions right now, they may be up 1% to 3% in the current week. But I think, you know, since let's say April 1st, most of the numbers I see are within, let's say 3 or 4 percentage points of 10%.

Ted: Retail.

T3: Retail. And there's an offset obviously on the foodservice side.

Ted: Yeah. Well, the question that I wanted to raise, even though I don't recall 10% but the question that I wanted to raise is, will we lose that going forward? And I'm beginning to come down on the side that we won't, I don't think it'll sustain necessarily that level of increase but I doubt if it's going to go back to where it was before the pandemic. People started using cheese and eating cheese and became more accustomed to cheese. And I've several times used the example of my cheese counter at one of the stores I shop at that specializes in organic and really good specialty cheeses, and sometimes their cheese counter, which is relatively small but really well-stocked, is so crowded. I can hardly get at it. I have to elbow my way in and they stock a lot of artisan cheese and foreign cheeses and so on. Especially cheeses with cranberries and chives and all sorts of stuff.

I think the increase in sales of cheese are locked in. Now, is that going to translate to increases in cheddar block or barrels? Well, that's another question, isn't it? And I don't know whether it will or won't. I tend to think that we may see this vertical integration sort of come to a halt and we see more diversification in cheese manufacturing towards different styles of cheese. In the last—Teddy correct me if I'm wrong—10, 20, 30 years. We've seen vertical integration where people have gone huge plants to mot the cheddar blocks to cheddar barrels, in some cases to parmesan, and they basically chew up milk at a commodity sale cheese.

I think we're heading more towards specialty kinds of pieces. I think of Emmy as a good example. They produce a lot of different styles and they market them. I get this one website called The Deli Markets or something like that, that I happened to be on the email list for and all those different styles of cheeses, Carr Valley, Cowgirl Creamery, and all those different styles of cheese are on display at these cheese counters now. And people are picking up these little pieces and trying them. I think it tended to go in that direction. And I believe that that'll continue because percentage of our cheese disappearance to increase.

T3: So I am going to agree with you but I'm going to come at it from a different direction. I have been under the impression for the last few years that mozzarella growth, for example, domestic consumption of mozzarella growth has been plateauing.

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We're no strangers to criticizing the Federal Order system. We find a way to do it almost every episode.

But this month, we're devoting the entire conversation to the fact that the regulatory framework in the dairy industry has hurt producers' bottom lines more than helped.

It's a phenomenon we've noted in bits and pieces in previous episodes, including near the end of our conversation last month. But in this episode, we examine the lack of competition and innovation in the industry with an eye toward its earliest source—the Capper-Volstead Act of 1922.

Ted shares an idea for how to fix the problem. It might seem backward—but only at first.

T3: What do we want to talk about?

Ted: Well, one thing as Anna can testify we've gotten some emails from mostly dairy farmers who express a lot of paranoia with regard to the federal order system and the regulatory system and where the money is going and so on. I think we had part of that discussion last time, didn't we? Didn't we shelf part of it?

Anna: I know we started that conversation.

Ted: Yeah. We beat it a lot. And we've also danced around it a lot. The tenor of the emails that we got was paranoid. You know, somebody's going south with the money, the co-ops are no good, they're stealing the cash, and that isn't what's happening and that's not the problem.

Anna: You know, even some of our producers have had a little bit of paranoia, and not about the co-ops or us, but about the Federal Order system in general. Because when everybody has money taken out of their check, they don't understand that somebody is getting it. It looks like, you know, the MA office is keeping it or something, when really it's not that. It's that it gets distributed to the co-ops and everything, especially the ones who are using, you know, lower price utilization.

Ted: You know, if we want to go back to square one and the Capper-Volstead Act, and then regulation that developed not at the same time but eight or ten years later, the Capper-Volstead Act gave the co-ops power to collective bargaining similar to a labor union. Well, let's take a look at the results of that. In the '30s, when the Capper-Volstead Act came in, we had basically fluid dairies, bottling plants, were 70% or 80% of the market in cheese, and it was a balancing item similar to what powder is today.

It was not a good retail product in the '30s. And the collective bargaining was mostly targeted towards the fluid end of the industry. Look at the results. The fluid end of the industry has been destroyed. So, how do we solve that problem? The problem is not necessarily the fault of cooperatives. The problem basically goes back to the structure and the fact that we've eliminated competition for the milk. Now, that, of course, that gets back to, well, what's competition? Is it collective bargaining or is it handlers bidding for the supply?

So that's a discussion, I think, that probably needs to be had but it needs to be had in the vein of not being anti-cooperative because that's not the right way to do it. There's some very good cooperatives in the United States and in the world actually. But generally speaking, they don't do a good job on the marketing side of the business. And that's where 50% of the price on the retail shelf is. It's in marketing. The dairyman winds up lucky, 20%, 25% of the retail price. So, obviously, to my mind, there's something wrong. And I think it comes back to the fact that you don't have the competition for the milk, and that's a regulatory issue. I'm not sure how you solve it. Clipping the wings of the cooperative a little bit. I'm not sure that's an answer but empowering the proprietary side of the industry might be a better answer.

T3: What is the best way to increase competition for milk in a certain region? It's the more plants looking to buy milk, especially that capacity relative to supply, is what's going to drive up the overage price for the milk. And so,

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You'd only need one look at recent history on the CME to see the rollercoaster that has been spot cheddar prices.

In this episode, T3 notes the collision of around a half-dozen contributing factors to explain why it's happening. Ted discusses why the Federal Order system is hurting the situation more than it's helping.

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.

Ted: What should we talk about? Markets have gone from the penthouse to the outhouse.

T3: Well, I would say the markets went from a fair price to the outhouse to the penthouse back to the outhouse, and I actually think we're gonna probably end up back in the penthouse in about a month. It's a roller coaster.

Ted: And it's chaos on the milk side. I visited with our milk group today a little bit and depending on what you're making and what you're selling and what your orders are, you've got the Class III for August right now at $19-something, and I think probably around $19.50 or so. And you've got the Class III for September probably around $17 maybe?

T3: Yeah $16.80 or so right now, $17.

Ted: Something like that. So they could have as much as a $3 per hundredweight gap. So here we are trying to sell milk for delivery at this point in time and people are trying to figure out what price they're gonna wind up having to absorb to put the milk into cheese and then what they're gonna be able to sell the cheese for. So the futures market, at least in my view, is rather inadequate to solve that particular problem. And I think that accounts for a lot of the issues right now because, Teddy, and you correct me, you're in cheese, but the inventories are not burdensome and the sales haven't been that bad. In some cases, depending on the style and so on, they've been pretty darn good. And yet the milk, we wind up with some people unwilling to pay the going rate for milk because of the violence in the market at this point in time.

T3: Exactly. And I think the biggest problem that we have right now in the marketplace isn't necessarily the price as much as it is the volatility of the price. Why don't I start by explaining, kind of, what's causing this volatility? What has the journey been since, let's say, the end of March and what it's doing farther down the food distribution channel and how people at the supermarket level and at the restaurant level are reacting to it, and then we can talk about how that feeds all the way back to the milk price and what's causing this rollercoaster that is creating stress for everybody in the pipeline?

When the pandemic started and restaurants started closing and food distributors started canceling cheese orders, the price started to drop. And by the end of March, the price had almost gone all the way down to $1 a pound. But two things happened while we were that low. The first thing that happened was supermarkets started seeing huge increases in sales. And the first part to keep your head around is cheddar, which is how we price all of our cheese and ultimately our milk, is really a market that's skewed to retail. We sell more cheddar marginally in retail and more mozzarella, for example, in food service. And all you have to do is think about it when you're in a supermarket and you look at all the shredded cheeses on all the pegs in the dairy case, you'll see a lot more cheddar packages than you will mozzarella packages. Whereas if you're thinking about it from a foodservice perspective and you think about all the pizzas and lasagna and Italian food and everything you eat, they actually sell a lot more mozzarella in that direction.

And so what happened is once you hit the bottom, three things happened simultaneously. The supermarkets' orders were very, very strong, and so they were ordering more cheddar than usual, a lot more. Second, we were low enough that we were far below the international market and we g...