The Milk Check

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May 2026

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Experienced dairy traders discuss current market trends that affect payments to dairy farmers.

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May 22, 202626 min

Is Protein a Fad, and Is Cheese Still King?

Right now, high-protein diets are hot and cheese is still the biggest user of U.S. dairy. But will it last? In this episode of The Milk Check, we pull out our crystal balls and try to see into the future of U.S. dairy. Why GLP-1 may be a catalyst, not the whole protein story How health and wellness trends are reshaping dairy demand How exports could change the future of cheese demand The consensus? Find out in The Milk Check episode 100: Is Protein a Fad, and Is Cheese Still King? Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check Transcript: Ted Jacoby III: [00:00:00] Coming up on the Milk Check. The debate is: have GLP-1s changed dairy forever? Our second debate is will cheese remain king? Welcome to the Milk Check from T.C. Jacoby & Co., your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. Ted Jacoby III: Excited for our topic today. We are going to have a debate. The debate is: have GLP-1s changed dairy forever? The demand for protein right now is clearly extremely strong. It’s really a question of whether we think this demand for protein is a fad, or we think it’s a fundamental shift in demand that’s gonna be with us for a long time. And so I’m gonna actually put Mike Brown on the spot first. Mike, has GLP-1s changed dairy forever? Mike Brown: It certainly changed me forever. And I’m a big eater dairy for a long time. I’ve had good success with GLP’s getting my weight to where it needs to be, and one thing you do discover is that you do need to really watch your protein intake. You need to make sure you’re getting adequate amounts because you will lose muscle. I think diets in general, we’re becoming less carb-focused. We’re becoming more protein-focused. So, I don’t see it going away. Does that mean we’ll have the record-high prices we have now forever? Probably not the markets will stay strong, and I think it’s a shift in consumer demand . You just need to go into any Costco or Sam’s Club, and the amount of protein beverages they offer now versus three years ago, they’ve tripled in some cases. So, it’s definitely a market of strength. And despite the high price of proteins, people still seem to be buying it. I’ll see limits when there’s sales in different stores, which tells you that demand is still extremely strong. Ted Jacoby III: Josh, I’ll ask you next. Are we changing demand forever, or is this a fad? Josh White: I don’t know that GLP-1s are necessarily what’s changing demand forever, but they definitely are a catalyst and a disruptor right now. We were listening to a HighGround Monthly Update earlier today. I’ll echo something that was said during that update: A health and wellness trend [00:02:00] is absolutely happening, is global. They noted and cited in that, that over the last two years, gym memberships have been up in the U.S. If you go to other parts of the world that we export products to that GLP-1s haven’t yet reached, we’re seeing incredible health and wellness movements and protein consumption uptake. So, what I think the GLP-1 aspect of it is doing is that it served as a bit of a catalyst and ignited this market and forced us all to recognize this shift that we’re seeing from just calories taken in to quality of calories taken in, and that is driving a lot of incremental protein demand that the dairy space is a benefactor of to date. So, I don’t know if I really answered it, Ted. I think GLP-1 is a catalyst in forcing us to recognize a bigger trend that we’re seeing, not only in the U.S., but globally. Jacob Menge: I do think it’s pretty important to talk about the time horizon that we’re discussing because there’s a really big difference in both availability and dietary preference of protein sources globally, right? Like India, Sub-Saharan Africa, even China up until very recently was very plant protein-based. And so, even though protein consumption as a whole has certainly been growing where you are looking at depends on how much that’s actually impacting animal proteins. And so, I think that time horizon is important, right? Because we know where population growth is occurring worldwide. Population growth worldwide is actually in areas that are plant protein consumers not animal protein consumers . And you’re getting some animal protein consumers actually trending lower on population, right? You look at the population outlook for a lot of Europe. Korea was in the middle. I think they’re, like, 50/50, if I recall, on plant versus animal proteins. But I think that time horizon is a pretty important piece of the discussion. Ted Jacoby III: So Jake, I’ll ask you the [00:04:00] question. So, five years from now, are we gonna be looking back on 2025 and 2026 and talk about the whey protein fad, or do we think that we will have seen a fundamental shift in where people have invested their investment dollars in terms of what kind of dairy production facilities, processing facilities have been built in the U.S. and around the world? Jacob Menge: Five years is way too short of a timeline to see what I would call a freight train changing its course. And so, I think that’s pretty clear. We know what’s gonna be happening with U.S. exports, right? We are just set up to be the export powerhouse in the short term, and I would call five years short term for trends like this. Even though this has happened very fast, knowing again what is happening with the U.S. export picture, I don’t think there’s any way we see a material change in what’s happening in the protein space in a five-year period. Mike Brown: I think there’s one point of difference in milk proteins versus whey proteins. I think we see, because of cost difference, I think, more interest in finding, how can I use milk proteins in a product versus whey? I noticed this weekend, again, looking at a sports beverage that 30 gram protein, number one ingredient’s milk, and it’s not a fairlife(R) product. It’s an amalgamated product. Jacob Menge: Couldn’t agree more. I was certainly one level higher in just saying any dairy protein or animal protein for that matter. But yeah, when you drill down, do I think there could be shifts within that makeup? Absolutely. Mike Brown: The other thing is with whey proteins is that you gotta sell the cheese or you gotta sell the casein. And as we look at that spread in price, what’s that value of that whey protein worth versus what you get for the remaining part of the product? As we know, right now, Class IV, which is even dry milk powders and fat are worth way, way more than milk for cheese, even when you adjust for the higher protein revenues. We have a $5 spread right now between Class III and Class IV. And that always takes care of itself, but exactly how it will, I think we all know there’s interest in do I add casein-producing capacity so I [00:06:00] can get to my whey proteins rather than just cheese? If I make those caseins, where’s the market for those products? Where am I gonna be able to use them? So I think there’s lots of questions that we don’t know yet. ‘Cause if I’m a processor, one very high-value product, whether if it’s a half a pound or three-quarter of a pound yield per 100 pounds of milk, it’s not gonna drive all your decisions. It’s gonna be a factor. Ted Jacoby III: Gus, I’m gonna ask you the question: Has GLP-1 changed dairy forever? Or do you think it’s a trend? Gus Jacoby: I’m of the impression that we are certainly following the trends within Western culture to evaluate more and more the health benefits of eating better nutrition. And certainly, as time moves on, the protein component in your meal is going to be more and more important. So, I’m not going to take away from that. I think that will continue to evolve, but I also think that as we continue to evolve in that setting, other pieces of that nutrition will come to light and become the fad for a period of time. At the moment, protein is hot, and I don’t think we can get away from that. For me, just looking at U.S. milk production and how much of that milk production goes into cheese ,the ever-increasing demand in cheese, I don’t see that going away either. I think that’s an entrenched part of our society, and I think cheese is a pretty important part of the daily food consumption here in our culture as well.  I think there’s a place for both of them, and it’s hard for me to distinguish one from the other as being where we go as an industry. Mike Brown: One thing we may see is more of these protein-based dairy beverages that aren’t Class I milk take more and more of that consumer stomach. And so, we’re gonna see more of those UF-based products, which aren’t necessarily what we think of traditionally as fluid milk. And that’s where a lot of the growth has been: in the high-protein milks. Is that where the substitution will take place as much as in some other ways? Gus Jacoby: I don’t think there’s any doubt, Mike, but I would also argue that we’re probably going to eat into that Class I consumption a bit by more of this dairy protein shake, which tends to be in the [00:08:00] Class II area. Mike Brown: Yeah, that’s, and that’s what I, that’s what I meant. Yeah. Okay. If you’re gonna drink it as a Class II product, it all gets down to how regulation basically makes those products more competitive- Yeah … because of the regulated minimum price. Gus Jacoby: That would be a very Interesting discussion probably for another day relative to- what we wanna cover in our debate today. Mike Brown: Yeah. It’s a bit of a nerd fest, But we look at consumption trends, it isn’t hurting the high-protein products because they are priced differently. Gus Jacoby: Yep. Ted Jacoby III: Diego, what are your thoughts? This demand for protein: fad or a long-term trend? Diego Carvallo: I think the trend is clear, and it still has a lot of room to grow. So, I think in a five-year period, it’s very easy to say that they’re gonna continue to grow. Ted Jacoby III: You see the international space a lot more clearly than most of the rest of us. What’s happening here in the U.S., is it happening internationally as well? Diego Carvallo: Yes, and that’s why I said that there’s gonna be growth ’cause I still see areas of Latin America where that trend is just getting started . You still do not see any of the products that you’re seeing in the U.S. at the supermarket showcasing and showing marketing that much the protein content on the end product. So I think that growth is still getting started. Ted Jacoby III: Joe, last but not least, fad, long-term trend? Joe Maixner: I think that the consumer shift is a long-term trend. I don’t know if necessarily the GLP-1 is the long-term trend because technology will continue to advance, and there’ll be something that comes out at some point that makes this old news. I think that the health and wellness trend is certainly here for the foreseeable future. estimating 40 million people within the next five years are going to be on GLP-1s. That’s a big number. The one thing we’ve seen the effect on selfishly for my market is the amount of cream and fat that it’s spun off because of all the demand for the protein. We did not expect to have this fundamental shift in the fat market domestically this quickly. Unless the farmers decide that they’re gonna change how they feed their cows and produce less fat, we’re gonna see that for a while too, and we’re gonna be surplus fat. And that [00:10:00] product is also affected by this GLP-1 because people tend to eat less sweets and snacks and fat-heavy products, so consumption’s been down on that side as well. Ted Jacoby III: It’s gonna be interesting. And I’ll just give my two cents. I do think the demand for protein is a long-term trend. I think it’s a trend both within certain segments of the population and I think it’s a trend in that I think, just comparing my generation and how I ate and drank in my 20s compared to how my children eat and drink in their 20s, they sure do live a healthier life than I did when I was that age. I think I’m speaking for a good portion of that generation and not just my kids. So, we’ll see. It sounds to me that the consensus is pretty clear on this one. Whether it’s GLP-1s or not, this protein trend is a long-term trend, and it is fundamentally changing the dairy industry. And we’re all curious to see how it’ll play out. All right, now I’m gonna switch to our second debate. This debate is will cheese remain king? So in my lifetime, milk production, when I was born, milk production was roughly 20% of milk was made into cheese. Today, it’s 55%. It is very clear that the driver in dairy consumption in the United States is a per capita increase in cheese that is part of a long-term trend. My question for everybody today is: Have we started to reach the point where that trend is starting to plateau? Is cheese still king? Will it continue to be the driver of increases in per capita dairy consumption, or have we reached a point where we’re not going to see cheese driving the bus anymore? It’s 55% of milk production goes into cheese today. Is it gonna be 65% in 10 years, or is it still gonna be in the 50s? Gus, I’m gonna throw you out there first. What are your thoughts? Gus Jacoby: I think it’s hard to say that it isn’t still king considering the large amount of milk in U.S. milk production that goes into cheese. And even with respect to the protein segment that we just talked about, you can’t make whey [00:12:00] without making cheese, so you’re not gonna get whey protein without cheese. I don’t think the American consumer is going to lose their appetite for cheese anytime soon. I understand that certainly with the GLP-1s we’re gonna eat a bit healthier. But I find it hard to believe that while maybe the growth might become less than it has been over the last number of years I do believe that cheese is gonna be with us as the majority taker of milk at least for the foreseeable future. Ted Jacoby III: Do you think the trend is strong enough that 15 years from now 65% or 70% of all milk goes into cheese? Or do you think maybe we’re gonna plateau right around here at 55%? Gus Jacoby: I think it still has room to go a little bit higher. I think there’s a possibility of plateauing, though maybe at some point north of 60. But at the end of the day I just don’t see how it can be removed from the diet. If people wanna start playing with what type of cheeses are in their diet for better health benefits, I guess that may happen. Ted Jacoby III: All right. Gus Jacoby: Not in the near term. Ted Jacoby III: Jake, what are your thoughts? Jacob Menge: I would imagine that the percent of milk that is turned into cheese goes lower. That’s my gut feel. We’re gonna be export-dominated. We maybe can capture some markets that we haven’t historically gotten into before with more shelf-stable products. We’re just gonna have to export a lot of product. And cheese is exportable obviously, but it just feels, with the new markets we’re gonna be moving into, the amount of product as a percent that we’re gonna be exporting, dietary shifts, it all points to me that, as a percent, it’s hard for me to make the case that cheese goes higher. And so by default , I’ll argue it goes lower. Ted Jacoby III: Joe, what are your thoughts? Joe Maixner: I think that what happens with cheese moving forward depends on how well the dairy industry markets cheese moving forward. If we do a better job of [00:14:00] marketing the protein benefits, the fact that it’s the cheapest protein per gram and playing into those strengths that would help keep it as king and increase consumption. If we continue to sit on our laurels and not really do any additional marketing, I think that we have a chance to lose capacity. Jacob Menge: So what’s your gut? Do we do a good job marketing it or not? Joe Maixner: Okay. I don’t think we do. But we could. The potential is there. We just, we’re not doing it. Ted Jacoby III: I think dairy has struggled for a long time just to market itself as how healthy it is, and some of that I think is because we sit in a position of strength in the marketplace, and so everybody’s always coming after dairy to say they’re better than dairy and dairy’s got issues. So all the plant guys can grow their plant-based products. All of those food products that don’t come from dairy tend to attack dairy in order to grow their own market share. And I think that’s why dairy struggles. I think your point about how the value of a gram of protein in cheese is a lot less than the same cost of that protein, let’s say, in whey powder or in other things. I’m curious to see how that plays out, because I think it’s a really good point. Mike Brown: I’d make a point on the competition. Where we’ve seen shrinkage in the refrigerator dairy case is the non-dairy beverages. They are losing market share. Milks are doing better, particularly the protein milks, are doing so much better. I think there’s still potential, so we can’t assume that. I also think there’s two questions on cheese to me: market share and total market. I think total market still has a little room to grow. I think market share will not grow, maybe decline modestly, and that’s more because of the Class II demand for proteins now with yogurt, Greek yogurts, and cottage cheese, and all the Class II-based liquid beverages. So, it’s more of an issue perhaps of market share, and that takes time to build capacity. We all know that. But the demand is there. Cheese is gonna continue. We [00:16:00] look at the supermarket sales data, it’s still growing modestly, as is butter, and that’s just total sales. I think the other factor we gotta think about here is population growth because our growth’s gonna be much slower. With current immigration policies, I don’t see a quick turnaround in growth of population like we’ve experienced in the past. A lot of that from folks who are big users of dairy in their diet. In the benefit of cheese, as we get older, we drink less, and we eat more milk proteins, and that’s part of our growth, of course, with cheese. The other one is food service. It’s huge, particularly the mozzarella side of the business, and it’s looking pretty tepid right now. That tends to go with health of the economy. I expect it’ll rebound again when people have more money to spend. I think that’s part of it, too. So, cheese is gonna remain strong. Jake made a very good point, though, as did Joe. It’s kinda sold itself, and we’ve had no trouble selling it. We are now the export market, kinda like we did with non-fat dry milk, what, 20 years ago, Josh? We’re, and we’re dependent on that export market. So, it makes us more vulnerable to world price, term, but it also means it’s a chance to grow if our industry adapts to meet those demands. And as we see, everything from powders to butter to cheese, the industry is working on that. But it’s a slow process, ’cause it’s always been that market when we have a little extra it was an opportunistic market, now it’s becoming part of sales strategy, and that’s a very different way to look at your business. Ted Jacoby III: Yeah. It means It’s really matured. Mike Brown: Yes, a lot. Ted Jacoby III: Diego, what are your thoughts? I know you’re not the cheese guy, you’re more of the ingredient guy, but internationally, cheese is definitely growing. Cheese gonna remain king? Or is the other protein sources gonna take over and pull milk away from cheese? Diego Carvallo: So I have contradicting thoughts here. I think that everybody here agrees that the demand for WPCs and WPIs is gonna continue growing, and that’s definitely been making cheese plants very profitable . But at the same time, I’m seeing that many cheese plants being built in the past few years that I think that [00:18:00] the competition is gonna get fierce in that aspect. I would say in the coming years, I see more probabilities of people who build, and companies who build dryers, for example, for non-fat and skim , to have an advantage and definitely a good incentive. Ted Jacoby III: So my two cents is this: I think we are underestimating how much the export demand for cheese is gonna keep driving it. There’s a lot of proof that cheese consumption in developing countries tends to follow a generation or two after milk powder consumption. It starts with infant formula, then tends to stay in the diet as they get older, and eventually manifests itself in cheese, mostly as an ingredient in something like pizzas or burgers, et cetera. And so, I do think cheese demand for cheese out of the U.S. will continue to grow. I do think the curve will flatten a little bit. I also think that you are going to get a continued pressure to build more cheese plants just so you have access to the whey protein, because I think the whey protein is gonna maintain its value. But I’m a little bit like Diego, ’cause on the other side, one of my thoughts is I hear a lot of conversations lately about instead of making cheese, what if we make micellar casein and we pull the native whey, and then we dry the native whey separately? So, I can also see technology continuing to evolve where maybe you don’t actually need to make cheese in order to have access to the whey proteins, and I think we have to keep our eye on that. But I do think cheese is the dominant use for milk in the United States. I don’t see that changing anytime soon, but I do think the trend is probably gonna start to slow down a bit. Josh? What are your thoughts? Josh White: I’m gonna step back a bit and start with one belief, and that belief is that United States dairy economies of scale have now reached a point where we’re gonna grow in our market share for the global dairy consumption. We’re gonna continue to grow in our participation in that business, and we will capture more market share. And if you believe that, at its core, cheese is maybe one of the… If not, it’s the most calorie-dense product that we have. [00:20:00] And there’s an argument that it goes into products as both ingredients and as the primary food service or retail product, which accesses a lot of different demand potential. If you think about the cheese factory, maybe not how they’re run today, but if you think about it, I’ve made the mistake multiple times of saying that we’re gonna start balancing to cheese, and there’s been a big argument about that, internally. And I can understand why there’s an argument on the surface level. But in the bigger picture, it’s what may be the most versatile way to process milk and balance out whether we have extra protein, extra fat, or we’re short of either of those product or whatnot. You can spin off more cream. You can bring in more solids. You really optimize that recipe, and I feel like that makes it foundational. And if it’s foundational, you’re gonna continue to see investment in these large cheese plants. If whey protein’s hot, great, whey protein benefits, and cream prices are poor it’s offsetting . If cheese demand globally is growing or fat demand’s growing, great we’ll maneuver our recipe a bit to take advantage of that. It feels very… Optimized maybe is not the right word. Someone help me with a word for it. But it feels like it’s a natural hedge, and it just seems if we’re gonna continue to grow in the commodity foundation of dairy products and then optimize all the ingredients and all the special opportunities around it, the cheese processing facility is maybe going to be the best to build around. And so with that in mind, I don’t know if that necessarily takes a greater market share, but it’s gonna be the foundation for our growing volume of milk solids out of the U.S. over the next several years. Ted Jacoby III: Josh it’s funny, you mentioned, are we gonna start balancing into cheese versus balancing into a powder plant? And my initial reaction when you first mentioned it a year or so ago was to say, “A cheese plant is just way too expensive.” It’s two, three times the cost to build a cheese plant as it is to build a plant that [00:22:00] dries non-fat. But the more I thought about it, the more I started to realize this: Already today we’ve seen a fundamental shift, and it will continue. I think cheese will always get enough milk to run the plant, but the competition for that marginal next pound of milk that could go to any of those plants, I think the competition for that last pound of milk has been ratcheted up a notch or two, and I don’t think cheese is gonna win that battle at all costs, like it historically has. And so I think there are times when your UF milk plants, when your ESL plants, and even when your non-fat butter plants are gonna win that competition from time to time. And so, the balancing function for a milk supply is gonna start getting spread over the course of multiple plants rather than the way we’ve been over the last 50 years, where everything was balanced in and out of a milk drying plant. All right. So have we decided? Have we come to a conclusion? Is cheese king? Let’s just go around. Is cheese gonna stay king? Mike, is cheese gonna stay king? Mike Brown: Cheese will stay king, but the strength of its kingdom will be a little weaker, ’cause it’s gonna have some strong competition from other proteins. Ted Jacoby III: Perfect. Jake? Jacob Menge: Couldn’t have said it better. Agree completely. Yep. Ted Jacoby III: Gus? Gus Jacoby: I would agree with how Mike said it. Yeah. Ted Jacoby III: Awesome. Joe? Joe Maixner: Yeah. No, no argument here. Ted Jacoby III: Diego? Diego Carvallo: I’ll have to say no. It’s because of the high competition and the amount of plants that are being built right now. Joe Maixner: Yeah. Ted Jacoby III: So are you saying you agree or disagree? Diego Carvallo: I disagree. Mike Brown: It’s the degree that cheese is ahead; it’s gonna take a lot of time for that to shift. Ted Jacoby III: A little bit like the Roman Empire in the year 200 AD, it’s still got 250 years to go, but it’s no longer gonna be the powerhouse it was 50 years previous. Josh, what do you think? Josh White: Yeah cheese is the king, and we’re gonna build a bigger kingdom around it. Ted Jacoby III: All right. And I agree with the general consensus that the cheese stays king, but the trend of an ever-increasing percentage of the supply is starting to slow down a bit. All right, everybody. Hey, this was a great [00:24:00] conversation. Thanks for joining us today. To all of our very valued listeners, we thank you for taking the time to listen to us. And if anybody ever has any questions about some of the topics we talk about, don’t ever be afraid to reach out and contact T.C. Jacoby & Company. We’re always happy to help. Take care, everybody.

May 15, 202621 min

Volatilidad, leche y mercados globales

En este episodio de The Milk Check en Español, Diego, Yara y Miguel analizan uno de los mercados lácteos más inciertos de los últimos años. El equipo conversa sobre la limitada disponibilidad de leche en algunas regiones de Estados Unidos, la fuerte demanda de leche ultrafiltrada, el sólido mercado de exportación de quesos y por qué el mercado de leche descremada en polvo sigue desconectado de los fundamentos tradicionales. También hablan sobre el incremento en los costos de flete, la creciente necesidad de SMP en México, el cambio en el comportamiento de compra de los clientes al construir inventarios de seguridad y cómo las tensiones geopolíticas, negociaciones comerciales y la volatilidad global están impactando los mercados lácteos alrededor del mundo. Desde NFDM y quesos hasta fletes, futuros y comercio internacional, este episodio cubre los factores más importantes que están definiendo el mercado lácteo actual. ¿Tienes preguntas? Nos encantaría escucharlas. Envíalas abajo y podríamos responderlas en el pódcast. Pregúntale a The Milk Check Diego Carvallo: Buenas tardes a todos nuestros queridos clientes y, proveedores. Los saludamos desde la ciudad de San Luis, donde estamos Miguel, yo, y Yara esta semana reuniéndonos con el equipo para reuniones de estrategia y análisis de mercado. Y bueno, bienvenidos al pódcast de esta semana. Estamos a mediados del mes de mayo con muchísima incertidumbre, muchísimas, eh, comentarios y preguntas sobre el mercado. Yara Morales: Sí, saludos a todos. Miguel Aragón: Así es, sí nos estamos reuniendo aquí en nuestra reunión trimestral, viendo, tratando de, ver la bola de cristal, pero no, no, no, no, está, está- no aparece, no aparece. Yara Morales: Sí, yo creo que las mismas preguntas que nosotros tenemos las tienen todos los clientes y los proveedores también. La verdad, es una incertidumbre todo lo que está pasando con el mercado. Es un año de verdad muy a-atípico, muy diferente a todos los años. O sea, ya, ya muchos clientes hasta nos dicen: «Pues ya no me sirven las referencias que tenemos de todos los estadísticas que teníamos anteriormente». La verdad, ya no, no. Ha sido un año muy difícil para todos. Así es. Diego Carvallo: Si quieren, podemos comenzar hablando un poquito de, de la parte de fluidos y después pasar a, a los productos. Eh, así entendemos un poquito cómo, cómo se sienten los fundamentos. Em, bueno, hemos tenido varias reuniones con el equipo de fluidos y, eh, a pesar de que el número de producción de, de leche de Estados Unidos sigue estando bastante bien, eh, seguimos teniendo un crecimiento bastante sano en la producción de leche, em, estamos viendo, eh, que para el medio del spring flush, que estamos actualmente, no pareciera haber sobrantes de leche, eh, a descuentos tan significativos como lo que había en los años anteriores. Y, eh, eh, la verdad es que ha creado algo de, eh, dudas, algo de preocupación, sobre todo para el equipo de fluidos, porque en estos momentos usualmente estamos viendo la, las cargas de leche descontadas a, a unos descuentos muy importantes y este año no ha sido el caso. Entonces, eh, hay mucha discusión y mucha, eh, como conversaciones sobre la demanda, sobre todo la demanda de lo que son, eh, las cargas ultrafiltradas, que está muy, muy fuerte esa demanda y pareciera que las plantas todavía tienen más capacidad para absorber leche. Em, por el otro lado, la parte de la crema sí está bastante larga, hay bastante producto disponible, pero lo que es la ultrafiltrada y la leche líquida, pareciera que con toda la capacidad nueva que agregamos este año, em… Hay suficiente planta para absorber ese crecimiento. Miguel Aragón: Así es, así es. Eh, un comentario importante que nos hacían los-nuestros compañeros es el de que en estos tiempos las– usualmente las cargas se compran o se mueven a descuento y este año no, se están moviendo a la par, lo cual está causando una incertidumbre bastante alta en el mercado. Diego Carvallo: Si, si ese es el caso ahora en el pleno flush, pues el mercado debería sentirse muy ajustado una vez salgamos del flush. Exacto. Y entremos en periodos de baja producción. Miguel Aragón: Exactamente. Eso lo, lo estamos empezando a ver en, en, en el mercado de futuros, eh, por lo pronto en el lado de lo queso. No sabemos qué tanto se ajuste, pero nos da algo de, de, de pausa ahí de- Sí. Yara Morales: Porque si siguen, este, mandando la leche para la clase uno, que es para toda la leche fortificada, para lo que es el, el, el yogur griego y, y lo que es el cottage, pues la verdad es que mucha leche se va a ir para allá. Eh, va a estar todavía muy escasa. Clase uno y clase tres. Diego Carvallo: Clase tres. Mhm. Exactamente. Clase uno y clase tres. Es importante aclarar también que e-e-ese panorama que estábamos describiendo es sobre todo lo que es, eh, al este de las montañas, de los Rockies. Todo lo que es California y la costa oeste, sí tengo entendido que hay bastante leche. Hay bastante leche. Que la leche sigue bien larga. Sí, así es. De hecho, uno, ayer coment– eh, estaba en plática con un-uno de nuestros proveedores y nos decían que tienen suficiente leche para las plantas de queso, en, por lo menos en California. Eh, y lo que comentabas, Diego, definitivamente esto se está viendo para el lado este y para el, el, de hecho, plantas en el centro del suroes– en el sureste. Sí, sí. El caso de la costa este ha estado muy ajustado de hace muchos años. Bueno, este año, eh, ese nivel, ese tightness, esa falta de leche, se ve aún más, eh, pronunciada. Em, bueno, con eso podemos entonces hacer como un, un cambio y empezar a hablar un poquito más de los, de los subproductos. Eh, Miguel, ¿quieres hablar un poquito de la parte de quesos antes de entrar en, en los polvos? Sí, sí. De hecho, ah, es, el– aunque el mercado doméstico sigue teniendo suficiente producto para la demanda que tenemos, el mercado de exportación es completamente otro tema. Eh, más que u– esta semana estamos viendo algo de movimiento en los mercados de Asia y, este, y Oceanía, con la, una demanda que se está incrementando. Miguel Aragón: Ojo, cuando eso es, esos mercados se llevan bastante producto. Habían estado algo dormidos, eh, las últimas Seis semanas, ocho semanas. Pero estamos viendo que ahora al parecer la están ya buscando producto otra vez. Eso tal vez nos va a poner algo de, de restricciones de producto para México, Centroamérica, Suramérica, porque al parecer lo pagan mejor, eh- Estados Unidos es el país más competitivo en este momento para lo que son quesos, ¿no? Sigue siendo el más competitivo. Así es, así es. Aunque hay algo de, de sobre todo mozzarella, de, de, de– hubo algo de producción en Europa, pero no, seguimos siendo los más competitivos, Diego Carvallo: sobre todo en los cheddar. Ya, ya, ya. Okey, interesante. ¿Y si están viendo, eh, en lo que va de año un aumento en todo lo que son exportaciones a esas regiones? Sí, todo, Miguel Aragón: sí, los, los mercados a los que hemos exportado siguen creciendo, sigue creciendo la demanda. Eh, aún no podemos ver, eh, cómo, se desparrama la demanda o cómo, cómo se– cuándo es más demanda y menos demanda, porque ha sig– ha seguido creciendo constantemente. ¿Y Diego Carvallo: cuál es, eh, tu outlook para el resto del año? ¿Estás– tú sientes que el mercado ha conseguido un soporte bastante claro y que la demanda puede mantener los precios actuales o, o sientes más bien que en algún momento podemos volver a caer? No, la, creo que Miguel Aragón: estamos en un, en un, tenemos un piso. Ya. Y aunque hemos creído que vamos a estar en un rango, al contrario, creemos que tal vez, eh, el mercado empiece a tratar de, de, de, de subir un poco, de apuntar para arriba- De romper esa resistencia. De romper esa resistencia hacia arriba. Pero, ah, todo depende cómo, cómo siga la demanda doméstica, porque eso es lo que nos va, nos va a marcar Diego Carvallo: la pauta. ¿Y el tema de la guerra en Irán está afectando en algo la demanda de los clientes de ustedes en el sureste asiático? Miguel Aragón: Definitivamente, definitivamente. De hecho, tuvimos algo de cargas nosotros que, que anduvieron dando vueltas. Hasta en la India teníamos cargas que, que iban a, a Arabia Saudita, eh, y nos, nos afecta a nosotros, pero está afectando a todos los productores también. Eh, y es un mercado por varias cosas. U-una, porque no podemos entrar, pero otra, la más importante, es porque las aseguradoras no nos están asegurando las cargas que van para ese mercado. Nadie las asegura y si no las aseguran El mercado claro no puede, no puede tomarlo, no puede tomar ese producto Es demasiado riesgo. Ya, Diego Carvallo: ya, ya. Miguel Aragón: Imagínate Yara Morales: el transporte, cómo se está incrementando también Diego Carvallo: con todo eso. Eso es lo siguiente, eso es lo siguiente. Es un tema que vamos a hablar también, que está afectando sobre todo a los productos más económicos, porque representan un porcentaje más alto del, del costo del producto. Sé que ahorita todo el mundo quiere hablar mucho de nonfat, así que si quieren pasamos un poquito a hablar ese tema- Nos dedicamos al nonfat. Que es el más complicado en este momento. Eh, mira, en pocas palabras, yo diría, en este momento estamos viendo un mercado que está de cierta manera desconectado entre lo que es lo, lo que estamos viendo en los fundamentos con lo que estamos viendo en la realidad del mercado físico. Los fundamentos, eh, apuntan y todos los reportes del USDA apuntan a que hay un crecimiento en la producción de nonfat, hay un crecimiento en la producción de SMP y hay inventarios relativamente sanos. Sin embargo, lo que estamos viendo en el mercado spot, en el mercado actual, es algo bastante distinto. Y puede ser por algunos factores como los de los recalls que tuvimos, eh, ¿cómo se dice un recall en español? La- Reclamos. Un reclamo de producción que tuvimos durante los últimos meses que ajustaron el mercado, pero la realidad es que el mercado spot, el mercado físico actualmente sigue estando sumamente ajustado. Hay muy poco producto, la mayoría de las plantas siguen completamente sobrevendidas. Eh, los traders y revendedores tienen muy poco inventario en mano. Y también vemos ese mismo patrón desde el punto de vista de los clientes. La mayoría de los clientes siguen todavía bastante cortos de producto y necesitan may-mayor, mayor volumen para saciar sus inventarios de seguridad y su producción. Entonces, eh, yo diría, en el corto plazo todavía vemos un mercado bastante bien sostenido, pero creemos que una vez pase el spring flush, después de estos dos próximos dos meses, deberíamos ver una mejor correlación entre lo que es el mercado físico o el CME Cash y el mercado de futuros. Y creemos que principalmente el CME Cash debería hacer gran parte de ese trabajo para llegar a un nivel más cercano a donde están los futuros. Es decir, creemos que debería haber cierta, eh, corrección y consolidación en un nivel posiblemente cercano a, a los cuatro mil quinientos, cuatro mil seiscientos, para de ahí poder buscar, eh, opciones de moverse para más arriba o mantenerse firme el resto del año. Sí somos, eh, creyentes de que el resto del año el polo va a seguir bastante ajustado, pero no creemos que nos podamos mantener en los precios que estamos actualmente, que son dos dólares treinta por libra, que es un precio en el que ya empezamos a ver que la demanda se frena un poco Okey. Em, todo lo que son MPC, eh, MPC setenta y MPC ochenta han seguido mucho ese patrón en el que el mercado está muy ajustado, no hay suficiente producto y hay mucha demanda que ha venido de sports nutrition, de otras aplicaciones a buscar, eh, sustitutos en el mercado del MPC. Em, Yarita, cuéntanos un poquito cómo has visto tú la demanda, cómo has visto a tus clientes en México, eh, ¿cuál es la expectativa de mercado desde el punto de vista del cliente mexicano? Yara Morales: Bueno, la, la verdad es que con toda la escasez que hubo en los primeros meses y que no podíamos surtirles la leche, porque todos los proveedores nos agarraron sin inventario y a México lo agarraron sin inventario. Afortunadamente, ya a partir de marzo, abril, ya empezaron a recibir producto. Entonces, ahorita los clientes en México tengo entendido que ya tienen un poquito más de inventario. Aparte, pues están cerrando contratos, eh, se está comprando SMP de, de Europa, los que tienen cupo y el producto va a empezar a llegar ya en mayo y son precios más competitivos. Los precios tan altos, los, eh, clientes finales, pues obviamente tienen una resistencia ya a pagar estos precios tan altos y empezaron a utilizar la leche fresca, que había bastante, ¿verdad? Este, podían encontrar hasta de cuatro pesos por litro. Ahorita ya no hay, se está escaseando. Todo el norte de México, ya la leche fresca está escaseando demasiado. Ahorita hay un poco más en el centro, que es donde también hay bastante producción de leche fresca, pero va a llegar el momento, como ya a finales de junio, julio, que empieza a escasear la leche fresca. Entonces, definitivamente va a haber una necesidad de leche descremada. Aparte de las formulaciones, pues ya las tienen con la leche descremada. Y la verdad es que todavía sigue habiendo, este, demanda. Ya no igual como en un principio que estaba todo mundo desesperado tratando de conseguir y recibir algo, pero de cualquier manera sigue la demanda, sigue todavía los clientes tratando de conseguir producto. Diego Carvallo: Y es difícil que no vengan a comprar a Estados Unidos. Por eso, por eso yo soy de la creencia que el mercado se va a mantener bastante firme por el resto del año, porque las importaciones de Europa sabemos que va a ser un volumen limitado, menos de diez mil toneladas, posiblemente para todo el año. Eh, si hay poca leche bronca en México, no van a tener otra opción que o, o consumir menos o, o venir a comprar a Estados Unidos, en pocas palabras. Entonces, eh, sí, yo creo que eso debería dar soporte. Debería marcar al menos un piso en los precios de, del nonfat. Quería Miguel Aragón: a-adherir un poco una reseña. En el– ahora que estuvimos en Chicago atendiendo el ADPI, estuvimos juntas con algunos, ah, productores de, de, de comida aquí en Estados Unidos y nos comentaban algo que tal, tal vez quisiera ver ustedes qué opinan. Eh, muchos Yo era de la creencia que nada más en México compraban al día, por decirlo así, y, y no había contratos largos. Resulta que en Estados Unidos era la misma situación y con varias de las empresas que nos juntamos nos dijeron: es que ahora estamos tratando de decidir si contratamos toda la segunda mitad del año, eh, a estos precios o nos esperamos. Es la gran cuestión ahí con las empresas que estuvimos platicando dentro de Estados Unidos. Y eso era nonfat Diego Carvallo: también o queso también. Nonfat. Ajá. Principalmente. Nosotros hemos visto exactamente ese mismo patrón. Los clientes en Estados Unidos tenían inventario al día, tenían una carga de, que tenían que utilizar esta semana y a la semana siguiente les llegaba otra carga y no tenían inventario. Ahora la tendencia es comenzar a construir inventario de seguridad, proteger para al menos dos o tres meses para protegerse de que una carga esté demorada o que no haya producto. Así es, exactamente. Miguel Aragón: Creo que Diego Carvallo: es una reseña muy Miguel Aragón: interesante Diego Carvallo: que, no la había Miguel Aragón: visto yo Diego Carvallo: y se ve ahora. Y eso resulta en demanda adicional, porque eso a la final, cuando todos los clientes de Estados Unidos, muchos, tratan de crear inventario de seguridad a la misma vez, cuando el mercado está muy ajustado, crea un crecimiento en la demanda que no es artif– no es orgánico, pero sí crea una subida en la Miguel Aragón: demanda. Así es. Y creo que alarga esta, esta cuestión que estamos viendo ahora. Está ajustado. Sí, Yara Morales: y lo hemos estado viendo con los clientes de México, los queseros, los que tienen plantas de queso, que han querido cuando menos tener la seguridad de que van a tener el producto, por eso pagan los precios. Entonces, han estado comprando con precios hasta meses adelantados. Y es, y era algo que no se veía. ¿Por qué? Pues porque estamos tan cerca que pueden llevarse el producto, pues en una semana o dos semanas y ya tienen la leche. Pero ahorita con esta escasez, pues la verdad que prefieren cerrar contratos largos, aunque sean meses más adelantados. Diego Carvallo: Correcto, correcto. Un punto también importante mencionar es el costo, cómo está afectando el mercado los altos costos de combustible y de flete, sobre todo para productos económicos. Hace poco estuvimos cotizando algunas cargas de permeato a México y a diferentes partes de Asia, y el costo del flete ha subido muchísimo. Eh, es algo que también está afectando a muchos clientes y viene dado a raíz del conflicto en Asia. Eh, ¿cómo está afectando eso a, a su, a la demanda de queso? Miguel Aragón: Definitivamente nos está afectando porque en, en, como saben, manejamos, eh, tres líneas de queso nosotros. Manejamos el queso de primera, eh, que tal vez es el que no, no refleja tanto, eh, el, el incremento en flete, pero lo refleja, pero lo puede absorber un poco más. Pero en el producto, ah, grado B que decimos nosotros, que se supone que era un poco más barato, eh, sí le afecta porque es un producto más barato. Y ahora el producto, eh, que manejamos para reproceso, que es el producto barato, es el producto para extender la proteína en el queso, eh, para hacer más queso, sobre todo queso análogo, ahí sí se sintió fuerte el i-el impacto del flete, porque a veces son– o sea, ha subido cuatro o cinco centavos por libra de diferentes lugares. Depende de, depende de la geografía de Estados Unidos, de donde estemos mandando el queso y es donde más nos ha afectado. Totalmente. En el Diego Carvallo: producto más barato. Igual que- Y, y no solo es en fletes marítimos, sino en fletes terrestres. La parte del transporte en camión en Estados Unidos ha subido mucho. Nosotros solíamos pagar cuatro o cinco centavos para mover una carga de California a El Paso. Hoy en día ese precio está cercano a los seis, o sea, ha subido un cerca de un 20 % En, en la– cuando movemos Miguel Aragón: produ– movemos queso de, de, de Washington a, a El Paso, estábamos pagando trece centavos la libra. Hoy día diecisiete centavos, a veces dieciocho centavos. Y de-dependiendo también si, si se empieza a mover algo como de, digamos, de, del sur, de, de, del suroeste, cuando empieza a moverse mucho melón o cosas así, o cuando viene la temporada de árboles de Navidad, depende de la temporada, esto va, va a incrementarse aún más. Sí. Yara Morales: Igual que el refrigerado. El refrigerado se estaban pagando doce centavos y ahorita ya están cerca de dieciocho centavos. Entonces sí ha Miguel Aragón: subido bastante. Sí, sí, sí, nos está afectando en el queso, en la, en el movimiento del queso y en el movimiento de la mantequilla, definitivamente. Yara Morales: También. El Diego Carvallo: último tema que nos ha preguntado mucho la gente. Cuéntenos un poquito sobre el tratado de libre comercio y qué expectativas hay ahora que se vuelve a negociar entre Estados Unidos y México Bueno, Yara, tú ya has escuchado porque- La verdad, Yara Morales: hay mucha incertidumbre, hay muchas preguntas. Eh, ahora en junio que viene la revisión, pues, mmm, son varios, varios factores, ¿no? Se viene el, la revisión del Tratado de Libre Comercio y se viene el Mundial de fútbol en los tres países. Entonces todo el mundo anda como que muy alterado con todo eso, porque no saben, no sabemos qué es lo que vaya a pasar, no sabemos cómo se vaya a, a mover ese Tratado de Libre Comercio, si se va a renegociar, qué porcentajes pudieran darse o si vamos a quedar en cero, que es lo que todo mundo pretende, porque pues es la economía de México. La economía de México realmente necesita ese Tratado de Libre Comercio. Y, este, y yo creo que todos, porque para todos es un beneficio, ¿no? Inclusive para Estados Unidos. Entonces hay mucha incertidumbre, ¿no? La verdad, mmm, yo pregunto y ando investigando y todos mis clientes pues no saben qué es lo que vaya a pasar. Miguel Aragón: Así es. Y nos está… esta incertidumbre nos afecta día a día, eh, sobre todo con México por la cuestión del tipo de cambio, porque sale un encabezado y se dispara el dólar, eh, sale otro encabezado y se fortalece el peso. Es cuestión de todos los días, todos los días, este, y las, la cuestión política nos, nos, sí nos está afectando bastante. No, Diego Carvallo: no hay certidumbre. Miguel Aragón: Claro. Eh, pero una cosa superimportante que, que, que creo que está, eh, afectando algo lo del tratado y muchas otras cosas es que se nos vienen las elecciones primarias en, en, aquí en noviembre- Estados Unidos. Estados Unidos. Y a eso tú sabes que- Es muy importante. Es muy importante, porque hay que mover el, el, el, el, el, el, lo que piensa el público. Claro, hay que ganar los votos. Y hay que ganar los votos y aquí vamos a ver si se va a hacer cosas para, para tratar de tener algún efecto sobre eso. Y muchas veces no tiene nada que ver con México, Diego Carvallo: obviamente, también las de Irán, pero el mercado, básicamente, yo creo que va a mantener mucha volatilidad, va, va a haber mucha incertidumbre y, eh, las, las monedas van a tener, obviamente, como resultado una variación bastante violenta. Los bancos nos afectan. Exactamente. Yara Morales: Sí. ¿ Diego Carvallo: Qué otro punto importante? Definitivo, Yara Morales: definitivo. Ay, pues yo creo que todo esto es bien interesante. Vamos a ver qué sucede. Este, no sé qué otra cosa podemos Diego Carvallo: manejar. Voy a estar, yo voy a estar en Antad la próxima semana. Eh, lastimosamente, esta vez no me van a poder acompañar Yara y Miguel Pero yo voy a estar en Antalas, así que con mucho gusto, eh, me, me encantaría conocer y encontrarme con algunos de nuestros clientes estando allá. Así que no duden en, en contactarnos. Así es, así es. Desafortunadamente, Miguel Aragón: yo Diego Carvallo: no Miguel Aragón: voy. Sí. Ah, pero yo voy a estar en, en, en Alimentec, en Bogotá, creo que es. Entonces, si alguien nos está viendo en Colombia o que vaya a estar en Alimentec, por ahí estamos. Excelente, excelente. Que Yara Morales: por cierto también va a haber elecciones en Colombia. Miguel Aragón: También. Así es. Sí, Yara Morales: también va a haber elecciones en Colombia. Hay que ver cómo, cómo se- Más volatilidad. Se ve todo. Más volatilidad todavía. Más Diego Carvallo: gasolina al fuego, sí. Bueno, mil gracias a todos. Gracias, Miguel y Yara. Gracias. Gracias, gusto en Yara Morales: saludarlos a todos. Bye

May 5, 202620 min

A Market on Borrowed Time

Nonfat is sitting north of $2.25 on the CME spot market. But the bigger question is how long it can hold. In the latest episode of The Milk Check, the Jacoby team breaks down a dairy market that feels tight, fragile and increasingly dependent on timing. Here’s what they’re watching: Why nonfat prices surged, and what could break them How protein demand is pulling milk away from dryers Why MPC and MPI are outpacing nonfat What the inverted futures curve suggests for the second half of the year How depooling and Class III–IV dynamics are shifting milk flows Why butter feels weaker, even in the middle of flush Plus, the team talks through what happens if the nonfat market doesn’t break soon. There’s still a lot of milk moving. Just not where it used to go. Let the Jacoby team help you get up to speed on the new dairy market dynamics. Click below and listen to The Milk Check episode 98: A Market on Borrowed Time. Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check Ted Jacoby III: Coming up on the Milk Check. Jacob Menge: if this doesn’t start falling soon, I think there’s gonna be people that are trying to make money on the short side of this thing because they didn’t make money on the long side. Ted Jacoby III: Welcome to the Milk Check from T.C. Jacoby & Co., Your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. Today is May 1st. It’s a couple of days after the ADPI and a couple of weeks after the Cheese Expo, and it’s usually after those two meetings a really good time to talk markets. So, we’ll go ahead and start with the market that everybody was talking about at the ADPI. Josh, Jake, Joe, what’s going on with our nonfat market? We’re at $2.26 today, I believe. Are we gonna stay up here for a while? Josh White: It’s a more challenging question than just the absolute price today. I think that if I were to summarize the show, there was a recognition across the entire dairy industry that there might be some legitimate reasons for nonfat to be tighter than they have been over the last several years. It feels like a lot of different things have resulted in the current spot price that we’ve seen today. Over the last five years, we globally have made more skim milk powder and nonfat. We’ve consumed more skim milk powder and nonfat, but the real story is in the fact that we’ve also made a whole lot more milk, and that milk doesn’t seem to have found its way to the dryer. Seems to have found its way to a variety of different products. And equally as important during the ADPI was the talk about the protein market, which I think we can likely get to later. But things like RDT products, beverages, protein consumption, cheese consumption, a lot of things have consumed incremental milk growth, particularly in the U.S., and that happened after many years where buyers had very little concerns over access to supply. And as a result, I think in the background we watched global inventories decline, and that all seems to have come to a head here in the early part of 2026. And now as we’re getting into the northern hemisphere flush, and particularly in middle America, yeah, then we have ADPI. And so, what’s interesting about your question is throughout most of the conference people were pretty convinced, “Yeah, we’re in a tighter nonfat market. We’re all buying into that.” Yet, the days following ADPI, we’ve seen futures sell off a bit and we’ve seen a little bit more volume traded at the CME spot call. What’s that mean going forward? Jacob Menge: The most interesting thing going forward is you don’t talk to single person that says these prices are gonna stick around for six months. And so it’s really a matter of timing, how long do we stay up here? I think we’re already up here longer than most anybody thought. And the other thing is, nobody got this market right. Some people got in at a buck 25. Those guys sold at a buck 40. They said, “I’m gonna take my 15, 20 cents and run.” And they felt like a genius for about three days before we were quickly at a buck 60. And we’ve got this really interesting dynamic of no market participant really happy with it being up here because nobody really made money on the way up. And everybody convinced that, okay it’s on the clock for when it comes off. And I’m not even gonna disagree with that, right? I don’t think anybody would argue that long-term we’re gonna have $2.50 nonfat in 2028 or whatever. But this really comes down to a question of timing, and I think that’s where you get mixed opinions. But in general, I think most people are of the opinion that it’s not gonna be that long before this thing does start to fall. I don’t have that strong of an opinion actually, but what I do have an opinion on is if this doesn’t start falling soon, I think there’s gonna be people that are trying to make money on the short side of this thing because they didn’t make money on the long side, that they’re gonna start feeling some pain. And as our curve has come up a bit over the past month, we’ve got this really interesting market conditions where, again, if we’re up at these levels even a month from now, two months from now sure, I’d make the argument, why couldn’t you have another squeeze higher? Because there’s still not that much product available right now today. We’re starting to see that change. We saw some really nice volume on the CME spot auction just this morning. But that’s what the eyes are on is how long does this thing take? And if it starts this week versus six weeks from now, I think those have very different implications for how the market reacts. Josh White: We’ve got three different reactions to the nonfat market right now. You’ve got the true nonfat participants that need product now, and that’s priced in the $2.25-plus type range right now on the countryside. And to your point, we’re seeing a few more loads available which is a decent sign. The market participants seem pretty convinced that we’re gonna see an easing from this price, but so are futures. And I think that’s another important thing to point out is that the futures curve is inverted and it’s quite a bit lower than the spot price today. So, you can have both situations. You can have a spot price drop while the futures price maybe doesn’t as much. Over the past few days, the futures curve has definitely traded lower, confirming what we heard there is that most people don’t believe in this market being as tight as it is currently into the future. And we have to remember, this is traditionally a globally traded product and our competitors across the pond are still quite a bit lower and making a whole lot of skim milk powder today. So, I think longer term, if the assumption is that we need to compete globally for at least some business, particularly in markets like Asia, we’re gonna have to be a little bit more aggressive to compete, but futures are saying we will be. Another important topic was now we’re starting to see an acceleration of the NDPSR price now that we’ve had several months of higher spot prices, and that’s starting to have an impact on markets other than just the powder market. And I think maybe, Gus, you would have a little bit more to say about how the market’s reacting to some of the component prices moving higher in the solids nonfat side of things. Gus Jacoby: The situation as we’ve talked about in the past is protein is being pulled in a lot of different directions and we don’t see that demand going away anytime soon. The one comment I would make though is your isolated protein, certainly UF milk in fluid form, are seeing some of the highest demand that we’ve seen in a very long time. So, if you’re cheese maker, if you wanna fortify, and certainly on higher butterfat milk, there’s plenty of folks that wanna fortify right now, there’s probably a little bit of a pull on all the skim solids at this moment in time. I don’t think that story has changed. We’ve beaten that up for a while. But that’s certainly gonna pull a fair amount of milk out of the dryer for nonfat. You look at where the capacity has been added, whether it be in the Southwest with all the large cheese plants that have been added there, and then Upstate New York where some dryers are also gonna sit idle as some new processing capacity comes on there. That’s two areas of the country that are gonna get a lot less milk into the nonfat dryers than previous. And certainly here we are now in the flush as these plants ramp up, it would typically be your highest powder production timeframe, and instead those solids are going elsewhere, and that will keep nonfat production down for the foreseeable future. Ted Jacoby III: Gus, are you seeing milk move towards Class IV plants instead of Class III plants this year? Gus Jacoby: We still see fortification solids during this flush finding its way into cheese plants. But that’s your surplus skim solids that might exist, and those are only available, I believe, because of the flush. Now, it’s not UF milk, right? UF milk tends to be going elsewhere whether it be going to some sort of IV or II-type arrangement, whether it be a high-protein beverage or a high-protein dry product. But you are still seeing a fair amount of condensed and other skim solids going to the cheese vat for fortification purposes. I think the way that will unfold likely is that those surplus skim solids that aren’t being turned into isolated protein products, they’re gonna probably get pulled out to a certain degree of the cheese plants, and then cheese plants will just not be able to utilize fortification as they are typically used to or would like as we move through the year. Ted Jacoby III: So, what you’re saying is if the price stays up here, the milk that is going into the dryers making nonfat will continue to do so longer than usual, and they won’t lose the flush-specific skim solids? Gus Jacoby: I don’t know if I’d agree with that, Ted. I think the flush, no matter where you’re at in the country, the surplus solids find its way to the dryer typically. And as we come out of the flush, certainly less solids everywhere will go toward the nonfat dryer, just as it always does during those seasonality changes and we come out of the spring. It’s just that the areas I talked about, Southwest and Northeast, they’re not getting near as much as they used to in the flush, and so overall that production is going to be missed upon the market. Ted Jacoby III: Do you sense any kind of competition right now between Class III and Class IV for the surplus milk, or is it just following its usual path? Gus Jacoby: There’s some surplus condensed solids going to cheese plants that if a better price could be had into a powder plant, it would go there. Ted Jacoby III: Okay. Gus Jacoby: And that’s happening predominantly in the upper Midwest, and maybe a little bit in other areas. But certainly if you’re gonna get a higher return going into cheese than you could going into powder, you’re gonna go after it right now. And that’s where the demand I would say is. But surplus is surplus, and you’re gonna sell it to the highest return you can. Ted Jacoby III: Okay. That sounds good. Joe, anything to add on the nonfat side? Joe Maixner: Any milk that is making it to dryers, they’re prioritizing the milk to try to get into the milk protein concentrate (MPC) sector or milk protein isolate (MPI) as opposed to nonfat because the return is better. Ted Jacoby III: Makes sense to me. Joe, Josh, are we seeing MPC prices rise faster than nonfat right now? Josh White: Yeah, no, it has to be faster than nonfat because basis is appreciating. You’ve got an MPC market that likes to trade on a multiple of nonfat, and that has appreciated. That has continued to increase. Now, again, I noted earlier we got an inverted forward curve, which means that basis can be going up and price could stay the same or even go down the second part of the year. So, that’s the dichotomy we’re dealing with right now, is that from a cost basis, it looks like it could be pretty okay the rest of the year. And if there’s dry time available, you would think you’re gonna maximize that MPC. And when compared to whey protein concentrate (WPC) prices, MPC 85 is a bargain. But again, not everyone can easily substitute between the two, and that takes some time for the market to figure out which market participants may be able to switch between WPCs and MPCs, may take a little time for them to make that switch. Ted Jacoby III: So, I just wanna clarify for the audience. There’s two different ways we can look at it. If we’re selling it forward into the second half of the year, from a market perspective, we may be selling it for a lower price because the futures curve is a lot lower than the cash price is today. But if we’re selling MPC or nonfat today, you’re telling me that the nonfat price has effectively doubled in the last three months, and the MPC price has more than doubled because not only has its basis doubled based on the nonfat market, but the overage above that has also gone up. Josh, you’re on mute. Josh White: I thought you said clarify for the audience, so I didn’t realize it was a question for me. Ted Jacoby III: Oh the answer is yes. That’s exactly what’s happening. Josh White: Yes. Nailed it. Ted Jacoby III: All right. So, basically what we’re saying is skim solids and protein are in high demand. That’s loud and clear. [Center commercial] Ted Jacoby III: Mike, what about from a federal order perspective, how this all feeds through the federal order? Obviously, since it’s a higher market right now, Class IV is what’s driving Class I prices. Obviously, it drives Class II prices. Is there anything else that kind of shifts around in a market like this? Mike Brown: There’s a couple things. First of all, a lot of your Class IV production is co-op owned. And what we’re seeing is depooling in Class IV, and to some degree Class II where it’s possible. So, rather than to go into the pool and get a blend price that’s below your class price, they’re electing to depool, just like we saw with cheese last fall when it was much higher than butter powder. We’re seeing some of that. But if you’re pooled, you’re ambivalent because you’re gonna pull the pool draw out anyway, and it’s not gonna make a lot of difference. It’s markets like the Southwest where a lot of that milk is never pooled or rarely pooled, and even in the eastern part of Kansas, changes in central order, you less have to pool it because the differential is so much wider now from Kansas City than it used to be. You may see more activity as you watch pool decisions being made since last June when the changes, people are getting a lot better at predicting whether or not they should be involved with the pool or not because it’s getting easier to predict because behavior is more what you’d expect. So, from my point of view, it has some effect, certainly, and if you’re trying to maximize a return to your owners and you have a plant with capacity and you get a higher value product, you’re gonna try to run the milk through that plant. Second part of that, of course, if you already have obligations, and some of these new cheese plants have supply obligations, they’re gonna get their milk regardless of the shift in price. So, it has less effect than you might think, but there is still effect, particularly if you’re having to pool your IV. There’s certainly a lot of IV being depooled right now. Production isn’t much lower. It’s just regionally shifted some, a lot more in the West Coast right now than in the Southwest. The orders kinda mute what would be the normal market decision to maximize return on milk for a producer because if you’re gonna blend it anyway, you don’t have the incentive that you do if you don’t. That said, right now, Class III guys, they’re pooled. The other part of this III-IV spread is, of course, what is the value of those solids into those cheese plants? I’m working on that today, Ted, trying to figure out how much does the high-WPC80 and WPI market bring to the value of buying outside Class IV solids to justify the price? Just on the price of cheese, I got some numbers here in front of me, you’re looking at on a per-pound cheese yield basis, if you buy powder in the powder market right now, it’s 25 to 40 cents more per pound cheese yield than it would be if you’re getting it from Class III. Mike Brown: You better either have a great margin or you’re really hitting up the whey market, and I’m gonna figure out exactly what that is. But that decision isn’t just a cheese decision, particularly with whey protein so high. There is a value of that nonfat dry milk whey protein that in the past didn’t matter as much as it does now. So, it may make that slightly more attractive or less unattractive than it would’ve in the past because your whey returns are so high on that protein compared to what they have been historically. So, it’s complicated, but it’s not just the value in cheese. It’s the value in cheese and in whatever your plant can make for whey. If you can make WPC80, you can pay more for those nonfat solids, obviously, than you can if you don’t. Ted Jacoby III: So to clarify, usually when you ship fluid into a Class III plant, you pay the Class III solids price. Mike Brown: That’s correct. Ted Jacoby III: If you use powder, you’re gonna have to pay whatever the prevailing nonfat price is. And most everybody running a cheese plant right now would really like their skim solids in fluid form so they can pay those Class III values instead of the Class IV values. Mike Brown: Oh, absolutely. But if they’ve got excess fat, and a lot of our American-style cheese plants now do have excess fat, what’s your market for that fat, and does it make sense to pay a little more for that protein from the Class IV side so that I can get a better price for that fat? Although we all know multiples this year aren’t near as horrible as they were a year ago. Yeah. So it’s a little better market. If you’re gonna get right down to dollars and cents, really you gotta look at your whole product mix out of your cheese plant and figure out what can you really afford to pay for those solids . And plus the opportunity of running your plant more full. What’s your fixed cost savings by running more product through your plant even if the cost is a little higher? Ted Jacoby III: Speaking of butterfat, Joe, this butter market just feels like it’s gone a lot lower than we expected it to go. Joe Maixner: Yeah, it’s weak. Cream’s not sloppy. It sure doesn’t seem like it’s super long in the market. But there’s still plenty of butter being made, and I think that this market’s also pricing in the fact that we’re anticipating that export reports are gonna decrease in the amount of butter that will get out monthly moving forward until this Middle East conflict gets resolved. And we’re basically peak flush through east of the Rockies, so this is the highest production point we’re gonna see through the rest of the year until we get past the holidays. Ted Jacoby III: Gus, are cream multiples poor right now as well? Gus Jacoby: We’re still on the flush, right? But they’re much, much tighter and higher than they were a year ago this time. It just goes to show that the additional churn capacity we’ve seen around the country and some better preparation by a lot of folks in dealing with excess butterfat has made this market a fair amount healthier when it comes to cream. Not near as sloppy as it was a year ago. Multiples have held at or better than even the year previous for flush times. So, I would imagine that what we’re gonna see here going forward is representative of this new marketplace. Ted Jacoby III: Josh, anything to say about the whey protein market? Josh White: Maybe some early signs of a market trying to figure out if it wants to continue on the trajectory it’s been on. WPC80, the general consensus out of ADPI is it remains tight. Seen a few extra spot loads trade this week though, so maybe some people were waiting for that information to let go of a little excess inventory or some incremental loads. WPI feels like it’s pretty stable. And the market came to the conclusion, I believe, during the ADPI conference, that, okay, it seems to be priced right. It doesn’t feel like WPI needs to go up at the moment. And we’ve definitely seen more offers since the show. Not ready to conclude that’s going lower because of where the WPC80 price is and how tight the WPC80 market is. So, those two have really converged at the moment, almost to a point that doesn’t make a lot of sense, the price spread between the two, so the market’s going to figure that out. So, yeah, that would be the only changes. Other than that, maybe just reiterating that we are constantly talking to new customers about new demand creation, and also outside of the traditional sports nutrition category, a lot of new CPG product launches and things like that are absolutely still in motion and consuming a lot of dry protein. Ted Jacoby III: Makes sense to me, and I would agree. And then, what I would say about cheese is it was easily the most boring market at the ADPI. I’d start by saying that. It feels like a market where a lot of people are complaining that the price isn’t low enough for them to get new sales on, but they also can’t find a ton of product out there. There is some spot product trading around, but there’s not massive quantities of it like you sometimes see in the height of the flush, which just makes me feel that right now the cheese market is in balance. In balance in a way that maybe we’re not getting a huge amount of additional export sales on the books, but we are continuing to export at a pretty high rate , especially considering there’s a lot of sales on the books that were put on the books earlier in the year that are gonna continue to ship. And it’s kept this market, this cheese market, I think, relatively well cleaned up considering we’re in the height of the flush. So, we don’t see a lot of movement going forward, at least in the next few months in cheese. You’re gonna trade in a 30 cent range, 20 cent range around where the current price is. That would be my take on the cheese market. All right. To all our listeners, I really appreciate you guys listening to us. I hope this information is helpful, and we look forward to talking to you soon. Take care. [Ending credits]

April 15, 202619 min

Steady Markets, Shaky Ground

With Easter behind us, demand is easing, milk production is climbing, and the spring flush is here. But beneath the surface, the dairy complex is anything but comfortable. In the latest episode of The Milk Check, host Ted Jacoby III and the Jacoby team look at the fault lines hiding beneath today’s seemingly stable dairy market. In this episode, we cover: Why milk is getting longer, but not everywhere How added processing capacity is changing the spring flush Whether butter has found its floor, or is simply stuck Why energy may be the biggest wildcard in dairy right now From regional milk balances to butter’s next move and the growing influence of energy costs, we look at what is really driving the dairy complex right now. To hear what could hold, what could crack and what the next few months may mean for dairy, listen to The Milk Check episode 97: Steady Markets, Shaky Ground. Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check Ted Jacoby III: Coming up on the Milk Check. Joe Maixner: It’s really watching the energy markets because it’s going to affect literally everything. Ted Jacoby III: Welcome to the Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. Today is April 6th, 2026. It’s the day after Easter. it’s also the birthday of a few illustrious people like Paul Rudd, Lando Calrissian, or actually Billy D. Williams and our own Joe Maixner, and we’re here to talk about dairy markets today. Sorry, Joe, and we’re here to talk about dairy markets today, and what we’re gonna be talking about is it’s the day after Easter and demand for the next oh five months or so tends to slow down a bit, while milk production tends to pick up and it’s peaking probably right as we speak, and over the course of the next four to five weeks. So, what does that mean for the dairy landscape? What does that mean for the price landscape? When I started thinking about what we were gonna talk about for this podcast, the market seemed to be in a lull right now. And then I realized it’s that time of the year. The question is, are they gonna stay here? Are they gonna go lower? We know that milk production is gonna continue to increase, especially in the Midwest, and we know that the next demand event of any significance is at least five to six months away. But where we’ll start is we’ll start with milk production. This is the time of year when things tend to get a little bit long. Gus, is milk long right now? Gus Jacoby: Depends what region of the U.S. you wanna talk about. From what I understand, there’s some areas of the West that are very long. The upper Midwest, when you have plants go down, it gets a bit ugly. But looking into the mid East, the Northeast, the Southeast, certainly the Southwest, where there’s quite a bit of new processing capacity, all these areas, are not all that long. It’s certainly the spring flush, but when you look at the Milk Production Report, you would think they would be a lot longer. And I think additional processing capacity in all these regions that we just discussed are where we’re a little bit shorter than we anticipated, considering what time of year it is. Ted Jacoby III: Usually, this time of year we’re hearing of milk moving at 2, 3, 4, $5 under. Is that happening this April? Gus Jacoby: There’s some spots in the upper Midwest where it gets that discounted, yes. But I would say that has more to do with plants being down in addition to the surplus that causes it to get that long. I think if everything is functioning in the region — in the upper Midwest, Mideast or anywhere on the Eastern corridor — you’re not seeing quite the growth that’s shown in the Milk Production Report. Anytime you see north of 2.5% or 3% in a Milk Production Report, usually that means the flush is a really ugly period of time. But in these regions of the country, we’ve added enough processing capacity to balance things out a bit more and not make it quite as long as you would think. Ted Jacoby III: So we didn’t really add any plants west of the Rocky Mountains. And in that case, the flush, especially in California, is probably already in the rear view mirror. Are we seeing milk really long in California and along the west coast right now? Gus Jacoby: I’ve heard that California, for a while there did get pretty long. That area hasn’t had the additional processing capacity outside of the Pasco facility to deal with the level of surplus we have in those regions. Ted Jacoby III: That means it’s fair to say that we’re in the flush right now, maybe past the flush out West Milk has gotten long, milk is plentiful, but we’ve added enough milk processing capacity that generally speaking, as long as there in, there are not any plant breakdowns. We seem to be able to handle the additional milk supply and we’re getting it all processed. Gus Jacoby: Yes, that’s the truth. Joe Maixner: The West has been running full for the past couple of months. But cream has not been super long. It’s been getting into the churns, but it’s also been finding homes elsewhere and it’s had decent demand. It’s been a little surprising that we haven’t had as excess of cream as we would’ve anticipated given how long milk has been. Ted Jacoby III: What about on the powder side? I’ve heard that the plants are not necessarily dumping any milk, but the plants are full enough that they can’t run anything specialty. So, all they’re running is straight up nonfat dry milk, which these days with protein component values in the milk the way they are, 38% protein, but they’re just running ’em flat out to get all that milk processed and dried. Is that a fair way to put it? Josh White: Yeah, I would say so. Ted Jacoby III: Okay. Milk’s getting processed. We’re making a lot of it, but Easter’s now in the rear view mirror. Since our runup, late January, early February, the cheese market seems to have settled into a price somewhere in the $1.60s, the butter market’s been $1.70s, $1.80s, it popped up over $2 and it seems to have faded since. Is it in its sweet spot yet, or where do you think the butter market will go over the next three to four months? Joe Maixner: I think there’s a lot of factors that go into where the butter market’s gonna price over the next few months. Obviously, we’ve got the macro events going on, the conflict in the Middle East, that’s pulled a lot of export opportunity out, as we’ve talked about at length in the past few podcasts. But there’s been a lot of product trading in this 15¢ to 20¢ range that we’ve been in over the past couple of weeks, and it seems that we’ve found a good range where buyers and sellers are happy to move product. There’s probably not much more downside potential at this price. But it’s a very real possibility that we could just stagnate here for the next few months until we see any type of real demand shift and production dies off into the summer. Ted Jacoby III: Are we gonna continue to be exporting butter? Joe Maixner: Yeah, absolutely. We’re still seeing exports move. Obviously we’ve lost some of our largest growth markets with this conflict, at least temporarily. But we’re still exporting to other regions, and all of those markets are growing. Will it be enough to offset the losses? I’m not sure, but we’re still moving product out of the country. Ted Jacoby III: The cheese export numbers have been phenomenal for about the last six months. We’ve been up over 30% year over year, almost to the extent of being a little bit surprising. Are we gonna be able to keep that up, do you think? Or is this market going to peter out a little bit ? Jacob Menge: You gotta suspect that you stop getting the blockbuster export numbers before too long because it has been two months now since we’ve come off of kind of those rock bottom prices that we were at. I think that will certainly take the top off of those export numbers. Cheese in general has probably been one of the quieter of the dairy markets, probably the quietest. It’s been sneaky though. There’s been these moments where it’s been hard to find product. There’s been moments where you can find product and I think it definitely is a tale of exactly what cheese you’re looking for. I don’t think colored cheddar has been particularly hard to come by. Meanwhile, white, for export has been pretty tough. All of that has resulted in this really nice gentle climb higher on cheese prices. We’re starting to see some cracks in the floor, especially internationally. We’re hearing mozz prices starting to get some pushback outta Europe. Those blockbuster export numbers on the cheese side are probably nearing an end. And if not then I think that’s gonna be the only thing that can keep driving the cheese price appreciably higher from where it’s at. If we can keep getting these pretty impressive numbers, sure, I don’t see why we couldn’t keeps stair stepping higher. Ted Jacoby III: Where the export numbers go, the price of cheese goes. Is that a fair way to put it? Jacob Menge: It certainly seems like an export driven market right now. Our opinion kinda long term is that’s U.S. cheese. This last year or so, maybe more 18 months, reflecting back on it, been the coming of age era for a serious export driven cheese price in the U.S. Historically, obviously export have played a factor, but it seems like that’s going to be the dominant force today and in the future. Ted Jacoby III: Yeah, I think I’d have to agree with that. And then there’s nonfat. Josh, this nonfat market, it sure went a lot higher than anybody expected. Even when it started to rally, we thought it could go up into the $1.50s, $1.60s, but I don’t think we expected the $1.90s. Is this market gonna stay here? Where does this market feel like it’s at today? And how does play out from here? Josh White: It’s still a tight market, Ted. Seems like there’s some commitments that are still behind. On the manufacturing level, it seems like demand’s been very strong. Let’s be clear, the West Coast is running a lot of nonfat right now, and it’s not changing the climate. Where we’re really seeing the vacancy in production is in the middle part of the country. It’s pretty well reported now. Everyone’s clueing in on this idea that there’s just been a lot of growth in the protein beverage market and in the UF space, and that seems to have kept a lid on our production growth for nonfat dry milk relative to the milk production growth and the protein growth that we’re experiencing in the milk. So yeah, it still remains pretty strong. There’s still good demand. Yeah, there’s a lot more conversations and we’re having a lot of conversations with customers across all the different industries that consume dairy products about what these higher prices mean. Are they real? Are they here to stay? If you look at the futures curve though, we’re way higher than that current futures price, and it’s an inverted curve, so we’re gonna have to pay a lot of attention to how that plays out, particularly as we get into these heavier milk production months, domestically and in Europe. But to be clear, there’s a lot of milk; that milk’s being processed into a lot of products; but in the U.S. side, we’re not seeing huge nonfat increases. I think across the pond though, they’re making a lot more skim milk powder, and they’re the beneficiaries of this tight market right now. Clearing a lot of that product into the international clients that, historically may have been looking to the U.S. as well. Ted Jacoby III: Do you think that means we’re gonna be export handicapped for the next three to four months that might just weaken the demand side of the equation for U.S. nonfat? Josh White: Yeah. The trade’s not as free as we all hope and expect it to be, and what I mean by that is there’s barriers to entry for bringing, like European product into Mexico. Approved brands across the world that might make it more difficult to exchange one supplier for another. But I think the answer to your question, the longer we maintain this type of premium, the less likely we are to export into some contestable markets. And it’s really tough when you’re talking about managing supply chain over the course of a year to get that right. There’s a real possibility that, we could miss some business that we wished we had later in the year. But, as it stands right now, it’s not like we’re sitting on a lot of extra product to move. Ted Jacoby III: So, when we look to the next, 1, 2, 3 months, things are tight enough. The nonfat market’s still coming from a place of overcommitment and then still trying to work through that. And there’s No reason to think that we’re gonna be trading nonfat in the $1.20s by Memorial Day. Josh White: No reason to think that. I think that we’re putting ourselves in a position where now’s the moment where we can take a little bit of the pressure off the market. We’re starting to see a little bit more seasonal milk in the middle part of the country. Nothing compared to what we saw a year ago going through the dryers, but we are starting to see maybe some signs of some relief. Ted Jacoby III: Proteins is the other market that seems to be shooting for the moon, up there with Artemis II. Are those protein prices gonna stay there or are they gonna come down? Josh White: Pointed question. Not for the second quarter, it sure doesn’t feel like they’re coming down. Every spot load that I see offered trades almost in the air. There still seems to be really good demand despite higher prices. And also despite a lot of customers asking about substitution. The answer to that question is maybe different for the next quarter than it might be for the next year. We’ll have to see. But as it stands right now as it relates to whey proteins, no slowdown in demand. Price strength remains, loads are very expensive. Conversations are less about the willingness to buy product than they are about the credit worthiness to sell that product to the clients because of just how expensive a load of WPC 80 or WPI cost today. We’re also starting to see some momentum in the MPC markets. Shouldn’t be a surprise. MPC 85 prices have been increasing. We’re starting to see customers that have the flexibility to do some substitution between WPCs and MPCs, considering it. More conversations about alternatives within the dairy complex like caseins and caseinate. But then, I have to imagine there’s also conversations happening about substitution outside of the dairy complex for plant proteins and alternative proteins. It’s a challenging market. Certainly a good sign that the consumer, particularly in the U.S. is paying a lot of attention not to just wanting more protein in their diet, but also the quality of the protein that they’re consuming. And it’ll be really interesting over the next year to see that tug of war: the valorization of high-quality, highly digestible dairy proteins, versus cheaper proteins going into certain applications and how the consumer responds to those economies. Ted Jacoby III: What’s the one product in the dairy complex right now that you’re really worried about? Because right now we just went through all the major commodities and there seems to be at least stability in the short term. Which one do you think breaks first in terms of price? What market should we be paying attention to if this dairy complex is gonna start to weaken on us? Jacob Menge: I’m paying most attention to butter right now, because I think the butter price has made these kind of violent moves. Not nonfat, violent, but more like consistently trending lower all last year. And then it’s made a pretty good recovery with that new crop, old crop switch. And then it’s trended lower from there. I think that’s important because that’s gonna have a big impact on that Class III, Class IV spread. And I think that Class III, Class IV spread is gonna ultimately drive some decisions at the fluid level, which is gonna have knock on effects for export markets, not just for butter, right? This is for all of these products. Because of that butter price , I think the math can be swayed one way or the other depending on where that goes. We have these kind of baked in assumptions on, okay, nonfat’s probably not staying at $2 through 2026, okay. We have some baked in assumptions on cheese. I think that means that decision maker is butter. And would anybody be shocked if it went up 50¢? Probably not. Would anybody be shocked if it went down another 10¢ or so? Probably not. I think you certainly would have debates around this, but that changes that Class III, Class IV spread enough that I think that has a lot of knock on effects. Ted Jacoby III: That makes a lot of sense. Josh, what about you? Which market are you paying attention to the most? Josh White: I would just say just the market. I think nonfat’s the obvious answer to that, but our entire dairy markets have been really changed this year by this protein movement. And what I can’t get my head around is the GLP-1 and cheaper GLP-1 catalyst. At what moment does a hundred dollars to fill a gas tank on a sedan start to change what people are willing to spend? That’s the one that I can’t really get my head around because it would be very easy to say, “Look out: these high protein products are here to stay.” The science backs it; people are eating less calories, but better calories. And that absolutely works for dairy proteins. But then on the other side, when you’re forced to make a decision about how you spend your money are you gonna get to a point where it’s choosing whether or not to fill your gas tank or whether or not to buy the powdered isolate. I wonder if we find that threshold at some moment this year. Ted Jacoby III: Yeah, I think that’s a great answer. Which market do you think is affecting the dairy markets the most right now? It’s the gas market. I think that’s fair. Joe, how about you? Joe Maixner: I’m clearly watching butter for obvious reasons. But I echo what Josh is saying. It’s really watching the energy markets because it’s going to affect literally everything over the course of this year. Jake brought up a great point about the Class III, Class IV spread, though. With the strength in nonfat, I hadn’t given a whole lot of thought process to butter’s impact in Class IV because you’re seeing Class IV through the rest of the year and into 27 at a minimum in the mid eighteens level which is a dollar premium to Class III, even with an inverted nonfat market. That’s definitely one to keep an eye on as well. But again, as a whole, just energy, energy’s going to affect everything all the way down to the consumer level. Ted Jacoby III: Yeah, I guess I agree. Gus, what are your thoughts on this market? Gus Jacoby: It’s hard not to talk about energy right now. That’s pretty obvious. Certainly when you’re hauling milk it has a big impact. Those fuel surcharges, hiking up to the degree that they have has made hauling milk quite a bit more expensive, considering the amount of water that’s being hauled and how much more expensive it is.  That is something we can’t control. None of these markets are anything we can control. But when it comes to the dairy markets, I think the skim solids is something that has been very interesting to me. Gus Jacoby: How tight that market gets, the limitation that cheese has in getting fortification solids, are we gonna start turning to powder to fortify, and can cheese plants afford it with the Class III, Class IV spread as we shift, obviously with this protein demand continuing to increase and all the other areas that skin solids are required. I think it’s going to have a ripple effect on our industry that’s gonna take a while for us to get used to as skim continues to, find more and more demand. So, for me, it’s an interesting marketplace and I’ve been paying a lot of attention to that lately. Ted Jacoby III: Sounds good. Awesome. Thanks guys very much. I thought that was a nice summary of what’s going on in our markets right now. We’ll see how the next few months play out. Appreciate the time. Thanks for joining us today, and everybody stay safe out there.

April 2, 202619 min

A Logistics Expert on the Iran Conflict and Dairy Trade

Weeks into the Iran conflict, the disruption to dairy logistics is becoming more visible. Shipping dairy to the Middle East used to take 30 to 40 days. Now it can take 60 to 75. And the longer this conflict lasts, the more pressure it puts on the dairy trade. In this episode of The Milk Check, host Ted Jacoby III talks with our logistics expert, Tyler Jokerst, Director of Trade Operations, about what all this means for dairy producers, traders and exporters. In this episode, we cover: Why Persian Gulf access remains severely limited, and how exporters are responding How normal 30- to 40-day transit times can stretch to 60 to 75 days Why alternate routes are creating new choke points How higher oil prices are raising shipping and trucking costs Why fertilizer, feed costs and food inflation are becoming part of the conversation How delayed demand, product displacement and global economic stress could bring more dairy market volatility Listen to The Milk Check episode 096: A Logistics Expert on the Iran Conflict and Dairy Trade. Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check Ted Jacoby III: Coming up on The Milk Check. Tyler Jokerst: As this thing progresses, it could prolong it. Ted Jacoby III: 30 to 40 days of shipping from the East Coast to the Middle East is now 60 to 75. Welcome to The Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. Ted Jacoby III: Today, we have a special guest, Tyler Jokerst, our Director of Trade Operations, and we’re asking Tyler to join us ’cause we thought it would be a pretty timely topic to discuss logistics, both international and domestic. With everything going on in the Middle East, how is that affecting logistics, in terms of global trade for dairy, especially important for U.S. dairy, considering the fact that we’re exporting over 20% of our milk production these days? But it’s also affecting us domestically. Gas prices are probably up over 30% at this point, which is going to affect costs when we’re getting all the dairy products we make to consumers here at home. So, Tyler, welcome and thanks for joining us. Tyler Jokerst: Thanks for having me, Ted. Ted Jacoby III: Tyler, what is going on in the Middle East? How is it affecting logistics? Are we going to be able to get container ships into the Persian Gulf anytime soon? And if not, what are we doing in response to that? Tyler Jokerst: I think the easy answer is: we don’t know, other than there is a war over there. That’s the biggest thing right now causing the impact, and the huge leverage point Iran has is the Strait of Hormuz. For that strait, there’s a lot of product that goes in and out of there. Primarily oil, but, yeah, a big part of that is containerized shipments, as well. As we all know, the Middle East is a big purchaser of dairy products as well, right now. And we’re seeing a lot of disruption there as far as what we can get in or out of there. It’s almost come to a virtual stop. Ted Jacoby III: So, they can’t get into the Persian Gulf. Are there other options? Tyler Jokerst: Tomorrow, there might not be. That’s the situation we’re in right now. Every day is a day-to-day situation. The current workarounds are what the steamship lines are calling landbridges. So, essentially, you’re porting into ports on the other side of Saudi Arabia, where you’re not going into the Persian Gulf, and they’re either working on truck or train routes. It can get across, over to Riyadh or Dammam. Ted Jacoby III: So, Dammam is the main container port for Saudi Arabia and the Persian Gulf. What’s the port in the Red Sea that we’re using now instead? Tyler Jokerst: King Abdullah is one of ’em. If you go further north, where you’re getting into Jordan, you have Jeddah as well. So, there are a couple of different options there. I think the biggest issue that poses is you’re putting a lot of stress on infrastructure that maybe wasn’t built to handle that much volume coming through. This is another ripple effect we’re keeping an eye on, and we’re staying close with our freight forwarders and our steamship lines to see if we’re gonna have any ripple effects as far as boats that are anchoring offshore and waiting to get checked. If you were to look at it right now, you’re looking at a miniature effect of what COVID was like in LA back in 2020, when you had numerous boats anchoring offshore, waiting to get offloaded, because you’re at a choke point, trying to put all that supply into one port. So, it’s unfolding as we go through this day by day. Ted Jacoby III: So, I take it, there’s a traffic jam going into Jeddah and King Abdullah at [00:03:00] the moment? Tyler Jokerst: Just a little bit. Ted Jacoby III: What delays are we experiencing? Tyler Jokerst: If you were to look at the product on the water, we are currently looking at maybe 15 to 20 days in our current state. As this thing progresses, it’s gonna be up to the providers, the steamship lines and the freight forwarders and how they work with us to be able to dictate what new routes they need to take or what alternatives they need to make, as far as getting this product to those consumers. So, it could prolong it to where it’s a constant 20-day longer shipping period than what we’re used to seeing in those areas, which is typically anywhere from 30 to 40 days. Ted Jacoby III: 30 to 40 days of shipping from the East Coast to the Middle East is now 60 to 75. Tyler Jokerst: Yep. Absolutely. You’re right on that one. Ted Jacoby III: Are we still loading containers of cheese and powder and butter and other things and putting ’em on boats and sending ’em to the Middle East? Tyler Jokerst: Yeah. We are. One of the key things that we’re having to keep an eye on is per steamship line. So, if you’re working with freight forwarders, they work with numerous different steamship lines, and every steamship line handles it differently. And the main part of why they’re handling it differently is all related to the geopolitics. Some of the steamship lines are owned by Mediterranean companies, maybe in Italy. There are other steamship lines owned by companies in Israel. They’re probably not getting through the Strait. And then you have the Chinese and Korean-owned steamship lines that tend to have a little more leeway because they might be a little more neutral with Iran, where they might be allowed to pass.  It’s different with every carrier. So, whenever we look at this, and we assess the notes that we have to have with our freight forwarders, we have: who’s the service provider that we think we should be using, because that’s the one that tends to have the golden ticket in. Tyler Jokerst: And that’s where we have to balance out cost and service. They might have the golden ticket that can get them into the port. That’s gonna come at a price. They know the demand’s higher because, from a geopolitical standpoint, they can get in and they can get the job done where maybe the other providers can’t. You start peeling a lot more layers back than what you’ve historically had to, where you just look at a rate in a transit and say, “Okay, this works. We’ll communicate according to our customer and meet their demands.” Now, you’re dealing with a war. It’s unpredictable for those involved directly and indirectly, including us. And that’s where we have to weigh out additional options that are being thrown at us on a daily basis. That target is moving. We’ll come in tomorrow, and we’ll probably have a different set of rules that we need to follow for that day. Ted Jacoby III: But you bring up a good point. I never thought of it that way before. It’s like you can’t take Delta Air Lines into the Middle East because it’s American-owned, but you could probably take Emirates. Most big steamships are actually not owned by the U.S., and those steamship lines that have good relationships over there actually can still get product in. Tyler Jokerst:  I don’t think you get any airplanes into the Middle East right now, but yeah, from a steamship line standpoint, you can. Whenever I say they can pass through Hormuz, you went from several hundred ships going through the Strait of Hormuz in a day to now, single digits. So, that’s a loose thing where it’s allowed, but less risk of impact or targeting from an economic standpoint, whenever you’re going on [00:06:00] one ship versus the other, that’s the biggest thing to consider. Ted Jacoby III: How much have shipping costs increased? What was the going rate for a container into the Middle East from the East Coast, and what is it now? Tyler Jokerst: If you’re looking at door-to-door, or door-to- port, we were hovering around $ 8,000, all in, and now it’s looking more around $10,000, all in. Ted Jacoby III: Maybe 20%, 30% increase in shipping costs. But that’s not double or triple. Tyler Jokerst: Not yet. It could be by next week, though. Ted Jacoby III: Got it. Tyler Jokerst: Yep. Mike Brown: Tyler, when you have a select group of shipping companies you can work with, and you look at the 20%, 30%, that surprised me, it’s not higher. Do we see people deciding we’re just gonna lay low and not try to ship to that market for a while until we see things more stable because of the risk? Tyler Jokerst: I won’t name specific providers, but we do have some providers where when this thing started to kick off, they were already putting some plans together, and then by the following week, they decided that any of their refrigerated equipment they didn’t want going on that landbridge option that we were talking about earlier. So, you are seeing that as well, where they’re purely looking at it from an insurance standpoint. Insurance costs are going up a thousand x and saying, “Okay, the risk isn’t worth the reward right now,” because of how much insurance costs to go in there—Wartime, surcharges, things like that. And they’re completely staying out of the situation altogether and just rerouting their equipment. The bigger effect is that as this goes on, and there’s no improvement to the current situation, it will ripple into the rest of the markets, and you will start to see delays at other ports that maybe service these ports, as far as these types of trade lanes. And you’ll start to see some disruptions in the supply chain because people have to do something with that product that maybe they already sold. Reselling it might not be an option because the way the markets are right now, the pricing might not allow for that to happen, especially with dairy. If you’re getting a premium for exporting it versus selling it domestically, you’re gonna sit on it and wait this thing out. So, now you start to have backups in your supply chains at the origin ports, maybe the domestic warehousing, or even, in some cases, the manufacturing sites. So, there are a lot of effects that come from that. Ted Jacoby III: Tyler, I know that Europe has traditionally sold a lot more dairy into the Middle East than the U.S., even though the U.S. does do a decent amount of business there. They’re having the same problem we are in terms of getting to these ports, but are they capable of shipping product over the land? Let’s say across Istanbul, through Turkey and get there that way? Or are there too many issues with that approach? You’re going through Jordan, you’re going through Syria, you’re going through the Kurds. Territory. Tyler Jokerst: Israel’s dropping bombs north of the country as well. You’re not just looking at us dropping bombs in Iran and then Iran, throwing missiles across the water. You got Israel trying to take on a two-front war as well. I couldn’t see how a land option would be feasible. Ted Jacoby III: Yeah, I would have to agree with that. So, we know what’s going on in the Middle East. We know that it’s harder to get the product there right now. How’s it affecting us back home? Where are we seeing the effects [00:09:00] in logistics back home? Tyler Jokerst: Gas prices all day. I think barrels are currently sitting at around $95 a barrel. We’ve seen truck prices rise anywhere from 10 to 20%. It is a prolonged tightness in capacity, as well, but fuel has been a big factor as far as our domestic truckload goes, and the rates that we’re used to paying at this time of year. Ted Jacoby III: Outside of just increased cost because of increased diesel prices, are we seeing any other effects? What about the domestic ports? Are we seeing any backup at the domestic ports? Or are our ports still functioning normally, and it’s really only a fuel surcharge problem? Tyler Jokerst: Yeah. Our ports are operating functionally, as it stands. Those ripple effects will eventually hit us. They haven’t yet, but the longer this thing goes on, the more exposure that leaves to ports that are further away from the epicenter. Joe Maixner: Keep in mind, a lot of the stuff that is still shipping over into the Middle East is contracts that were put on the books before any of this started. We haven’t seen much interest on anything since the beginning of March going into that region, for obvious reasons. Ted Jacoby III: So, we’re not seeing any new contracts, but we’re still having conversations with our customers about how to fulfill the contracts that were on the books that were expected to ship at this time before the conflict started. Joe Maixner: Yeah. I think there’s going to be some pent-up demand the longer that this goes on. It’s gonna cause a pop in markets when this finally gets resolved because everybody’s gonna see that demand come back. Especially given the fact that the longer this goes on, the more potential for our markets to weaken because we’re not getting additional sales on the books and product out. So we could see a quick pop when things really do open back up. I do think it would take a while for that stuff to even roll through the system because there’s gonna be a backlog in ports and products still needing to ship anyway. So, expect more volatility. Tyler Jokerst: We’re currently going through an annual slowdown, too, in the Middle East. I think it’s Eid al-Fitr that’s going on right now during Ramadan. So, a lot of the buildup in exports is prior to that, with them trying to get all the product over there.  Just looking at last year, before we had any major geopolitical events happening, aside from tariffs, we would typically see a slowdown this time of year going into that region.  That’s a good point. Diego, what are your thoughts? Diego Carvallo: I know that energy is hugely affected by the Hormuz channel being blocked. But is food impacted as much as energy? I think the answer is no. I think most of the destinations where we take our dairy products are both from the U.S. and from Europe. At least access has not been blocked as bad as it has happened for exports of energy. So I’m just wondering if that impact on dairy is mainly caused by energy or just because it’s impacting fundamentals for our products. Ted Jacoby III: I know that Dammam is the big port in the Gulf for container ships. It’s a big oil port too, but there’s a separate container port, and then Bahrain and Qatar and even Dubai have their own ports. But then, Saudi [00:12:00] Arabia in particular has Jeddah and King Abdullah. And so, those two ports have taken over in the meantime. Tyler’s comment about Ramadan being in the rearview mirror is appropriate. This is the slowdown time with demand. And so we probably aren’t feeling the effect as much. I also think, from an energy perspective, the closing of the Strait of Hormuz is affecting other countries, like China, a lot more than it’s affecting the U.S. because we have, over the last 20 years, grown more energy independent because of the shale and fracking we’ve been doing domestically. And I think that has helped quite a bit. Joe Maixner: Oceania is at a severe disadvantage with this right now, too. I was looking at their energy prices and their diesel costs in Australia, for example. It’s the equivalent of $8.20 a gallon in U.S. terms. They’re really feeling the pinch, and I believe that New Zealand’s in the same boat, and that’s going to affect their shipping rates. Ted Jacoby III: All these huge container ships, what is their fuel? Diesel? Tyler Jokerst: Yeah. Ted Jacoby III: So, it’s just like trucks. They just buy a lot of diesel. So, if they’re dropping off in Australia, they’ve gotta fill up in Australia, where that oil costs a lot more than it does in other places. Mike Brown: I think this is all walking around the macro effects, and I think we need to talk about that. Let’s talk about the cost of producing food with what we’re doing to the urea, the nitrogen fertilizer markets, with the cutoff of moving product through the strait. Yes, a lot of it’s already bought; it isn’t all already bought. Between that and what we’re seeing with tariffs in Canada and their struggles with potash, we’re raising the cost of growing food because cows eat food just like we eat food. So, there are costs there that I think we have to think about. The other thing is these, particularly the Asian or even European, but Asia, ’cause that’s our export opportunities, those economies are so dependent on oil coming through the strait. And as those economies slow down, they tend to be much more price-sensitive about products than we are because they don’t have the incomes we have. Is that gonna slow down? Is that gonna cause a longer-term impact? If we see the world economy basically slow down, what will that do to dairy demand? Dairy is essential, but it is something cost-wise that they may be looking for other alternatives, particularly on the fat side. We can’t ignore that possibility. Right now, it looks good. Look at the butter market, today it recovered a little bit again. Prices, right now, for farmers are good. They can make money in current markets. But how much global slowdown will we see from this, and how will that affect demand for our U.S. dairy products, is still a concern of mine. Ted Jacoby III: We’re sitting here at the tail end of March. If this thing doesn’t show real signs of starting to wrap up in the next few weeks, I think there’s gonna be a tone shift in the general macroeconomic markets. There’s been a lot of talk: how is the U.S., and how is Trump gonna extract ourselves from this conflict? And we’re getting to that point where the length of time is becoming a very real issue. We haven’t quite got there, I don’t think. But I think we’re getting close. Mike Brown: Those of us who lived through stagflation in the late seventies, [00:15:00] it’s feeling a little bit too much like that right now. Ted Jacoby III: I would agree. In the seventies, gas prices caused it. Mike Brown: Oh, absolutely. And it was the conflict with Iran that caused some of that, too. Ted Jacoby III: Yeah. I think that the economy had already been set up for stagflation for other reasons, government debt being the big one, but you add this to it, yeah, you’re right. That’s very problematic in terms of getting the economy to function smoothly. Mike Brown: Government debt isn’t exactly our strong point right now. Ted Jacoby III: The only saving grace is that everybody has the same problem. You look at any developed country, and they’ve all got the same problem we do when it comes to government debt. Mike Brown: Yeah, they do. And if you’re looking at our export opportunities, that isn’t necessarily a good thing. There’s a lot to be nervous about right now. Tyler Jokerst: If you tie it back to dairy exports, the Middle East accounts for like 20% of all dairy exports in the world. They consume a lot of cheese. That seems to be a growing sector for ’em as well. For us, that hurts the bottom line. So it seems to be one of the biggest issues for us as a handler of dairy products. Mike Brown: One of the conversations at U.S. Dairy Export Council meetings this week was displacement. If the product can’t get there, who’s gonna buy it? That’s more competition for us because that’s the close-by market for Europe. They love it. It’s close, it’s efficient, but if they can’t get the product there, we’re gonna compete with them somewhere else. Ted Jacoby III: When it comes to cheese and butter, Mike, you’re spot on. We’re getting lucky on the non-fat side because Iran was a skim milk powder exporter. And that’s off the market, too. Mike Brown: If you look at prices powder’s not having a problem with finding demand. Ted Jacoby III: They aren’t. Mike Brown: A lot in supply. Ted Jacoby III: [Laughter] Tyler Jokerst: Alright. Tristan Suellentrop: We’ve all dealt with shipment delays before, but what’s the most absurd reason you’ve ever seen or heard of one being held up for? Tyler Jokerst: Oh, shipment delays. Yeah, the worst one I had wasn’t at Jacoby; we seemed to have it dialed in here. The worst one was from my previous employer. We hit a trans shipment point. Transshipment points are where you’ll have the steamship lines connect with another boat, and they’ll offload some of their containers to the other boat and continue. And it was something like a 40-day delay of just getting it from one boat to another that severely hurt us. This is one that we’ve had. During 2020, there were plenty of ’em. You looked at the ports of LA and Long Beach, and it could be 30-40 days. And these boats were just anchored off the shore and waiting to get offloaded. But because of all the causes and effects that we had with COVID, you ran into a lot of delays from that. That was a regular occurrence back in 2020 and 2021. Ted Jacoby III: Tyler, thanks for joining us. Really appreciate it. Great discussion. So thankful that you’re helping us navigate all this stuff in these very interesting times.  Thanks, everybody, for joining us today.

March 10, 202619 min

The Strait of Hormuz: What the Iran Conflict Means for Dairy Trade

What happens to dairy markets when one of the world’s busiest shipping lanes suddenly gets disrupted? With the Strait of Hormuz under pressure and trade routes across the Persian Gulf in question, exporters are scrambling to figure out how to move product. What does all this mean for global dairy demand? In this episode of The Milk Check, host Ted Jacoby III sits down with the Jacoby trading team to talk through what happens when geopolitics collides with global dairy trade. We dig into: How exporters may reroute product through alternate ports like Jeddah Why trade flows could shift between the U.S., Europe, Oceania and Southeast Asia How energy prices and freight disruptions could ripple through dairy markets Whether this disruption boosts demand in the short term or destroys it if it drags on Find out how one shipping lane could reshape the global dairy trade. Listen to The Milk Check episode 95: The Strait of Hormuz: What the Iran Conflict Means for Dairy Trade. Click below to listen or find us on Spotify, YouTube, Apple Podcasts, and Amazon Music. Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check Ted Jacoby III: [00:00:00] Coming up on The Milk Check. The Strait of Hormuz is closed. The port of Dammam is closed. Joe Maixner: There’s definitely product that’s stuck, can’t get to its destination. Ted Jacoby III: Welcome to the Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. Today we’re gonna talk about what’s going on in the dairy market, specifically global trade. We’re recording this on March 6th, 2026, and seven days ago the U.S. bombed Iran.  As we [00:00:30] speak, the Strait of Hormuz is closed. The port of Dammam is closed, and trade flows are getting rearranged as we speak. Today with me, we have Joe Maixner, head of our butter trading book. We have Josh White, we have Diego Carvallo, and we have Mike Brown. And we thought it would be appropriate to discuss what’s going on in the Middle East, specifically how it’s affecting the dairy industry, and what its short-term and long-term effects will be on dairy demand. We’re gonna start with Joe. Joe, what are you hearing out there right [00:01:00] now? Joe Maixner: There’s definitely product that’s stuck, can’t get to its destination. Both going into Port of Dammam and other Middle Eastern ports for that matter. With butter’s moves over the past year, the Middle East market had been probably the largest growth opportunity for us in global exports for butter. Fortunately, this all happened after the rush for Ramadan to get everything in. So, I would say that it’s not as bad as it could be right now, but there is certainly product that’s stuck on the water looking for [00:01:30] alternative options to get to land. And there’s quite a bit of product that still is waiting to leave the U.S. that we’re not quite sure if and when it will actually leave. A lot of it’s still up in the air. Nobody really knows, what to do yet. I think it’s still too early to tell. Nothing’s been canceled per se, but the longer that this drags on, we’re certainly going to have some effects from it. Ted Jacoby III: There’s a lot of talk that maybe this war is gonna be a five to six week war. If the Strait of Hormuz is closed for five to six weeks, as is the [00:02:00] Port of Dammam, is that enough to cancel orders? Is that too long? Joe Maixner: I would say it should probably cancel some orders. I wouldn’t say it would cancel everything, but they’re gonna have to get product at some point from somewhere, They can’t completely stop. People are gonna have to eat. Production will still have to continue, and they’re gonna have to source product from somebody. And if we can’t get it there, they’ll find it from somewhere else. Ted Jacoby III: I’m hearing that one of the things that they’re exploring is shipping into Jeddah, which if you look at a map of the Middle East, Dammam is in the Persian Gulf on [00:02:30] one side of the peninsula. Jeddah is basically on the exact opposite side of Peninsula on the Red Sea. So they’re talking about shipping into Jeddah and then shipping it across the land to where it might need to go. The first thing that occurs to me is Dammam, I believe, is a bigger port than Jeddah. And so if you take all those container ships going into Dammam and send them to Jeddah instead, there’s not gonna be enough room to unload ’em all. And so, at the very least, the traffic’s gonna be pretty horrific. Are you guys hearing people working on that too? Joe Maixner: Yes, they’re looking at alternate ports of [00:03:00] entry and moving the product around. Jeddah is one. Casablanca is one. Going into Egypt is one. There are options. All of ’em are more expensive and it’s just gonna depend on how desperate the end user is to get the product. Josh White: We’ve got some experience dealing with trade disruptions over the past decade, and we tend to see the playbook similarly each time. And then when we talk about what’s specifically happened in our markets now, I think We can watch for some warning signs. Number one is in these type of situations, we start worrying about trade [00:03:30] flows, energy, freight, congestion, those type of things, all impacting markets and trade. Additionally, when we think about this conflict, there’s maybe three different scenarios to talk about. It’s very intense right now. Does that intensity continue for a very long time? What does that mean for our trade? It’s very intense right now for, but after, four to six weeks, maybe it continues on, but it’s more stable or consistent and the world learns how to trade around it. And then the third one is the one you [00:04:00] outlined earlier, which I think is a bit optimistic, usually these things don’t just go away that quickly, is that it’s over in a short amount of time. That’s the easiest one for us to project. That just creates a short-term concentration pent-up demand, pent-up shipments, and we just gotta work our way through that bubble. I think the middle one’s more likely. Not because I’m an expert on these things, but we’ve seen what happened in different conflicts in different situations. The middle one being it’s intense for a bit, then it becomes more consistent and normalized, and we just learn how to work [00:04:30] around it. What does that mean? And to me, that redirects trade flows. For instance, the U.S. has been very competitive in the Middle East for butter and cheese. It’s not the first time we’ve been competitive. We were competitive 15 years ago or so at a pretty good rate where we were an net exporter of butterfat, cheese I think we’ve been fairly consistent throughout, but it takes time to get there. Our biggest obstacle in doing business with that market versus Europe as a competitor, is the transit time. We inflate the freight rates, we increase transit [00:05:00] time, there’s concern of access to supply because of turbulence or stability, our price could be fine, and we could still miss some business because you have to buy now or you’ve gotta get product in now, or you just don’t have time to wait the, what, six weeks from order at minimum, probably more like a quarter, oftentimes, to get the product. That’s maybe our biggest obstacle right now is redirected trade lanes, not price. Joe Maixner: All of these trade disruptions create opportunity elsewhere. If our price comes off, [00:05:30] as it has, butter shot up earlier this week, it’s come back off here at the end of the week. It’s created opportunity for trade into other export markets. Where one door closes, another opens. Ted Jacoby III: How do you think those trade flows change? What comes, what goes, what are the changes that you think will happen? Let’s assume that the Persian Gulf is off limits for two or three months. What does that mean for dairy? Josh White: Lost demand, if it’s that long.  That’s lost demand. Now if we assume that we’re able to redirect product to [00:06:00] maintain the same demand, you’re gonna have trade lanes shift, right? What are the options? Ted Jacoby III: Let’s articulate this a little bit more for our listeners. When we’re talking about trade lanes shifting, right now there’s product on the water trying to head there that can’t. What’s gonna happen to those ships? That’s one. Two, there’s product that was sitting in the port about ready to ship. I think there were a lot of calls this week. I think we know of quite a few calls this week where they basically said, “Let’s sit on it. Let’s wait for this all to calm down before we actually ship it.” And three, [00:06:30] there’s product that maybe was scheduled to ship in a month or two. I think it’s fair to say, people probably have to figure out immediately what are they gonna do with the product that’s on the water right now. And I think the other two, they may be able to give it a little bit of time, decide whether or not they’re gonna cancel any orders and redirect it. Diego, the product that’s on the water right now, what do you expect happens to it? Diego Carvallo: Ted, I’ve been internally debating this for a while and even with the team. I think a few things are happening, but I don’t know which one has a bigger magnitude. Supply chains used to be very thin [00:07:00] for skim milk powder for the past year or two years. They are gonna have to build more inventory for those supply chains because product might take 60 days instead of 30 days to ship it. Product is gonna get stuck at the port of entry, port of shipment, in transit, et cetera. So, I think that bumps up demand artificially. Yeah. But there’s more product that’s gonna be stuck in the supply chain. That’s the first thing that comes to mind short-term, if this doesn’t continue to escalate. But if things continue to [00:07:30] escalate, and three weeks from now or a month from now, we’re still not being able to ship product to those destinations, product is gonna start backing up at ports of loading, right? So we’re gonna start hearing from the California manufacturers that they have a 100, 200 loads at port, and that prospects are not great for shipping, and that we should find new homes for that, right? I think if this gets solved the short-term, it’s positive for demand. It’s bullish market, but if it goes more long-term, you start killing demand, and you start needing to [00:08:00] find homes for additional product. But I know that everybody, at least on our team, has different takes on the whole situation. Ted Jacoby III: I would agree with that. I tend to lean to the side that, politically, the Trump administration can’t afford for this to go on too long, and the longer the strait is closed, the more political pressure they’re gonna have to resolve things. It’s realistic to consider that there’s a possibility that this thing goes on for a really long time, and that strait is closed for a really long time. Diego Carvallo: The second topic that I think we should talk a little bit about is what is a [00:08:30] psychological implication that this has on buyers? For example, on Chinese buyers who depend on products that go through that canal. That’s why I lean towards supply chains are gonna have to increase the amount of product they have, and end users are gonna change a little bit their procurement practices to increase their stocks. Yeah. Josh White: That happened post COVID, right? And didn’t last very long. Ted Jacoby III: I’d say it lasted two years. Josh White: But my point wasn’t that two years wasn’t a long time. It [00:09:00] was more of: they reverted back to the just-in-time model once things stabilized. Ted Jacoby III: Yes. That is a good point. I do agree with that. But you know what, even though they reverted back to the just-in-time model, two and a half months ago, prices were low enough that I think there were people trying to rebuild their stocks because they felt that prices were low enough to do that. I don’t know if they actually succeeded. My gut, based on what we’re hearing from customers right now, is they didn’t, but there was certainly a willingness to build back inventory levels if the price was right. In the [00:09:30] meantime, we’re dealing with disrupted trade flows. And so my second question for you guys is, we talk about disrupted trade flows, but let’s put some examples under that so our listeners understand what we’re talking about. How will these trade lanes shift? Where will product flows change? Will we see maybe more U.S. product going into Southeast Asia, more European product going into the Middle East, because perhaps they can put it on a truck and ship it through Istanbul by rail or by truck all the way there? I don’t know. Josh White: Yeah, I [00:10:00] think that’s a super good point, and it goes into what Diego said, which I don’t think is limited to nonfat, by the way, or milk powders. I think customers need to buy, and are used to getting what they need quite easily, and they’ve run their structural days in inventory down quite a bit to where that’s going to require people to buy from where they can get it quickly. This disruption has served as a bit of a catalyst to something I think was already materializing or happening. And now if you inflate freight rates a little bit more, that’s only gonna make it that [00:10:30] much more pronounced: that you need to buy from who’s close. New Zealand’s having a good back shoulder of their season, too, and I believe that there’s quite a bit of New Zealand product that is on its way or destined to go to the Middle East and North Africa. So when we think about what happens, I think everyone goes back to their closest trade partner. That takes the Oceana product to Asia. It takes the U.S. product, obviously, to Mexico. There’s at least some risk that European product was gonna come to Mexico. This is making that more difficult, I imagine, as [00:11:00] well. And I guess they’re gonna have to problem solve if that demand holds under the scenario we talked about earlier: that Europe’s got a lot of product right now. There’s a lot of milk, and they’re making a lot of everything. And thus far, it’s been okay because exports have been reported to be good. Maybe we’re talking about how this impacts the Americans, but I imagine that the impact might be a little bit more extreme for the Europeans. There’s another impact in there that I think Diego touched on. When you have commitments for product [00:11:30] and that product takes longer to get to you, and you’re running your supply chain thin, you reach out then and buy other product at a higher price, often, to fill your immediate demand. And once everything stabilizes, you actually are structurally oversupplied. We experienced that within recent history. Ted Jacoby III: Oh, absolutely. Josh White: And so that creates that air pocket in demand that will eventually arrive. We just don’t know when. Ted Jacoby III: What I imagine is, those boats that are on the water that were heading to Dammam when all this [00:12:00] started, they’re either parked right now, waiting to see if everything clears up, or they’re getting themselves rescheduled into Jeddah to try and figure out how to get there another way.  I would assume the product that hadn’t been loaded onto a ship yet is backing up at the port for a little while. How long do you think it takes? How long do we need to be watching this conflict continue to go on, watching the Strait of Hormuz continue to be closed, how long will it take before do you think they’ll start selling that product elsewhere? Canceling contracts and selling it elsewhere? A [00:12:30] month, two months? Because my gut tells me that’s when you really start seeing the market shift around. Right now, everybody’s just in a waiting period. Right now everybody’s just wondering if this thing’s gonna last a long time or a short time, and they don’t wanna overreact just for everything to clear up in the next week or two, even if the possibility is low. Josh White: Nonfat futures are inverted, so I would imagine, not very long at all, but I don’t think nonfat is the most impacted product here.  The curve on the butter futures has really flattened out as well. There’s not a long time window there either if we don’t put [00:13:00] a decent carry back in the market. Ted Jacoby III: So the market is already pricing in the possibility of this going on a long time, but the cash markets haven’t really fallen yet because there’s still hope. Maybe that’s a good way to put it. Josh White: It’s only been a week, one business week. That’s a big conclusion that our team had, earlier today, is that we came in Monday, following the announcement, and we’re like, okay, what happened to dairy? And the reality is everyone’s trying to figure it out and it’s gonna take some time. So I don’t think we’ve seen the reaction or response to the [00:13:30] situation actually materialize yet. Ted Jacoby III: Do you think that the question everybody should be asking is how long is it gonna take for the Strait of Hormuz to open? Joe Maixner: That’s a big caveat in this whole situation, right? Once that opens and trade flows resume, that clears a lot of things up. Regardless, it’s gonna take time to clear up, right? Because you’re gonna have a backlog, but the sooner that reopens, the sooner things pseudo get back to normal. Mike Brown (2): So much energy flows out to that strait to the rest of the world, particularly to Asia that it could affect incomes effect ability to [00:14:00] purchase products as well. It isn’t just bringing things in, it’s how they get the oil out. Question for Diego, Iran certainly makes some SMP. Do you think that has any impact at all? Diego Carvallo: That’s a really good point you’re bringing up, Mike. Iran had for the past five years ramped up their SMP experts significantly, so I believe, if I’m not wrong, in 2025, they exported something like 120,000 metric tons of skim milk powder. It’s obviously not [00:14:30] one of the biggest exporters in the world, but it’s a significant exporter. The most important takeaway is that they would supply those markets that are being affected by these interruptions the most. It’s not only that region has fewer access to European and American and even New Zealand sources, but also one of their main providers has an active block on food exports as of right now. Both things tell me it’s gonna be harder for demand to [00:15:00] get access to the product. If it extends this issue in time, this is definitely gonna kill demand. Ted Jacoby III: Let’s talk this through. The longer this goes on, what are the countries that are really gonna start seeing drops in demand because their revenue is dropping. Obviously Iran, I think you gotta include Iraq, Saudi Arabia, Kuwait, UAE. Joe Maixner: Yep. Ted Jacoby III: I think China, too, because they don’t have the access to energy. And maybe some of the other major importers of Middle East oil. Now, some of it will switch, probably go [00:15:30] outta Jeddah, but I don’t think there’s a lot of oil exports leaving Jeddah. I think it’s all in the Gulf. Joe Maixner: What does it do for European product though, given the fact that this is going to cause a spike in natural gas pricing. This is gonna cause a spike in all energy pricing.  When the whole Ukraine situation escalated and Europe lost access to gas, it would cost something like $500 per metric ton just to dry the product because of [00:16:00] the increased cost of gas. That put a lot of pressure onto the skim milk concentrate, and it gave a lot of support to skim milk powder. Diego Carvallo: I think something similar is gonna happen in the coming weeks because we all heard the news about if I’m not wrong, it was Qatar that just shut down the world’s biggest LNG plant. And it takes, I believe it’s 40 days for it to be back online at full operations. It’s not a one or two day interruption. It’s a [00:16:30] substantial interruption in the energy supply at a worldwide level. Ted Jacoby III: The one big difference between when we’ve seen gas prices spike in the past, and this time is in the past, when energy prices spiked, demand in the Middle East would actually go up because they’d have more revenue and more income. They don’t this time around because it’s spiking because they can’t be the exporters and make those sales. I think that’s important to take into account. You’ve got a scenario where if this goes [00:17:00] on long enough, I think there’s some real negative effects on demand that we’ve gotta start coming to terms with, I don’t think that matters if everything opens up within the next two to four weeks. We’ll see if that happens. Mike Brown (2): Generally, this administration has responded to economic pressure. We see what’s happening in the stock market and we see what’s happening with energy costs, they’re gonna be rethinking hard on how long they want this thing to stretch out, regardless of what maybe some of our partners would like it to be. There’s gonna be some strong economic pressure internally. Even the Senate, who voted to support [00:17:30] continuing the fighting in Iran did say, we’re good for now, but we’ll revisit this if we need to.  That pressure by the day is gonna keep going up. Ted Jacoby III: I’m a hundred percent in agreement with you, Mike, and that’s why my hunch is you’re not gonna see the strait shutdown for an extended period of time. But we don’t know. We’ll have to wait and see. Hey, thanks guys. That was a great discussion today. It remains to be seen how this plays out. This is something that absolutely bears watching because it clearly is going to have some effect on dairy demand. We will see. [00:18:00]

March 2, 202633 min

The Dryer’s Getting Robbed

Flush season is here. Protein solids are up. Global milk production is up. So… Where’s all the skim milk powder? In this episode of The Milk Check, host Ted Jacoby III and the Jacoby team sits down with Martijn Goedhart and Henk-Jan Bouwman of Cefetra Dairy for a European perspective on the volatility rippling through global dairy markets. We talk through how traders got caught short and why the spring flush might not loosen up the skim milk powder/nonfat dry milk market. Plus, are we pricing U.S. out of the export market? We’ll get you up to speed on: Why skim solids are being pulled away from dryers and into protein streams How hand-to-mouth buying turned into a short squeeze What record-high butter stocks in Europe mean for upside potential Tune in to hear how Europe and the U.S. are navigating one of the most volatile stretches in recent memory. L If you’re making sourcing or coverage decisions right now, don’t miss The Milk Check episode 94: The Dryer’s Getting Robbed. Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check TMC-Intro-final Ted Jacoby III: [00:00:00] Coming up on The Milk Check. Martijn Goedhart: You have supply growing, and then you think, “Oh, we’re gonna build stocks.” But then, demand caught up. And quite viciously. Ted Jacoby III: Welcome to the Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. This week we are excited to have two special guests, Martijnjn Goedhart and Henk-Jan Bouwman from Cefetra Dairy in the Netherlands. We’ve been working closely with these guys for some time and we thought it would be a great idea given all the craziness and dairy markets going on in the United States, to ask them to give us a little bit of perspective on what’s going on in Europe so we can get a feel for how the global markets are affecting our U.S. dairy markets. Martijn, Henk, thanks for joining us today. Martijn Goedhart: Thanks for having us, Ted. Henk-Jan Bouwman: Thank you, Ted. Ted Jacoby III: I feel like what’s going on in nonfat right now more has an origin in the U.S., but I also noticed that you guys started to feel that maybe this market was gonna be a little bit shorter than we expected over in Europe before we realized it in the U.S. [00:01:00] Tell us about the skim milk powder market in Europe and what’s been going on the last month. Martijn Goedhart: In Europe, we’ve been overwhelmed by milk production growth since the second half of 2025, due to bluetongue, late calving, second peak, as some of us call it. And that has resulted in good outputs, and that output needs to go to the commodities. So, we’ve seen butter stocks build up significantly, and everyone assumed that that would mean that the skimmed stocks were also building up because that’s basically the other product you’re gonna produce when you do butter, right? A few things we, I think, overlooked is like the general protein trend in the world and the demand for protein, both on the whey side as well as on the milk side nowadays. So a lot of protein has ended up in other products than your typical skimmed nonfat production bucket. Adding to that, Europe has been the most competitive source in the world market for a long time. Demand wasn’t great because buyers were buying hand-to-mouth because they would basically wait for that carry to come toward them and buy at the lowest price at the last moment. But [00:02:00] now we see that the exports out of Europe have been great. And that’s been keeping the market clean. I think some traders speculated on lower prices and got caught short, basically needed to cover. And that’s where we are at now. And I think more than ever, if you look at NZX (New Zealand Exchange), this all started with a firmer GDT (Global Dairy Trade), with China stocking up a bit. So, if you look at NZX, CME (Chicago Mercantile Exchange) and EEX (European Energy Exchange), those markets are starting to correlate better than they did before because everyone’s looking at the developments of the other exchanges and then draw their conclusions for their own home base. And yeah, that cocktail, together with some U.S. developments that we’re gonna dive into, has caused record-high volatility over the last few weeks. Ted Jacoby III: So, Martijn, you’re telling a story that sounds very familiar ‘ cause that’s exactly what we’ve seen here in the U.S. We’re not making anywhere near as much nonfat dry milk as we expected because the protein demand is forcing those skim solids into other places. What are those other places in Europe? Where is that protein being used and what is it being made into in Europe right now? Martijn Goedhart: I think there’s two main [00:03:00] streams. Bear in mind that the milk pressure in Europe was so high that you need to burn milk, and the way to do that is to produce casein. So, I think casein production has increased by like double-digit numbers, that’s not because it was such a nice valorization, you can just dry more milk per hour. And considering the liquid markets over the last few months, during our low season, liquid milk was trading way below the commodity equivalent, proving that there’s a surplus of liquid milk that can’t be processed by drying it or churning it. So, that’s one part. The other part is, it’s the same in the U.S. We’ve been around here for a few days now, but in Europe, you see the same: everything is protein fortified, extra protein, in basically everything you can buy. So, a lot of protein that is processed in line before it even reaches the other class. So, like the dryers basically. Ted Jacoby III: Martijn and Henk, do you guys think that the skim milk powder market in Europe has tightened up primarily because everybody who was living hand-to-mouth saw the market started going up, and they decided they wanted to buy more now because they wanted to get the product at a lower price before the price [00:04:00] went higher, and then they just started chasing the market? Or do you think demand has shifted and there’s a true increase in the demand for the product? Henk-Jan Bouwman: There’s two things to touch upon here, Ted. One is, you’re absolutely right: people were buying hand-to-mouth, and they were actually rewarded for doing that because everybody believed that the price of tomorrow was better than the price of today. And for a fairly long period of time, they got rewarded for that. That also led to traders being short, as Martijn touched upon. From a demand perspective, yes, there’s actually quite some demand, and people also realize that they have to turn to Europe to find their cheapest skim. That also creates a bit of a demand pull towards European skim, which makes the price go up. And we’ve seen that, in particular, in low heat in comparison to medium heat. But in general, export markets for us are pretty strong, and, I would say, pretty much all the demand ends in European skim milk powder of origins. Josh White: Is anybody extending days in inventory? Do we think that there’s a short squeeze driving international clients to buy a couple extra weeks, a month, more than that of product? The nature of your question, Ted, [00:05:00] is what’s caused us to tighten up on that product? Is it truly demand for nonfat dry milk, or is it just reduced production overall? And I think maybe it’s both in a way. On the one hand, Martijn mentioned that the catalyst of this was actually a GDT event where China stepped in and bought more. And I think that we’ve been talking about the disappearance of China as a structural buyer of milk powder for quite some time. But their stocks to use ratio has been reported to be fairly low, and maybe they felt it was time to extend some days of inventory. At the same time, you evidenced what’s happening in the U.S., And Martijn alluded to it a little bit in Europe as well, that the pull for dairy protein in general is actually vacuuming some solids away from the dryer, and particularly the SMP or the nonfat dryer. So, is it both? Are we seeing people look to build a little bit more safety stock at the same time that our production is down a bit because protein demand overall is robbing our supply. Henk-Jan Bouwman: There’s a, there’s a couple of things to touch upon, Josh. One is in this whole upward movement, there were quite some international buyers [00:06:00] who still had demand open, for instance, for Q2 and Q3, and decided to step in and said, “Hey, this is a moment to buy, to cover that demand, because I am anticipating an upward movement.” So, in that sense, I’m completely with you. Producers did the same, as well. For them it was also attractive to lock some forward sales. And that has led to lesser availability of skim in EU. And that basically also caused the rally to continue. Martijn Goedhart: I think the difference with the U.S., as I understand it, is we have never not been able to buy product during this whole volatility. So, producers were always offering, customers would like step in, step out. If they really need it, they would book. They were also cautious. And we went up, then we went down, then we went up again. But in that down movement, customers were like, “Yeah, you see, so it’ll come off again.” So, that didn’t prompt them to build any length. I think producers did fairly well in putting a fundament below their sales book for the flush that’s upcoming. Traders are holding a fair bit of cash product right now for the next three, four months. It’s not tight as [00:07:00] such, but you see that certain buyers need certain origins that are scarce. So, it’s very much about the origin, the spec, and the product that you have, whether you can monetize on those higher prices. Ted Jacoby III: It seems to me, just listening to you guys talk about Europe, that the U.S. and Europe are both experiencing a very similar phenomenon in our supply chain. Demand for protein is pulling skim solids away from the dryer, first and foremost, which means on a skim milk powder / nonfat dry milk supply-demand balance, you’re reducing the supply even though we are both experiencing pretty significant increases in milk production. The traditional math is: more milk means more skim milk powder. It didn’t happen this time around, and it caught people by surprise. The demand for protein in Europe, just like in the U.S., is exceptional right now. But then that makes me ask the question: if we have less skim solids, in the form of skim milk powder and nonfat, in the global supply chain, is this increase in price directly proportional [00:08:00] to reduced supply, so we got more people buying because they want to get in the front of it. So, you got this bubble. But you also have had this slow decrease in overall skim milk powder demand going on. Like a slow creep every year. I’m not sure if it’s about 1%, but we’ve all kind of felt it that the global demand for skim milk powder has been just slowly weakening, but this sudden supply crunch was a bigger issue than the slow decrease in demand, and it caused this price bubble that’s just gonna take some time to work itself out. And if the protein continues to take the skim solids away from the dryers, it may be a really long time before it works itself out. Martijn Goedhart: Q4 of global SMP export has been very strong, but Q3 and Q2 were relatively weak. I’d have to look at how the balance looks at the end of the year. Also, the export figures have been more volatile than Ted Jacoby III: Yeah. Martijn Goedhart: Before. So, I think everyone thought like, “Okay, demand is sluggish. We have so much milk in the U.S. We have so much milk in Europe. [00:09:00] New Zealand’s season is looking good.” So, in your mind, you extrapolate that demand. Then, you have supply growing, and then you think, “Oh, we’re gonna build stocks.” But then, demand caught up. And quite viciously. So, that’s the thing I think people underestimated. We’re in a situation where we don’t see any old stocks or inventories building up. Josh White: So I wanna throw three thoughts out. On the first hand, we know our global milk supply is year over year up significantly. Martijn Goedhart: Yeah. Josh White: On a solids basis, protein and fat are up significantly. We’re talking about the overflow valve, the powder stocks not being very robust, and that on the end-user level, globally, people didn’t have a lot of additional days of inventory. So, that would suggest on one hand, maybe we need all this milk. Maybe we need it. Demand for protein and other products is up enough that we need all this milk. But then on the other hand, I think there’s probably two things that we need to be careful that we don’t overreact to. There’s seasonality in our products. We know that the northern hemisphere heavy milk production season is upon us. We’ve [00:10:00] started in California. We’re gonna continue to see our daily milk volumes increase seasonally in the U.S. as we get into the second quarter. Another thing that I’m wondering being, you guys with more international trade experience coming out of Europe is: buying seasonality. So, Ramadan every year moves up a little bit; Chinese New Year, there’s usually a surge leading up to it. And it’s gotten to the point where that was almost a collision with the traditional holiday season of December. Is it possible that we just robbed demand from the first quarter, and everyone tried to get in front of some of that demand in the late third and early fourth quarter, and that we’re about to go into a unique seasonal period where customers have now gotten scared. They’ve extended a few days in inventory, the structural demand won’t be there at the same time that the northern hemisphere flush is upon us. I mean, is it possible that we were just short squeezed based on seasonal issues in the first quarter, and we’re gonna resolve that with plenty of product in the second quarter? One final note I think that we [00:11:00] shouldn’t forget is that our year over year comparables are against a disease-infested 2024. We had bird flu in the U.S.; we had bluetongue to in Europe. How much are we actually over 2023 going into 2024. Ted Jacoby III: On 2023 versus 2024, I think Europe, you guys were down like a half a percent to 1% in 24. Does that sound about right? Martijn Goedhart: 23, 24 was pretty much flat. Ted Jacoby III: Mm-hmm. Martijn Goedhart: And 24, 25 we added like a hundred thousand metric tons. So, like, 6%, 7%. 24, 25. Ted Jacoby III: So you guys had a couple of flat years, followed by a year where you added quite a bit. Martijn Goedhart: Yeah. Ted Jacoby III: Which actually is pretty similar to what happened in the U.S. Yes. We had some disease like avian flu , and bird flu hit California ,and we were down in some places and up in others, but overall we were flat. But the solids were up a little bit. Martijn Goedhart: Yeah. Yeah. Ted Jacoby III: While dairy prices were decent, I didn’t feel like we were facing a massive supply scarcity in those two flat years, which is one of the [00:12:00] things that has me very perplexed about what’s going on now. Because it’s one thing to say, Hey, there’s all this new demand for protein. All the skim solids are going to protein, and that’s why there isn’t any skim milk powder in nonfat. Okay, let me phrase this a different way. That means that we are suddenly being faced with massive increases in demand for protein. The price of protein today is a lot higher than it was a year and a half ago when we were dealing with flat supply.  So, why is protein demand so much higher now compared to a year ago? Is it completely and solely demand driven? As amateur economists , like all traders are, that math doesn’t seem right. Martijn Goedhart: Last year, we had significant competition among our export customers from Iran and Belarus, in terms of SMP. The Iran exports were surging. I think it was like 150,000 tons of skim, something like that, that suddenly shows up. Europe is doing about 700. So, that has an impact when you’re talking to [00:13:00] buyers. But that disappeared just as quickly as it appeared. Which yeah, that 150,000 tons, or whatever it was, it will turn back to the next cheapest origin, which was Europe. So, demand didn’t grow, but shifted towards another origin being EU. Henk-Jan Bouwman: Yeah, I think in general, overall competitiveness of EU skim milk powder is a lot better than last year, even in comparison to a bigger skim producing regions. As Martijnn touched upon, being based in the Middle East, I saw a lot of competition coming out of origins, which were a bit more nontraditional. Iran was one of them. What happened is their overall competitiveness finished really, really quickly due to a couple of things. One of them being disease. So, they had foot-and-mouth disease in Iran. Two, their overall ability to import a sufficient amount of feed, and three, their competitiveness due to a currency standpoint, which quickly changed. That, indeed, meant that the material that was supplied by Iran is now being supplied by Europe. Diego Carvallo: It’s a fascinating situation. Some of those [00:14:00] solids that are going into MPCs are definitely reducing the demand for skim, unless it’s coming from a different end-user application. If we’re seeing the MPCs going into sports nutrition, it’s definitely new demand that is finding a new end-user. It’s a combination of a lot of the things that we have discussed in this call: the whole market being short and getting super used to being hand-to-mouth for years, where you could buy product cheaper a month from now, so, why would you buy it? Especially if you have high interest rates, right? So, that’s part of it. The other factor is definitely the whole market was shocked by the impact of the UF pull of the additional MPC production and the amount of solids that we’re not going into a dryer that everybody expected would go right. Also a few additional manufacturing productions, a few key plants in the U.S., this is starting to look like more of a fundamental shift than a short squeeze. [00:15:00] And three weeks ago, everybody was saying, “Yeah, short squeeze, it’s an amazing short squeeze. It’s gonna come down.” Right? And now that same rhetoric has been changing to, “Actually, this is not that much of a short squeeze, but it is more of a there are not that many solids.” There’s a new big plant in Texas. There’s a new big plant in New York. There’s a lot of solids that are being pulled, and nobody was taking that into account. Everybody was expecting after the bird flu in California, we’re simply gonna go back to producing the same amount of nonfat that we were producing two years ago. And if you look at the data, it’s not correct, you know, Josh White: We also gotta give credit to substitution and other things. And what I mean by that is like calf milk replacer industry in the U.S. Historically, we’ll toggle for the cheapest protein between whey and milk powders. For sure, we’re seeing that appetite pick up for nonfat dry milk right now. Whereas two years ago there was a lot of WPC 34 on the market. All of that’s gone [00:16:00] because of the whey movement. I think the utilization is shifting quite a bit. We’ve talked about where it’s more difficult to track where milk solids are being consumed into a lot of protein enhanced beverages and things along those lines. That’s becoming more difficult. We’re saying demand’s not great globally, but if you pick up feed demand because they can’t buy the whey products they bought before, that is more demand for milk powder. And by far the cheapest dairy protein right now is nonfat dry milk. The big question I have is seasonally in the second quarter, are we going to catch up? Are we gonna be able to catch up globally or not? I think the whole market’s really struggling to try to form an opinion on that. Mostly because we can’t really measure and put a finger on just how much new protein-related demand there is in that difficult to measure space that I alluded to earlier. Diego Carvallo: Particularly in the U.S. right? In Europe doesn’t seem like that situation is as strong as it is the U.S. It seems like in the U.S., you have all of these new [00:17:00] cheese plants and UF plants, Class I plants, et cetera. It seems like, at least in the U.S. that inventory building is gonna be more difficult than in other regions. Josh White: And the European dryers are full right now, correct? Martijn Goedhart: Yes. Josh White: And the California dryers are full right now. Midwest dryers are nowhere near full. The answer to that might be a little bit easier than we’re making this discussion. We’ve added a whole lot of cheese capacity. There’s plenty of milk, but a lot of it’s being processed into cheese. Ted Jacoby III: Are there many new dairy plants of any kind in Europe right now? Martijn Goedhart: Not coming online this flush as far as I know. Not surprisingly, but most of the investment obviously is in WPC and WPI, I think Friesland has a big plant coming up, but it’s 2027, am I right, Henk-Jan? Henk-Jan Bouwman: Their latest expansion is 27. Yes. Ted Jacoby III: So we’re not really seeing any milk solids going to new places in Europe. It’s all still within the traditional milk sheds going to the usual suspects. Martijn Goedhart: Yeah. Yeah. Ted Jacoby III: Okay. Let’s switch topics to butter. The [00:18:00] U.S., a year ago, a year and a half ago, we were around $3 butter. It came down into the 2s, $2.50ish, and then the bottom dropped out, and it went all the way down to, I think, $1.28 at one point in the U.S. Now it’s back up in the $1.70s. But Europe dropped even more from an even higher precipice. Where have we been over the last year and where’s the butter market now in Europe, and what’s it doing? Martijn Goedhart: Yeah, well, butter was the main driver of the volatility that we see right now because €7 butter prices, the fed and the milk would already pay an above break-even price to farmers. And then your skim return is just bonus, right? Friesland just released their yearly report and they’ve been paying like, I think 56¢ on average, which is, well it’s a bit debatable, but I would say at least 16¢ above break-even. And then they get even a bit more profit share. That has like sparked that extra milk output, because every liter you produce is making you money as a farmer. You wanna get your components up, you wanna squeeze the maximum out of the milk. That’s how we ended up in this situation and the vicious correction at the other end of it that [00:19:00] we’ve seen. We’ve seen inventories build up and anecdotally we’ll also hear that all the chilled storage is full. That’s still the case. Those stocks haven’t disappeared. And also we’ve imported quite a bit when the spread with the U.S. and before New Zealand was significant enough to do so. That product is arriving now. And that adds to the supply pressure. However, that market has been stable for the last few months. I would say it’s been volatile, but we’re at the same levels than one and a half, two months ago. So that also shows that price correction ultimately also triggers extra demand. It’s an elastic product, especially on the consumer side. However, it’s also capped in terms of upside because those stocks are there. The liquid equivalent, cream, if you would buy cream today, you’d make it into butter. You’d be like at €3.30–€3. 40 cost price where the market is trading at €4.20–€4.30. So, there’s like a thousand euro. Ted Jacoby III: So the multiples in cream are low. Martijn Goedhart: It has been like this during our whole down season, which is very atypical. You could [00:20:00] argue that that multiple is only gonna weaken because milk starts flowing. Ted Jacoby III: Mm-hmm. Martijn Goedhart: The main discussion we have is like, is all that bearishness already priced in? And have we hit the bottom? Have we hit a level at which people are happy to buy? Or is there more to come? Ted Jacoby III: So you guys aren’t really seeing much upward-ness in the butter market in Europe right now? Martijn Goedhart: No. No. If you look from a, let’s say, traditional supply and demand theory, we have record-high stocks and record-high stocks, they basically kill any prolonged upside to a market, I would say, until you work through it. Ted Jacoby III: What about the cheese market in Europe? Is the cheese market high or low right now? And how’s it acting? Martijn Goedhart: It’s surprisingly tight. You would think that especially over the past few years, quite some capacity has been added to the European landscape. You would reckon that this extra milk would flow into the cheese plants, and you can’t find demand for it, so you’d have to move your cheese, and you’d see supply pressure from producers. But, the opposite is true actually. The cheese that’s supplied is very fresh. Within the range of what you can supply, it’s on the fresher side. That [00:21:00] indicates that there are no older stocks or backlog in terms of supply. I think producers have done a good job in capturing those moments when they were competitive on the world market by getting to make cheese disappear out of Europe. And then the last few weeks there were some production disruptions, some factory outages, and that even caused a bit more tightness in the cheese market. But it has stabilized ever since. It has been stable like butter. We’ve seen the bottom for now, and it went up a bit. The only thing is that in cheese there are no inventories. That makes you think that there’s more upside in cheese when milk growth starts to slow compared to butter because there’s no inventory holding it back. Ted Jacoby III: Why isn’t there any inventory? Was Europe doing some really good exporting for a while? Martijn Goedhart: Yeah, that’s the main reason. Big producers did big sales of gouda at some point or mozz when they were competitive, just to keep that supply chain clean. Butter, you can freeze, carry if the market pays for it. Ted Jacoby III: Mm-hmm. Martijn Goedhart: Cheese, you can only do it on paper, but not in reality. You need to get rid of it. Ted Jacoby III: Right. Josh White: How far out do we think the [00:22:00] international cheese buyer is covered right now? Because that was a big topic coming into the first quarter is how much of the cheese business, particularly in contestable markets, did Europe win away from the U.S. Ted correct me if I’m wrong, but our exports have been fine, haven’t they? Ted Jacoby III: Our exports have been fine. That’s actually a good way to put it. We experienced a real nice pop in exports last year. I would say this year, second half of Q4 into Q1, we’ve experienced exports that were relatively similar to last year. Maybe a hair behind. And I think we’ll start seeing those numbers soon, but I wouldn’t be surprised that when we finally see January export numbers, we’re down like 5% versus last year, when last year was a really, really, really good number. I’d almost say down 5% is unexpectedly good relative to how good it was last year. Martijn Goedhart: Josh, coming back to your coverage question, I think both our markets have seen massive carries right over the last few months. So, that’s not a very interesting structure for buyers to cover long. Our market was [00:23:00] trading like spot plus two months maximum. And producers would only make big sales if they have the product already, if they feel it already a little. So, I would suggest that cheese buyers in Europe, as well as around the world, are relatively shortly covered, just the same as with nonfat. Henk-Jan Bouwman: Yeah, I see the same in my export markets where basically all the inquiries we are getting for cheese, are relatively close to home, so maybe one maximum two months out from a shipment perspective. Ted Jacoby III: Mm-hmm. Josh White: So, Ted, are you interpreting this though, that the pressure’s gonna be on more so in the U.S. to win that business going into the second quarter? Based on what you just heard from our European friends? How are you digesting this discussion? Ted Jacoby III: That’s a great question. I would say yes, but price action makes me wonder if the U.S. is trying to price itself out of this market. Martijn Goedhart: Take cheddar for example. EU is about $300 per ton elevated over U.S. So, in certain applications, such as process cheese, I think, by default the U.S., will win that export business. Ted Jacoby III: Even [00:24:00] at current futures prices for April and May of a $1.80? Martijn Goedhart: Little bit of a different story. But that also depends on the outcome of European flush and the effect of that flush on cheddar pricing in Europe. Ted Jacoby III: I would agree with you that about three weeks ago, we were cheaper, but after this rally, I don’t know if that’s still true. Josh White: The point Ted’s driving home right now is the big carry in the Class III cheese markets in the U.S., you’re concern is pricing out the second quarter? Ted Jacoby III: That’s exactly right. I’m concerned we’re in the middle of pricing ourselves out of the market. Josh White: Are we putting ourselves in a spot where we’re the best priced cheese product. We know, out of the U.S., our daily milk volumes are gonna increase. We know that a lot of that milk’s gonna go into cheese. We know that we’re gonna have to compete for cheese business. But even despite the fact that Europe’s relatively balanced, it feels like on cheese, are we putting ourselves in the global market in a position where Europe may win? Martijn Goedhart: It’s gonna be a good fight, Josh.  None of the origins can afford to lose a lot of export business over the flush. We need to get those volumes [00:25:00] moving. So, the products where we compete, we will compete. Ted Jacoby III: Mm-hmm. And here’s what’s likely to happen. The U.S. having a little bit more mature and developed futures market means that as Europe goes out there and makes sure they get that business, the U.S. at some point will say, rather than going and exporting this cheese, I’m just gonna put it in a warehouse and hedge it out on the futures because there’s a carry in the futures market right now and I can make 10¢ just sitting on it for a month or two. If we are gonna have to go head to head with Europe, to get that export business, we might not get as much as we did last year in the second quarter, because in the second quarter we really did get a lot of that cheese export business. Martijn Goedhart: I agree. Only, to what extent can you actually carry it, physically, without refreshing, Ted? Because in Europe, that’s a bit of an issue. Ted Jacoby III: In the U.S., there’s a number of strategies, a lot of it being rolling your inventory. So, you take your working inventory and you just start rolling it because I don’t think there’s a huge difference between 30-day-old cheddar and 90-day-old cheddar to a lot of people. There are strategies to [00:26:00] manage through higher inventory levels. But at a certain point, even that working inventory carry, it starts to max out the warehouse, start to get full, and then they just gotta sell it. Martijn Goedhart: Right. Ted Jacoby III: What’s interesting is, I think that a lot of people went into 2026 thinking, “We’ve gotta make sure we’ve got a home for this cheese, because there’s a lot more cheese, and the U.S. market demand is not that great. It’s very flat. And so, if we’re gonna make 4% or 5% more cheese, we’re just gonna have to export it.” Martijn Goedhart: Yeah. Ted Jacoby III: And so, they weren’t even looking at that equation. But I think what’s happened in the last month with this volatility in the market, it’s gonna have the inverse effect of getting everybody to actually sit on that cheese and keep it at home, and you’d think it would be the opposite, but no, I think we’re gonna end up bringing more cheese home and letting you win some of those battles. Josh White: Ted, can we talk a minute about the milk production outlook in both regions and how that’s shifted a bit over the past month or two? I’ll start within the U.S. We generally believe that the margins have not been squeezed to a point where we’re gonna see a massive [00:27:00] supply response, a negative supply response in the U.S. for the foreseeable future. Ted Jacoby III: And the bounce off The bottom, if anything, we may be back into a place where we’re encouraging more production. Josh White: We’ve got some big comparables. There’s maybe some vulnerabilities in the market. We’ve obviously been surprised with disease and other things in the past, so it’s not imminent, of course, but the math says we should expect to continue to have a good amount of milk out of the U.S. going forward. How does that look out of Europe presently? Martijn Goedhart: I would say almost copy paste Josh. Skimmed has bounced back. Butter has stabilized. Cheese has stabilized up to a point where if I look at the valorization of gouda at €3,300/MT you’re well above the 40¢/kg mark, which is basically the pain point for European farmers. And then I’m taking into account sweet whey. Not even WPC, right? So, if you have your WPC return, that’ll add another few cents at least. So yeah, we didn’t go deep enough to encourage any decline in milk production. The big question is how that’s gonna turn out this year: if we see the same curve or more [00:28:00] corrected to normal seasonality. But from a margin perspective, I think, just like Ted said, we bounced off the bottom, and it didn’t hurt enough or long enough for anything structural to change in 2026. Josh White: Hey, Martijn, would you add a little bit of color to what you just mentioned a moment ago? The two flush situation coming from the bluetongue outbreak and issue. Martijn Goedhart: In early 2025 in Europe, there were cases of bluetongue and that spread quite quickly across Western Europe. Spring started, early temperatures went up, and mosquitoes that spread the virus sting cows and then they get infected. It has an effect on calving. A lot of calves are not born in the right way, and also the cows, the output goes down, and it’s harder to get them pregnant. So, some cows, they first have to get over the bluetongue disease before they would start to calve. Some cows would calve late and that means that the milk also starts flowing late. Where you’d typically see a peak, in March, April, and then in eastern Europe, it’s a bit later, but now you’ve seen a similar peak because margins were good, but a longer [00:29:00] plateau at that level as well. Those cows get dried off later as well. So, are they gonna calve later again or is it like maybe some like refreshing of cows in the system, and the new ones will be set up according to the normal season? It’s a big question mark. We don’t know. Even the co-ops are struggling with that. Ted Jacoby III: So, you could have a flush that does not hit the peak it usually does, but it’s just longer. Martijn Goedhart: Yeah. If it’s the same as last year, that’s what’s gonna happen. If we somehow move back to a normal seasonal pattern, then you’ll see a higher peak than last year, but a bigger decline in the second half of the year. Josh White: If we’re talking about demand being okay and large amounts of milk in both Europe and the U.S. likely to continue, is there anywhere in the world that is suffering on their milk production? Do any of us have an idea of what’s going on with milk production in China? Martijn Goedhart: I think margins there are low. It’s been flat until now, the output, but it’s hard to get consistent numbers from China. But margins are still very low. So, that would not incentivize [00:30:00] growth. Ted Jacoby III: Milk production in China popped over a two year period, about five, six years ago. Then held steady for a couple of years, then it pulled back. Now, after that pullback, it’s flatlining again. Josh White: What we’re basically concluding from this is that we’re gonna have a lot of milk still, but, with the exception of some risk maybe on the cheese side and maybe in the butter situation in Europe, the rest of the products don’t seem to have concerning inventory levels as of right now. Ted Jacoby III: I would agree. I think there’s enough supply, but there seems to be surprisingly good demand, especially for protein. All right guys, we’re wrapping up here. Lightning round question. Do you think what’s happening in the nonfat market is a result of increased demand or less supply? Josh, you go first. Josh White: I wanna say both. We’re experiencing more demand across the entire curve that is both pulling more nonfat supply and is also pulling away skim solids from the dryer. Ted Jacoby III: Martijn? Martijn Goedhart: I agree with Josh. Some of it is fundamental SMD but a big part of it is demand waiting too long and needing to deliver. Ted Jacoby III: Henk? Henk-Jan Bouwman: yeah, I’m with you [00:31:00] guys. Ted Jacoby III: I do not want a chicken out like you and say both, so I’m trying to decide which one. I think it’s very subtle, but this is actually demand driven more than supply driven. Martijn Goedhart: Yeah. Ted Jacoby III: Yeah. All right guys. Thanks for joining us again. We really appreciate all the time that you guys spent tuning in and listening to us.  Keep milking those cows, and we’ll keep showing up and telling you what we’re seeing out there. Ted Jacoby III: We’ll be back in two weeks for a market update with the Jacoby team. Looking forward to seeing you then. All right guys. Hey, Martijn. Henk, thank you so much for joining us today. Really appreciate the conversation. Martijn Goedhart: Thanks guys. Huge pleasure. Henk-Jan Bouwman: Thank you very much. Martijn Goedhart: Cheers.

February 25, 202621 min

Mercados Lácteos en Movimiento: Leche Fluida, Proteínas y Volatilidad Global

En este nuevo episodio de The Milk Check, Diego Carvallo conversa con Miguel Aragón y Yara Morales sobre un mercado lácteo marcado por una fuerte volatilidad y una demanda sólida de proteínas. A pesar de ser el mes del amor y la amistad, los mercados no han mostrado mucha “ternura”, con movimientos importantes en precios y disponibilidad. El equipo analiza el aumento en el consumo de MPC 70, MPC 80 y MPC 85, especialmente en México, donde cada vez más clientes están aceptando estas proteínas para aplicaciones nutricionales. También se comenta la escasez de renina/caseína renina, la fuerte presión alcista en los precios de proteínas lácteas y el comportamiento sorprendente de los WPC, cuyos valores han subido de forma significativa. Además, se revisa la volatilidad en quesos y mantequilla, la creciente aceptación de mantequilla estadounidense en México, Chile y Centroamérica, y por qué, aun con abundante leche en EE. UU., muchos mercados continúan bien soportados. Un episodio clave para entender hacia dónde se mueven los mercados de proteínas y lácteos, y qué esperar en las próximas semanas. ¿Tienes preguntas? Nos encantaría escucharlas. Envíalas aquí abajo y quizá las respondamos en el programa. Pregúntale a The Milk Check

February 17, 202624 min

Why Dairy Futures Seem Irrational

Dairy futures have been anything but calm. In just three weeks, prices across Class III, Class IV, cheese, butter and nonfat have surged, then whipped back and forth enough to exhaust even full-time market watchers. In this episode of The Milk Check, Ted Jacoby and the T.C. Jacoby & Co. team break down why dairy futures can look irrational, even when the underlying fundamentals haven’t changed much. What’s driving the chaos (beyond fundamentals) Short squeezes 101: how a crowded short can turn into a domino effect Flow first, narrative second: why the buying often hits before the story shows up Realized vs. implied volatility: what the market did vs. what the options market is pricing in Why nonfat may be the center of the storm: the team debates whether this is a true regime change Why butter and cheese moved too: how spread relationships and algorithmic trading can drag correlated dairy contracts higher Spot market feedback loops: how NDPSR-linked spot markets can amplify futures moves (tail-wagging-the-dog dynamics). What usually happens next: why squeezes rarely park at the top Plus: stick around for a director’s cut featuring the unedited, behind-the-scenes debate the team usually leaves on the cutting room floor. Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check Ted Jacoby III: [00:00:00] It has been wild and crazy every day for the last three weeks. Welcome to the Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. We’ve got a special treat for you this week. We’re gonna drop the director’s cut of this podcast where we include some of the conversations that usually get edited out: how we debate internally about some of these market dynamics. So, stay tuned after the end of the podcast and listen to the off-takes. My name is Ted Jacoby, CEO of T.C. Jacoby & Co., and joining me today is Jacob Menge, our Vice President of Risk Management and Trading Strategy, Josh White, our Vice President of Dairy Ingredients, and Joe Maixner, our Director of Sales. We are in week three of a very high level of volatility in the dairy markets. We’ve had a very interesting last few weeks. It’s February 9th, and since January 15th, our Class III March futures are up 18%. Our [00:01:00] March cheese futures are up over 15%. Butter futures are up over 26%. nonfat futures up 37% and Class IV milk futures up 36%. These markets have not gone up in a straight line. There’s been a massive amount of volatility, a lot of green, a lot of red, and then a lot of green, and then a lot of red again, enough to make all of us who talk these markets on a daily and an hourly basis to be flat out exhausted. The question becomes, what’s causing this level of volatility?  We are gonna talk a little bit about market psychology. Why can markets do what they’ve done in the last three weeks, and why our actual fundamental market analysis hasn’t really changed that much.  To quote the famous British economist, John Maynard Keynes, “Markets can remain irrational far longer than you and I can remain solvent.” And I’ll tell you that the last three weeks reminded me repeatedly of that phrase. It serves as a warning against over leveraging or trying to fight the tape, trading against trends, suggesting that just because you are right about a trend’s [00:02:00] long-term direction, it’s useless if you run out of capital. Ted Jacoby III: And I have a feeling that based on what we’ve been experiencing lately, there’s probably a few people out there that exactly that happened to. It has been wild and crazy every day for the last three weeks. Jake, why do markets do this? Jacob Menge: You threw out your little soundbite anecdotes. We will pull out some more of ’em during those podcasts, I’m sure, because those are all written by people that have been burned by short squeezes like we’re seeing, right? One that sticks out to me is: volatility is the tax you pay for liquidity and leverage, and that’s what futures markets are, right? They are a way for people to express their opinion on price action. Obviously, even a hedger is in some way expressing an opinion using futures or options. They’re highly liquid. You don’t even have to pay full price for ’em because you only gotta put up that margin upfront. And again, volatility is usually the tax that you pay for that. When you have this easy leverage, and everybody can get on one side of the boat you can’t have your cake and eat it, too. You can’t [00:03:00] have tight spreads, you can’t have the leverage and smooth prices all at the same time. And that can result in things like short squeezes. We were primed for one. You’re right, we had low volatility. We had a lot of people that were short the market because that was the prevailing narrative. As a result, all it took was one little spark to set some pretty dry kindling ablaze. That’s exactly what we saw, especially on the nonfat side. I’ll pull out my second anecdote. I’ve always heard: squeezes are flow events first, narrative events second. That’s exactly what was going on with nonfat. Meaning we get this massive bullish order flow coming in. The market goes up 30%+ in a few week period, and it’s only after that happens that all of a sudden we start having these conversations of, well, what was everybody missing in nonfat? I think the market probably was missing something on the nonfat side. But at the end of the day when you have volatility near lows, volume that was [00:04:00] fairly average, it makes sense that really the only way to go is gonna be up. If there’s any kind of news. And the news this time turns out there’s a whole lot less nonfat out there than people probably expected. And away we go. And it turns into this snowball where there’s the first people to see that and start wanting to buy, and the second they start wanting to buy, turns out there’s not a whole lot of sellers there, because everybody that wanted to sell already had sold. You get that first nice air pocket jump higher. That really is that first domino where if you’re a market maker, say, and you need to hedge your book, you’re trying to run a delta neutral trading book as a market maker, you might say, “Okay, well hey, I need to go get some long delta myself.” And you might go try to buy some options, to buy calls, to offset that. And then all of a sudden the market maker that is selling the calls want more for the calls than they wanted just a day ago. Ted Jacoby III: A day ago? Try an hour ago. Jacob Menge: Yeah, an hour ago. Truly. And so [00:05:00] that would be what we call implied volatility. Right. And I think that’s one important distinction here is we have volatility, what we call realized volatility, which is what the market actually did, like how crazy the market is, and then implied volatility, basically what the market is charging for options usually and implying what the market thinks the volatility will be in the future. And that’s where it gets really fun because even though we didn’t have a lot of realized volatility, if the market thinks it’s gonna become volatile and starts charging more for these options, it can almost be a self-fulfilling prophecy, right? Because now you have to pay more to buy that insurance policy, and you can see how that snowball really can grow fairly fast. We have one other really  fun part in dairy markets that I can’t help but mention, and that is that we also have spot markets. Those spot markets indirectly are linked to the futures prices because of our National Dairy Products Sales Report (NDPSR) system. And so we [00:06:00] can really wind up with the tail wagging the dog in our futures markets and in our spot markets where, say the spot markets were driving the ship on the way down. People had a lot of products, they’re selling them. Well, all of a sudden, if we start getting a little bit of a squeeze in our futures markets, now if you have product, you don’t wanna sell it on the exchange, you wanna just hold onto it and capture the carry in the futures curve. And so you’re not gonna sell. And so any bidder on the spot auction has to bid it higher. And guess what? Now the futures see the spot auction being bid up and they say, “Well, well, we are right to be panicking. We need to go higher.” And that’s just pouring gasoline on the fire. We’ve already got a raging inferno at this point, but that adds the final pour of gasoline. Ted Jacoby III: You remind me of one of my learning moments 20 some odd, almost 30 years ago, when I was watching these markets, as the futures markets were just becoming relevant to the dairy industry. And it was the realization that futures markets and spot markets are [00:07:00] two different markets with a different set of drivers of supply and demand. On the spot market, supply is, let’s talk about butter, is the supply of 80% bulk butter. Demand is the demand for that 80% bulk butter. The futures butter markets, it may settle to that NDPSR price of the bulk butter market, but the reality is the supply is the number of people who are willing to sell those futures, and the demand is the number of people that are willing to buy those futures. And so you can have people coming into the market that really don’t care at all about how much block butter are out there because they’re actually trying to hedge cream cheese or a chocolate shake or something completely different that has butter in it, but they need to own those futures, and that futures market can move quite a bit and has nothing to do with the actual supply and demand of the market it’s based on. Jacob Menge: Anecdote number three. I always have heard squeezes feel irrational because risk systems are mechanical. And I think that is true here, right? You have stops in place. A lot of [00:08:00] companies will have risk management policies that say, “Hey if VAR gets to a certain point, you have to get out of your position.” Or on the opposite side, you have to hedge your product if something has happened, or you have to hedge your buy price if the market hits a certain threshold. And so, that can really send the market in the short run to some areas that feel irrational, but again, it’s because the systems behind it are mechanical sometimes and not even human. Obviously, the human factor makes things even spicier. But once your mechanical stops have all been hit, and the party is coming to an end very, very rarely — I’m struggling to think of one short squeeze I’ve ever seen — that actually goes to the top and then just starts trading sideways. It is almost always an overshoot and a retracement back down to some level. And that is really where our different volatilities really matter because on that collapse back to reality, and reality can [00:09:00] be very different than where we started, just to be clear, if nonfat started at a $1.20, and we go way up to a $1.60, and then settle at a $1.40, we’re still 20¢ higher than where we started. So, don’t get me wrong, right? Short squeezes, there’s usually some fundamentals behind it, but it’s that blow off top that we might say feels super, super irrational. And again, we’ll have kind of this realized volatility going higher as we are going up and going down. But the more interesting thing in my opinion is that as we’re doing that retracement off of this super high blow off top, implied volatility tends to drift lower. That’s actually an important concept to really understand because as implied volatility is moving lower with the market moving lower, it gives the market breathing room, and that is the point where we can really find equilibrium and come out at maybe the price we should have been three months ago, but [00:10:00] shouldn’t have been last week during that crazy short covering rally. Josh White: Hey guys, what should we make of the fact that our least volatile product over the past, I mean, what decade, 20 years, is the most volatile right now? Or is it is nonfat technically the most volatile product? That’s it. Ted Jacoby III: It is. Josh White: Yep, Ted Jacoby III: it is. Josh White: What should we make of that? I mean, that to me should be the definition of a market cycle change, right? Do we believe that? Joe Maixner: If the market with historically the lowest amount of volatility now has the highest amount of volatility, does that mean that there is a structural change in the way that the market is operating? Jacob Menge: Yes. This might mean regime change for the nonfat market. But we’ve also had these other short squeezes in butter, in Class III. We’re still in a volatile period, but those could just be because we have algorithms keeping Class III and Class IV in check. We’re pondering the question: is there this regime change in nonfat from a low volatility commodity to a high volatility commodity? It’s probably too early to tell. My [00:11:00] guess would be yes, we’re not gonna go back to this boring state nonfat had been in, because it’s just a very evolving market with what we’re seeing on the protein beverage side, you name it: the market’s doing a really good job of taking a boring commodity and finding these new, exciting uses for it. And, and so it kind of passes the sniff test. What probably doesn’t pass the sniff test is what we’re seeing on the other commodities right now: butter and just the Class III products, frankly, I should say cheese in general. What we’re seeing right now with those is they’re following along with the nonfat rally. This really seems to me like nonfat is in the driver’s seat. And I think there’s pretty logical explanations for why we’re seeing cheese and butter do what they’re doing along with nonfat. We’ve got algorithms that trade spreads within our market, right? We do have a crushable commodity. We can take Class III, Class IV, and break it down into its components. As a result, [00:12:00] there’s some opinions on, say the Class III, Class IV spread. And so if we get this massive rally in nonfat, well then any algorithm that’s trading the Class IV crush is probably dragging butter along with it. And now we’ve got Class IV rallying, and there’s probably other algorithms and other people with opinions in the market on what that Class III, Class IV spread should be. And so, even if the absolute price is seeming outta whack there’s enough people with opinions on maybe spreads or calendar spreads or what have you, that are causing the reactions that we’re seeing. Ted Jacoby III: This is the scenario that I can imagine. Everybody has been short, pretty much all of the dairy markets for about six months now. Maybe it took other people longer than it took us to realize that there was gonna be too much milk out there all over the world. But by the time we got to the second week in January, I think everybody who wanted to be short this market already was. Then people started to realize that maybe they weren’t entirely right about the nonfat market. Kind of makes sense if you think [00:13:00] about what we’ve been talking about over the last six months, which is: too much butterfat, too much cheese, but protein’s still really in good demand. Guess what? Nonfat is 34% protein. So, all of a sudden people realized, shoot, maybe the nonfat market has a different dynamic to it and it might need to go up so they start buying it. Well, that causes the Class IV market to go up. And if you have insurance companies that are part of the DLP program that are short this Class IV market, then all of a sudden it’s going the other direction on ’em and they need to go figure out how to get some length in the Class IV market. But shoot, they can’t find any liquidity in the Class IV market. So, instead they’re gonna buy nonfat and they’re gonna buy butter. Now think about it. Now they’re gonna go buy butter. Everybody that wanted to be sure at the butter market is already sure at the butter market. There aren’t any sellers left in the butter market because everybody already did their selling. And so now they’re buying butter, driving the butter market up. And then the last few people who sold the butter market, those who were late to the party, all of a sudden are noticing their margin accounts go negative. Now they’ve gotta throw in the [00:14:00] cash. Maybe they don’t have the financial resources to fund a margin call. And so now they have to buy their futures back, and all of a sudden it becomes this domino, forcing more and more people, for one reason or another, to have to buy back their positions. The next thing you know, you’re up 26%, even though the reality is supply and demand to butterfat, not just in the U.S., but frankly, probably in the world, hasn’t changed one bit in the last three weeks, and that’s why we’re up 26% right now. Jacob Menge: Crowded trades don’t break because they’re wrong. They break because they’re crowded. Ted Jacoby III: I like that. I haven’t heard that one before. I like that . So what happens next? You talk about markets being in strong hands and weak hands. Moments like this force everybody who is a weak hand out of the market, and so the only people left with a position in the market are the ones in strong hands. Does the market go back, and I’m thinking butter, not necessarily nonfat. I think we were all in agreement that the nonfat market has probably had somewhat of a dynamic change. I don’t know if it’s a 36% change, but it’s had [00:15:00] somewhat of a change. But now the butter market, which really probably hasn’t had the same amount of change, the supply and demand for butterfat probably is the same thing it was four weeks ago. And I don’t think you’re gonna find many people out there who are arguing that butter needs to be at $2, like the current March futures say it should be. So what happens in the butter market next? Does it go back to where it was? How do these short squeezes usually play out? Jacob Menge: As an economist, I will say the markets are a perfect system and they will find the exact right price where buyers and sellers meet and everybody is happy. The reality is, short squeezes are really good for hitting the reset button and finding a new equilibrium. And sometimes that is right back to where they started. Sometimes that is closer to the top of the squeeze than the bottom. I think we’re still in that reset period. I don’t think we know where equilibrium is on all of our commodities. It’s gonna still take some time, right? [00:16:00] Because let’s just run with the theory of cheese is gonna go back to where we kinda started all this thing in the $1.40s on the futures. It’s gonna take time for sellers to step back in the market and chew through all this new buy-side liquidity. This buy-side liquidity can come from risk management plans that are in place. And so it just takes time to find that equilibrium. But that is in theory what the market’s going through. Ted Jacoby III: I wanted to have this kind of a conversation because the reality is this was one of those where there’s a lot of people out there right now, they’ve got about half the hair they used to have. Jacob Menge: I don’t think we made them feel any better. Ted Jacoby III: Unfortunately. I know. Stay tuned for the deleted scenes from this podcast.  And now the director’s cut. Josh White: Protein’s demand has absolutely changed. Ted Jacoby III: All along we were saying protein demand was strong. To me, this is more about butter than it is about nonfat. Why in the world [00:17:00] is butter up 30¢? Jacob Menge: I think we need to gut check every single model we have in any spreadsheet anywhere. Josh White: A hundred percent. Jacob Menge: Because it’s a new era. Ted Jacoby III: I would argue though that, I mean, we can talk all day long about whether or not our market analysis is right or wrong, but the reality is this was everybody’s market analysis. Josh White: That’s the point we’re making. Ted Jacoby III: I think the irony is, I think the short squeeze had absolutely nothing to do with underestimating how much protein was going to fluid. I think it started for a completely different reason, but once it started moving, we all started looking harder at our analysis. And said, “Man, maybe we’re missing something,” and then actually found it. Josh White: That’s the part that I’m struggling with is I’m actually thinking butter’s easier to rationalize in my mind than nonfat. I think nonfat is a bigger story right now than anything else because butter, what’s the elasticity of demand? And there’s a shift in it because we’re exporting again. Yeah, it’s making it hard for us to measure, but we definitely have been cheaper. And so for it [00:18:00] to be buoying around for price discovery, to try to find that new equilibrium with seasonality, with different products and all that, to me that’s actually easier for me to understand. Like it drops from a price that was significantly higher. Upper twos even pushing three and exceeding three for a short amount of time all the way down to a $1.50. If we don’t think there would be some demand response to that globally and that we would have some retracement or volatility for the opposite reasons that nonfat is probably going too high and gonna have to retrace lower. That to me, like I don’t think we should be super shocked that butter’s doing that. You know what I mean? Like trying to find its equilibrium. To me that’s easier to explain. Ted Jacoby III: Completely agree with everything you’re saying, but I would say this. What we’re arguing about butter is, it’s a vagueness of knowing the balance where the equilibrium price is. We’re just bouncing around trying to find it. I think that’s different from what happened in nonfat. I think with nonfat, the market, the physical market itself, literally [00:19:00] couldn’t get what it wanted. Joe, did we ever have a moment when we couldn’t get the butter we wanted? Before the run started, could you get all the butter you wanted? Joe Maixner: Not off exchange. Josh White: Not 80% fresh salted product. It was being hoarded, right? Joe Maixner: There’s multiple facets to this, right? Like yes, you cannot get any 80% fresh salt right now. But we’re also struggling on getting any old crop, 80% salt off of exchange right now because the old crop situation is much different than it was back when old crop was an actual market mover. Five years ago, all the old crop butter was only at a 12 month shelf life on domestic salted. Everyone’s gone to a 18 or 24 month shelf life. So the product’s still good off exchange for a lot longer than it used to be. So nobody’s out there needing to technically dump it at this point in time if you don’t have a sale for it, because you could still use it off exchange. For a brief period, yes, the salted market got tight, but it’s also because we had the carry in [00:20:00] the market that we had, right? We had the 20¢, 30¢ carry in the market. So, whether you had new crop, old crop, whatever, why would you sell it at a $1.35 in January when you could sell it for a $1.75 a $1.80 in March at that time? Now, we’ve come down, you know, now we’re at a $1.83 in March right now, but at one point we were at $2.00 on March futures with this rally. It’s simple economics. You can carry the products for 3¢ a month and you can make 14¢ to 25¢ depending on the month you wanna sell it in or you let it go for way too cheap. Ted Jacoby III: I hear you. But to me, that’s wholesaler math, that’s trader math. At the end user level, at the people who consume butter, has there been a fundamental shift in how much butter is being consumed? Joe Maixner: No, I don’t think so. Ted Jacoby III: Whereas I think when we’re talking about nonfat and especially the protein in nonfat, I think there has been. It actually manifested itself as a lower amount of supply in nonfat. But I think what’s happened is we were [00:21:00] taking that protein away from the nonfat dryer and using it somewhere else. Whereas with butter, I don’t think that’s happened. Joe Maixner: No, but at the same time, I think that there’s similarities between butter and nonfat, whereas people came into this year structurally short. They didn’t contract because they anticipated the supply to be there. Ted Jacoby III: And then everybody showed up, that’s essentially being short the market. Joe Maixner: Yeah. Ted Jacoby III: When I talk about how everybody who wanted to be short this market was already short this market, so there were no more sellers left to sell. So when somebody wanted to start buying, there was nobody to sell. Joe Maixner: I mean, ultimately you’re just explaining the classic short squeeze. Ted Jacoby III: Right? To me though, that is what we’re dealing with. That’s what we’ve been dealing with right now. That’s what the short squeeze is. It wasn’t just everybody was short this market. Then they were ready to start buying ’cause the market was low enough. Then they found there wasn’t anybody left to buy from ’cause everybody had already sold everything they wanted to sell. And that caused the short squeeze, without any real rationality of there being a fundamental change in demand or supply. It was all at the wholesale [00:22:00] level. Whereas with nonfat, I would argue that the market came to a realization that we were pulling protein away from the dryer to sell it into liquid UF, causing a fundamental shift in the actual supply and demand balance, whereas I don’t necessarily think that happened with butter. With butter, I think it was just the noise in the middle of people making choices about being long or short of market. I don’t, am I making any sense? Joe Maixner: I think you’re getting to the point where you’re talking in circles, if I’m being honest. Ted Jacoby III: To me there’s a difference between talking tactics and talking trading strategy and talking about a fundamental supply demand analysis. Josh White: I think it’ll make a compelling podcast for those that are wondering what’s going on. I genuinely mean that. Ted Jacoby III: We might actually want to have the 15 minute version of talking about what happened in market psychology. Then have an appendix to it capturing the discussion as to what is the real difference between what’s going on in butter and nonfat. Josh White: Or how do [00:23:00] these guys communicate when the makeup’s off? Joe Maixner: I think we leave, I think we leave it all in.

February 6, 202624 min

The Nonfat Short Squeeze

Nonfat prices have moved sharply higher in recent weeks. But the rally isn’t being driven by a sudden surge in demand. It’s being driven by a breakdown in where milk is actually flowing. In this episode of The Milk Check, Ted Jacoby III and the Jacoby team unpack insights coming out of the IDFA Dairy Forum in Palm Springs and explain why nonfat prices have surged nearly 25 cents in just weeks, even as milk production remains strong. The issue isn’t price resistance. It’s availability. Milk that the market expected to move into dryers is instead being diverted into cheese plants, ultra-filtration, whey proteins and other higher-value protein streams. As a result, powder supply is far tighter than headline production numbers suggest. Layer in heavy short positioning, processing disruptions, and new offtake agreements, and the market begins to resemble a classic short squeeze. In this conversation, the team breaks down what’s actually driving NDFM and why higher prices haven’t unlocked new supply. We cover: How protein economics are pulling milk away from powder Why rising milk production hasn’t translated into greater availability Key structural differences between the U.S., Europe, and New Zealand Where the market may find its next equilibrium, and what could disrupt it If you’re relying on historical assumptions about nonfat availability, this episode explains why those assumptions may no longer hold. Listen to The Milk Check to understand what the evolving nonfat landscape means for pricing risk, exports and coverage decisions ahead. Available below or on Spotify, Apple Podcasts, Amazon Podcasts or YouTube. Got questions? We’d love to hear them. Submit below, and we might answer it on the show. Ask The Milk Check Jacob Menge: [00:00:00] There are just so many of these long-held assumptions, things that people who have been in the industry a while probably have, like, “Well, my gut tells me this.” Question your gut. Ted Jacoby III: Welcome to the Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in. It is January 30th. We’ve all just got back from the Dairy Forum in Palm Springs, where it was a hell of a lot warmer than it is here in frigid St. Louis, Missouri. Joining me today is Diego Carvallo, the head of our international sales team and our head non -fat dry milk trader. We have Josh White, head of our dairy ingredients group, Jacob Menge, our VP of risk Management and Trading Strategy, and Mike Brown, VP of Jacoby Dairy Market Intelligence. Guys, welcome. What did we learn in Palm Springs? I think the biggest thing that came out of our visit and running into everybody at the Dairy Forum is that nonfat dry milk and skim milk powder really is tight. We have a short squeeze going on in the nonfat dry milk [00:01:00] market. The market is up. I think it’s 25 cents in the last three weeks. I’ll let Diego explain to everybody what’s really going on in the nonfat market right now. Diego? Diego Carvallo: Ted, that’s a very loaded question right now. Everybody’s scratching their heads. As of right now, today, Friday the 30th, the market just closed. The whole strip is limit up — 4 cents up. I think I hadn’t seen this in quite some time. IDFA was very interesting for a lot of people to discover why the spot market has been tight for this long and have good discussions on what the outlook looks like. Let’s start with the fundamentals. I think a few things are helping this market and supporting it and pushing it higher. The first one is what a lot of people are discussing, which is the amount of UF being produced in regions like the Midwest. We all know that many of the plants have installed new capacity to have UF sales, and those solids are in great demand [00:02:00] for cheese fortification right now. So that’s one of the reasons why the Midwest especially feeling this tight. Another reason is that the majority of the people who speculate with this market, and it goes from traders to manufacturers and even distributors, most of them have been short, expecting this market to move lower during the spring flush. I remember a few months ago, the speculation was that we were gonna break the $1. And, it seems like everybody got short, physical and in the screen, and that market, obviously, whenever we saw a bounce, everybody ran to cover their shorts, right? Another reason is that we saw a few interruptions in processing capacity, especially in California during the months of November. I think that also contributed to the tightness in the market without even getting into the conversation of new [00:03:00] offtake agreements that have taken up this year. So I think those are the main contributors to this market moving higher, and I think it’s something that is mainly affecting the U.S. The rest of the market is following through. I think this scenario is very different when you talk about European and New Zealand production. It’s even different when you see the U.S., the West Coast versus the rest of the country. Ted Jacoby III: Tell me about Europe. I know Europe started acting tight a little bit before the U.S., but what’s going on in Europe? Nonfat, dry milk and skim milk powder is probably our most global market when it comes to dairy. Diego Carvallo: So, Europe had a couple of large tenders that took place, I think that was beginning of January. So, the infamous O’Neill tender and a few similar tenders that usually move a lot of product. Those tenders took place, and I think it helped clear some of the excess product that was available in the market. But I think in Europe we had a similar situation where most of the traders, most [00:04:00] of the end users and manufacturers, everybody was expecting prices to move lower, right? Whenever we saw these tenders coming and the market slightly turned less bearish, I think everybody ran also to cover their shorts. But the situation in Europe has not been as bullish as it has in the U.S. The spread between the U.S. and Europe when it comes to skim has in fact widened as of right now. Europe is also feeling the support. Definitely. It’s in part driven by the U.S. rally. Ted Jacoby III: Well, that makes sense. I can tell you I had conversations with a few different manufacturers while I was at IDFA. And the best way I can sum up what the feeling was there’s a couple of dryers on the East Coast. Those dryers at this point are not expecting to ever run full this year, not even at the height of the flush, because there’s three new plants at various stages of development. There’s a new cheese plant in New York. There is a Fair Life milk plant in New York, and then ultimately a yogurt plant in New [00:05:00] York. All three of those plants are gonna need the milk. It’s gonna come at the expense of the powder plants in that area. You look at the Southwest in Texas again, you’ve got two new cheese plants that are still in the midst of ramping up. They are getting first dibs on the milk at the expense of the nonfat dry milk plants down there. So those plants are gonna get the milk that they expected. And there’s another nonfat plant that pretty much has turned a 100%, to Diego’s point that’s turned a 100% of their milk supply into skim UF that they’re supplying to various sources. And that plant is running the ultra filtration unit full. So, that plant isn’t drying anything. You got a couple of dryers in the Michigan area. They’re not running as full as usually, but it’s more of a domino effect there. I have a hunch as you get into the flush, those dryers may fill up. But you’ve got four other dryers, maybe five that aren’t. Now you go over to the west coast: California, those are drying. But California alone, as big as it is, is not enough to offset how much milk is not running into the dryers in the [00:06:00] rest of the country. And then you’ve got the Northwest, where there has been a lot of milk lost in the Northwest. And so that dryer isn’t running as full as probably previously expected. What happened was everybody just got together, finally started talking when they were all together in Palm Springs, and they realized when they did the math, even if we’re up 4.4% in milk production, we’re not drying more nonfat. Those skim solids are going elsewhere for various reasons. Diego Carvallo: The biggest question right now, Ted, is the lack of product in the Midwest and East Coast could balance out the lack of exports that we’re gonna have from this price rally. The numbers say that demand is approximately 60 million pounds. That number, it’s probably only 2% to 3% of U.S. nonfat production. So, it doesn’t seem like a huge number, but when you compare it to exports it is quite a volume. Ted Jacoby III: It really does add up. Yeah, no, I would agree with that. Jacob Menge: It sounds based on what Ted had just laid out and what you had said earlier, Diego, that this [00:07:00] isn’t necessarily a demand-driven rally. It’s really a lack-of-supply-driven rally. Ted Jacoby III: Yeah. A lack-of-supply-driven rally in an environment where everybody was expecting oversupply and kind of got caught surprised when they realized that even though there’s more milk, it didn’t fully translate to more powder. Jacob Menge: So, what changes it? Price? How long? What does end game here look like? Based on what I’m hearing, sounds to me like there’s almost not a price that is all of a sudden going to bring more supply out of the woodwork. So, is there a price that kills demand? People say, “Hey, we can’t make this number work anymore?” Ted Jacoby III: I think, actually, Diego just framed it a few minutes ago in the right way. This lost production that we were expecting, is it enough to make up for the fact that international demand for nonfat and skim milk powder isn’t actually that great? I think he’s hit the nail on the head. Let’s face it, skim milk powder, nonfat, dry milk is kind of the ultimate dairy commodity, which means it’s more price sensitive than others. And we’re gonna get to a point when we’re gonna find out where that [00:08:00] equilibrium point is between demand and supply. Josh White: There’s a few things that could tilt the scales a bit that I think we should just pay a little bit of attention to at the moment. You made a comment earlier that the production outta California isn’t enough to satisfy what we’re losing in terms of powder in the rest of the country. I wonder though, as we seasonally ramp up our milk volumes in the U.S., if we don’t satisfy that difference at a certain moment. I’m certainly not suggesting that that should make us all bearish. But I do think that there’s something worth noting there. Jake, you made a comment a moment ago that it doesn’t sound like there’s a price that slows it down. That same phenomenon is happening in Europe right now, and I think that Europe is also gonna seasonally increase their supply. They’ve got a lot of additional powder and there is a price out there that people substitute. There is a price out there at which you price out international demand. What we’ve gotta try to reconcile is all of this additional demand for skim solids in the U.S. is [00:09:00] that replacing our need to be an exporter of skim solids? I don’t have the numbers in front of me, but it feels like a reach to believe that we’re consuming enough to take away our need to compete internationally for skim demand. So that’s one thing that might just put a little bit of a seasonal ceiling on this thing as we move forward. The real question is, does that actually tilt us into a surplus situation again, or not? Big question that we should get our arms around. Additionally, I think that there is substitution within dairy. For the longest time, skim solids are very, very cheap. And as mentioned, the fortification into the cheese vat has been a pretty clear decision. When butterfat dropped to the price levels that it did, it makes a whole lot of sense to fortify. As these skim prices move a bit higher and dependent on our cheese price outlook going forward, does that math shift at all? I’ve heard arguments on both sides that the math does matter, and I’ve also heard arguments that the math really doesn’t matter. It’s all about [00:10:00] optimizing put through in the vat. So yeah, I think those are interesting topics for us to debate because those are the things that might tilt the market one way or the other. Ted Jacoby III: When it comes to skim solids versus butterfat in the vat, and let’s not forget, with the increase in solids in the milk, especially in butterfat, you’ve gotten the ratio of protein to fat outta whack, which is driving an increased need of skim solids into the cheese vat. The real math is: do you sell the cream or you divide the UF milk? Well, guess what? The UF milk is getting a lot more expensive right now. And so, you can make the case that you might actually force yourself to be comfortable selling the cream because it’s really a question of do you overpay for the skim solids or do you lose money on the butterfat if you sell the butterfat. At lower butter prices, for a couple of different reasons, you need a higher multiple on the cream in order to sell it. And one of the big ones is cost of freight as a percentage of the butterfat price has gone way up. You compare a $1.50 butter to $3 butter and on a percentage basis, your freight costs are twice as much [00:11:00] now. Which ultimately, when it comes to surplus cream, will drive down the multiple that you’ll receive for the cream. Josh White: You know, I don’t wanna shift gears, but I do wanna spend a moment just thinking about the milk production response and if our outlook shifted a little bit over the past month or two. ’cause going into the end of the year, it seemed like the U.S. and Europe were on a collision course, a game of chicken to decide who’s gonna be the first to drop price enough to see milk production slow down. Our global milk production, what is it up like 3.8% or something like that going into the end of the year on a solids basis, and no real sign of major change in the first half of the year, other than some signaling from European companies to lower their milk price and try to slow things down. Is this recent rally, whether it’s a short covering rally or whether it’s temporary, is this pushing out that response, whether it’s in Europe or the U.S., even further than we previously thought? Ted Jacoby III: I feel pretty comfortable saying no. And the reason I feel pretty [00:12:00] comfortable saying no, is for a couple of reasons. The biggest one is nonfat milk production is less than 15% of the milk supply of the U.S. And so, this rally in nonfat prices, it’s affecting less than 15% of the milk supply. Translated over a 100% of the milk supply, it’s not that big a number. I’m not sure it moves the dial a huge amount. Maybe I should back up a little bit because it’s now the higher of Class III and Class IV and Class I, and Class IV was trailing Class III by a dollar and now Class IV is ahead of Class III because of this rally. So yes, you’re starting to drive up prices there, too, so maybe it is helping the dairy farmer in a couple of places. While I agree that you’ve gotten a sympathy rally with cheese and butter, unlike nonfat, there’s more than enough butter and there’s more than enough cheese out there. And so we don’t actually see a true challenge to accessing supply with those two. So, while you may see increased futures levels at the moment, I’m not sure that’s going [00:13:00] to translate for a long enough period of time, the increased price levels for those products. Josh White: Just to play devil’s advocate, I think if you ask the market if fresh production of butter was readily available, the answer might be no. Ted Jacoby III: It’s either one of two things. There’s a lot of 82% being made for export. Or you’ve got 30¢ to 40¢ of carry in the futures market, and if I’m a butter manufacturer, and I’ve got any kind of working capital, I’m making 80%, I’m parking it in my own warehouse, I’m hedging it out to capture that extra 40¢, and I’m telling everybody I’m sold out. Well, guess what? That butterfat is still available. Once you get past the old crop, new crop March 1st date, that math changes, that’s only a month away. And I would even say you’re talking about the shortest month of the year, too. Josh White: Cheese has the same forward curve right now. Maybe not quite as dramatic, but a pretty good healthy contango going forward. What’s different about the cheese market? Ted Jacoby III: Cheese has a tendency to have carry in it when prices are low. The market is more used to this kind of carry in [00:14:00] cheese. Jacob Menge: The shelf life too. Ted, I mean Ted Jacoby III: that’s, that’s, well, that’s right. That’s the second one is cheese ages. And so six month old cheese is a different product than 30 day old cheese. With butter, there’s a reason why the CME rules for butter is up to 12 months after December 1st production. Whereas with cheese, it’s basically a 30 day market. And that has to do with how the product changes over time as it ages. Josh White: When we’re thinking about the cheese market, we’re talking about the U.S. milk production being up, year over year a lot. We throw a little salt on that because we recognize we’re comparing against bird flu impacted regions a year ago, but still lot more milk solids. Lot more butterfat out there. But at the same time, we’ve added plenty of Class III processing capacity, at least through the middle part of America to process quite a bit more milk. How is the whey component playing into this right now? Do we think these plants are gonna be highly motivated to fill up because of the return they’re getting for the whey [00:15:00] products, despite the cheese, situation you just mentioned, or are we really testing that desire to wanna fill up some of these plants as milk volumes pick up seasonally here in the state? Ted Jacoby III: So I can answer that question with the same answer two different ways. The first is: Please don’t forget that the Class III price ultimately insulates cheese manufacturers from major movements in price. If they’re having to sell all that cheese at a substantial discount to the market, they could be losing money making the cheese, but the reality is if they sell it anywhere close to the CME price, it’s still gonna be a net profit or at least a net break even for them on the cheese side. Meanwhile, if they have a whey protein dryer and they’re making WPC 80 to your WPC 90, Josh as you well know, as our primary whey trader, those are very, very profitable for cheese plants right now with the prices as high as they are. Josh White: Unprecedented. Mike Brown: Gives them a little room with a higher class IV price because of that return [00:16:00] from whey to pay a little more than the spread might normally indicate that they would. Just as a point of reference, if you look the most recent dairy production numbers we have products is for November, but Southwest was down 25% I think, in overall nonfat dry milk production. And they were 70% of the decrease over last year. Ted Jacoby III: Yep. Mike Brown: And you still have some plants filling up down there. Although, again, we’ll see what happens with this spread. But to the point we’ve all made earlier, it is a supply issue. And there’s no question those south central cheese plants in Kansas and Texas are a big part of the reason that there’s less milk going into powder. Ted Jacoby III: I had someone earlier today make a comment, and I never quite thought of it this way. He was actually talking about cheese, but I think the exact same thing goes for powder plants. Because the solids in the milk is up, they need less loads of milk to make the same amount of powder. And the bottleneck in the process a lot of times is not the milk receiving bay. So it literally means they have to take in less milk to get there. If you’re out in California, those bottlenecks are limiting how much milk they can [00:17:00] process. In the Southwest, they’re not. Josh White: Right. Ted Jacoby III: But demand for protein, I’ll frame it this way: We’re seeing huge increases in demand for whey proteins. We’re seeing increases in demand for milk proteins. We’re seeing increases in demand for UF milk, not just by cheese plants, but by ready to drink milk bottlers, as well, who really wanna sell that high protein milk. And that is what’s driving all of this. And it’s driving it away from the nonfat dryer, and it’s driving it towards cheese, which is a source of protein, whether it’s cheese or it’s the whey that comes off the cheese. It’s driving it towards those UF milk plants. It’s driving it towards milk protein concentrate plants. It’s really all about that huge increasing demand for protein that’s driving this. I don’t think it’s that hard to make the correlation that this big increase in the demand for dairy proteins across the dairy spectrum is what’s causing this powder market to be tight. Because it’s pulling milk away [00:18:00] from the nonfat dryer. Mike Brown: Yeah. And certainly, you have a fair amount of MPC capacity, certainly in New Mexico. If you can make a protein, you’re making a protein, I think, whether it’s milk or whey.Ted Jacoby III: I think that’s exactly right. So, Diego, where do we end? We were below a $1.20 three weeks ago. We’re at a $1.46 today. Are we gonna get to a $1.60? Diego Carvallo: Ted, I do know that the $1.40 is a strong psychological resistance and the futures are very close to it. I’m gonna monitor it. I don’t know how high we can go. At this point, it seems like a train, and I’m not gonna step in front of it. $1.50 is not impossible at this moment, but at the same time, I could tell you that we could have a strong correction also. So, very difficult to read right now. Ted Jacoby III: We just talked about a real nice rally going on in nonfat. The rally we think is because the demand for protein is pulling milk away from the nonfat dryer. Meanwhile, I think we have more than enough butter, though it may not be available yet, in terms of new crop, 80% butter sellable on the [00:19:00] CME. We think that we’re gonna have more than enough cheese, colored cheddar, which tends to be the product that drives price on the cheese side. So, even though we have had a rally in both of those products in futures, we’re not as strong of believers in the cheese market and the butter market as we are in the nonfat market right now. So, before we wrap up, we’re gonna do a quick lightning round question. We just came out of the Dairy Forum. We had many, many conversations with a lot of different people. What is the one thing happening in the dairy market right now that we think people are overlooking? Josh, I’m gonna start with you. Josh White: The reshaping of how milk trades across the country. I’m certainly not in the best position versus our milk team to address that, but the changes in where we can process milk, how we can process milk, and who’s demanding the milk is reshaping how things move. And I think that’s gonna test some of our experience and historical expectations for how a market responds to some of the signals we’re seeing now. I mean, let’s be real clear. Over the past 24 months, we’ve been surprised as a [00:20:00] dairy industry by two major things. It was not that long ago that you couldn’t get enough fat. The dairymen responded and it surprised the market, I think, to a point where now we’re expecting to be a fat exporter for a while. On the other side, if we go back, not even 60 days ago, the argument was will nonfat break a dollar? Or not. And today, we’re talking about it being a very firm market and citing a bunch of reasons why that happened. And the market, I believe, was surprised by that. So, if you’re a buyer out there, don’t assume that these markets can’t change and change fast. Definitely make sure you’re preparing yourselves for that because we just went through multiple years where there was almost no risk of getting access to nonfat supply, and we’re getting phone calls now where people need coverage right now and are having difficulties doing so. Ted Jacoby III: Thanks Josh. Mike, how about you? What’s something that nobody’s talking about right now that we probably should be paying attention to? Mike Brown: I think from the standpoint of the cheesemaker and that cost of those [00:21:00] protein solids is a three four spread flipping significantly. We’re $2 the other way again now. That cost of fortification has gone up a lot. Even with a $12 WPI market. That’s a big number to work with. And I think just in general, the growth in demand, whether it’s ultra filtered protein, fluid products, or the new cheese capacity we underestimated how that would hit the supply of nonfat dry milk, and we’re now living that. Ted Jacoby III: Excellent. Thanks Mike. Diego, how about you? Diego Carvallo: I have two things. One is the dollar weakness is something I haven’t heard a lot of people talking about and how that influences the prices for all commodities. And the second one is, I think a lot of people might be overlooking Mexican milk production. Ted Jacoby III: Up or down. Is it good or bad? Diego Carvallo: From informal reports, it could be strongly up. Ted Jacoby III: Okay. That would not be good for nonfat prices, would it? Diego Carvallo: Correct. Yep. Ted Jacoby III: Jake, how about you? Jacob Menge: I’ll go with just the upending of all kinds of long held assumptions. If you’ve got calculators you’ve been [00:22:00] using, dairy market calculators, between the milk price formula changes between dollar weakness changing between us flipping to be a fat exporter, throw it all out. There are just so many of these, probably long held assumptions, those kind of things that people that have been in the industry a while probably have like, “Well, my gut tells me this.” Question your gut. That’s my go-to train of thought moving forward. Ted Jacoby III: I think that’s a good one. And I will say, I think people are underestimating what this whole breeding to beef thing going on with the dairy farmer is doing to their decision-making process when it comes to killing cows. Everybody’s talking about how low the price is. Everybody’s wondering when this price will recover. And I keep asking myself, if every time a beef cow is born, you’re selling that cow for over a thousand dollars, why would you wanna get rid of that womb? ’cause that womb seems to be making you a lot of money. To all of our listeners out there, thank you so much for joining us this week, and we look forward to talking to you soon. Take care out there.