The Milk Check podcast

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المحتوى المقدم من T.C. Jacoby & Co. - Dairy Traders, T.C. Jacoby, and Co. - Dairy Traders. يتم تحميل جميع محتويات البودكاست بما في ذلك الحلقات والرسومات وأوصاف البودكاست وتقديمها مباشرة بواسطة T.C. Jacoby & Co. - Dairy Traders, T.C. Jacoby, and Co. - Dairy Traders أو شريك منصة البودكاست الخاص بهم. إذا كنت تعتقد أن شخصًا ما يستخدم عملك المحمي بحقوق الطبع والنشر دون إذنك، فيمكنك اتباع العملية الموضحة هنا https://ar.player.fm/legal.

The Innovators & Investors Podcast

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Venture Investing in Mobility + Tech with University of Michigan’s Early-Stage Zell Lurie Commercialization Fund 39:30

منذ 17 يومًا39:30

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39:30

In this episode of The Innovators & Investors Podcast, host Kristian Marquez sits down with David Brem, Managing Director of the University of Michigan’s Zell Lurie Commercialization Fund. David offers a rare glimpse into the inner workings of a student-led endowment fund focused on early-stage, sector-agnostic investments primarily in the Michigan ecosystem. He shares insights on their unique, founder-first investment approach, how they navigate pre-seed to Series A venture opportunities, and the rigorous due diligence process involving qualitative analysis over pure numbers. David also discusses his roles with global VC networks including Electro Ventures, the London Venture Capital Network, and Level Up Ventures, illustrating how he bridges U.S., European, and Australian venture ecosystems with a special focus on mobility and transportation tech. Highlights include deep dives into emerging trends like eVTOLs (electric vertical takeoff and landing aircraft), smart city infrastructure, and safety innovations in aviation technology. Listeners will gain valuable perspectives on how diverse expertise—from military intelligence and management consulting to academic ventures—shapes David’s investment thesis and community-building efforts. The episode also explores the importance of networking, adding value in the startup ecosystem, and practical advice for aspiring investors or entrepreneurs navigating the venture capital world. With stories of successes, challenges, and future outlooks, this episode is a must-listen for innovators, founders, and investors aiming to understand the intersection of academia, technology, and venture capital in today’s dynamic landscape. Learn more about David's work at https://zli.umich.edu/zell-lurie-commercialization-fund/ Connect with David on LinkedIn at https://www.linkedin.com/in/david-lowell-brem/ Think you'd be a great guest on the show? Apply at https://finstratmgmt.com/innovators-investors-podcast/ Want to learn more about Kristian Marquez's work? Check out his website at https://finstratmgmt.com…

The Milk Check

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

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#Business #T.C. Jacoby & Co. - Dairy Traders #Dairy Traders #T.C. Jacoby

The Milk Check

updated منذ 25 يومًا

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

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#Business #T.C. Jacoby & Co. - Dairy Traders #Dairy Traders #T.C. Jacoby

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The Milk Check

1
Dairy on a knife’s edge 18:50

منذ 25 يومًا18:50

18:50

In this week’s episode of The Milk Check , the Jacoby team convenes to dissect a dairy market that feels balanced – barely. From milk still trickling in past the flush to range-bound commodity prices, this episode covers the major trends shaping the back half of 2025. Cheese exports are keeping Class III in check Culling numbers are down as producers are keeping heifers longer Global butterfat advantage fading with tighter GDT spreads WPC, WPI demand stable, but new production capacity looms And what if prices fall off the edge? From trade risks to recession fears, the industry feels one light push from price chaos. Listen now for insights on margins, milk flows and market forces. Got questions? Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast. Ask The Milk Check Intro (with music): Welcome to The Milk Check, a podcast from TC Jacoby & Co., where we share market insights and analysis with dairy farmers in mind. Ted Jacoby III: Hello everybody, and welcome to this month’s version of The Milk Check podcast by TC Jacoby & Co. This week, we will have a classic market discussion. It is June 9th, so we’re approaching the midpoint in the month of June 2025, and joining me today are Diego Carvallo, our Director of Dry Dairy Ingredients Trading. Jacob Menge is our vice president of risk management and trading strategy. Josh White, our Vice President of Dairy Ingredients. Mike Brown, our VP of Market Intelligence. Joe Maixner, our director of dairy ingredients and resident butter expert, is also there. I think we’ll go ahead and start with milk. It’s the middle of June. We’re past the flush, but milk is probably a little bit heavier than we expected. Milk production has been up. We know what is going on. The dairy farmers are making money, and they’re keeping cows. Their culling numbers are down, and so we’re seeing cow numbers up, maybe a little bit surprisingly, given what we know about the heifer replacement numbers, which means they’re keeping them for an extra lactation, that is keeping milk solids output maybe a little bit lower than we expected. But the solids are still up as well. So as a result, we’re seeing milk still on the long side, not too much out of what is normal for this time of year, and I wouldn’t be surprised as the weather in the upper Midwest starts to heat up, we start to see that milk production drop off a little bit and everything get a little bit tighter. We just haven’t quite reached that high temperature yet. And so that’s what we’re seeing in milk. Jake, how does that translate into cheese? What are we seeing in the cheese market right now? Jacob Menge: It’s funny, I think from the last time we had a market discussion to today, the message will be very similar, which is a lot of mixed signals on the cheese side. You can talk to certain people who say, Hey, our orders are way down. And then you might talk to somebody else, saying, Hey, our orders look pretty good, meaning the demand is there. I think it’s a bit of a tale of two cities regarding how exposed you are to the export market. Exports have been the thing that has been keeping us afloat on the cheese side. I think domestically, we’re not doing great. I would say that the prices that we’ve been seeing, this kind of upper 190s, mid to upper 190s, we’ve come off in the past week or two, but I think that mid to upper 190s did hurt demand on the export side. I think that’s kind of where we’re at. I would say good, not great. It just seems like we’re going to be range bound a bit on the cheese market just given this kind of pendulum swing of our prices move too high, which kills exports a little bit, but if we go down even just a little bit, you think the export market comes back in, so that’s the feel we’ve got right now. Ted Jacoby III: How is the dollar affecting exports? Jacob Menge: Yeah, I think it’s helped certainly. That is probably the biggest risk to hurting exports going forward, but we don’t have a particularly strong dollar. I wouldn’t say we’ve a particularly weak dollar, but yeah, I would say that has been a catalyst, if anything. If I had to pick a direction of whether it could hurt or help exports moving forward, I would say if the dollar strengthens, it’s much more likely to harm our exports than the dollar weakening further in helping. Ted Jacoby III: So, Mike, I have a question for you. You’ve been looking at some of our milk production numbers lately. Have we been seeing milk move from class four to class three with these new cheese plants, or even though we’ve built some of these new cheese plants, are we still seeing milk production remain in class four? Mike Brown : Well, more of it’s remained in class four I think, than some of us expected because some of the startups have been slower than expected, so you still have some class four plants, particularly in the south central US that are balancing some of that market. So I think that the opportunity to move more milk into cheese than we currently have exists. So much of this key is exports, and one thing we did see last week with the GDT is we saw how the spread between US and world cheddar prices get a little tighter, which makes me a little nervous about exports moving forward, but we have the opportunity to move more milk into cheese and that milk is basically ready to move into cheese when those plants demand it from what I’m understanding, talking to some of my powder friends in the Southwest. I think that there is still some opportunity for that to happen. We’ve also seen the spread between three and four has remained relatively tight compared to some recent years, which means that the incentive to move milk one way or the other isn’t maybe quite as great. It will be demand-driven and in my mind, those cheese exports going to keep that milk moving into the cheese plants, because they have been the key to the growth of cheese sales. Ted Jacoby III: Thanks, Mike. So, Diego, on the other side of the coin, non-fat and our powder market, is there any reason to see powder prices strengthening in a way that would pull some of that milk away from cheese? Diego Carvallo: I doubt it, Ted, because of the investment and the medium—and long-term plans these companies have for those new facilities. My expectation is that milk will be pulled from class four. Ted Jacoby III: So, as milk tightens up, would you expect that the class four plants will lose milk and that the cheese plants will keep it? Diego Carvallo: Yeah, there’s going to be exceptions, but I think that’s a general rule. Ted Jacoby III: Okay. Have we seen any pickup or any strengthening of international demand for non-fat and skim milk powder? Diego Carvallo: Not right now, and it’s because Europe is significantly more competitive than the US, but whenever we see Europe, the market tightening up, we will probably see a market that could move higher fast. At the current moment, the Europeans are the most aggressive in Asia, and at the same time, demand hasn’t really picked up, so for that reason, we have been range-bound for the longest time. Ted Jacoby III: Joe, if we’re making skim milk powder, that means we’re usually making either butter or cream and the butter fat market in the US been the talk of the year with cream multiples getting down into the 70s earlier in the year. We’ve been having a fair amount of butter exports. What do you think this butter market’s going to do going forward? Joe Maixner: Well, I think we’re going to continue to have exports and we’re continuing to penetrate new markets with multiple products. It’s not just 82% anymore that a lot of these markets are taking. They’re taking 80%. AMF has been extremely strong in the export markets. As long as cream continues to be readily available, which it has been for the entire first half of this year, we’ll continue to be a player in the world market. That coupled with the massive discount from the rest of the world. Ted Jacoby III: So what would you expect the butter price to do? Are we going to stay right around here or you think we’ll get higher or are we going to have one of those classic years where everything stays right around here, but we have this one, two week spike sometime in September? Joe Maixner: It’s a hard question to answer, Ted. I think we’re probably looking at more of a traditional year only because of the amount of exports that we’re able to put on the books. Otherwise, I think that we would be significantly more flush with inventories because domestic demand has been good, but it hasn’t been great. I think that if we can continue to get product out of the country, we should have a relatively stable butter price. Ted Jacoby III: I thought you said it was a normal year? Stable butter price and normal year don’t go hand in hand. Joe Maixner: Normal pre-COVID, how about that? Ted Jacoby III: Joe, that still doesn’t work for me, but I understand what you’re saying. We’re going to stick right around here. We’re probably going to have a relatively stable market that people should expect to stay in this range going forward, at least right now. Joe Maixner: Yeah. Take 2016 to 2019, for example, we spent the better part of almost four years in about a 40 cent range. Ted Jacoby III: Got it. I like the sound of that. I think the market would like a stable butter price. Everybody, we will be right back after these messages. Center commercial (with music): If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby & Co. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultative support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Ted Jacoby III: Josh, we kind of skipped over the whey market and the protein market. The protein market right now might be the craziest market of all this year. What’s going on right now in WPC and WPI? Josh White: Well, on the higher proteins, I think there’s a lot of different things pulling on this market in both directions. I think on the bull side, despite consumer trends, we continue to see really good and resilient per capita consumption across a lot of the different products, not just your traditional protein-enhanced beverages and some of the new and innovative ones like the clear proteins going into different drinks, but we’re also seeing, I think pretty good orders from consumer packaged good type products as well. What’s unclear is it really bucking the trend that we’re experiencing across other food service related items and other things, or is it just lagging? That’s really unclear to me at the moment. I’m pretty confused about the direction, but I think on the bull side of the case, we continue to see strong WPC 80 orders. Whey protein isolate feels like it’s in a bit of a short squeeze right now. People need product. Both of those products have recovered to near the highs that we saw ending 2024 and starting 2025. I don’t know that I would say across the board that we’ve set new highs yet, so we’ve had arguably kind of a stable quarterly price market despite all of the trade rhetoric in both headwinds and tailwinds that we’re dealing with. We can’t ignore the fact Europe is still quite a bit higher than us for our whey proteins. That combined with a weak dollar, I think we’ve seen some pretty decent international interest. What’ll be interesting to see is what happens when we start to print some new headlines. I am certainly not going to predict it, but I think we all can see a scenario where we’re going to start headline trading a little bit again as some of these trade deals wind up to some milestones. It’s not just the bullish side. I think that there are some things that we got to pay attention to on the bear side of the case right now. We’re realigning our price relationships with the underlying sweet whey powder and that market is experiencing some big changes this year. I mean, you had several factories go offline with sweet whey powder production replacing that with WPC-AD predominantly production. You saw some WPC-AD facilities expand and you’ve got some new whey protein facilities that are in the process of filling up those cheese vats, that at some moment will add some extra protein onto the market and right now I think it’s a coin flip on whether or not the market quickly digests or consumes that additional product or not. Generally speaking, I would say that the trade distortion and headlines probably lean bearish initially when they come across, and so we got to pay attention to that. It’s a fun one. I think it’s going to be an interesting second part of the year and don’t forget, we’ve got another one of these cheese plants coming online right now that’s going to make a fairly sizable amount of sweet whey powder. There’s a lot of things pulling on both the bull and the bear side of the whey markets at the moment. Ted Jacoby III: So I have a question on whey proteins. We had some pretty high prices in the fall and then the calendar flipped to 2025 and usually that’s a time when price increases would be passed through at the retail level. Did that happen this year? Are we seeing demand stay this high even in the face of higher protein prices to the consumer? Josh White: I don’t know that I have a great answer for that. I think I would start by answering that question that I think there was room to absorb some of those price increases and those price increases were being layered in over multiple quarters and we’re now entering our third consecutive quarter, where I believe that the quarterly negotiations from processor to large packer have been at similar type levels. We haven’t been talking about quarter-to-quarter dollar a pound or more price increases for all of this year. And to answer your question, yes, there still seems to be demand. Now if you start to really unpack that, I think there’s probably a lot more of the story that we’re not seeing quite yet. It’s a long supply chain, but some of the growth that we’re seeing is in healthy eating snack foods, things like that, where the inclusion rate as a percentage of the total product cost is smaller. They’re not realizing such a dramatic price increase as you would see in maybe your sports nutrition drinks and things like that. If we start to peel the onion back, there’s a lot of explanations for it and I believe it all drives back to the fact that just consumers are paying more attention to the type of calories they put in their body, and protein is one of the gold stars of that, and whey protein in particular seems to be doing quite well in that environment. Less frozen pizzas maybe and take out there, maybe people are still willing to buy the higher protein snack foods and supplements. Ted Jacoby III: Mike, what do you think is going to drive this market over the next six, seven months? What’s the thing that we’re not really paying attention to, do you think is going to surprise everybody? Mike Brown: Boy, we are at a point with this older dairy herd that if we get to where margins drop significantly, IE milk prices do see some decline. We could see some insane [inaudible 00:13:19] worth a couple thousand dollars. Not too many years ago we were paying less than that for a herd replacement for dairy. I think that’s something we have to keep our eye on is just that overall margin. High [inaudible 00:13:28] prices are contributing to a good margin on the dairy. World demand, we’re in such a tumultuous world right now in trade and tariffs. Our price advantage under the world prices has given us a huge advantage in exports, particularly on the butter and cheese side. Obviously not so much on the powders. If we don’t keep that when we have lackluster food service and retail demand, will that give us some weakness in market moving forward? As long as exports stay strong… So far our expansion of American style cheese and to a lesser degree mozzarella seems to be moving and prices are staying pretty stable, but if we reach a point where that export market starts to not be the outlet that has been, that’s my biggest concern, that world trade is extremely important to keeping the whole supply chain healthy over the next 6 to 12 months. Ted Jacoby III: I couldn’t agree more with that, Mike. Jacob Menge: Yeah, I’ll chime in. Mine’s just going to be macroeconomic factors. It feels like we are kind of on a knife’s edge right now, frankly with a light push getting us off that knife’s edge one way or the other. Could be tariffs, could be recession in the second half of the year, who knows? Could be the trade war heating up again with either in a region we’re not really focusing on or the opposite, who knows? It just feels like we’re probably range bound. It feels like that’s kind of a delicate balance though. That if the shoe drops, it really could swing violently. It really feels like we’re potentially range bound on a lot of our products, not because supply and demand is in perfect harmony right now, but rather because the market’s kind of waiting for that next signal. So that’s just kind of a gut feel. I wish I had more data to put behind that, but that’s just how the market feels to me right now. Ted Jacoby III: So if we’re on a knife’s edge, I can come up with three or four different scenarios that would tip us off that edge into the recession side. What is it that would tip us off the edge into the economy is now going better than expected side? Jacob Menge: Yeah, I don’t know that it would be that the economy goes better than expected. It would be that the clouds clear, those uncertainties get cleared up. There’s kind of a definitive resolution of some sort to the trade war. Maybe the dollar recovers a little bit as a result. That’s how I think we get to that more positive outcome. I think there is a lot of uncertainty weighing on the market and if that gets cleared up, I think it’ll drive probably better domestic demand, maybe better global demand, et cetera. Ted Jacoby III: Okay. Is this just one of those markets where in just about every product right now we’re kind of range bound and we’re waiting for some piece of information that would tip us one way or another? Josh White: I think we’ve got to pay attention to the timeline that we’re on, and what I mean is the same fundamental variables that have influenced markets and price over the past six months will have a different impact on markets and price in the next six months. We came out of our heavier milk production season. The majority of milk in the world is produced during the Northern Hemisphere spring season. We’re going into lower seasons both in Europe and the US, which makes us slightly more vulnerable to just risks to our forecasted supply. Right now, I think we’re expecting Europe to be flat to slightly better on either side of unchanged, correct me if I’m wrong, and the US we’re expecting year-over-year growth in milk as well as growth in components. All of that being true. We are going into the season where we make a little bit less. And at the same time, if you look around the world, I would argue that the world is facing a lot of economic uncertainty. The world has been in a position for the last several years to buy hand to mouth and do that without having big risks to their procurement strategies. But the world is destocked. This is not necessarily to say we should be bullish. I’m not suggesting that at all. I just think that we’re vulnerable to volatility and to some price movements. You add on the fact that, again, as I mentioned earlier, there’s a lot of headlines and the headline impact on the market can be there. You add on that we have shifting product mix in a couple of key regions of the world. We know that Oceana has been shifting their product mix over the past few years. Certain markets are emerging as exporters of dairy products that traditionally haven’t been exporters, and the US has added a whole lot of class three cheese production capacity that will consume some of that available milk, and I just think it’s tough to evaluate tomorrow based on yesterday. Ted Jacoby III: Makes sense to me. All right guys, thanks everybody for joining me. I think this is a great market discussion. I think the message is loud and clear. Markets are probably going to be relatively stable, at least for the short term, until there is something that tells us that markets need to move, whether it’s weather, like heat or it’s something in the macroeconomy or it’s something on the demand side, like less exports. Let’s go ahead and head into this summer and let’s see what the heat brings. Take care everybody. Outro (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of TC Jacoby & Co.…

The Milk Check

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Fire in the belly with Nate Zwald 38:08

منذ 5 weeks38:08

38:08

Are you missing the biggest leap in dairy performance since the milking machine? From fertility breakthroughs to Holsteins with 4.5% components/5% fat, today’s cows are not your grandparents’ cows. In this episode of The Milk Check, we sit down with Nate Zwald , president and CEO of Progenco , to uncover how genetics is quietly reshaping the dairy industry. We tackle: Why genetic progress is accelerating and how that changes your herd strategy The rise of gender-selected genetics and the fall of dairy bull calves What makes a cow “better” — and how to breed more of them Why embryo technology could be the next big leap Listen now to the latest episode of The Milk Check to learn why cows engineered for fire in the belly could have improved lifespan, higher fertility, better fat composition and a better life. Got questions? Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the show. Ask The Milk Check Special Guest: Nate Zwald , president and CEO of Progenco The Jacoby Team: Gus Jacoby , president, fluid dairy ingredients & dairy support Mike Brown , vice president of dairy market intelligence Ted Jacoby III , CEO & president, cheese, butter & dry ingredients Intro (with music): Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind. Ted Jacoby III: Welcome, everybody, to the podcast. This month’s version we have a special guest. We have Nate Zwald, former CEO of ABS Global and current president and CEO of Progenco. Joining us from the Jacoby team is Mike Brown, our VP of Market Intelligence, and Josh White, our VP of Dairy Ingredients. Nate, we’ve asked you on this podcast today because you’re one of the foremost experts in bovine genetics out there, and we’ve been talking a lot about some of the changes in cow genetics and how it’s been affecting our dairy markets. It’s something we’d love to learn a lot more about. Why don’t you start us off? Tell us a little about your background, and we’ll go from there. Nate Zwald: Yeah, sure. Well, first of all, a pleasure to be here. I appreciate being asked and appreciate that introduction. I’ve had a long career in dairy genetics, starting with growing up on a farm and learning about dairy genetics from where it should be learned about, in a barn with my dad, thinking about milking cows and recognizing that the next generation of cows was going to be better than the current generation of cows. And that was a pretty fun thing to see firsthand. When you think about having a daughter of a cow out in the heifer yard, that’s going to be better than the cow you’re milking today. And I think that’s the whole idea that we think about when we think about genetics is making better animals faster and trying always to make sure that the next generation is going to be more productive, healthier, happier, better for the farmers, better for the community, and better for the world and the next generation than the cows are in this generation. And we’ve seen tremendous progress through time in doing that compared to when I was a kid milking cows thinking, “Hey, I hope the heifer is going to be better than the cow herself.” Because here we are, we’ve gone through so many technologies like selection for fitness, longevity, and fertility, and then we went through genomic technology that’s had a huge impact on the industry. And then more recently, sex semen and the use of beef on dairy cows have all had substantial changes to the genetic progress curve compared to what seems like not that long ago from my standpoint, just milking cows in the barn with dad. Ted Jacoby III: So, currently, what are some of the major trends in genetics that the dairy producer is either utilizing or needs to be aware of, that are coming down the pike? Nate Zwald: Well, I think some of those things that I mentioned, I mean, when you start thinking about the early 2000s, we were going through this time and the shift from selection really for production, which was primarily fluid milk production, and how the cow looks. From a dairy judging perspective, the show cows must be better than cows that don’t look like show cows to thinking about the data and saying what makes a cow live a long, happy life and what makes cows be more productive for their owners? And does that mean that she’s got to be taller and sharper and milk more in terms of fluid milk production, or does that take on a little different thing? Is it the cows that just love to live? If you think about today’s environment, everybody loves those cows that are first to the parlor. They want to get milked. And those cows that are just always happy, they’re the ones that go and they eat, they sleep, they milk, and they love their life and they love doing it for their owners every day. And then not only do they eat, sleep, and milk, but they do it most profitably and productively possible. That’s been through a series of genetic advancements, and really, that started with looking at those type characteristics and saying, is it type that makes a cow more profitable, or is it things like, does she get pregnant quickly? Does she have an easy calf? Does she live a long time? Is she that kind of aggressive animal that has that fire in the belly to live? And I think it’s more the latter, those things that you can’t necessarily see physically and phenotypically in the cow. And that was probably the starting point to a whole series of things that kicked off a tremendous amount of genetic progress, where when we think about cows today versus cows 20 years ago, it’s amazing the amount of change we’ve had. And that doesn’t mean they all look like show cows today, but it means they’re more profitable animals. They’re producing a tremendous amount of more components, which is probably something that you guys and your listeners deal with regularly now. And that’s because of the selection, what we’re selecting for, it’s how we’re selecting for with genomics, but then it’s how you implement those things. And that’s probably the most recent thing, probably something that kind of came about quicker than what anybody was ready for, is how dramatic the impact of breeding your best animals to sex semen and your worst animals to beef semen would be in how dairy cows change and how quickly that happened. Ted Jacoby III: And so what are some of the results you’re seeing from your point of view on that subject? Nate Zwald: So the first thing is we reversed the trend from what was perceived 20 years ago as Holstein cows that were difficult to get pregnant and didn’t live as long as we wanted them to. And a lot of that came back to their health, their fertility rates, and ultimately then because of those things, their longevity. So we’ve changed that trend. That was the 30 or 40-year trend where we were making cows that milk more and looked better, but they were getting less and less fertile, especially Holsteins. Jerseys, to some degree, too. And so you think back to that time, many people thought they had to cross-breed to solve that fertility issue in Holstein cattle. Through genetics, we can make better cows faster. When you define better correctly, and you say better means they have to get pregnant and they have to live a long, profitable life. When we changed that and implemented that and redefined what was better, we made that progress. And so we reversed that trend and now cows are getting more fertile every generation and producing more pounds of milk, but also especially more pounds of components. And I think that was a lot due to the genomic revolution. So not only did the AI companies and the genetic companies make more progress with the bulls and the genetics that they had for sale and offer, but then dairy farms started implementing the genomic technology on their females. They started testing those females and that allowed them to make decisions. Any information isn’t valuable unless you use that information for something. And so for a while, there were a lot of farms that did genomic testing and didn’t use the information correctly or in a way that advanced genetic progress, meaning better cows faster. But more recently, with the advent of sex semen, people started doing what they should do, and that is breed the best of sex and leave the rest for beef. And so when you think about a bell-shaped curve of your dairy, whether you have 10,000 cows, 1,000 cows, or 100 cows, you’ve got this nice evenly distributed bell-shaped curve of animals. You got the best ones on the right-hand side of the curve, and you got the worst ones on the left-hand side of the curve. And when you think about using sex semen and you just think about, I can get a female replacement from all my best animals and equally importantly, I don’t have to get any dairy replacement from all my worst animals, the progress of genetic progress, the speed of genetic progress absolutely doubles if not triplicates, because bell shaped curve has a lot of variation in it. There’s a lot of spread between your best animals, your average animals, and your worst animals. And you think about that genetically, there might be up to a thousand dollars of difference just genetically between your best and your worst animals in your dairy. And before the use of sex semen and beef semen, there was an equal chance that that worst animal was having a heifer calf, and your best animal was having a bull calf as the opposite of that. And today, you can ensure that your best ones have female calves and your worst ones do not have a dairy replacement. And that’s the part that even I underestimated the impact that would be on the breed and on the industry in terms of genetic progress. And part of that reason is why we see Holstein herds that are averaging well over 4.5% components, potentially in some months, at the time of the year, up to 5% fat. When I was a kid, these were component levels that not even Jersey dairy sometimes met, and now we got Holstein herds that are doing it. Not only did we solve the fertility issue in the Holstein cow, but now we are also really making what some people call a black and white Jersey because they got the component levels of a Jersey and the health and fertility of those Jersey cows, too. And Jerseys have made a lot of progress too, just not quite at the same speed as Holstein because of the smaller population. Ted Jacoby III: You just shared a lot of information, but I heard you say earlier that you hinted at the possibility that dairy cows, probably especially the better ones in your herd, can probably be high producers with a longer lifespan today. Did I hear that correctly? Nate Zwald: That’s absolutely right. And more fertile through it as well. Part of that is because we’ve changed the definition or the selection goal. It used to be better looking and more productive, but now there’s this big component in the selection goal that is a healthier, more fertile, longer-lasting cow, and I think that’s good for the owners of those animals, but it’s also really good for the world. Consumers want to consume products that are produced sustainably, and there’s probably no better story in the industry than genetics for sustainability. When we make more production, first of all, that’s more sustainable per unit of whatever output. Still, there’s also a real story for making just animals that are happier and healthier and more productive, love doing what they do, their job every day, for example. There’s no reason to breed animals that aren’t good at doing that. Right? I think that’s a real story in and of itself. The amount of progress we’ve made in terms of the average dairy cow in the industry today compared to 20 years ago, we’re making three times as much genetic progress for those categories of more productive, healthier and longer lasting and then more efficient, and it’s three times as much progress as we were making 20 years ago, and that’s really, really impressive to think about that rate of genetic gain, and we just changed the rate of progress that dramatically over 20 years. Mike Brown: I worked for Jersey for years on the milk marketing side. A couple of things that I saw in my career at Jersey were, first, a productive life. You discovered that some bulls that didn’t make cows at one fair may live longer. We call them constitution. They just were tough, and you had bloodlines you could track that in. They weren’t necessarily high-tight bulls. The second thing is net merit, which kind of ties everything together to the way we look at bulls now, and you can even look at net merits depending on how you sell your milk, different net merits for different types of milk markets. But when you look at that and you look at what’s happening with Holstein, efficiency, some of the work that was done with Kent Weigel at Wisconsin was working across the country on feed efficiencies, and now we have that as part of our selection tools as well. You got into that profitability. How has that changed what the modern Holstein cows are going to look like versus that true type ideal that we had back in basically from the 50s through the 90s? Nate Zwald: Yeah, it’s a great question, Mike, and it’s a great insight. I think you’re leading there because what those cows look like has already changed. And you mentioned Kent. Kent was my major professor during my grad school at University of Wisconsin. We worked on some of these initial studies, and one of the things we worked on while I was there was how to evaluate health traits in dairy cattle. So that was one of my grad school projects, evaluating is there a genetic component for these traits like early metabolic health in dairy cattle and things like that that honestly Jerseys were better at than Holsteins as a breed at that time. Jerseys have some inherent breed advantages, components, health, and longevity, but Holsteins have caught up. Jerseys have continued to make progress, too, which is great to see. But going back to your core question, what do Holsteins look like today? They look a lot different than they did 20 years ago, and cows 20 years ago looked different than those 50 years ago. So I think we kind of went through 50 years of making cows really, really pretty and good for type. They were very, very functional. One of the ways I like to explain this topic of type is type is still important. It’s important to have animals that are functional. We don’t want big swing bags. We don’t want cows that can’t walk on their feet and legs, all of those things. But the genetics for those traits that made big swing bags and cows and udders that couldn’t be milked, they’re no longer present in the breed, so the average cow now is way better than functional. And so one of the questions is, once you get to this level of utility, what extra value do you have to be better than utility? So if you can do your job really well and you don’t get called or you don’t leave the herd because your udder is poor or because you can’t walk anymore or things like that, then we can focus on other traits, those feed efficiency traits, longevity traits, fire in the belly even. That’s a hard trait to measure of course, but you mentioned the jerseys kind of have, and even that one is associated with longevity. Of course, cows that live a long time in today’s commercial environments, they got that fire in the belly. They love doing what they do and they’re first to doing it every day, whether that’s eating, drinking, lying down and sleeping or coming to the parlor and milking. That’s a huge thing. And then I think when it comes to what they look like, they’re going to be smaller, they’re going to be more efficient, they’re going to be healthier, and they’re going to live a long time and they’re probably going to produce a lot higher component level in their milk than cows did 20 years ago. That story is actually quite incredible how different Holsteins are in terms of their component levels than what they were 20 years ago. Ted Jacoby III: Nate, it almost sounds like what you’re saying is that even though we’ve seen right now, one of the big topics is our heifer replacement numbers are too low and we’re not going to be able to continue to replace the cows that we’re sending to slaughter. But what you’re saying is the genetics are so good right now that that’s an easy leap for us to keep those better cows in the herd. And so the average lactations on the national herd, that’s just going to go up as the better cows stay in the herd and we continue to breed the beef, the cows at the lower end of the bell curve. And so what’s going on right now? This isn’t just kind of a 2, 3, 4 year phenomenon. This is probably going to go on for a while. Am I reading that correctly? Nate Zwald: Yeah, I think that’s partially true. First of all, the price of beef is really driving producers to have a different mindset towards how they make their money, right? Ted Jacoby III: Mm-hmm. Nate Zwald: The amount of profitability that’s coming from the beef side of dairy producers right now is astronomical on a percentage basis and in a total quantum basis, and it’s driving people’s mindset to be different. Now that said, I think it’s also important to recognize if we had more dairy replacements, that is going to drive the turnover rate. If there’s 9.4 million cows in the US right now, we can only replace as many as what we have heifers for. So if we had three and a half million heifers instead of 2.5 million heifers, we’d turn over that national herd quicker because the average heifer is better than the average cow. In every farm that you go to, if you say, “Well, if you had more heifers, what would you do?” Well, you’d call more of your crappy cows. And so I think that’s a real trade-off. So is it possible that you can keep more of your older cows that are later lactation and things? Sure. Are those cows better genetically than they were five years ago or 20 years ago? Absolutely, but there’s still this trade-off between making genetic progress and phenotypic progress, which both come from having more replacements available than what you can do if you short yourself on replacement. Everybody’s trying to dial that in right now and saying, “Well, I need exactly 318 dairy replacements a month, for example.” Well, is that the minimum? Is that the optimized number? Or is that the optimized number plus some extras, right? In case you have some challenges with your heifer operation or your calf operation or whatever. I’m a proponent of a few extras that allows you to do a couple things. It allows you to have options. You can sell springers, you can sell first lactation cows, or you can cull more cows. It’s an interesting dynamic and choice to make right now. The CFOs love to have the cash that’s associated with more beef calves, but what that does is it cuts off the options that you have two or three years down the line with what extra replacements can bring you. And so you can sell dairy replacement heifers, you can sell first lactation cows, or you can cull more animals that are older in the herd and need to be replaced with the next generation of better genetics and better phenotypes. I’m a big proponent of having a few extra replacements available versus cutting that to the bone and saying, “We only need X. I’d like it to be x plus 10%.” The other component is everybody that thinks they’re not going to grow in this business tends to find a way to add a few cows or figure out how to milk a few extra cows in their current facilities, and if they don’t have those replacements available internally, they’re pretty costly right now. Ted Jacoby III: Are we at the bottom of the trend yet where everybody is breeding to beef because the money’s just too good to pass up? Have you started to see anybody start to switch back to breeding more and get that plus 10% or do you think that trend is still running away from us the way it’s looked the last couple of years? Nate Zwald: Definitely, I’ve seen some people that have moved back towards more sex semen, especially those that think that they’re going to be in a unique position to grow and they value the genetic quality and superiority that they can produce internally versus buying effectively an unknown animal or worse yet somebody else’s bottom 10%. Ted Jacoby III: Right. Nate Zwald: If you’re a smart dairyman today and you’ve got extra animals available, you’re not selling your average anymore. With all the tools you have available, you’re literally going to sell something that you don’t want. And I don’t know too many dairymen that say, “Well, what I don’t want is my average or my best.” They don’t want their bottom end. Now, your bottom end could be better than somebody else’s average. That’s always an option. But really when you think about the progressive producers that think in their future plans they’re going to grow and they’ve seen the impact of what better genetics does, they want to grow with known genetics, known animals, and also a known background in feeding program versus just buying springers from wherever they can find them for a pretty astronomical price right now. Mike Brown: The bottom end though changes. If you’re breeding two thirds your herd to sex semen and a third to beef, that means that even your bottom end genetically is better than it used to be. Genomics has had a huge impact because we know before a bull can produce viable semen what his genetic merit estimate is. If you’re a professional in this, I’m an interested cow guy. How much has that increased that generation? But what are we seeing now in annual improvement in genetic value versus what we saw before genomics? Nate Zwald: Right now it’s reasonable to say the Holstein breed is making about a hundred dollars of genetic progress a year. Mike Brown: That’s amazing. Nate Zwald: Interestingly, when you think about that, a lot of the credit goes to the genetic companies for embracing the technology, and that probably doubled the genetic progress trend from say, $30 a year to 60 or 33 to 66, something like that. But that last third of the inflection point of why we’re making so much progress right now all has to do with the dairy farm community and dairy producers and how they’re implementing that technology in their operations. So we’ve seen more dairy replacement heifers going to feed that aren’t good, that are on the low end of the bell shaped curve genetically and/or don’t get pregnant on time because again, you can earn a lot of money from feeding those animals out. But we also just have the implementation of sex semen and beef back to that bell shaped curve that I talked about. And that last third, or say 25 to $30 a year is all because dairy producers on the female side, which traditionally we haven’t made any progress on because every cow got bred for the hope or the plan to make a dairy replacement. Half of them had males, half of them had females. That last third of the genetic progress that we’re making today to get to a hundred dollars a year is really because producers are breeding their poor animals to beef semen and not giving them an opportunity to have a dairy replacement calf and breeding their best to sex, ensuring that those best genetics have a dairy replacement female calf, and that’s really driven the genetic progress curve forward. To the degree that done correctly, a dairy producer can make more genetic progress because of how they implement that plan with genomic sex semen and beef semen in their dairy than they can through the bulls that they’re choosing from the AI organizations. And what that means is if you get a good genetic partner, they’ve got their bulls and they’ve got some bulls that are better than poor bulls, but that group of bulls is all really genetically pretty elite and preselected from the population to be a bull that produces semen that they’re going to market semen on. So there’s not as much spread between a genetic companies vast and average as there is in a dairy herd where you’ve got maybe a thousand cows and that spread between your best animal and your worst animal is like a thousand dollars genetically potentially. So that last part of genetic progress has really come from how these technologies and tools have been put to work on the dairy farm level. Ted Jacoby III: Nate, are any of the semen organizations using technology in CRISPR is the one that comes to mind to identify that semen which will produce higher butterfat, higher protein or something like that, or is it almost purely just selective, these are the better producers, we’re going to breed to these versus the lower producers? Nate Zwald: Yeah, so that technology is available. And interestingly now, some gene editing technology with CRISPR in pigs has been approved by the FDA now. So that’s an interesting step in the progress of how gene editing could be part of genetic progress in the future. But today, when we talk about bovines and we talk about what’s been done for genetic progress, that’s completely due to traditional selection methods, helping us with those traditional methods with genomics and with sex semen and things like that. When we think about butterfat for example, and the amazing amount of progress we’ve had for that, it’s simply selection multiple generations of the best butterfat producing genetics both on the male side and the female side, putting those together and making a tremendous amount of progress. And so when you think about gene editing, that potentially is another stepwise component where you could potentially use genetics from Jerseys and Holsteins or make a synthetic breed that could do that. Personally, I think that the impact of gene editing is, it’s really good to see how it’s been researched and how it’s been implemented to this point in the porcine side because they focus specifically on a disease, PRRS, which is a really bad virus for a pork producer, and they’ve gene edited the genome, so basically they’ve got a genetic vaccine for that disease. And so when you think about that from that perspective, if you can use genetic tools and technology to make animals healthier and happier and less likely to contract the disease or impossible for them to contract the disease, that’s a really good way to implement it. I like that application a lot better than trying to insert genes for productivity or longevity simply because it takes a long time to get disease resistance and potentially you’ll never achieve the ultimate disease resistance without a gene edit. But that’s exactly what they’ve been able to do in pigs, and it’s good to see that technology being used for that purpose versus some other potential applications. Ted Jacoby III: Everybody, we will be right back after these messages. Center Commercial (with music) If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to T.C. Jacoby & Co. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultant support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Ted Jacoby III: My next question for you is how much higher can butterfat percent in milk go based on genetics? You look at the graph over the last 25 years, it looks like a hockey stick. Is that hockey stick going to keep going up at the 2, 2.5% a year increase in butterfat or is there a plateau at some point? It’s just beyond a cow’s body’s ability to get any higher. Nate Zwald: Yeah, so I anticipated this question because I’m sure as we think about the amount of butterfat in the industry today and the fact that it takes a pound less of milk to make a pound of cheese versus what we all learned of 10 to 1 and things like this is really dramatic for the industry today, but as we calculate out or project out the next 10 years, it has a tremendous impact on what we do. And the short answer to your question, Ted, is that I think it’s going to continue, and if anything, it is likely to go faster versus slower over the next 10 years versus the last 10 because of everything I just talked about with genetics and genomics and the application of those things. And also, the other component when we think about breeding cows and what we said makes a better cow today and what we say makes up that hundred pounds of genetic progress we make each year, because we’re thinking about that more focused on keeping cows healthy and fertile as well as productive, what we’ve seen is a bit of a shift inherently that cows that are healthier and longer lasting, they probably aren’t going to make 180 pounds of milk per day, but they can make 140 with incredibly high component levels. And so we’ve seen more of the progress on production due to the component levels as opposed to the flow, what my western friends would call flow, which is just pounds of milk. So we’re actually making more progress to make a pound of fat or protein. It used to come from another pound of milk. Today, it’s coming from higher component levels in that milk, and that’s partially because we’ve really changed the selection goal in genetics to make cows healthier and longer lasting and more feed efficient. So when we think about more feed efficiency, a little bit smaller cow, a cow that’s going to drive that feed efficiency through, it’s potentially easier to make her more feed efficient by getting another pound of components through the component level in the milk versus another pound of fluid milk or water, and I think that’s having an impact. Mike Brown: Well, when you look at water for the majority of producers in the United States anymore, particularly in the growth areas, which we’re all manufacturing, water costs money. Every pound of water you make and don’t increase components, you’re basically wasting your money because you’re going to pay the hauler, you’re going to pay promotion on it, all these other things. It’s illogical. The market has sent signals to producers as well to focus on fat and protein, particularly fat with our strong butter markets. Another question I have is that we’ve had relatively low herd replacements. We continue to modestly grow our herd. We continue to see growth in overall productivity. How much of the genetic improvement are we seeing looking at lifetime merit, nighttime profitability, whatever you want to call it, how much of that is due to that improved longevity, and how much longer do you think genetically our cow is going to last compared to what they were 10, 15, 20 years ago, if you just look at the pure gains in productive life and other such things? Nate Zwald: So sometimes productive life, it’s a good topic to bring up, Mike, and it’s a good thing to think about because I do think that part of the reason we’re able to use so much beef semen is because cows can live longer, but how long they live is also a little bit of a choice, right? So of course cows can live longer. Mike Brown: For sure. Nate Zwald: Each individual dairy says, “Well, if she’s not pregnant, milking below this level of hopefully components, but too often it’s on fluid milk production, then she’s replaced with a new better cow.” If a herd expands, generally they lower that threshold and they keep more cows longer, and if they’re kind of full with lots of replacements, they’d raise that threshold and make their herd better quicker. I like to think about it as not only longevity, but fertility, longevity, health together, those things all kind of drive that longer lasting cow. Mike Brown: Productive life is a function of all those other things. Nate Zwald: That’s right. Mike Brown: Productive life is a decision. It’s the time the cow leaves the herd. Unless she dies, that’s going to be a dairy manager’s decision when she leaves, and we can continue to be able to have a smaller heifer population to keep the herds where they need to be. When you’ve got 15, $1,800 beef cows, you’ve got a thousand dollars bull calves right off the farm, the alternative source of income, particularly look at risk of raising a heifer versus that bird in the hand with that cash up front, it has completely changed. Select sex semen, and the beef market has basically given farmers a way to manage their milk supply. I think we have the genetic tools today that are helping them do that. We can continue to need less cows to maintain. If you’re one of these outstanding dairymen, we all enjoy so many of them now in this country. It’s just amazing. How many less heifers are they going to need to maintain that herd before we even grow? How many less are they going to need just to maintain their herds? Nate Zwald: Is it comprehensible that we could have less in the future years than we have today? I think that’s going to be driven by the beef prices. So if the beef price stays really, really high like it is today, and those producers that you’re talking about, Mike, continue to get upwards of 15% of their revenue from beef, they’re going to continue to drive that number as low as they can. I think the balancing point is if beef price moderates and goes down a little bit, then it’s going to be more advantageous for them to have a few extra heifers and replace a few more of those cows. What they can get by with and what’s optimized is a different question. So could we get by with even less heifers than we have right now, which is at an all time low, right? 2.5 million heifers expected to calve this year, that would basically tell us that we’re going to only be able to cull 2.5 million cows from the dairy herd if we stay at 9.4 million cows, and that would be an all time low for culling rates. Now, is that partially because of genetics? Absolutely. But I would contend it’s more because of the incredibly high beef price that those replacements didn’t get created, and therefore we can only replace 2.5 million cows. We’ve only got 2.5 million heifers there. Is it conceivable that we could go to 2.2 or 3 million heifers that calve in the next year? It’s conceivable. I wouldn’t say it would be a great plan because I think what ends up happening then is you just heat more cows that really should be replaced. To drive profitability of an operation, I want to have a certain turnover rate so I can continue to replace my worst producers or the animals that are the least productive in my herd with ones that are at least average productivity, if not better coming in as a virgin heifer. Mike Brown: Isn’t part of that, Nate, because of the improvements in fertility? All the things we’ve done, we have less involuntary culling. Nate Zwald: That is true. Mike Brown: You have less cows that have to leave the herd and you have more cows that you decide need to leave the herd. Nate Zwald: There’s no question that we get to make a lot more choices on what cows leave the herd than we used to, and that’s where that threshold comes in for pounds of milk or pounds of components where our herd manager or owner is deciding which cows to cull versus literally needing to cull certain cows because of functionality or because they’re just not a profitable production unit. So it’s a good situation to be able to say, “Well, we’re replacing a cow that had a certain level of profitability with a cow that we expect will have a higher level of profitability versus probably before where we had to cull some cows because they just weren’t profitable for one reason or another or weren’t healthy for that matter.” Mike Brown: Right. Nate Zwald: There’s also that component that we sometimes forget about. I mean, as a kid, there was more animals that just didn’t get through that post-fresh period, had larger calves. I mean, lots of problems that we’ve really bred some of that out of animals by extreme amount of genetic progress that we’ve made. Mike Brown: When I was in college, it was all about feed rations, and during the 80s, cow comfort really became a bigger part of the equation because we realized at some point only so much you could do to ration the cow, again, that happy healthy cow that you talked about, Nate. It’s so many different things, but to me, that’s been a big part of it too. We’re breeding healthier cows that people know how to take better care of. Nate Zwald: That’s exactly right. It’s the management cows get to live in today that do make them happier and healthier. Large scale production doesn’t always get held in the best light, but frankly, cows love living their life. If they’re in a great operation, they get to lay on sand bedding. They get feed all day. They get water all day. And we’ve done a lot of management as well, not only in the housing and the feeding part of it that you mentioned, Mike, but also in the knowledge side of things. You look at things like synchronization systems that give cows the best chance to have another calf on time and live another lactation. Those things extend the cow’s lives and that turnover rate as well. Ted Jacoby III: Nate, there used to be a saying among dairy farmers that you can only increase protein in the milk by increasing lactose in the milk. Is that still true today or has some of this new technology started to break that relationship? Nate Zwald: Some of it has started to break the relationship a little bit. The old saying was probably because the way to get more protein was to get more milk, and so more fluid milk came with more lactose, but now we’re seeing the component levels of protein go up. That doesn’t necessarily come with the lactose component level going up. So I think that’s broken a little bit, and it goes back to the same thing we see with fat. Pounds of milk used to have a higher correlation with pounds of fat and pounds of protein than they do today. So genetically, we’ve broken that relationship where you don’t need to breed for more milk to get more fat or more protein pounds, and of course, there’s always been this negative relationship with component levels, percentages, and pounds of milk genetically on an individual cow basis. So yeah, I think the short answer is we’re starting to break that, and that’s all comes back to because we’re focused in selecting specifically on those pounds of fat and protein in combination with that health and longevity that kind of drives a certain type of cow that is going to be more efficient at producing pounds of fat and protein through component levels than just flow or fluid milk. Mike Brown: You’re letting me live my old life. I’m enjoying this immensely. This is a great conversation. I’m back at Jersey. I feel like I’m talking with you if I’m enjoying it. Josh White: I figured this group would really enjoy, Nate. Nate, I really appreciate you taking the time to be on this call. It’s really fascinating stuff. You see it from afar from where we’re at, we talk about it, but having you drill down a little bit on this podcast today was, I think a lot of fun. Nate Zwald: Yeah, very good. Well, I enjoy it. I love talking about this stuff. It’s fun. It’s fun to see the impact of genetics firsthand, whether I’m a little kid thinking about the next generation versus the current generation or in today’s world where you think about the amount of progress we can make and how much better next generation is going to be than this generation and kind of quantifying that and thinking about how the definition of what a better animal is today is quite a bit different than what it was 20 years ago. So that’s all exciting stuff, really good for the industry. It’s a very sustainable message as well. When you think about what genetics is able to do, it’s always great to be able to say, “We’re making better animals faster.” Josh White: Right. It’s- Ted Jacoby III: All right, Nate, one final question. From the seat that you sit in, is there anything, any technology, any trend that you see evolving that maybe the general population in the dairy industry isn’t seeing that’s going to really affect dairy cows and milk production in the next 10 years? Nate Zwald: The next step, honestly, Ted, is seeing this progress from this bell shaped curve where dairy producers have bred their top half to sex semen in their bottom half to beef, and how that’s transformed the genetic progress curve and really just put us on a different playing field. The next step of that is using embryo technology where instead of getting all their replacements from the top half of their dairy herd, they start to get all their replacements from the top 5% and that technology is coming and it’s being implemented by more and more farms because the embryo technology has gotten better. And so this is a technology that can be implemented both to make better beef calves, which is pretty valuable as well. When you think about the impact of beef on the dairy herd, putting beef embryos that are not half beef, but potentially full blood beef, but also in the dairy replacements, so now you don’t need half of your cows to breed to sex semen to make your dairy replacements. You think back to that bell shaped curve. When you’re talking about the best 5% of your dairy cows, those are really elite compared to your average or your 50th percentile. So that could put genetic progress on a whole different playing field again, if that technology gets cost-effective enough to really be implemented across the industry on a wide scale basis like sex semen was. Ted Jacoby III: How far away from that do you think we are? How many years? Nate Zwald: We’re not that far. It’s probably the biggest threat to sex semen is embryos. There’s a lot of companies, including Progenco, my current company that’s working on that. You’ve got the long history companies as well that are doing that. And the key is that it’s being looked at now as less of a niche product than a niche system and more of a commercial opportunity to really embrace the embryo technology, I would say today. And so each form has to make their own decision on when it’s profitable to do so. But some really large scale producers have already been doing it for five plus years, and actually that’s the majority of the way they’re making their next generation of replacement. Something to think about today as opposed to how many years in the future. Ted Jacoby III: Wow. Mike Brown: It’s mind-boggling how quick you can make genetic progress, particularly with genomics, that you can identify at a very young age which animals have the most potential. Ted Jacoby III: Yeah, absolutely right. That’s pretty cool. Well, Nate, hey, this was an absolutely fantastic conversation. Thank you so much for joining us today. Really appreciate it. Really enjoyed the conversation. Thank you. Nate Zwald: Well, anytime guys, I appreciate and I enjoy the opportunity to talk about this kind of stuff. Mike Brown: Well, thank you very much. Josh White: Right. Thank you, Nate. Appreciate it again. Outro (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Co.…

The Milk Check

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Tariff talk with Will Loux from the USDEC 39:12

منذ 9 weeks39:12

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It’s May 8th. Do you know where your tariff is? When the tariff winds shift, the Jacoby team is there to help you steer your strategy. Tune in to the latest episode of The Milk Check with special guest Will Loux from the U.S. Dairy Export Council, as we cover: Tariff tensions – How will ongoing trade talks between the U.S. and China impact dairy exports? Shifting trade strategies – How are global buyers adjusting to new tariff realities, and where does the U.S. stand in this complex landscape? Innovation and adaptation – What moves should U.S. producers and buyers make to adapt and thrive amidst tariff uncertainty? Don’t miss this conversation as we explore how tariffs are reshaping the dairy trade and what the future holds for U.S. dairy exports. Listen now to The Milk Check episode 77: Tariff talk with Will Loux from the U.S. Dairy Export Council Intro (with music): Welcome to The Milk Check, a podcast from TC Jacoby & Company where we share market insights and analysis with dairy farmers in mind. Ted Jacoby III: Welcome, everybody, to this week’s version of The Milk Check. It is May 1st, 2025. Once again, we’re going to revisit the topic of tariffs and international trade. And as everybody knows, it’s a shifting landscape. We have a special guest today, Will Loux from the US Dairy Export Council. Will is Senior Vice President of Global Economic Affairs. Will, thanks for joining us today. Will Loux: Thanks for having me, Ted. Good to be on. Ted Jacoby, III: We also have some of our usual suspects. Mike Brown, VP of Dairy Market Intelligence, Miguel Aragon, our director of Latin America Cheese Sales, and Josh White, our VP of Dairy Ingredients, and Tristan Sellentrup. Thanks for joining us, guys. So Will, we’re going to start in the obvious place. What is DC’s attitude about everything that’s going on in tariffs, especially with regards to dairy? Do you see anything changing anytime soon? Is there anything in the works? What’s the landscape as you see it? Will Loux: There’s a lot of uncertainty. We were talking about several different types of tariffs that are effectively going on because we have our bilateral relationship with China where we have very high tariffs both for products coming into the US and China has very high tariffs for our dairy products going out, but we also have the 10% universal tariff. We have the steel and aluminum tariff. We have the USMCA question marks between Canada, Mexico, everything else. So right, now I would say there’s about four different tariff balls being juggled all at once. And as far as where we’re going in DC, I think that’s anyone’s guess where obviously within national milk and the Export Council, very hard at work these days. Very grateful. Jaime and Shauna and Tony Rice on our trade policy team get to live this every day while I get to check out, I guess, what’s happening in the markets. Ted Jacoby, III: There’s been rumors that China and the US are talking and they’re trying to work out some things that could lower those tariffs. What are you hearing? Will Loux: Good question. Right now, at least what we’ve heard is there are talks, at least attempting to. I don’t know how far along these talks have gotten. When we look at the tariffs between the US and China right now, there probably needs to be some sort of path to de-escalation, but this is also something that when we had the first round of retaliatory tariffs between US and China, that lasted 18 months. So I personally don’t necessarily expect this to change overnight. That would surprise me. There are a lot of things that would surprise me these days in DC, but I would expect this to be in for the long haul. Whether it stays at 125%, I don’t know, but at the same time finding an off ramp for what seems to be at least somewhat of a strategy towards decoupling the US and China in a lot of ways continues to be at least very much forefront and likely to stick around. Ted Jacoby, III: One of the things that we’re curious about since roughly 17% of all of our weight production in one form or another has been going to China. And a lot of it goes to feed the pigs because 50% of all pigs in the world are in China, and keeping the Chinese population happy seems to be highly correlated to their access to pork. Is there any possibility that they’ll make exceptions to some of their tariff rules for things like whey permeate just to make sure that the pigs can continue to be fed and they keep their population happy? Will Loux: It’s certainly possible. They made that exception last time around with the last really six months effectively of that earlier trade war between the US and China. This time around, it is certainly possible but I’d also say China is also likely to seek alternate sources too just like they did last time. They can find at least some of that sweet way that they’re after from Europe. Turkey is now getting more involved. They still buy quite a bit from Belarus. Argentina ships them a decent amount of whey. They’ve also been stocking up a decent amount of whey before this happened that I think they’re actually sitting on ample stocks to at least see them through some of this disruption. Again, supplemented elsewhere. Lactose is probably the one where they buy about 70% of their lactose needs from the United States. Again, I don’t necessarily anticipate them giving exemptions. It’s part of a much bigger conversation as to whether they start giving those exemptions, but again, they’re going to look to Europe who’s really the only other game in town. Europe could pull back from their sales to New Zealand, Japan, India maybe as well. That’s their biggest market outside of China. I think there’ll be some trade shuffling a little bit within this too. Permeate, we are probably the main game in town here, but again, it’s is this cost-prohibitive when you’re adding 125% tariff at least right now? And can they make due, at least for the time being? Because Chinese consumption isn’t all that great either. So it’s not exactly like there’s this huge surge to build up the hog industry within China today either. Ted Jacoby, III: Josh, what are you hearing on the ground right now with our contacts in China? Josh White: Yeah, a lot of mixed messages. I think that generally speaking over the past few weeks, it’s been a lot of paralysis. Most were saying the situation’s fluid. It’s changing. We don’t maybe fully understand it. I think the industry well recognizes that a big lever to pull in trade discussions is probably not whey permeate and the trade. But as you mentioned a moment ago, it’s a pretty important ingredient to the Chinese pork industry, particularly the younger animals, and that’s a recovering industry after the swine flu issues that have previously experienced. So there was some optimism that let’s let the situation evolve, let’s see if we can come out of it if there’s some type of resolution, and we can conduct business as usual, just with a pause. A couple of things that have helped that most are reporting that at the end of last year around the time Trump won the election, the Chinese started to take action pretty quick. On some of the higher value products, they were out seeking alternatives, but on the ones, as Will mentioned, that they’re buying from the US like permeate, they did a little bit more stocking. We’re not talking stocking in the traditional sense of building large warehouses full but more days in inventory than they had been operating off of. At the same time, that sparked a price movement in the US and the whey permeate price increased significantly by about a dime and moved higher. Well, that allowed people to de-stock in the US as well. So we entered this issue with inventory space. Within the actual processing facilities, that’s being tested now. We’re right at the cusp where some people are now running into issues or they’re a week or two away from running into issues. Many processors did their best to extend that by going out and making some sales or front-loading other contracts to other parts of the world, or in some cases feeding it back to the dairy cows where it makes sense to do so. But that just buys a little bit of time. There’s a lot of this co-product, as we like to say, but effectively the by-product of the by-product that has to find a home. ADPI, for instance, has a task force out there right now that has been working on what are new innovative ways that we can use permeate, but none of those are going to be quick solutions. As a result, I heard at least this past week, was the ADPI trade show, a lot of people talking. I at least picked up on a few different processors that are resuming some shipments and working in conjunction with their Chinese customers to try to figure out how to make it work out of necessity, maybe not the pure economics of it. We haven’t experienced that capitulation point yet where we have to make a decision, but we’re really close to it for a lot of different US processors. Another thing that I would ask Will on is we had also picked up a headline this past week. It’s a headline. I haven’t studied it at all, but that Walmart told some of its Chinese vendors to resume shipments. Any insights to what might be happening there? Do we think that these trade relationships are just looking to bear the cost out of a need, or is there at least some hope that there’s some positive dialogue happening between the two countries? Will Loux: I didn’t see necessarily that headline or anything else. I would be surprised if Walmart has any inside knowledge as to what’s going on. I suspect it’s probably out of necessity simply because the US and China are highly integrated economies and a highly integrated supply chain. And for a company like Walmart, you can’t turn on a dime where you’re sourcing from. There are select products that maybe you can shift some of that production if that one company has a plant in Vietnam or elsewhere, but it’s not necessarily a one for one. So I would estimate that more out of necessity than anything else. And I think also if we look back to what happened in 2018 and ’19, dairy got caught in this, but as far as US-China trade, it was only really select products back then. But if we look at what happened in the US exports in China, it took a while before we really saw a hit outside of the low proteins. China was still buying at least for a while more high proteins and everything else, this time around because it’s much higher tariffs on both sides. I think that impact is coming much starker, but I do think the expectation, at least from retailers and everything else, is these will have to get passed on to the consumer at some point unless they can find an alternate source. And even then, they’d face a 10% tariff coming in unless there’s some US supply on those particular products. Josh White: Hey Ted, we went right to probably the worst or most painful part of that trade, talking about low value carbohydrates that are going into that industry, but it would be good to spend a minute on how everything else seems to be rationalizing. For instance, the whey proteins might be the second most impacted directly by this trade. China’s our largest export partner for higher protein whey products, but at the moment, because the alternatives such as Europe are so highly priced, it just seems to be shifting trade lane. The immediate impact was this could be potentially pretty bearish for US supplies of WPC 80 and WPI. That seems to be a little bit calmer over the past few weeks. We’re finding some alternative places to go. I’m not ready to celebrate that that just meant the world shifted its trade lanes and rebalanced. I think that similar to the remarks I made about permeate, it’s plausible that there was some internal inventory space that could be filled while we’re waiting on this situation to stabilize. But that being said, it doesn’t seem to be quite as disruptive on whey proteins as it is on whey permeate. My question for the group is that even less disruptive as we go across some of the other key products in the dairy complex, some of the other powders and the fats. Ted Jacoby, III: My reaction to that, Josh, is the big, big difference between protein space and the permeate space is I think there’s a lot of demand in protein that sits on the sidelines just because they either don’t have access to the protein they need to make certain products or it’s just too expensive for them to use. And so if the price just has to adjust a little bit to pull more people into that market or you’re suddenly giving someone access that didn’t have access before, there’s a realistic alternative domestically for a lot of that protein. And then internationally, whether that protein’s being sourced from Europe or it’s being sourced from Oceania or somewhere else, or if they’re pivoting and making, whether it’s a slight change to a milk protein concentrate instead of a whey protein concentrate or some other kind of protein, I think there’s just better options. And so with all the disruption going on, it seems calm relative to a situation like permeate where if you’re not going to China with that permeate, you’ve got to figure out how to make it go away because you really don’t have a realistic sale. Will Loux: And I’d agree with that. China, at least on the low protein side, so sweet whey and permeate, is a third of the global market. Southeast Asia is the only one close. That’s if you combine all the countries, there is no other real option for a lot of our permeate sweet whey. We can move. I think sweet whey, we have an opportunity to move some more into Southeast Asia, Mexico, maybe some other places, but I think permeate is the one that’s really hard to find another buyer for, or at least quickly, at the volumes we’re talking about. Proteins, they’re definitely our largest market, at least in the international one, but Japan’s not that far behind. Our teams also looked at the trade data and said there was some wonkiness in the unit value, so we actually think there’s a little bit less going to China than what the US Census and USDA reports. So there’s some of that going on too, that it is certainly our biggest market. I would expect Europe and New Zealand to be making a lot of calls to customers within China right now. But I think as you said, Ted, there’s plenty of opportunity for us to find other buyers, especially domestically right now. And then everything else, cheese, milk, powders, those we sent quite a bit really before 2018, we had already started to decouple from China after that, and our market share never really picked up, and China’s buying a lot less milk powder in the first place here too. So I think for us, those other markets don’t feel the hit from the China discussion. I think cheese probably feels much more of a hit from the overall economic implications of this is really where I think the cheese market will feel this more so than any actual direct sale impacts. Ted Jacoby, III: So when we’re talking about cheese, obviously China’s not our top market. I don’t even think it’s in our top 10 export markets for cheese. The press is so focused on what’s going on between the US and China when it comes to tariff talks. I honestly have lost track of what may be going on with some of the other countries we’re exporting to outside of the 10% addition that has been put everywhere. Are there any other countries that you guys are watching closely that have handed tariff rates more than that 10%, and is it causing some significant disruptions to our ability to export to them? Will Loux: Right now, effectively the 10% universal tariff is across the board because all those other reciprocal tariffs, including the incredibly high ones on places like Vietnam and elsewhere, were put on that 90-day pause until July. So at least for right now, it seems like most countries have stopped any retaliation or at least paused any sort of retaliation. Europe had a list that came out, but otherwise they had put a pause on that as well. The only exception to that is Canada, and this is from before and really was the first tariff action that came out was a 25% universal tariff on Canada and Mexico. But that also got paused, at least for all USMCA compliant products. On the whole, that doesn’t impact a whole lot. Canada has continued to retaliate against over-quota levels, but in practice, we’re not sending a ton over-quota into Canada today. So things like butter for import, for re-export, that is not being tariffed, and some of the whey products I believe are. But for the most part right now, the US is still outside of China able to export at the same tariff rates it was before. Now, I’m sure you have customers who are maybe asking questions or they’re changing their buying patterns out of an uncertainty when we get to July or elsewhere. We’ve started to hear rumblings of that, but at least for right now, it’s business as usual outside of that 10% or US consumers. Ted Jacoby, III: Miguel, is that what you’re sensing from our cheese customers internationally? Miguel Aragón: Yes, indeed. We were at CheeseCon a couple of weeks ago. We were at ATPI just last week. And at ATPI, we had conversations with a lot of customers from Mexico and the number one issue was tariffs, tariffs, tariffs. That’s what everyone wanted to talk about first. In regards to patterns of purchasing, they’re going hand-to-mouth, immediate shipment for immediate purchase. That seems to be how things are happening right now. However, we have two issues helping us not to disrupt the trade within Mexico, mainly Mexico. We haven’t gone above 1.80 a pound and cheese, and the Mexican peso is now 19.6 for the last couple of weeks. That is helping them. That is helping us get rid of product. But the minute we see 21 pesos per dollar, that’ll be a different story. If you remember we had in one of our podcasts a month ago or something like that, we were talking about that they were expecting us as US suppliers to keep a lid on prices. So far, so good. In there, taking advantage. I have to take my hats off to the US DEC because they have helped us get into other markets, Central America, South America, where the disruption that is happening right now and it’s moving European product to other channels is given us a chance for those markets to actually taste US products, taste cheese, get a feel for it. Just like it happened with Mexico, I see it happening in Central America. I see it happening in Colombia, Peru, Chile, and we have to take advantage of that right now. With everything that is happening, at least something positive is coming out of it. Who knows how it’s going to last, but hey. Ted Jacoby, III: Everybody, we will be right back after these messages. If you’re a dairy producer or a cooperative looking for a better market for your milk, or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby & Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consulting support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Miguel, you’ve just taken me by surprise. What you’re saying is all this disruption, there’s a silver lining and it’s actually creating some opportunities for US exporters in dairy right now> Miguel Aragón: That is correct. That is correct. Some of the conversations we had with people from New Zealand is that they are saying the US producers are cheaper right now in cheese. We’re going to go ahead and produce more whole milk powder, put our fat on our milk and other products. That is giving us an opening. That’s a silver lining right now. We need to take advantage of it. If we go above $2 again in cheese and then the exchange rates start going all crazy, that’ll be a different story. Right now, we’re moving and we’re moving fast to try to capture that market for the long run. Ted Jacoby, III: Will, what are some of your other members saying? Are they feeling pretty good about how exports are going so far this year with all the chaos in DC regarding tariffs? Will Loux: In some ways it is, at least for right now, business as usual. The tariffs can be so overwhelming in a lot of ways. We see it on the ingredient side. But as far as cheese exports go, and we’re even getting a lot more inquiries for butter right now too, just given our big price spread compared to Europe and New Zealand, I would say those two exports are going to look really strong as we go forward, and I think we’ve already seen that. There’s probably some more questions maybe around whether we keep up the incredible growth that we’ve seen to Mexico because the last two years, Mexico has outpaced the domestic market in growth, like just total aggregate growth. So whether that continues, I’m not sure, but I think as Miguel said, Central America, the Caribbean looks really good. I think we’re moving more to Australia as well. Another one of our key markets, Japan arguably the most competitive cheese market in the world that we’re seeing sales pick up to as well. So on the cheese side, we look pretty good. I would say butter’s going to have a pretty nice year just by necessity as much as anything else. The ingredient side, we one don’t have that much powder to export in the first place. We saw pretty weak sales to Southeast Asia, but that was more a function of pricing than anything else. That’s where I think we’ll see somewhere of the weakness. But cheese, butter, our fats really look good. Proteins, I think, will be somewhat mixed. It’ll depend on the price and demand for places like Japan, Korea, Southeast Asia, and some of that trade between us and Europe and how that looks on price, because we should be exporting it to Europe right now too. Ted Jacoby, III: That’s true, especially when it comes to butter. Will Loux: Yeah. Ted Jacoby, III: Okay. Well, from where you sit in DC, is there anything that you think our industry needs to be talking more about that’s going on right now that’s falling under the radar because everybody’s so focused on tariffs and specifically China? Will Loux: Yeah, there’s probably two things that we’re starting to watch a little bit more, and the first one I’ll say is what are the implications of a 10% tariff on European product coming into the United States and really what is that impact on both Europe sales to the US as well as their product mix? Because last time around, the US consumer was in a pretty good place. We didn’t see much of a dip when we place tariffs on Europe over the Airbus disagreement. This time around, I am curious. US consumer is pulling back on a lot of things. Do they pull back from your Irish butters? Do they pull back from your specialty cheese, et cetera? And does that help boost at least some of our demand domestically? That butter demand has been okay, but certainly that would help tighten the screen market cheese. I would say there’s an opportunity there. I think the one thing we’ve pointed out to watch is if Europe doesn’t sell the US or doesn’t sell specialty cheese abroad, they tend to put a lot more into their Gouda and into their mozzarella. It is a delayed reaction, but effectively if the Italian cheese-makers aren’t making that specialty, the milk ends up in Germany as Gouda or something else. So that is something to watch on that front. The other one is probably more longer term at the export council and everything else that we’re watching is everyone’s been talking about the fat percentage in milk, the growth in that fat to protein ratio. What are the implications? I’m probably on the side of, at least today, I don’t actually think we have a fat problem. I think we have an American-type cheese problem that would normally be absorbing a lot of this cream, at least when we look at the data. But with milk production now picking up, we might have a cream problem and an American-type cheese issue. So then our question is do we need to start thinking about other ways to export fat? We really don’t have a release valve for our butter when we get long on cream. We export a little bit to Mexico, but frankly we’ve got a smaller market share than New Zealand and Mexico when it comes to butter. They are dominant in AMF as well. That’s a region that in general, we should be price competitive on with tariffs and freight. That’s something we’re watching pretty closely. The same would hold true for Central America. The Middle East has traditionally been our release valve for butter. We’ve often moved a lot of butter. The white butter is preferred in a lot of ways or can be used in processed cheese, but their butter demand is half of what it was 10 years ago because they’ve switched to palm. So we need to go develop probably some new release valves even if we think this fat market’s going to tighten up because I think what we see today is the US industry takes a long time to turn the ship on fat from making 80 domestic style towards 82 unsalted export style, so how can we speed that up to tighten the cream market so it doesn’t take as long to turn this ship is something we’re talking about, especially with these components growing at the rate they’re growing. So there’s a lot of things we’re watching beyond just the tariffs that just keeps us pretty busy on the day job and everything else. Ted Jacoby, III: Well, I have to say, when it comes to butter fat, I think, Will, you and I are thinking along the same lines. I don’t think this trend with higher butter fat percentages in milk is going away anytime soon and there’s going to be a certain point, maybe we’ve already reached it, where we’ve reached a tipping point and we have more butter than we know what to do with in the US and we’re going to have to find those export places for. You mentioned palm oil in the Middle East. What’s the relative price of palm oil relative to butter? And at what point do you think they start to switch back? Will Loux: Oh, that’s a good question. I looked at the palm oil price the other day. It’s still fat to fat, still cheaper than butter. Really what happened is Europe and New Zealand butter got insanely expensive. We’re still sitting north of $2. We are a great value buy if you are specifically wanting butter. It’s not that we’re going to go take a ton of share from palm necessarily. We did see that actually a little bit. This would’ve been during the inflation run up back up in ’21. We more saw it in the fact that natural cheese took share from analog cheese. That was where we beat out palm because also it’s a much better product. And so that I think is where we saw it. This time around, I haven’t heard a ton of switching back. Butter has traditionally been the most price elastic product on the international market because it is the most easily substitutable one. We hadn’t seen a ton of fat demand growth over the past few years. China has really been the one who’s been growing while the Middle East has declined, and they’ve basically canceled each other out. And so the opportunity is where else can we grow it, especially as incomes rise where a higher quality fat is there, as well as also where’s the cold chain for it? So for now, I think butter is still that premium fat, at least right now in the marketplace. Mike Brown: You talk about the cheddar cheese is going to absorb the fat. The challenge we have now is we raise fat so much faster than protein is extra fat, even if you’re making full fat cheddars for most cheese-makers. So we are still going to be spinning off some extra fat and that’s a challenge for them. They’re trying to figure out how to best market that depending on their volumes of it, but I think you can’t just assume that’s going to absorb into that, and that’s the challenge we have. Back to the question of butter and butter fat and the demand for 82 versus 80, at what point does a world, at least as an ingredient say, “Well, US 80% butter is a lot cheaper per pound of fat even though it’s 2% lower.” What do we have to do to get world buyers more interested? Because 2% fat is different, but it’s not that different. Will Loux: I think we’re already starting to see it. We’ve heard a couple folks who are just launching butter with 80% fat and see enough consumers notice. I’d also say depending on the application, it’s really just a price point. They may not need the 82%. They can buy it. The question is the salt is probably the bigger thing. If you’ve got 80% salted versus an 80 unsalted, it’s probably the easier thing where there are some applications where salt’s already in there and that’s perfectly fine. I’m thinking of maybe some chocolates or something else that that could work well. The salt may be the bigger challenge perhaps in our base butter than necessarily the difference in fat content. Josh White: I also think moisture, moisture because I think that there’s restrictions going into Europe that moisture is our limiting factor that they can’t bring the product in above a 16% moisture, and so that’s created some problem to where I think there’s a lot of inward processing applications and processing applications that can deal with the drop in fat, but it’s restricted because we exceed the moisture requirement. So if there was a way to have 80% fat with the 16 max moisture, I’m pretty sure we’d be loading boats tomorrow for Europe. Mike Brown: It’d be pretty salty butter, Josh, if you would. Josh White: Right. Let’s some sugar in it. Mike Brown: So it’s a regulatory problem, not a users’ ingredient because most products that are going to use butter probably use some other kind of moisture in them, water, milk, whatever it might be. Ted Jacoby, III: Sounds to me it’s a non-tariff trade barrier, isn’t it? Josh White: With enough time, people will figure it out, right? It’s just like anything else. We know how much confectionary blends and things like that exist today coming into the US. That’s another area where this fat situation starts to adjust itself. In the event that we’re surplus fat or cheaper fat, then a lot less of these confectionary blends will come into the US from New Zealand. New Zealand and other markets will shift that fat elsewhere and will keep more at home. It’s just like anything else. The gap gets filled in so many spots other than just butter as well. Will Loux: Even whole milk powder should be pretty cost-competitive, right? Josh White: Right. Will Loux: Yeah. I think it’s something we may see pick up at least a little bit in the coming months based on that margin if you’ve got the ability to flex. Ted Jacoby, III: Well, speaking of whole milk powder, it seems like New Zealand has switched away from making as much whole milk powder as they used to. Will, do you think the market is out there for them to switch back? Because one of the things that I have to wonder is if butter gets cheap enough, both in the US and even in Europe, it’s going to put pressure on New Zealand to make more whole milk powder just to make sure they clear that fat, but they have to have a home for it. Will Loux: I think the question’s always on China. We’re back to this again. To me, there seemed to be enough rumblings that China is at least buying a little bit more. I still think China is structurally investing in their milk supply and have reached really a tipping point in that, but I think temporarily with their reductions in milk production, I think they may need a little bit more whole milk powder this year. I think there’s enough smoke around that to say that China will buy more. I don’t think they’re getting anywhere close to the highs that they had a few years ago though either. I think it’s just improved from this low end that we’re at. It’s also the other markets that New Zealand tends to ship whole milk powder to Middle East, North Africa. They are really dropping off. We saw a lot weaker demand from Algeria so far this year and we’ve seen okay demand from Southeast Asia, but not as good as actually I was expecting. And then you’ve also got the Argentines and Uruguay who Brazil’s not buying as much this year either, so they’re a little bit more active. So I think New Zealand will make a little bit more of a switch to whole milk powder to feed China, but it may just come at the expense of the Middle East. When I look bigger picture, I think New Zealand at a certain point is going to need to decide what they do with those old whole milk powder dryers. Their milk production is stable, but I don’t know if long-term that’s going to be the best return. I think you’ve already seen them invest in proteins and level up their skim side, and I would expect that to continue at least right now. And for now, China really wants their fat. They really want the cream coming out of New Zealand. They really want the butter. AMF is not quite as strong, but those two, butter and cream, to China are actually still running really hot. I would expect New Zealand as much as they can flex because they only have so much flexibility in their flush, I would expect them to keep going towards that butter S&P because their butter value is still a lot higher than where ours is right now and more comparable to Europe. And they also have additional access to Europe now, too, that they got as well recently. So I think those two things will make them probably keep going in that stream before switching wholesale back to whole milk powder. Josh White: Is there any product that feels heavy globally right now? I understand that we’ve talked about whey permeate and its disruption short term, but is there any product that we feel like the world market is well stocked in? I have the view that for three years in running now, we’re running on pretty short global inventories of most dairy products, and we’ve been able to do that because global demand has been lackluster. But any spark in that, I don’t know how ready the global market is to respond to that. Will Loux: I would agree outside of the permeate side of the conversation that we’ve already discussed, I don’t know that anyone’s really sitting on heavy inventories anywhere. This has really been an era of under-demand and under-supply creating this balanced market. I think skimmed milk powder has been the one that I was hoping for more upside on. We’ll see what Mexico looks like this year and otherwise we tended to ship quite a bit of non-fat. If cheese got retaliated against, we’d expect non-fat shipments to Mexico to pick up. There are some of those trade-offs. Indonesia’s got a school milk program. China’s buying a little bit more. It’s still tough for me to really get to a super strong demand outlook for milk powder. I can come up with specific examples, but it’s tough for me to get too bullish on it. I think quietly what we’ve seen here is over the last six to nine months, our metric of global dairy trade, which had spent three years basically languishing after China’s pullback, is now actually growing again at the same rate it was before COVID. So it’s 2 to 3%. It’s not a super bullish environment, but it’s a whole lot better than what we saw before. It coincides nicely with US milk production. Picking back up here, I think the question is how much can this last. And a lot of it’s being driven by China coming back, so I think these are the things we’re watching is there’s not a cushion right now in the market for most products from an inventory perspective. The question is how much do you believe demand’s coming back, and is supply coming back at the same time? Josh White: I wonder if the EU fat situation and the global protein situation might be some early indicators that you better make sure your supply’s secured. And you add to that disruption over global trade and how easily accessible it will be to get the products you need. Coming off of a period where people were able to return back to the just-in-time inventory model, I’m wondering if this trade disruption doesn’t change some business purchasing strategies a little bit. And then I would also be curious if anyone has a view on what the current trade environment may have from a logistical impact. We have a pretty real-world example of what happens when you stop trade flows coming out of COVID. We know what the outcome of that was afterwards when containers were just in the wrong parts of the world when people wanted to resume trade flows. Yeah, I think that is there an opinion across the group on what happens if we don’t reconcile with China anytime soon? And also, what happens if we do reconcile to our ability to execute logistically to the global demand? Ted Jacoby, III: Will, has the US DEC had any conversations with anybody about potential container logistical disruptions? Will Loux: Yeah, there’s a few different pieces here that I think is right. So one is on that inventory cushion, so going back to your question, Josh, that would be the logical move if folks believe that there is more disruption and demand is picking back up. I have broader questions around what the global economy looks like in this environment if we don’t sort this out in the US, which frankly even when we had high inflation, was really the best performing major economy in the world over the last few years. If we’re not driving this forward, what does that demand look like? But especially if interest rates come down, that calculation on inventory could change a lot as to whether you want to hold longer days in inventory. On China and on logistics and everything else, I think there’s two pieces of this, is one, just the implications of less bilateral trade within China, but then also the new rules around Chinese vessels or carriers with Chinese vessels. This is still a highly fluid situation with where this is. I think I ran a back of the envelope calculation as to where this is of, well, it would cost potentially an extra half a cent per pound starting out, maybe picking up from there per container, or half a cent per pound of products within those berths basically being passed back to exporters. If you have fewer port calls, if you have fewer containers, I think there is a lot of uncertainty within this market. I think we’re starting to hear it from our members already, questions and uncertainty. I don’t know if we’ve seen the full impact of this, but I think this is something that folks are watching and it’s something US DEC unfortunately had to become an expert in pretty quick. My colleague, Tony Rice, has spent a lot of time becoming an expert on logistics, working with a lot of the folks within USG, the US government to really understand what’s going on there. So US DEC is unfortunately ready for this, but we had the practice from three years ago to assess what’s going on. Mike Brown: We were talking about milk and whey proteins in the trade and those in the world, finding new markets or potential new markets, from my experience in manufacturing, you’re not going to take a spot market away and introduce a product to change your production or your sales strategy without making sure it’s longer term. If someone’s not taking those proteins, they get diverted to a new market. That could change not just who the buyer is, but long-term strategy on products. If China wants to continue these fights and they don’t take the product, they could lose it long-term and not get it back to lose the supply available. And whether New Zealand makes more proteins and makes that available long-term or what it might be, but there’s some implications just from the standpoint of a manufacturer’s decision. They aren’t going to take spot protein without knowing they’ve got a ready supply longer term. I would agree. Ted Jacoby, III: Oh, yeah. Are you all seeing anything within Mexico itself, and this is maybe a question for Miguel, how are consumers in Mexico reacting to a lot of this? Mexico’s economy has been one of the best performers along with the United States. I think those two go hand in hand, and we have, as an industry, developed incredibly close partnerships with our friends in Mexico. How are Mexican consumers watching what’s happening? Certainly the tariffs are a piece of this, but I also think of things like remittances going to Mexico as well, and some of these other pieces. What is that outlook and what does it mean for our demand from our biggest trading partner and closest partner? Miguel Aragón: That’s interesting that you mentioned that because remittances have taken a hit from the beginning of this administration. A lot of people going back to Mexico instead of staying put here, we could see agricultural production here. At the same time, given that Mexico has, and I’m just talking about cheese in this case, has that flexibility of going from natural cheese to analog cheese making, and given that we as an industry have different lines of production, we have number one product, we have under-grade product and we have trim, for example, and milk powder. Mexico has the ability to go from using all number one product to actually increasing their production of analog cheese product, which it goes to that market that doesn’t have that much money to get cheese. We’ve seen that flow between products reflected in the marketplace. The interesting part is that just like in Canada and Mexico, when I was visiting there, you saw the pushback on getting US products, not as bad as in Canada. Also, you have agricultural products that are not identified of, oh, that cheese is coming from the US. That milk powder is coming from the US. Those products are coming from the US. It’s other things, so we’ve been lucky that close proximity makes products move really fast, so there is no time to identify at least food products as coming from the US and we’re going to reject them. There is a pushback. There is also lack of resources, but so far, so good. I don’t know by the time July comes if we see a big disruption, but so far so good. Ted Jacoby, III: Miguel, our Mexican consumers, is there an anger in Mexico regarding the US and the Trump administration, or are they going with the flow right now? Miguel Aragón: I would say there is an anger, but I have to think that the president, the Mexican president, she has handled the situation so good in the Mexico side that it hasn’t exploded. You do have a nationalistic team right now going in Mexico, but it’s more like less produce in Mexico. The US is our biggest commercial partner, so we have to live with both of those things. We can’t move. The US is not going to move. We’re joined forever despite what our administration thinks or says, or despite what nationalistic views in Mexico are. We’re joined forever. So we just got to live with it. This president has made a lot of efforts to direct that anger or that energy into something more positive, as in, all right, we got to produce more in Mexico. Ted Jacoby, III: Cool. No, that makes a lot of sense. Well, I’ll end with this. True or false? Despite tariffs, we’re competitive globally on every dairy component for the first time in recent history. Is that a true statement? Will Loux: Seems like a true statement to me. The US has, I think, a great opportunity here. The question is what else is going on? I feel pretty good, at least where we’re at today. Talk to me again in a week and who knows what’s happening. Ted Jacoby, III: I agree. All right, Will. Hey, thank you so much for joining us. This was a great discussion. I think our listeners will enjoy hearing everything that you had to say, and I think that last comment really sums it all up. One of the things that we’re really losing in all this chatter about tariffs lately is we’re continuing to export a lot of dairy products to every other country in the world besides China, in spite of everything that’s going on, because we’re competitive price-wise and because we make a good product. That gives me a lot of hope for the future of the US dairy industry. Thanks everybody for joining us today. Have a great weekend. Thanks, everyone. Thanks again, Will. Will Loux: Oh, this was fun. Sounds like a good time. Mike Brown: All right, thanks. Josh White: Thanks, Will. Mike Brown: Great. Will Loux: All right. Yeah, of course. Mike Brown: Nice to meet you, Will. Outro (with music) We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keagy. The Milk Check is a production of TC Jacoby & Company. Ted Jacoby, III: All right.…

The Milk Check

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Tariff talk takes dairy on a wild ride 19:58

منذ 12 weeks19:58

19:58

In this week’s episode of The Milk Check , we strap in for a wild ride. From tariff chaos to spring flush milk surpluses, the market is anything but predictable. Join Ted Jacoby and the team of experts as we cover key topics, including: The spring milk flush and its impact on processing plants Cream demand firming up but still long Butter market volatility and how cream shortages are affecting prices Tariffs and how they’re impacting the international dairy trade Our team of experts break down the current dairy climate and offer insights on navigating these turbulent waters. Listen now to The Milk Check episode 76: Tariff talk takes dairy on a wild ride. The Jacoby Team: Brianne Breed , senior vice president, cheese trading Diego Carvallo , director, dry dairy ingredient trading Gus Jacoby , president, fluid dairy ingredients & dairy support Jacob Menge , vice president of risk management & trade strategy Joe Maixner , director of sales, dairy ingredients Josh White , vice president, dairy ingredients Miguel Aragón , director of international cheese sales, Latin America Mike Brown , vice president, dairy market intelligence Ted Jacoby III , CEO & president, cheese, butter & dry ingredients Intro (with music): Welcome to The Milk Check, a podcast from T.C. Jacoby & Company, where we share market insights and analysis with dairy farmers in mind Ted Jacoby III: Welcome everybody. It is April 11th, 2025. We’ve had a lot going on in the last couple of weeks. Trump initiated some tariffs, took some tariffs off, and raised some tariffs. I think we landed in various different spots when the dust started to settle, and I’m pretty sure that the dust hasn’t settled yet. So, this market discussion could be completely out of date by the time we get back on Monday. I’ve asked a lot of my traders to join us for this discussion. My brother Gus is representing the Fluid Group and talking a little about milk and cream. We’ve got Diego with international sales and non-fat. We’ve got Brianne here to talk about cheese. We’ve got Joe here to talk about butter, and we’ve got Josh here to talk about whey, as well as Miguel to help Bri with cheese. And then we’ve got Mike Brown joining us. And so we’re just going to go around the horn and talk about our various dairy products. Obviously, we can’t avoid the topic of tariffs today. Let’s start where the milk starts, and start with milk. Gus, what’s going on in milk right now? Gus Jacoby: Well, we’re in the middle of the spring flush. So, in areas like the Mideast, Northeast, and even areas on the Eastern Atlantic, you have some pretty long milk. But an interesting dichotomy for the discussion is that there are areas of the country that aren’t so long. It’s mostly areas where a lot of milk-processing capacity has been added, like the I-29 corridor up in South Dakota or down the Southwest. Those areas aren’t quite as tight, but nonetheless, where it is long, for example, in the Mideast, there have been a number of plant shutdowns for periods that have made it really long for certain stretches. You add in some higher components, and you’re in for some interesting times right here in the middle of April. Ted Jacoby III: So we’re about a week away from Easter. Do we think things will get even longer over the Easter weekend before they maybe start to clean up a little bit? Gus Jacoby: Some plants that were down are coming back online, but not all of them, so I think you will have a little bit of both. It’s hard to figure out exactly how long we’ll be over Easter. But I think it’s safe to say that you’ll likely have enough plant shutdowns during that holiday weekend, and it’ll still be ugly. Ted Jacoby III: And what about cream? Cream has been the bane of many people’s existence this year, especially in the Midwest. Is it still ugly? Or is it starting to get better? Gus Jacoby: It’s not as ugly as it was. How about that? Ice cream demand has kicked in; perhaps some other Class II products have shown some demand for cream again. That, in addition to some longer skim-solids, probably provides those cheese plants with some fortification that can hold some fat back from there. Those two have firmed up the market a bit, so we’ve seen some higher multiples than we’ve seen maybe a month ago. Nonetheless, Ted, it’s still long. I don’t want to act like it’s gotten any significant tightness with what I just said. There’s more demand, and some cheese plants aren’t selling quite as much cream as they were before. Ted Jacoby III: How do you expect this cream situation and these low-cream multiples? How is this going to play out as we get into the heat of the middle of the summer? Gus Jacoby: That is a very good question. I’ve been trying to find some answers to that. I’ve engaged Joe a little bit to help me figure out this butter market a little bit. But there’s no doubt that the cream has been a butter maker’s dream, so to speak, and the fact that they can go out, endure these long markets, and call their price. At least, that was the case in the middle of Q1. Not so much now, but it doesn’t mean that it isn’t still long, and those numbers aren’t very profitable for them. They are. Nonetheless, as we know, most of your butter inventory is produced during this term, and the rest of the year is somewhat unknown. And I’m going to hand that off to Joe. Ted Jacoby III: Joe, is this butter market going to stay around where it is? If you were talking cream, we sure did feel like it should be going lower, even if it’s already down in the low twos. Well, where’s it going to go from here? Joe Maixner: As to where it’s going to go from here, I’m not going to give you any specifics because I don’t have that on my crystal ball. But I would say that we’re probably range-bound for a little while here. Alluding to what Gus was talking about on the cream, we’ve seen a lot of excess cream finding homes outside of churns recently. Churns are still getting plenty of creams, but they’re not getting all of the distressed spot creams as they had been earlier in the year. The big question is, and I hate to go into it already, but it will be the exports. How much product actually gets exported with all of this tariff situation? My personal opinion is that exports for butter really aren’t going to be affected. There are several different imports for re-export programs out there, as well as the fact that we’re just that much more competitive than the rest of the world, so a 10% tariff on most countries will not stop buyers from bringing in our products. Ted Jacoby III: Okay. And Gus, before we move on, what about liquid skim-solids? Skim condensed, skim UF milk, borrow, whatnot? Is that market getting better yet? Gus Jacoby: It’s loosened up a little bit, Ted, but I don’t want to act as if it’s crazy, right? I mean, you can get skim-solids right now. Some areas of the country have taken on the milk and sold skim-solids and cream. They take the milk at a discount and sell it. You’re just in the typical flush mode. But when we talk about that, you can’t help but talk about the fact that with skim solids now being readily available and probably some good deals out there in the marketplace to be had, that means that fortification solids are available for those cheese plants. Again, the higher butterfat component means you can keep that butterfat in the cheese plant. I’m not saying that that’s happening in any lengthy term. I think it’s happening on a spot basis. I don’t know what will unfold as we enter the summer and out of the flush. Ted Jacoby III: I’m going to ask this Gus, both for you and for Diego. I’m unsure if you guys will have the same or different answers. But you think one of the reasons we’ve had skim solids available is because of the non-fat price? That market has been difficult to trade in because the demand is so poor. Gus Jacoby: I think there’s certainly a lot of powder being made and whatnot. No doubt in this tariff climate, there’s probably some concerns about what will unfold in the future. But I also think we have really long milk right now, as we always do in the spring flush. And there’s certainly still plenty of powder being dried. So, Diego, do you want to take that from there? Diego Carvallo: Yeah, I do think it’s part of the reason. The thing is, you have powder where it’s not that needed; let’s put it that way. You have a little bit more powder now that the avian influenza has improved in California. And that product needs exports, while the product that cheese makers need for purification needs to be in the Midwest. But yeah, the answer is yes, and in part, that’s the reason. Yeah. Ted Jacoby III: All right. Since we’ve exhausted all of our liquid dairy options, we’re going to start talking about all those products we can store. And just about every single one of them is being affected in one way or another by this tariff market. So, Diego, I’ll stick with you. In this non-fat market, prices have been going down. I saw a statistic, it looks like our inventories of non-fat and skim milk powder are 57% higher than they were at this time last year. Is this a direct effect of the tariff war that’s going on, or is there more to it? Diego Carvallo: No, increasing inventories is not the result of the tariffs. It is the result of the U.S. being at a higher price than the rest of the world for close to, I would say, six months. So let’s say at the beginning of the year, end of last year, Europe was at a steep discount to U.S. in non-fat. And Europe was taking most of the little demand that there was around. So, as a consequence, the U.S. was dependent only on Mexico. Mexico hasn’t been buying as many had expected, and inventories grew. Now that we have the tariffs, depending on the price, it could continue to accelerate. I think the U.S. will need to go into a discount versus the rest of the world so that inventories stop growing. Ted Jacoby III: Okay. How hard is that going to be, with everything going on in the tariff world right now? Diego Carvallo: Well, we’re already seeing a lot of pressure on the non-fat futures, so it could happen in the near term. I think the market is still in, I don’t know if calling it panic mode or just a waiting standby mode, maybe seeing what happens. But if let’s say a month goes by and we still have the same tariffs through China, U.S. product needs to find and gain market share in other markets. And the only way to do that is by aggressively competing. Ted Jacoby III: Outside of price, has there been any other kind of conversations that you’ve been having that were kind of eye-opening as you’ve been talking with our international customers over the last couple of weeks? Diego Carvallo: Well, one thing that was interesting is that after Trump reduced the tariffs to just that 10%, I saw a lot of international customers re-engaging and requesting votes once again. We only have 90 days for the product to be imported to those countries, so it’s still a risk, but we’re seeing more interest. Ted Jacoby III: Does it feel like a “Let’s hurry up and get this product into our borders before we do end up with a tariff war again”? Diego Carvallo: Yes, but at the same time, I think most of the buyers are going to go to New Zealand. Why would you risk paying an extra tariff? Why would you risk having to rush and then your provider maybe delays the shipment, et cetera. Why would you have an exposure to tariffs if you could buy just at $100 higher, product from New Zealand or from Europe? Yeah, I think that spread between the U.S. and Europe needs to widen. Ted Jacoby III: So, in other words, what you’re saying is that this not-fat price probably needs to drop lower. Diego Carvallo: At the same time, I do not see much downside potential. What I think could happen is a combination of Europe moving a little bit higher, New Zealand moving a little bit higher, and the U.S. maybe staying under pressure or moving a little bit lower. Ted Jacoby III: Okay. Bri, while Diego’s been dealing with tariffs on the powder side, what have you been hearing on the cheese side? Brianne Breed: The bulk of the conversations I’ve been having are more on the domestic front line, more U.S.-based demand. Gus mentioned earlier that the flush is underway. There’s a lot of milk out there, and so we’re seeing more cheese being made right now. But because we had that drop a few weeks ago, I think we were able to get some exports put on the books. And so we’re seeing a little bit of a squeeze right now between Easter holiday demand and filling up those production plants with cheese that was committed. It sounds actually bullish on that side, because the milk is needed to fill orders. But we’re hearing a lot of pushback from domestic consumption. Food service, retail seems pretty slow overall. Yes, there’s a little bit of a pop here before Easter. But I think all those orders are going to be in by today, I would expect. And so next week we’ll have a better idea as to what actual demand is here domestically. Ted Jacoby III: Okay. And Miguel, how about you internationally? How’s the cheese outlook with your customers? Miguel Aragón : We are having a few comments from them because our prices are definitely getting better. There’s more opportunities, so we have people jumping in. But at the same time, they’re being cautious because as Diego said, there’s only 90 days, they don’t know what tomorrow’s going to bring. Plus on top of that, the currency exchange is up and down, up and down, up and down. So there is interest. They see good offers from us, but they’re cautious. Ted Jacoby III: And it sounds like the volatility of what’s going on with tariffs, the volatility of the peso-dollar exchange rate, the volatility of our dairy markets, all of it just makes it really difficult for our customers to make buying decisions right now. Miguel Aragón: That is correct. And even when they make a decision, they’ll come back two, three days later before the whole contract is signed, asking, “Is there a change in price? Can you do a little bit better?” Just because they are now aware that the situation is very volatile, and they just want to make sure they get the best deal they can. Ted Jacoby III: So they’re trying to push for everything they can get right now. Miguel Aragón: Yes. And at the same time, they always remind me the U.S. is aggressive when there is no domestic market. But then later on, if everything gets better domestically, they’re not interested in a long-term relationship. They always throw that in my face. Ted Jacoby III : Yeah, that’s a tough one. I know exactly what you mean. Miguel Aragón : Yeah. Ted Jacoby III: Everybody, we will be right back after these messages. Center commercial (with music) : If you’re a dairy producer or a cooperative looking for a better market for your milk, or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to T.C. Jacoby and Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultative support, and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Ted Jacoby III: Josh, turning to the whey complex, you’ve probably been affected by the tariffs more than anybody, both on the permeate side and the protein side. What’s your sense? What’s going on? Josh White: Overall, I think a lot of paralysis right now. Lots of conversations this week with people trying to digest what are the solutions, what’s tomorrow going to bring, late-night phone calls talking about the U.S. response, early-morning phone calls talking about the retaliation out of China. And that’s been pretty much a consistent pattern throughout the week. All in all, I think if we start with the carbohydrate side of it or the lower-value products, China’s obviously very important, particularly for permeate. I think there’s a willingness and a recognition by both countries that we have to find a way to do business together. But at 125% tariffs on both sides of the coin, that’s a de facto embargo. Just doesn’t make sense to do business, and at the permeate returns effectively, if you have a choice not to dry, you wouldn’t dry. All of that being said, it’s all happened within this week. And I think that patience hopefully will reward certain people to see if we’re able to come to some type of resolution, temporary pause, or something that’ll allow that trade because that’s going to impact both industries. The U.S. really needs and has contracts on for the second quarter to ship a lot of volume to China. And the Chinese pig industry in particular needs that product. Now, can they go out and find some alternatives? Sure, but it’s going to hurt their cost of production. Those alternatives aren’t as heavy in lactose or as cheap on a pre-unit lactose content, which is really what they’re interested in. And as a result, they are going to have to go to other markets and unnatural markets to buy product. And I don’t think they’ll be able to cover 100% of their needs. So yeah, both of these markets need each other. To what degree the markets can, they’ll figure out a solution. But right now, paralysis, everyone’s going to wait and see what happens. Where it becomes more interesting, I think, is on the upper end of the whey complex with the WPI and WPC80. China is our leading export partner, followed by Canada and Japan. I think that they might switch positions here and there. This Chinese issue, it’s well-reported that there’s product that’s already on the water. And if my understanding’s right, if it arrives before May 13th, it’s exempt from the additional tariffs into China. But there’s also a lot of production in motion for products that were destined for China. And that’s leaving U.S. manufacturers, processors, copackers, et cetera, all looking for alternatives. So that sounds bearish. Anytime you switch trade lanes, that does feel a little bit bearish. There’s another side of the story that needs to be told, and that’s the price out of Europe. Before these incremental tariffs were announced, the European market was already looking to the U.S. as a potential market to source from. You look at some of the index prices, which aren’t super-accurate for things like WPI, but on a U.S. dollar equivalent, the WPI price in Europe right now is approaching $11 a pound. The price here in the U.S. prior to these issues was closer to $10 a pound. That leaves some room, even with some tariffs, for those two regions to trade together. And additionally, the Chinese market buys a lot of whey products from the U.S.. And if we shut that off, they’re going to look to other markets to backfill those needs. Probably at a higher price in most instances, which I think is just going to reshuffle the deck a little bit, create some price volatility, but isn’t uniformly bearish over the course of the next few months? Probably leans bearish, but I don’t know that I would immediately assume that, “Okay, because we remove China from shipments of UF WPC80 and WPI, that immediately means there’s less demand in the world for those products.” It’s a complicated game. I think that aside from just the international trade, that’s a very complex market at the moment. I mean, this is the largest premium I think we’ve seen on record for isolate over whey, certainly the largest premium that I can remember for WPC80 and isolate over non-fat prices. The U.S. market clearly has found new demand for whey proteins and higher proteins overall, but whey protein’s been the biggest beneficiary of that. But at the same time, all the consumer sentiment has been leaning a little bit more bearish. As Bri evidenced on the cheese side and how slow some of the consumer demand’s been on that end, is the consumption or utilization for WPI, does it have an inverse relationship with the rest of the market? I don’t know that I would subscribe to that yet. But there’s some doubt that the GLP-1-driven demand creation and healthy snacking movements might continue to consume more whey protein, and at a more valuable price level than ever before. But we have to be concerned about the economy as a whole. And these new disruptions, like the announcements of the tariffs, may be the catalyst that finally shifts the market into a more bearish climate, and God forbid, but the potential recession that I think we’re all concerned about. Ted Jacoby III: Well, I think we touched on every product. Mike, was there anything that came to mind from your end? Mike Brown : My only thought is I had a call with a good friend in the supermarket business. And he says, “When it comes to the cheese counter, it is definitely true.” Store brands are doing well, national brands are not. And that may be why some of our packaging, co-packaging, cut-and-wrap friends are having more struggles than others, and that food service seems to be quite tough. So there does seem to be concern longer term. Consumers are certainly continuing to buy down to store brands to save a little money. That’s true across our grocery store, and dairy is no exception. If you’re wearing a store label, you’re probably selling fine. If you’re not, you’re struggling. And particularly, a couple of the very popular national brands seem to be struggling a little more, hearing some comments from cut-and-wraps that their orders are way down. Other thing is some producer concern on where margins are going. Something I’m going to be tracking as you know, trying to get a little better picture for that. The biggest concern is making sure the milk has a home with spring flush. But otherwise, they’re not afraid yet. They’re concerned, but producers see an opportunity to grow long-term if we get through this little mess we’re in right now. Ted Jacoby III: It kind of goes back to the podcast we just recorded a couple of weeks ago. If we get a downturn in prices because of this tariff war, we may squeeze some dairy producers right out of the business, given their options to sell their cows right now. Mike Brown: Yeah, cows are valuable. Beef is valuable. They have a lot of older cows that won’t be profitable if the margins get too tight. Ted Jacoby III: Yes. Mike Brown: Some of those late-term, light-lactation cows may go. Ted Jacoby III : Feels like we just climbed to the top of the roller coaster and we’re hanging off the edge before we start flying down. We’ll have to see how the next 90 days go and where we end up. Thanks for joining us today, everybody. It’s just an old-fashioned market discussion. We’re going to try to have these about once a month just to get market information out for everybody, especially in times like these when it seems like every day goes by tariffs change. It’s affecting our exports. It’s affecting our imports. Frankly, it’s even affecting our markets. Just as Mike said, the consumer right now, faced with this uncertainty as a result of tariffs, is altering their buying patterns domestically. That wraps up into a whole market that has a lot of uncertainty. That uncertainty is probably creating some bearish sentiment out there. But at the same time, we’ve got a dairy producer who, if he’s under any kind of profit pressure, we’ve got some very real concerns about whether or not they’re going to keep those cows in the herd. Good luck out there. Hold on tight, and hopefully, we’ll all get through this. Thanks for joining us today. Josh White: Have a good weekend, guys. Joe Maixner : Yep. Thank you. Miguel Aragón: Bye. Have a good one. Outro (with music) : We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Company.…

The Milk Check

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Exit stage left: Why some producers are selling while they can 34:17

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In this episode of The Milk Check , find out why some dairy producers may be eyeing the exit. Sarina Sharp, risk manager at Ag Business Solutions and the writer behind TC Jacoby’s Weekly Market Report joins the Jacoby team this week. Sarina brings invaluable insights as we dig into critical topics like: Milk prices and financial stability: How long can dairy farmers survive with Class III prices dipping below $17? Supply chain shifts: How whiplash tariffs, changing federal orders, and fluctuating demand are affecting the U.S. dairy market. Bird flu and milk production: How the bird flu has changed U.S. milk production, and where it may strike next. Tune in to The Milk Check episode 75: Exit stage left: Why some producers are selling out while they can. If you like milk (and we know you do), then pour yourself a mug and tune in for insights on how to navigate this uncertain landscape and stay ahead in the coming months. Special Guest: Sarina Sharp , risk manager, Ag Business Solutions, and market analyst for the Daily Dairy Report The Jacoby Team: Josh White , vice president, dairy ingredients Ted Jacoby III , CEO & president, cheese, butter & dry ingredients Mike Brown , vice president, dairy market intelligence Gus Jacoby , president, fluid dairy ingredients & dairy support Intro (with music): Welcome to The Milk Check, a podcast from T.C. Jacoby & Company, where we share market insights and analysis with dairy farmers in mind. Ted Jacoby III: Welcome everyone to the March 28th, 2025, edition of The Milk Check, a T.C. Jacoby & Company podcast. It is my pleasure to welcome a couple of special guests to the podcast this week, first, Sarina Sharp of Ag Business Solutions and the Daily Dairy report. Welcome to the podcast, Sarina. Most of you know that Sarina is also the writer of the T.C. Jacoby Weekly Market Report, which we publish every Friday. Sarina, we’re honored to have you join us today. More importantly, thank you for the partnership. I can’t tell you how often I get compliments on the weekly report that you write for us, so thank you very much. Sarina Sharp: Thanks for having me. Thrilled to hear it. Ted Jacoby III: In addition, we have a few of our usual suspects: my brother Gus, head of our fluid group; Josh White, head of our dairy ingredients team, and I am excited to announce that Mike Brown, formerly of IDFA and Kroger fame, is joining the Jacoby team as our new vice president of Dairy Market Intelligence. Mike, I am excited to have you on the team, and I look forward to having you on this podcast as a regular presence. Mike Brown: Well, thank you, Ted. I’m delighted to be here. It’s good to be back in markets and away from government regulation. I’m very excited about the opportunity. And Sarina, I am really looking forward to working with you. I’ve been a fan for decades now. Appreciate that opportunity to work with you as well. Sarina Sharp: Time flies. Ted Jacoby III: It sure does. So my first question is this. We’ve been talking for probably a couple of years now about the heifer replacements and the issue that’s been evolving because many dairy farmers are breeding to beef simply because it’s really hard to pass up $700 for a black cow rather than spending $3,000 to raise that calf into a heifer. But we’re getting to the point where right now, for example, our traders that sell into the retail space, they’re telling us demand’s not that great. Those who are selling into the food service space are saying demand’s not that great. Even our traders who export are telling us that Trump’s rhetoric about tariffs is having an effect and making it difficult for us to export. In other words, demand is not that great on the horizon. Milk prices have come down. Class III price is probably going to be in the low 17s, maybe even into the high 16s in April. Are we getting to the point that we’re starting to reach that line where dairy farmers are going to say, hey, beef prices are still high, we can sell our dairy cows, we can cull our herd, we can drop our cow numbers? And how does that play out given the heifer replacement issues that we’ve been talking about? Sarina, I’m going to ask you that question first. Sarina Sharp: Thought that one might be coming to me. I think there’s an assumption that cull rates go up when milk prices go down because dairy producers start to cull. So when dairy producers see low milk checks, the first thing that they do is actually try to increase milk production. So most dairy producers are not going to start culling in a way that shrinks their individual herd. However, there will be a group of dairy producers who decides, you know what? These are tough financial times. This is not for me anymore. I think especially right now after several years of very good prices and high beef prices, there is a group of dairy producers out there who’ve been looking for the right time to retire an exit ramp, and they were not going to make that exit when milk prices were high and revenues were good. But now that that’s here and beef prices are still high and heifer prices are very high, they have a really obvious out, sell my cows, cash it in, get a big check, either retire or move on to a different career. That allows other producers, the ones that want to keep their barn full but have been culling at a very low rate for the past 18 months, to buy some of those cows that they’ve not been able to find for a while and then boost their cull rates. It’s kind of a two-step process to where we see the herd actually shrinking, but I think that’s the route that we’re going to take. And then, of course, the longer that these low milk prices are around, the more we’ll get a second category of sellouts, which is people who financially can’t make it in this environment. We’re already seeing an uptick in the number of dispersal auctions on the docket, particularly in the Pacific Northwest where some producers are getting steep discounts. Those cows are going to move out of those older, kind of retired, and economically unsustainable areas, and they’re going to move into some of these other dairies. And then that’s going to allow cull rates to go up. Ted Jacoby III: Generally speaking, right now though, are the balance sheets for most dairy farmers in pretty good shape after a couple of really good years? Sarina Sharp: Yes, they should be. We’ve had relatively low feed costs. It varies a lot region to region and which Class of milk do you get and what’s your basis, but generally speaking, dairy producers are in good shape. And, of course, that beef income that we’re talking about, that has really helped pad the bottom line in the past couple of years here. Ted Jacoby III: With those healthy balance sheets, how much runway do we have before some of these factors really come into play? Because I’m assuming the savings accounts are in good shape, and so they can probably go three to four months at least in many cases without having to start panicking, and they’ll just ride it out for a while. But I have no real feel for how long that may happen relative to some of the past times when we get lower prices. Sarina Sharp: So aside from that group of producers I mentioned in Washington that is getting steep discounts, I think that’s generally the case, that producers have healthy balance sheets, they’re on good terms with their lender, no one’s in a panic here, they haven’t seen a small milk check yet. We’re talking about lower prices in April. That’s a mid-May milk check. So we haven’t really started the clock on the financial distress-type sellouts, and that’s a several month process, but I’ve been looking to retire now seems like a pretty good time. When you’ve got this much uncertainty and you’re starting to see milk prices slip, but cow prices are still very high, that’s an opportunity that you don’t want to evaporate. Ted Jacoby III: Would you say it’s safe to say then that it’s mostly the guys who want to retire or thinking about retire and don’t have children who want to go into the business, those dairy farmers who exit the business in 2025 are primarily going to be of that category, even if we have an extended period of prices, let’s say in the $16 range, just because the balance sheets are healthy and outside of the Pacific Northwest? The financially distressed dairy farmers, we’re probably a year away from reaching a point like that. Is that a fair way to put it? Sarina Sharp: I don’t know if we’re a year away, but I wouldn’t expect any in the next few months. It’s a second half of the year problem. Ted Jacoby III: Got it. Gus, I’m going to throw it at you. You got any questions for Sarina or Mike? Gus Jacoby: Yes. We’re looking at a summer with some depressed prices relative to what dairymen have been used to for a while. We also have some modifications to our federal order that are going to be implemented. Is that a little bit of a double whammy to producers? Or has that been factored into the futures that I’m looking at from a standpoint of what adversity dairymen might see here over the next few months? How bad is it? And how long will it last? And what’s our best guess with respect to that? Mike Brown: Well, I’ll provide a little observation on that. A couple of things I would observe as far as the federal order change, the futures I believe already have those factored in, so people that are making those hedges of course are recognizing those higher manufacturing allowances. I also know just empirically talking with folks that there’s going to be some adjustment in premiums to make up at least some of that difference, if not all of it in a lot of markets. And then of course, Class I, if you’re in a market with fluid milk, your prices are going to go up, so your blend change won’t be as great. I do think the market fundamentals are a whole different story though when we’re looking at $1.60 cheese, and even though costs are lower, we’re looking at much weaker margin than we were a couple of months ago. Certainly outlook, and you look at the futures, there’s concern over margin. The other thing I think that plays a role longer term too is replacement costs. If replacement heifers remain relatively competitive, and they always do go down when margins go down, is that an incentive for someone to sell cattle? Something that I looked at over the last few years was DHIA data, which isn’t the whole industry, but it’s about two and a half million cows. And we have seen a significant shift in herd retention. And when you look at herd retention, you’re looking not only at cows that stay in the herds, but cows that are sold for dairy. It’s gone from around 67%, 60 8% to almost 71% in 2024. We are seeing a little lower cull. We’re seeing more cows sold for dairy. Death loss is pretty consistent at roughly 5%, but when you look at those numbers, what you see is that we are seeing some structural changes. Is it genomics, our cows are lasting longer because we’re doing better herd selection for long-term productive life? Is it market influences? I do think that as long as we have these expensive beef calves or beef-dairy-cross calves, there’s a lot of incentive not to take the risk of getting a heifer to calving and selling a calf when it’s a week old for 700 bucks, to Ted’s point earlier. So we have some pressures. Particularly if cattle price to stay fairly high, we may see some people decide to exit this summer when margins go negative again, which I think is very possible. Ted Jacoby III: Yeah. Sarina, do you think the age is continuing to go up? Is that the biggest reason for that increase in that percentages in those DHI numbers? Sarina Sharp: I think so. When you look at cull rates, it’s just inevitable that the average milk cow is a little older than was previously before we had these very low cull rates. We’re pushing some cows to an additional lactation. We’re keeping some cows in the herd that are open, that might’ve been sent to beef. We’ll try and breed them a couple more times because we don’t have a heifer there. Whether it’s extending that length of time that cows are in the herd by just a couple of months, trying to breed her a few more times, or one full lactation, all of it is shifting that age upward. And we can see some of the impact on milk production data. It’s a little bit hard to parse this out because we also have the effects of the bird flu in 2024, but in about half of the months in 2024, national average milk yields were below what they were the same month two years before, which is unprecedented. Like I said, you have to try and figure out a way to strip out the influence of the bird flu, and maybe it would not be nearly as dramatic if we didn’t have avian influenza, but I do think that these older cows and keeping less productive cows in the herd regardless of age is lowering our milk yields relative to where they would be. Mike Brown: Another interesting part of that is when you have longer days in milk, your component tests generally go up. So that may at least partially explain some of this rise you’ve seen in fat tests over the last couple of years, if days in milk are going up. Gus Jacoby: And that leads to some interesting discussion as it relates to what we’re dealing with currently. It’s very long cream markets and whether butter is fully showing itself from a future standpoint as to how low it might go. My feeling is yes, butter production is up, but I kind of feel like butter production will be up indefinitely going forward for a while now. I’m going to throw it over at Josh to kind of let us know what he thinks might happen with this butter market because of how soft the cream market looks like it will be both now and going forward. Josh White: Yeah, so I mean, talking with Joe in the office and just getting a sense for what the day-to-day market is, it’s turbulent. And the reason I say that is because we’ve got a ton of mixed signals. I mean, the U.S. Is traditionally a closed market. Over the past decade I think we’ve been a leader in increasing fat consumption per capita. Fat products are no longer the enemy. It’s become popular, and the general fat value in our milk has been appreciating. We’ve clearly seen a production response to those signals. Are we at a situation where we actually saturated that market? One would assume that’s going to result in surplus fat values and the need to export more fat. Now, what’s interesting about that is on paper that sounds like that shouldn’t be a problem at all. If you look at the European price, it’s significantly higher than us. The entire world price is higher than us, and you have to wonder is the rest of the world’s consumer habits just lagging hours, and are they moving into an environment where fat is now appreciating in value? People want to consume more butterfat. Dairy fat’s no longer the enemy. And they’re experiencing exactly what the U.S. Has experienced over the past decade plus. Now, that said, there’s obstacles to that trade, and some pretty big ones. And I mean, not only is it just not an existing trade lane we’re very familiar with. We haven’t been a noteworthy the exporter. We’ve been much more of an importer in a fat deficit market, but add to it that our fat is a little different than the commoditized fat of the rest of the world. For instance, our fat’s whiter in color, so that makes it difficult to interchange for [inaudible 00:12:43] fat or even European fat on the retail shelf, which, again, eliminates some of that higher value, that utilization that’s driving those prices in other parts of the world. In addition to that, our commoditized products… So right now when you’re a manufacturer, when you’re a producer with a butter churn and you’re getting offered these severe discounts for cream and you’re deciding what products to put up in a weak demand market in creams coming at you, you’re going to put up the standard commodity, and that’s 80% salted. You know it’s storable. We were taught years and years ago to produce 80% salted when the CCC program existed, and that model prevails. And people want to continue to make the product that they know they can sell no matter what by bringing it to the CME spot cash call. As a result of that, we’re not putting up inventory, surplus inventory of the right product. The international market wants 82% unsalted. And I know most of our listeners may know this, but there’s a lot that probably simply don’t understand why Europe prices are so high, yet we’re so bearish. And over time, we will figure out a way to fill that gap, and it starts by shipping 82% unsalted, or AMF, into processing utilization in markets like the Middle East and North Africa. They bought it before. We’ll fill that demand first. And over the course of the next couple quarters, we’re going to win all of that demand. But there’s seasonality in their demand as well. For instance, we’re just on the back end… I don’t know if it’s complete yet… we’re on the back end of the Ramadan timeframe. We missed all of the buildup for that. This fat situation did not happen early enough for us to capture that large amount of business going into the Ramadan period of time. And so there’s a shutdown. People loaded up beforehand, we didn’t participate, and now that demand is missed. It takes time. All of this takes time. I think the real answer isn’t just with how much butter can we export, or how much AMF can we export, but it’s how much fat can we export? We’re a large exporter of skim milk powder that doesn’t have it. We’re not a big producer of whole milk powder. That only leaves one product, in my mind, and that’s cheese. Good news. We’ve established a whole lot more capacity to process milk into cheese. And I think, Gus, you guys are probably feeling it as much as anybody. The milk trade flows are shifting a bit because of this new capacity in middle America. And how are we going to respond? I assume we’re going to win a lot of export business. Gus Jacoby: Yeah. Yeah, I feel that’s a good segue now into the protein side, right? You can’t help when you talk about cheese to talk about a need with higher butterfats that much more today than just a year ago for cheesemakers to fortify, right, if in addition to the fact that we have all these other exterior issues going on in the marketplace that are valuing protein that much more. So Josh, tell us a little bit about what your thoughts are on the protein sector and how quickly that value might rise. And then I think my next question after that is going to be for maybe you, Sarina, about whether producers can tweak their rations to increase the protein accordingly as we go forward here. But Josh, why don’t you answer the first question? Josh White: Yeah, I think it’s the same issue that we experience all the time. We’re finding new ways to balance the market. And the reality is the world doesn’t seem to want skim milk powder or nonfat dry milk right now. Demand is extraordinarily weak. Demand for China has been down. That’s pushed the Oceania competitors to produce products that compete directly with our export interest, competing into markets that, generally speaking, the demand is lower for, I mean, how many years running now? Three plus. We’ve all been anticipating an improvement in global demand after so many suppressed years, but I don’t know if it’s coming anytime soon. So that leaves us looking at, well, how do we balance this internally ourselves? If we’ve got a weak fat situation and we’ve got a lot of cheese production, we’re going to need to figure out a way to use those nonfat solids that are being dried today. And the biggest obstacle we have is the Rocky Mountains, I think. I mean, most of that nonfat produced in the western part of the country. It’s expensive to ship fluid across the country. So that the simple answer, and I don’t think it’s going to be nearly as simple as this, Gus, is do we go back to what we saw happening in the early 2000s to where cheesemakers that can are buying a lot of nonfat dry milk powder and using that to fortify the vat? I don’t think most are really set up for that, and I don’t think most of the new operations, that’s not front of mind. Gus Jacoby: No. Josh White: So it’s really going to take economic incentives to drive that, and most of the time what drives it is need, desperate time or desperate need to handle something. If we get the export visit, we get to a price where we’re going to export a lot of cheese and these guys can make money by keeping the fat in their own vat, they’ll probably figure out a way to buy those solids. It probably won’t be as simple as I said. I doubt everyone just goes out and buys a bunch of nonfat dry milk, but the market will figure out how to balance those nonfat solids. Gus Jacoby: Yeah. But do you think from the standpoint of protein, whether it be fortification for cheese, whether it be higher values in the health and wellness sector, there’d be just protein powders, MPCs, caseinates, casein, all these things, the demand for that seems like it’s pushing up and will continue to do so? We know about the need for more protein and diets for folks that are on various medications to lose weight. So anyway, I feel like protein could really take off pretty quickly. Do you agree with that? Josh White: Yeah, I do. I think that long-term undoubtedly. I think that we’ve had some nice debate internally and some really nice input on understanding this GLP-1 movement, what it does for the dietary habits of general markets. It’s not just a U.S. thing. I think that we’re starting to see more of a response in other markets. If Europe and China experience similar health and wellness trends that we do, the need for concentrating protein is going to continue to grow. And there’s no doubt in that, but I also think our ability to balance that supply chain isn’t really great yet, meaning that we can overprice it or overestimate demand. We can quickly back up on inventory, and the U.S. manufacturer process lowers price way faster than demand can respond to those price changes. So there remains a lot of volatility. So what I mean by that is WPC prices are very high right now, and historically high relative to the underlying whey powder component price. That doesn’t mean that we won’t see them weaken at some point in 2025. If we do, that doesn’t mean people don’t want the protein. I think it’s just us figuring out how to manage our supply chain. In addition to that though, the longer we sustain these massive premiums for products like whey protein isolate… Anybody who can trade down. For instance, our family, I guess it makes my kids feel good to eat protein chips because they can have chips, and it says protein, and it just costs dad a lot of money. But in the end, if you look at the ingredient label, it’s a flexible ingredient deck. They can toggle between different proteins, and that undoubtedly is going to benefit milk proteins at a certain point in time if they remain discounted to whey protein so much. So that’s just another way the market’s going to figure out how to balance this. If milk protein remains very cheap relative to everything else for a period of time, anybody that can upscale to making MPCs versus skim milk powder will figure out how to do so. But I think those are longer term trends. The good news for this year, to answer your question, is there are people who have expanded that capacity now. And so in 2025, you’re going to see more MPCs than you did in prior years. So people have anticipated that demand growth or made those right decisions on investing the capital, and so we’re going to get some of that attrition this year. So a little bit less of a need to dry powder, a little bit more value in the proteins. And there’s other examples, UHT products, other things like that, that are going to continue to consume [inaudible 00:20:21] solids that previously went to power. Gus Jacoby: All right. I’m going to throw it back at Sarina. And I guess my first question is, as fat starts to lose value and protein starts to gain value, what do you think the average producer will do considering that? And how able are they to convert to a ration that promotes kind of a different ratio of components, so to speak? Sarina Sharp: So the market’s been signaling to producers for several years to produce more butterfat. We’ve also had spikes in the protein price, but they just haven’t been as consistent. So I think producers absolutely have been focused on producing butterfat. They like producing more protein as well, but they’ve put more effort into producing more butterfat. But I think that in their breeding decisions, so what genetics are we focusing on, and in their ration decisions, those do tend to move up together. The ways that dairy producers have changed their rations over the past years to improve butterfat has improved milk production as well. I don’t think they’re going to just back away from that, except for where it’s very expensive to maintain that kind of ration. I get the sense from dairy nutritionists that it is a little easier to feed for butterfat than it is to feed for protein. So I’m not sure how much of a shift we’ll see. I think that producers are just going to continue to focus on making the most milk and the most nutrients. We might see a little pullback in how much butterfat components gain on proteins, but I don’t think it’s going to be dramatic. Ted Jacoby III: Sarina, I had a dairy farmer make a comment to me the other day that stood out to me. And they said basically even at $2 a pound, butterfat is still one of the most valuable components in milk. And so the decisions they were making at $3.50 don’t change at $2 a pound. Is that a fair statement? Sarina Sharp: I think that’s true. That dollar amount might move around if feed were extremely expensive and the specific ingredients that you keep in the ration in order to maintain butterfat, but that’s just not the world that we live in right now. So I don’t see producers just trying to cut costs and being willing to kill their butterfat. I think that they’ll want to continue to see that butterfat number be very high and just kind of boost their milk checks. It’s less of a boost than in the past, but higher is higher, and they’re going to strive for that. Ted Jacoby III: Makes sense. All right. We ready to switch topics? Everybody, we will be right back after these messages. If you’re a dairy producer or a cooperative looking for a better market for your milk, or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to T.C. Jacoby & Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support, and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Okay. Mike, I got a question for you. You shared with me a news article that came out recently regarding studies at Cornell about avian flu and how it’s showing up in cheese that was not from pasteurized milk. Tell us a little bit more about that study and what you’ve been hearing. Mike Brown: Well, it’s been interesting. That study was actually commissioned by FDA, but it was done through Cornell, and they looked at raw milk cheeses from different places across the country. From what I’m learning from folks like the cheesemakers, a lot of that production actually is concentrated outside of the upper Midwest, a fair amount in the Northeast. Small specialty makers are making those kinds of cheeses. But what the study really found was that there are indications that you do have some virus in some of those products that would withstand the normal 100-day or so curing that they require for raw milk cheese to sell it. So there is concerns. When they do these studies, of course, the universities, they’re always peer reviewed. They’re very careful before they make final conclusions, but the studies indicate that there may be issues with raw milk cheese, which means that we will see whether it’s heat-treated, and there’s still some questions on how that may be impacted. We do have a fair amount of commercially-produced heat-treated cheese strictly for aging, but as far as for a lot of your specialty small craft cheeses that are raw milk, there could be some consequence. So far no action has been taken, but certainly concern that that could be the case. I know historically we see folks like DA err on the side of caution. With all the changes going on right now, it’s much more difficult to predict what the indications may be from what they’re discovering from these studies, but I think it’s pretty clear that there’s enough indication that there could be some live virus in some of these raw milk cheeses, that it’s going to create some further research and I think maybe some regulation. It’s a little hard to know yet. As we all know right now, FDA is in a lot of upheaval, and a lot of quick decisions simply just aren’t happening. Good or bad, they’re not happening. Ted Jacoby III: Mike, drawing on your Kroger days, what do you think the market reaction to that news will be? Do you think it has a significant effect on demand for cheeses, and especially raw milk cheeses? Do you think that it’s likely that the market’s going to not really change much? Mike Brown: Well, the market for raw milk cheeses is different than for raw milk because people view raw milk cheeses as safe because of the aging. And they haven’t had a concern and said, well, this takes care of it. I’m going to buy year old cheddar that’s from raw milk. I’ll be fine. And there’s certainly been products marketed successfully that way. Kroger, they want to keep their consumers happy. They also like to get litigated, so they’re going to look at both sides of that issue. At this point, from what I’m understanding talking to my friends there, it’s too early for them to make any kind of decision what they’re going to do. They tend to follow FDA guidance, and if FDA makes some changes, then I think you could see some changes at the store. Until that happens, probably not going to happen. Ted Jacoby III: And the worst of it it feels to me like would be maybe some of those raw milk cheeses in the deli case get pulled out of the deli case, but it’s not going to affect the dairy case where almost all the cheeses in the dairy case are made from pasteurized milk, and that’s where the big volume is in the cheese business. Is that a fair statement? Mike Brown: Yeah, absolutely. Yeah, it’s a tiny part of the market. In fact, a lot of those products have trouble keeping shelf space because they just don’t turn over fast enough to warrant the space in the store. A lot of those specialty products, they have to work really hard. You have great successes in some that grow over time. Certainly, some of the Sartori products are a perfect example of that, but a lot of other ones, that’s a market that changes constantly because that demand can move quickly up and down, depending on those products that tend to be a bit trendy. Certainly, social media has made more of that the case. Some of them stick, and some of them don’t. That’s just kind of the way it’s always been in that market. It’s finicky. Ted Jacoby III: Cool. Thank you. Sarina, since we’re on the subject of avian flu, what’s the latest on avian flu? It sounds like California’s kind of recovering from it now. Their milk production’s coming back. Are there any hot spots right now when it comes to avian flu? Sarina Sharp: This is probably not what you expected to hear. They found avian flu in a sheep in Northern England, so that is a new watch spot. It’s in one. It’s not in the cattle there, but that’s news for sure. Closer to home, we are doing more routine testing in places where the virus had really slowed down and we weren’t regularly testing, and they did find a positive test in Stearns County, Minnesota, which is the heart of the dairy industry there. This is a herd that had had the flu last summer, and so now it’s unknown if this means the flu is back in that area or if it’s been circulating in that herd. And so now we’ve got a positive test, but this is sort of leftover from before. As is always the case with new diseases of these types, just let’s not jump to conclusions, but that’s the latest. And then in California, yeah, most herds have already had it. Their milk production was still down in February compared to the year before after adjusting for leap day. Cows there continue to feel very stressed after six months of going through a lot. So we are seeing those milk production deficits get smaller, but there’s still an impact to milk production in the largest dairy states. Bird flu is not in the rearview mirror. There are a lot of places that haven’t had it. Hopefully, they don’t get it, but that’s something that we should just be watching for as well. About half of dairy cows in the United States live in a state or an area… There’s a couple states where we had it on this side of the state, but not on this side. About half of dairy cows live in areas that have not had the bird flu yet. Ted Jacoby III: Oh, wow. Do we have clarification as to what the reinfection risk is at the moment? I’m still a bit confused on whether or not we think after a period of time. Or does it require some type of mutation? Are cows vulnerable to reinfection? Sarina Sharp: I am out of my zone of expertise here. I do not want to misspeak. I do know that herds have gotten it that have had it before, but I don’t want to say authoritatively that it’s the same cows. Ted Jacoby III: Got it. It started in Texas, oh, gosh, how long ago? Maybe about nine months ago? Sarina Sharp: Exactly a year ago was when we figured out that it was the bird flu. There had been sick cows since about late February last year, and then it took us about a month to track down exactly what virus we were dealing with. Ted Jacoby III: For those farms that have had a year of data, how are those cows faring today? Have most of them come all the way back? Are those farms pretty stable, pretty back to normal now? What was the recovery? Sarina Sharp: So it seems to me that there are different strains of the bird flu. California was hit so much harder than other places. So a lot of dairies that I work with more closely in the Midwest, they would say, “I would see my milk production down by a third. Maybe a whole herd average over a couple month period is only down 10%, because not every cow gets it, and there’s just been a variety of responses at the individual cow level.” In California, some herds lost half their milk production for a sustained period of time. We’re talking about two different strains of the virus. There are officially two strains of the virus that can jump from birds specifically to cows. So the strain that we first discovered in Texas is the one that we have seen in most places, but then they found a new strain in Nevada over the past few months. That’s a different identified flu virus, still from birds. So I just don’t want to say too much categorically. I’m not a veterinarian. It seems like the impact has been different in different regions, which suggests that it’s different strains, but then also in California, those cows got it at the tail end of a hot summer. They had a lot of accumulated stress already, so maybe their immune response just wasn’t as robust as getting it in March in Texas when you’ve come through the kind of easy winter condition period. So there’s just a lot of factors. It’s hard to say. In terms of long-term impact for the cows that have had it, there’s a number of cows that were cold or failed to conceive, so we don’t get a milk production impact from the cows that suffered the worst from this virus. So the ones that were able to withstand it the most, they do come most of the way back, some of them all the way back, in milk production, but there are some lingering drags on milk production. It looks like a bell curve, like a huge impact on milk production as they’re fighting the virus, as they’re feverish, but it has a long tail. Ted Jacoby III: Okay. Left field question. I know in Texas a lot of the cows are hybrids, Jersey-Holstein cross. Is that the same in California? Or are they just Holsteins in California? Do you know? Was there a difference in the way different breeds of cows were affected? Sarina Sharp: So there’s plenty of Jerseys, crossbreeds, and Holsteins in California as well. I think the herd mix would look very similar. I have heard anecdotally that Jerseys suffer a little less badly than Holsteins, but I can’t say with any confidence that that’s the case. Ted Jacoby III: Generally speaking, don’t Jerseys have a reputation for being a little bit of a heartier breed than a Holstein and tend to withstand things like that better? Sarina Sharp: I think the way that most people end up judging that is the most vulnerable time from a health standpoint for a cow is just after she freshens, right after she’s had a calf. And we just have fewer health issues for Jerseys than for Holsteins typically. Labor and delivery is stressful for everyone involved, but a Jersey is making a much smaller calf than a Holstein relative to her body frame. So that’s a less stressful [inaudible 00:32:51]. Ted Jacoby III: Oh, okay. Makes sense. Makes sense. And then a last question on avian flu. The avian flu that’s been causing egg prices to go through the roof, is that the same strain that is being found in dairy cows? Sarina Sharp: Generally no. At times in the past, yes, but right now we have avian flu circulating in a lot of areas that have both poultry and dairy, and it so far has not seemed to impact the cows in that area. Ted Jacoby III: Makes sense. Sarina Sharp: But in those same areas, we’ve had sick poultry and sick dairy cows at the same time in the past. So it seems like the answer is no for right now, yes in the past, who knows going forward. Ted Jacoby III: Cool. Thank you. Well, I think we covered quite a bit today. Sarina, thank you so much for joining us. Mike, thank you for joining us. Josh. Sarina Sharp: Thanks for having me. Mike Brown: Appreciate it. Thanks everybody. Ted Jacoby III: Thanks everybody for joining us today. I hope you enjoyed this podcast. I look forward to talking to you again on our next podcast, and I look forward to seeing everybody at CheeseCon in April as well as the ADPI show in Chicago. Look forward to seeing you guys. Goodbye everybody. Outro (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Company. Gus Jacoby: All right. See you. Ted Jacoby III: All right. Thanks everybody. Great job, guys.…

The Milk Check

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Stormy markets, steady strategies: Navigating dairy uncertainty 27:52

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Dairy markets have taken a hit, with prices dropping across the board. Global economic uncertainty, tariff concerns, and weak demand have sent prices for cheese, butter, nonfat dry milk, and whey tumbling. Our team tackles this and more, including: Pricing market predictions by dairy product category Tariffs and demand changes for U.S. products Global strategies to diversify supply chains and potential long-term impacts A potential shift on feed strategies and butterfat production Don’t miss Ted Jacoby III and his expert panel’s market discussion on what’s going on and what may be coming next. Listen now to The Milk Check . Intro (with music) Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind. Ted Jacoby III: Welcome everybody to this month’s version of The Milk Check. We’re going to have an old-fashioned market discussion this month. Joining me today is Diego Carvallo, Director of Dry Ingredient Trading, especially on the international side, Greg Scheer, our Milk Marketing Manager, Jacob Menge, Vice President of Risk Management and Trade Strategy, Jared Miklasz, Sales Manager for the UFC Group, UF Milk and Cream, Joe Maixner, Director of Sales for Dairy Ingredients, and our Head Butter Trader, Josh White, our Vice President of Dairy Ingredients, and Miguel Aragon, Director of International Cheese Sales for Latin America. We’re recording March 7th. Before we get started, let me say this: stick around, and don’t go when we start to say goodbye. We’re going to have a Marvel version of this podcast. After we said goodbye, we ended up having another 15 minutes of conversation. That may have been the best part of the whole conversation. Thanks everybody. Pretty much every single one of our markets has been down 20 to 30 cents in the last month, whether it’s cheese, butter, non-fat, or whey. They all seem to be down 20 to 30 cents. Jake, is this a function of all of the tariff rhetoric coming out of the Trump administration, or is there something else going on? Jacob Menge: It’s tough to separate the components of what are really driving these markets. I think tariff talk is absolutely part of it. In our last podcast we mentioned that uncertainty just weighs on markets, and there’s more uncertainty today than I would say. There was the last podcast we did. The can has gotten kicked on the Mexico tariffs. I’m not sure how many times you can do that. This time when it happened, we saw it in equity markets, they didn’t really pop like they did last time. The can got kicked on tariffs and equities were like, “Oh, okay, good.” And when it happened yesterday, equities really just continued. They’re crying lower. I’m only bringing that up because this is obviously a macroeconomic-driven dairy and equities market. Tariffs are part of the problem, but demand is just poor, according to everything we’ve seen. I think we’ll hear from all of our product traders. That is certainly a factor, but it’s tough to blame anything. Ted Jacoby III: All right, well, let’s start with butterfat today. I’m going to ask Jared and Joe together. The butter market is down 20 to 30 cents, and the cream market has been ugly since Christmas. What’s going on on the demand side? Will this market stay this way all year, or is it a classic seasonal phenomenon? Because if there’s one market that’s probably the most insulated by the tariff talk, it would be the butter market, but butter, if anything, it almost feels like the heaviest of all of our markets right now. Jacob Menge: There are certainly quirks in each market. Dairy is not the only one seeing that, though, so if I had to lean one way or the other, yeah, there are macroeconomic influences in that demand piece. Jared Miklasz: Butterfat numbers are still hanging out somewhere in the 4.5% range compared to they’re about a year over year 2.5% jump in demand remains to be extremely long, and we’re seeing yogurt productions up, low fat cottage cheese as well. There’s just been a lot of fat added to the complex. As far as end in sight or pick up in demand, we’re sitting here on March 7th, six weeks before Easter, hoping to see a little uptick in demand as we get into the spring holidays. But what also gives me a little bit of a pause for concern, and seeing that hard ice cream sales surged up almost 21% year over year in January, those ice cream manufacturers are taking advantage of these cheap cream, which we know certainly continued into February. So I anticipate that they’re building up their stocks and there may not be as strong of a pool from ice cream as we get into the first part of summer year. This means we could be looking at a long pre-market into late summer. Maybe this lower demand will result in higher [inaudible 00:04:02] rates in Q2 and potentially impact the future of milk production, but we don’t see a real end in sight here. Ted Jacoby III: Joe, what about butter? Is the butter market long too? Joe Maixner: Yeah, butter’s long. It’s been reeling from the effects of this long cream market. Demand has been okay, but it has not been great. We’ve seen increased stock builds on the cold storage reports. We came in with 270 million on the January report, which is a pretty hefty number for that early in the year already. The production report that just came out showed that we were only up about half a percent year over year. Last year’s January production report was the second-highest on record for the month of January, so we bested that. We’re seeing strong builds on the butter side. We are the cheapest hat in the world. We’re trying to export what we can, but between the uncertainties with the tariff talk and the fact that our butter is only good in certain regions of the world, it’s tough to get things done. Ted Jacoby III: And I assume the reason it’s only good in certain regions of the world is ’cause we’re 80% fat versus the 82% fat coming out of Europe. Joe Maixner: Yeah, that and the fact that our butter color-wise doesn’t represent the same and the flavor profile is a little bit different because we’re not a primarily pasture fed dairy herd. So if it’s going into further processing, a lot of countries can use it. But if it’s table service or going into retail, a lot of people don’t want it because it doesn’t look or taste like the European or Oceania product. Ted Jacoby III: Those differences, what difference in price, how much lower does US butter prices need to be than European butter prices , for people to start considering buying butter from us instead as a result of those differences? Joe Maixner: I think we’re close. We’re about there. We’ve seen some business get done, but we’re coming up on some other global competitors as well that are marketing really cheap product coming out of China and India. We’ve seen product in the low fives being offered for that product 5,000 a metric ton. Ted Jacoby III: $5000 in metric ton. What’s that in dollars per pound? Joe Maixner: On an 82, that’s a 220. So we’re not there yet. Ted Jacoby III: Got it. So even though we’re a dollar lower than, let’s say, European prices, we don’t really compete against European butter, we compete against places like India and China and as a result, that’s where we need to be in order to really clear a lot of butter internationally? Joe Maixner: For those markets that are looking for a cheap fat option, yes. Ted Jacoby III: Got it. Joe Maixner: You have to keep in mind too, though, our two largest trade partners on butter export-wise are Canada and Mexico. And with all of the current political strife going on right now, there’s a lot of uncertainty there as well. Ted Jacoby III: Got it. Makes sense. Okay. Josh White: We continue to make more fat in our milk, and maybe this is the point at which we all of a sudden have saturated our market and that’s a real conversation, but I think one of the things Joe alluded to is even if we don’t have readily available trade between Europe and the US, for instance, just simply that the conversation’s happening and that we’re getting to use Joe’s words closer, that’s a signal. There’s no reason that the US and Europe should trade product back and forth. And some of those conversations with the European companies are, how can we use this cheap US butter fat price? Now, does that mean the US comes up or Europe comes down or both? I’m not going to predict that. It means the world market’s out of balance and we’ve got to start to figure out how to balance that. Ted Jacoby III: Well, let’s switch gears and let’s talk a little bit about non-fat. Diego, non-fat price’s come down 20 cents in the last couple of weeks. What’s going on? Diego Carvallo: A lot of things have influenced the price of non-fat, and the main ones are poor exports. I would say that’s the main driver. And poor exports is the result of several factors. So the first one is that we haven’t been competitive for several months already. Europe has been taking demand away from the US for at least three to four months already. They have been, at some periods, as much as 350, $400 below US prices. That obviously resulted in fewer exports from the US and more inventories in the US. The US had to export less product because of avian influenza, but I think that was maybe to an extreme, and as a result, we’re seeing that year-on-year inventories are way higher and at the same time the avian influenza is improving and production is slowly coming back, especially now during the flush. And we had to come down in terms of price, we had to become more competitive in order to gain that demand that usually buys from the US. And a good example is Mexico. Mexico hadn’t imported product from the US in several years and this year, they started importing product because the spread was very wide. Product from Europe was very competitive. Right now, that spread between the US and Europe has decreased significantly, and now we’re seeing way more demand from Asia, Middle East, Latin America, Mexico, all of these destinations, knocking on US doors and asking for prices. And we are, in fact, starting to see better traction, more business being done. That’s going to be seen probably in one or two months from now when we see exports actually increasing. But I think we’re on the right path. We needed this correction. Ted Jacoby III: So it sounds like we’re seeing exports increase even though the tariff rhetoric would almost make us feel a little bit otherwise. Is that true? Diego Carvallo: I would say we could start seeing more exports. We’re not seeing that yet. We are starting to see more customers interested in US product because the price is more competitive. It hasn’t yet materialized in a significant increase in exports. Ted Jacoby III: Got it. Miguel, you’re talking to a lot of our customers in Mexico. What are you hearing? Miguel Aragón: The uncertainty of the tariffs, of course it’s the number one talk with everyone. It is affecting our exports definitely. But again, as we talk in the last podcast, we have the issue of uncertainty of tariffs and we have the issue of the reaction to the Mexican peso. What we usually see people taking positions three months, six months, now everyone is being careful, hand to mouth again, just like we talked last time for two reasons. One, they might like the reaction of the market to, for example, the price of cheese right now, but they want to be careful because if the peso is 20 pesos 30 cents right now and tomorrow is 21 when they have to pay that bill, it’s futile. So it’s just wait and see. We’re going month to month now, so hand to mouth. Josh White: Hey, Miguel, question on that. The argument might be, across all of our products, that in certain products the European market may be more competitive at the moment. Non-fat skim milk powder has been one of them we’ve talked about. But if you’re talking about the supply chain being so thin, when they’re ready to import the product or buy the product, it’s a hand to mouth situation and that really only leaves the US as a potential supplier for some of those imported products. How are those two things balancing out right now? Miguel Aragón: When this whole rhetoric about tariffs started, we saw some of the bigger importers started looking at European product, Canadian milk powder, for example, European cheeses, and they started bringing those. So we don’t know right now is actually how much did they bring, and is that now a new source? Now that we have better prices, we should see soon if we are again the principal source of import from Mexico, but they did diversify their supply chain. Ted Jacoby III: And that has a long-term effect, unfortunately. Miguel Aragón: Exactly. Just like Canadians not buying US-made products right now. That’s worse than the tariffs. Ted Jacoby III: Josh, what about whey? Whey price is down about 20 cents. Whey protein prices breaking yet? Josh White: No, I wouldn’t say that. And I think you got to think about the timeline. We in the middle of or the second half of the second quarter negotiations. Me personally, I don’t have a lot of the large chain discussions on what those prices look like, but anecdotally, it sounds to me like the prices have held better than people expected, maybe even ticked a touch higher in certain cases. Now, while saying that, I’m also hearing more and more rumors of maybe a couple people dragging on their contracts, seeing a few more spot loads trade versus what we saw the prior two quarters. And in itself, none of that’s unusual. It’s just feels different because we spent six months without seeing that. We didn’t see very many spot offers. Every quarter was higher than the last quarter, meaning it was easy to clean up any residual loads at even better prices. Now for the first time, we’re seeing some offers that are flat to the last quarter. That might be a signal or it might not be. I think if the market’s super disciplined and the suppliers are disciplined, and we were able to balance out the current production, which we’ve seen some production increases or in the process of seeing that for WPC 80 and we’re maximizing our isolate production right now. With those things, if the market is happy to digest them at the current prices and we continue to see movement at the shelf outperform historically what it would do, then we might continue to see a higher weight protein value versus the rest of the market. The sweet whey powder one, I think is a bit more complicated. That’s historically not a very volatile product, but a product that moves significantly. It makes big percent moves up, big percent moves down. This is a unique situation. Because of the increase of our total capacity of processing for WPC 80 and WPI, there’s been several different factories for sweet whey powder that have discontinued production of sweet whey in lieu of those products over the course of the last several months. There’s some that’ll be going off production in the next few months, and there’s a big sweet whey powder dryer that will be commissioning in the second quarter of this year and begin its ramp up. And I think the market’s having a hard time digesting what that means for the absolute value of sweet whey powder. You’re going to see certain brands that traded a really nice premium to the CME price and you’re going to have some that traded a discount, all the while we took our sweet whey powder price far above the world market price. And we are an exporter of sweet whey and that has hurt some of our sweet whey powder producers that are traditionally postured to serve the export market. So we’ve just got a lot of new variables that the market’s trying to digest and that is resulting in volatility for sweet whey, something that we’re not used to seeing. Ted Jacoby III: So do you think sweet whey powder prices is going to stay right around 50 cents here, or how’s it going to move over the next couple of months? Josh White: A lot of the answers to those variables will move that market one way or the other. In its current lane, I’m seeing more inquiries for sweet whey powder, which tells me we’re probably finding a short-term support price. But in the longer term, assuming WPC 80 and WPI remain high, assuming that the ramp up of new production that we talked about is a modest one, the market probably could be pretty stable here. In the longer term though, I think you can’t ignore that whey protein as compared to other lower value dairy protein sources is a pretty high price and that relationship between whey and non-fat is pretty wide. Ted Jacoby III: All right, thanks Josh. Jake, I’ll ask you about the cheese market. We’ve dropped from about a dollar 90 to a dollar 60. Are we finding support here? Do we need to go a little bit lower? What do you think? Jacob Menge: I think any move higher from here will be a grind. I think it’d be tough to really make the case that we go back to the 180s anytime soon. It feels like we got the big move out of our system coming from really 190 fairly recently to this 160s level. That needed to happen. Business was just not getting done on the 180s and we’ve seen manufacturers now step in and really start selling. So now that big moves here, I don’t see another air pocket drop, but it just seems like sideways to lower is still probably the near term trend here. Ted Jacoby III: All right, thank you. Greg, we usually start with milk. Today, we’re going to end with milk. You’ve just basically heard everybody talk about how bad these markets are. Is the milk market bad too? Greg Scheer: This spot market has definitely dropped. Talk to cheese plants that have cheese in inventory, that is now devalued. They don’t want to make additional cheese, so they’re marking down what they’ll pay for spot milk or not buying any at all right now. So I’ve definitely seen some weakness in the spot market because of the weakness in the cheese market. One other comment I would have is that we’ve heard of some big producers that are looking at redoing their rations to not produce as much butter fat. Ted Jacoby III: Interesting. Greg Scheer: We may see that a little more where maybe we don’t see the increases in butter fat and maybe a decline and also the weakness in the spot market with, well, two factors. With the drop in the markets and also spring breaks coming up, there’ll be some milk pushback on the market for the next few weeks. So we’ll see how that does in April, but definitely some weakness in the spot markets anyway for March. Ted Jacoby III: Everybody, we will be right back. Center commercial (with music) If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to T.C. Jacoby & Co. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Ted Jacoby III: Well, before we wrap this up guys, anything else we want to share with our listeners? Jacob Menge: We’ve been seeing tons of headlines, and I think some of them are really meaningful and some of them just aren’t. There’s so much data coming out, it’s hard to make sense of it all. I saw GDP forecasts now looking negative and seeing a lot of headlines saying that’s recessionary. That’s true, but we have a unique situation here. It seems to suggest to me that a lot of companies are pre-importing stuff to get ahead of tariffs and guess what? That would make GDP look negative on growth. But that’s just a quirk, right? That should mean that in Q2, since we’ve pre-imported plenty, that we make that up in GDP. So it’s stuff like that that there’s really quirky things going on. I just encourage everybody not to be too reactionary to a lot of these headlines that we’ve been seeing. Ted Jacoby III: Sounds like what you’re telling us is uncertainty is probably here to stay for a little while, but the best thing we can do is stay the course. Jacob Menge: Seems that way. Miguel Aragón: In talking to clients in Mexico, Central and South America, they are looking to us in this podcast and in our weekly report or some type of guidance, some type of light out there. People are listening. Ted Jacoby III: I wish we could share with all of our customers that we know what’s going to happen next, but this uncertainty is pretty much affecting everybody. I think what we’re trying to do is just keep one foot in front of the other and keep moving forward and doing what we can to take care of our customers, take care of our suppliers, and just try to be a calm in the storm as we’re going through all of this. All right, guys. Hey, great conversation. Thanks for getting together today. Josh White: All right. I was tempted to jump in there and say, listen guys, the bottom isn’t endless because we’ve got a US dairy industry right now that doesn’t have replacement heifers, that has had good margins, and has older cows. And if this market gets pushed too far, the US dairymen will quickly respond. And if they do that, look out because it’s a long time before we can recover the milk that we lose. Something to that effect that just says it can’t forever be down. There is a risk of pushing this too far. Joe Maixner: There’s our traditional Papa Bear right there. Josh White: I just think we all are bearish right now. I didn’t have anybody to argue with because your points were right. Ted Jacoby III: All of it is this. We just saw the drop. The question is, is the drop going to continue? And the other thing, and maybe we didn’t highlight enough is, we’re probably closer to the bottom in butter than we were a few months ago. We’re probably closer to the bottom in cheese. We’re probably closer, if not at the bottom, in whey. We’re certainly closer to the bottom in non-fat, but I have trouble believing it’s going to go that much farther below 115. That’s the other side of the story is we just got the drop. Yes, we’re going into the middle of the flush, but we’re getting to the point where any more downside beyond here is probably difficult. Josh White: I would argue with you just slightly there. The only thing I would argue with is I don’t know that I would make the statement we’re probably close to the bottom on whey. I think historically, I don’t know. You know what I mean? I think that that’s just a weird one right now. And I do think I would say we are close to the bottom on non-fat and agree with you in saying, but it might not go anywhere. Joe Maixner: Don’t you think we’re closer to the bottom on whey, no pun intended, but given the way that the market has shifted production-wise? It’s not a traditional market anymore. Josh White: I think so. My concern is that we can roll over our high protein really fast and that immediately shocks whey. But on the other side is I’m not convinced that Leprino won’t put more weight on what we already feel right now and without exporting, I still haven’t rationalized, at 50 cents, I think Europe’s just going to keep beating us. We’re closer, but we’re not going to do any of that. And how does that backfill into the Midwest? And that’s why I was all over the place with basis because it’s not cheap to bring your export brands to the Midwest. So that’s why I don’t really know how to answer the question. I think so. But if you take that in conjunction with the fact that history will tell us that the high whey proteins are overpriced, Ozempic will tell you that maybe they can stay overpriced. Overpriced based on historical basis, but who here is qualified to judge how that balance balances? And I’m not. And maybe it’s not the Ozempic type users that tip the market, maybe it’s something else. If you look at the math right now, you’re trying to figure out how to still keep whey protein on your label, but use MPC or MPI. The calf milk replacer guys are trying to figure out how to use non-fat instead of WPC. The market is going to figure out how to balance it. It’s hard to see non-fat going up right now. It’s easier to see whey coming down, but it’s probably both happening somehow, and it might take a couple quarters or more. That’s why I have a hard time just knowing where Sweet Whey lands right now. If WPC 80 rolls over, we got more sweet whey than we want and we’re back to 40 cents, 30 cents. If it doesn’t, maybe it actually goes up to 60. I don’t know. Ted Jacoby III: I think admittedly whey is the hardest one to figure out how it’s going to play out over the course of this year. Non-fat, we’re moving a little bit lower, but I think non-fat at this price may find places where it can be used that at $1.40 we weren’t finding. And feed uses is what comes to mind there. Josh White: Already starting. I can tell you from our trip this past week, it’s already starting. People have figured it out. Second quarter is going to have a big shift from whey protein to non-fat solids in the feed sector. Imagine that’s probably happening in Europe as well, even though Europe doesn’t use whey as much. They typically use more milk powder blends. But then a final variable that we didn’t even talk about at all is Greg basically said, if we can’t sell the cheese, the price for the milk is going down a little. We already know that you’re not filling all of that cheese processing capacity already, that means less whey. So it might be that we’re maximizing our isolate and we’re maximizing our 80, then they will bid for those whey solids if their plant’s not full and they’ll steal it directly from sweet whey powder at the current price relationship between whey and WPC 80 and WPI. Ted Jacoby III: That’s true. Josh White: That’s another variable that would be supportive because that’ll be the first solids they steal to make sure we still have the protein production if the plant put-throughs are down. And I think we’re all already a little bit skeptical of how the Class III plants in the Midwest are going to stay full post flush. Ted Jacoby III: I would agree. I would also add that of all the things we talked about today, the nugget that Greg dropped in regarding dairy farmers changing their rations to reduce butterfat could be… It never happens fast. It’ll only be the smartest that’ll do it first. But if all of a sudden we’re back to not increasing two, 2.5% butterfat per year and milk, that will affect the price of butter without a doubt. Joe Maixner: That was a huge eye-opener for me as well. It’s too early to tell right now, but that could have a large effect if demand picks up as we lose butterfat components in the milk. Josh White: The Europeans make it sound like it is an easy formula for them. If they can pump in vegetable fat and get more valuable butterfat from the cow, they think it’s… I won’t say one for one, but they feel like they’ve got their head around that. And this is a market that, as I understand it, is far more pasture-based than we are, so they’re easily supplementing it in. I can’t imagine that even with our feed reserves and feed rations, the largest influencers on dairy milk production in the US can’t make that adjustment. Ted Jacoby III: The one thing I would say is I guess that the larger milk producers in the US are much more sophisticated in terms of putting financial numbers to feed costs versus milk costs in the output there than Europe. They can say that, but I can almost guarantee they probably haven’t put pencil to paper on spreadsheets like the US milk producer. Miguel Aragón: Right. When you said, did we hit the ceiling on WPC 80 and WPI, Josh, I was thinking, maybe an unintended consequence of all this tariff talk, remember, in Mexico, if you have over 80% protein, you pay value added tax, which adds 16% to the value of WPC and WPI and MPC and MPI. If, and I’m not saying it’s going to happen, but if somehow that goes away, then WPC 80 and WPI MPC 80 and MPC 85 are actually cheaper in Mexico. It’s not a ceiling anymore because 16% of the total is added if. It’s just something to keep in mind. Josh White: We didn’t talk about another distorting variable for WPCs right now, the tariff talk has been something we haven’t taken real seriously. It’s impactful, but we don’t know how to digest it yet because it’s on and off, on and off. Ted Jacoby III: Right. Josh White: But it’s on with China and WPC 80 and WPI, right? Miguel Aragón: Correct. Josh White: They were a material importer of whey proteins from the US in 2024, which is a big blow. It hasn’t been on and off, but to the best of our knowledge, it’s on right now. Time stamping this on March 7th, as of right now, is the blow to the consumption of WPC 80, particularly in WPI. Ted Jacoby III: Yes, but the product will still take a month and a half to arrive, so we’re still in wait-and-see mode. How much do you want to bet? We get many calls that ask, ” What was the best part of that conversation after you said goodbye?” Miguel Aragón: You have to plug in. Remember, the Marvel movies did this. They make [inaudible 00:27:23] and then after the credits, that’s the best part. It’s the best part. Ted Jacoby III: I like that. Outro (with music) We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, email podcast@jacoby.com. Phil Keaggy composed and performed our theme music. The Milk Check is a production of T.C. Jacoby and Co. Ted Jacoby III: All right.…

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Bracing for impact: Will tariffs churn up U.S. dairy markets? 30:53

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Could tariffs put U.S. dairy exports at risk? In this episode of The Milk Check, special guest Mike McCully , President of The McCully Group , joins us to slice through the uncertainty in today’s dairy market. With trade tensions rising, could tariffs spook global buyers and push them toward alternative markets? We tackle some of the biggest questions facing dairy exporters today, including: Will tariffs curdle U.S. dairy exports? How are Mexico and China adjusting their buying strategies? What happens if tariffs push global buyers to look elsewhere? Listen now to the latest episode of The Milk Check to learn what’s making waves in the dairy markets. Special Guest: Mike McCully, The McCully Group The Jacoby Panel: Diego Carvallo Jacob Menge Josh White Miguel Aragón Ted Jacoby, III Yara Morales Intro (with music) Welcome to The Milk Check, a podcast from T.C. Jacoby & Company where we share market insights and analysis with dairy farmers in mind. Ted Jacoby, III: Welcome everybody to The Milk Check. So, today, our topic is going to be tariffs and how that might affect the U.S. dairy industry. We are recording this at 2:00 PM on Friday, February 7th, and we’re going to talk about tariffs. Very likely, by the time you listen to this, it might all be irrelevant because who knows what the Trump administration is going to do next? Joining us today from our team is Miguel Aragon, our Director of Latin America’s Sales for Cheese; Yara Morales, our Director of International Sales for Dairy Ingredients; Diego Carvallo, our Head of International Trading for our Dairy Ingredients Team; and Josh White, the Head of our Dairy Ingredients Team. Also, Brianne Breed is joining us, Head of our Cheese Team, and Jacob Menge, Head of our Risk Management and Trading Strategy. In addition to that illustrious group, we’ve got Mike McCully today, the founder of the McCulley Group, who is probably well known to most everybody in the dairy industry, at least in North America. Mike, thanks for joining us today. Mike McCully: You’re very welcome. Happy to be here. Ted Jacoby, III: Mike, where do we stand right now on tariffs, what is the Trump administration doing, and what do we expect them to do next? Mike McCully: Had a very different conversation just a week ago when it looked like we were going to start on February 1st with tariffs on Mexico and Canada and retaliation from both countries and then China. But then, 48 to 72 hours, all of it got put on hold. The China retaliation was not on dairy; Canada and Mexico were on hold, so we’ve basically put all that tariff discussion over in a box, and we’re just going to sit and wait here for a while. It’s evolving each day. I read something yesterday or the day before: “The best tariffs are ones that are not used.” Hopefully, that’s where things go, but we’ll just have to wait and see. Between this and H5N1 are two very unpredictable elements that we have to deal with in the dairy market, not just this week and next week, but probably for quite some time. Ted Jacoby, III: I couldn’t agree with you more on that one. Jake, are we expecting anything to happen next in terms of tariffs? Jacob Menge: I think something is happening as we speak. Trump talked this morning about, in his own words, reciprocal tariffs on unnamed countries. That is new as of this Friday. Trump and tariffs seem to have a cadence of news on Friday, which Wall Street really loves. That’s certainly new. I heard him mention Japan, I think today. So that is just wreaking havoc on equity markets and our markets. It’s this unknown. Markets just hate the unknown, and much of it is hanging out there. Ted Jacoby, III: Where we stand regarding tariffs, we’ve postponed putting tariffs on Mexico and Canada or any, let’s call it additional tariffs, the 25% tariffs, we’ve delayed for about a month, the possible 25% tariffs on those countries. But we have put 10% tariffs on China, and then China recently came back with some retaliatory tariffs of their own on U.S. goods, but it did not include dairy at this point, correct? Mike McCully: For now. For now, yeah. Ted Jacoby, III: For now, yeah, for now. So if we’re lucky, things will go quiet for about a month, and they’ll work some things out, and we’ll never get tariffs. But officially, we can say that at least directly tariffs are not affecting the United States dairy industry’s ability to export. Having said that, Miguel, how are our customers in Mexico reacting today? Are they getting prepared to import dairy products from somewhere else? Miguel Aragón: The talk about the town last month was to prepare, but also to look somewhere else. They looked at Canada; they looked at Europe. Some purchases were made from Canada and some from Europe, but the volume comes from us. They are of the mind of Let’s just wait and see, but let’s have another avenue. Of course, in Mexico, you have the volume, but you also have the peso. So if the peso devaluates, then everything’s more expensive. It’s a wait-and-see approach right now. They trust that the market, that the peso didn’t go to 23 or it almost hit 22, but it didn’t. They don’t think it will be as bad because there is a lot of pressure from the U.S. dairy industry not to do anything to dairy. So we’ll see. Ted Jacoby, III: So right now, both the U.S. and Mexico dairy industries have their fingers crossed that nothing happens, but obviously, we just don’t know. Miguel Aragón: That’s correct. That’s correct. It’s a wait-and-see approach. Ted Jacoby, III: Yara, what about your customers? Yara Morales: Customers think that if that happened, they would obviously think that the pesos would go up to 23 and maybe more. Mexico does all the customers say. Mexico needs the United States products; they want to stay in the United States. They are trying to see other places like Belarus, Poland, Europe, or S&P because they want to stay with the United States. We’ll see, like Miguel said, it’s early. We don’t know what’s going to happen. The market for Mexico is the United States. Ted Jacoby, III: Are we seeing good demand in Mexico? Yara Morales: January was fantastic. Everybody wants product. There’s no inventory in Mexico and the final customer, and there’s not too much inventory in the border either. So the customer needs the products. Even with all this situation that is happening in Mexico with the new government and what happened in the United States, everybody is cautious about the demand, and the consumption demand is very low. So that’s why the customer doesn’t need too much product that used to be. It is also slow at the beginning of the year because everyone in Mexico must pay taxes. They named it [foreign language 00:05:41], so it’s hard, but even though it was hard, I was surprised by the demand; it was really good. Really, really good. We have good sales, and everybody asked for products, but like always, Mexico is looking for prices. Ted Jacoby, III: Do you think they’re building inventory right now, Yara? Yara Morales: No. No, they don’t build inventory. They buy only what they need. Building an inventory is hard because the interest rate is high. It’s doubled in the United States. I mean, it’s so high. So they are buying only the product they need at that moment. They don’t want to purchase inventory. No building inventory right now. Ted Jacoby, III: With the risk of tariffs making the product more expensive, they still want to live hand-to-mouth. Yara Morales: Yeah, and especially now that we see the market is going down, the purchase is going down, yeah, they’re paying less than in January. Right now, the market is 1.30, 1.20. They’re expecting it to be 1.28. So yeah, they’re also waiting to see what will happen with the market. And what happened with the tariffs. No, they’re not building inventory. Ted Jacoby, III: Diego, what about China? Let’s just speculate and say that China ends up putting tariffs on U.S. dairy products. How will that affect our exports to China? I assume New Zealand will still tend to win most of the bids, but we’re still exporting many whey products. Diego Carvallo: The U.S. has always been a big exporter of powders to China. So I think overall, if you see a significant tariff in place, you will see a reshuffling, reorganization of international powder flows or pipelines. More products from New Zealand will probably find homes in China, and more products from the U.S. will find homes in other markets where tariffs make the arbitrage more competitive. My first impression is right now, the U.S., we haven’t been very competitive to China when it comes to non-pad, but when it comes to WPCs, the whey, the MPCs and other products, higher value products, I think that’s where the main risk is right now with those tariffs. So I believe European WPC80 will find a competitive advantage in China, and we’ll see more imports flow that way. Ted Jacoby, III: That would make sense. Mike McCully: And Ted, I’d add on to that. This is one where I’ve reminded people in the last few months, some of which we’ve seen in the movie before. You can look at 2018 and what happened when China retaliated against the U.S. whey. There was also African swine fever, which was another part of it. But if you look at the data from 2017 to ’18 and ’19, there is a very significant drop off in exports of whey products from the U.S. to China. The African swine fever is a part of that, maybe a relatively large part, but there are directionally lower and probably significantly lower exports. If that goes through, Chinese buyers will look for other sources even though there aren’t tariffs. I can tell you that when I talked to folks selling to China on the Friday after the election, they said, “Find me other non-U.S. product sources.” Another one, just this last month, was, “Do not bring me a new supplier to qualify out of the U.S. for the next four years.” So those things are happening even without real tariffs; the impact is still there. Ted Jacoby, III: So, on the whey protein side, who is the biggest threat to U.S. business abroad? Is it Europe? Mike McCully: Yeah, Europe is going to be the main one. Ted Jacoby, III: Okay. Josh White: I think you bring up a good point. Although there might be a desire to shift to another alternative, we’re typically best positioned to supply particularly whey permeates and some of those products into China. So it won’t be an easy switch, I don’t think, for the Chinese, and that’s not to say this isn’t an issue; absolutely, it could be a potential issue. But it isn’t an easy substitution for the Chinese and their trade lanes, whereas on the milk powders, it’s a much easier, much more natural [inaudible 00:09:31]. Ted Jacoby, III: Okay. Back in 2018, when this happened the last time, Josh, do you remember if China built up their inventories beforehand, and was that one of the reasons for the drop-off, or did they just shift? Josh White: It’s a rule of thumb that China goes through the stocking and de-stocking phases. However, as of late, I don’t believe we’ve been in a stocking phase; I think we’re coming out of a de-stocking phase. So yeah, we’ll see. Arguably, you can say that demand in China has been terrible. Although their monthly imports were pretty decent, particularly for the whey products in the fourth quarter, that could be again the result of precisely what Mike mentioned, that the election was leaning one way, there were concerns. They did a little stocking on the whey product side, for example. Talk to people who are supplying that market or who are actively selling in that market. They’ll argue that China has been preparing for a potential trade war with the U.S. and importing whey permeate, building a little bit more days in inventory than they had throughout most of 2024. I don’t know if that argument holds true because the imports started before Trump won the election. Maybe they started taking some preparatory action, but generally speaking, we began to see an increase in imports of those products the whole second half of 2024. Ted Jacoby, III: So they’ve just been preparing already? Josh White: Perhaps. Ted Jacoby, III: Mike, do you recall whether China tariffed whey permeate and milk powders the last time we discussed this? Mike McCully: I remember mainly the impact on whey products in general. Ted Jacoby, III: Okay. Because it just occurs to me when we’re talking permeate, we’re talking something that’s 20, 22 cents a pound. Josh White: And a co-product. Co-product in its nicest way of saying it and a by-product in many other ways. Is it going to stop the shipment of permeate to China dramatically? Absolutely not. We need to ship it, and maybe the U.S. manufacturer unfortunately will have to eat that, but generally speaking, we must ship whey permeate to China. Mike McCully: Yeah, that’s been my simple response to some of these questions. It is okay if the tariff increases by 10%, adding $100 a ton. Guess what? The U.S. price will have to go down $100 a ton to make the sale happen. Ted Jacoby, III: However, if the price of WPC80 goes up 10%, that’s 20 to 30 cents a pound. Mike McCully: Yeah. Ted Jacoby, III: That’s a bigger issue. If the U.S. puts significant tariffs on incoming goods from China, will we have the containers to turn around and ship back, and will it affect freight rates as well? Diego Carvallo: The story tells you it will. The last time this happened, there were many delays, empty containers returned, and chaos, and that’s when we saw rates move much higher. I wish I had a better answer than citing what happened last time. Ted Jacoby, III: Everybody, we will be right back. Center commercial (with music): If you’re a dairy producer or cooperative looking for a better market for your milk or a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please contact T.C. Jacoby & Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support, and we’ll develop a sales or procurement strategy that hits all your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. We talked a little bit about China and Mexico. Mike, does the U.S. dairy industry need to worry about Canada regarding tariffs? Mike McCully: With Canada, it’s butter. It’s not a big number, but if you look at the grand scheme of things and butter exports, Canada is usually one of, if not the most significant export customer. It’s not tens of millions of pounds of butter in any particular month, but over time, it does matter, and there are probably some whey products in there as well. It’s not material to cheese or milk powder, so Canada’s the lesser of the concerns, I think, with several other countries. Mexico, milk powder, and cheese are the big ones, along with China and whey. Canada has a lot less material. Josh White: Let me ask another question related to that. What about the feed? Do we have an opinion on the potential impact of feed prices? And you’ve got direct things like canola meal fed into dairy operations, which impacts soybean meal and other things. I have no idea how material that would be for dairy, but what about the rest of the complex corn, beans, and different things that impact our input costs for making milk? Mike McCully: I don’t think it does much for corn and soybeans. That’s just going to be a U.S. trade. There might be some imports of Canadian wheat, and then canola would be the major one. Ted Jacoby, III: In the grand scheme, if you’re thinking of canola as a percentage of the feed costs per dairy cows, I’m assuming it’s not that big a number. Mike McCully: And it can swap out pretty quickly with soybean meal. Ted Jacoby, III: Okay. Josh White: Do we think that it’ll positively impact corn prices for the dairyman by hurting our exports of corn? Mike McCully: That’s a whole other can of worms there, and that’s back to a China question. I think if China would retaliate against U.S. grain, and again, we’ve seen this before, corn and soybeans would take a pretty big hit. You look at it with a narrow lens from a dairy farmer’s standpoint; you’ve got cheaper feed, but that’s a negative if it goes over into the grain side of it. Josh White: They’re not talking about grains at the moment. Has there been any discussion from the rhetoric thus far that’s mentioned grains? Mike McCully: At least the initial response has been not really anything related to food or agriculture. The U.S., we’ve got a lot of soft targets, so if other countries want to retaliate, they know where the pain points are. I’m already talking to people in Canada here in the last few days, they’re taking American products off shelves, they’re targeting products from red states. That could come if this gets more advanced as we move forward on it. Jacob Menge: Canada is actually probably one of the better examples. I was talking to a cotton trader for example. They’re just kind of willingly saying, “Yeah, find us a different source of cotton.” You just don’t want to be exposed to that risk again, what we kind of started with is that unknown. A lot of these commodities traders would just rather avoid the unknown and if there’s an alternate source close in price, they’re going to take it. I think in this case, they got the cotton from Brazil, pay a tiny bit more and avoid that unknown. Mike McCully: That makes sense. Josh White: When we think about the world market right now, I think that there’s a lot of different bullish and bearish variables on dairy prices that we’re all debating and I’m sure most are like me and can’t get my head around it. It’s the most uncertainty I’ve had on both the supply and the demand side of the dairy complex in my career, at least. When we think about buying patterns, I think it’s generally still received that the global market isn’t setting long inventory of dairy products. Do we all agree with that? And then as a result of that, do we think this uncertainty drives a stocking phase or continues to leave people buying hand to mouth? And where I’m going with this is I’m trying to determine whether or not all of this uncertainty means we miss important and export sales or we only miss the next spot sale? Ted Jacoby, III: I’ll throw my hat on that one. I would argue that the U.S. is now a big enough player in the world dairy trade market that if we end up not being able to export, the prices are going to be quite high to source from other places like Europe or New Zealand, and so I’m not sure going into a stocking phase, I’m not sure that those importers will come to the conclusion that stocking would make sense at high prices. Mike McCully: Yeah, I’d agree that in addition to higher interest rates, if you look around the world right now, you’ve got New Zealand growing in milk, you’ve got Europe, at least looking back here the last few months, have a positive number, largely Ireland. The U.S. is … Eventually, we’ll get back into some growth, modest growth. So from a buyer standpoint as and I talked to buyers in different spots around the world, I don’t get a sense that anybody’s very nervous about what’s going on right now that would go out and take a really big physical position. I think that the actual trade really is the nuances between products and if you look from a U.S. standpoint, we just finished off a record year on cheese and I think we’re well positioned here for a while on cheese, maybe get a little soft in Q2, but that looks good. Butter, we’re very competitive there, given a really low price relative to Europe and New Zealand. Milk powder is the opposite and I think that’s the really interesting one to drill into is if you look at where the U.S. has been in recent years, we’ve been exporting 70% or more of our milk powder production. The export volume versus production in the month of December, it was down to 62%. I think that’s probably a product area and really November, December, the 2 lowest volume months of exports of powder since back in mid-2019. I think that’s probably an area or product line that we do lose sales for, not just in the spot basis but probably here for the better part of this year. Ted Jacoby, III: I think that makes really good sense. We haven’t talked about Europe yet, so Europe’s one where we could affect the U.S. dairy industry with Trump putting tariffs on incoming products from Europe into the U.S. and the one that comes to mind first is Darigold butter. How do we think it plays out in Europe? Mike McCully: This is another one where we’ve seen the movie before, that went through this back in ’18, ’19 when Trump threatened NATO and European countries to step up their spending and there were targeted tariffs on certain countries. It wasn’t a blanket-wide statement on Europe. Parmesan cheese is one that has been highlighted and this is one where all of a sudden you notice a pile of imports coming in. That’s happened before. There are going to be potentially some countries and products that are going to be brought into that. Kerrygold and Ireland and butter could be one of them. I would list other ones probably before that, whether that’s Parmesan cheeses or hard cheeses from different countries, maybe specialty butters or high-fat butters or what have you from other European countries, maybe some from German product or Dutch products. We’ll see. It’s a blunt tool that gets swung around quite a bit. For that one, it’s more on the import side than in is really anything for export markets. Ted Jacoby, III: Could those tariffs be a positive for U.S. dairy products or is it just we’re not talking about enough volume? Mike McCully: If I remember right back when it hit in ’18 or ’19, if we talked about higher import tariffs on Parmesan cheese and things like that, I do remember some increased production and demand for American-made products. Ted Jacoby, III: Okay, well that would be good. Yara, Miguel, both of you guys mentioned that the Mexican peso has gotten weaker and the tariffs would probably cause it to get even more weak. I almost feel like the peso’s becoming a bigger deal than the tariffs themselves. Miguel Aragón: That’s what you feel immediately because of the flow of payments. It’s something that we pay a lot of attention to because it does affect immediately, every day, we wake up and that’s the first thing we see. How’s the peso today? It has an effect on are we going to get paid on time? Are we going to get some delays? So yeah, it’s an everyday thing for us. To add a little bit of what Yara said about the Mexican customers being hand to mouth is because we’re so close, there’s not a lot of need to build inventories because proximity, proximity, proximity. It’s just like real estate here. Location, location, location. Mexican customers could keep taking product. If there’s tariffs, they will look for alternatives, but in the meantime, they may eat the extra cost, but then again we’re probably going to eat some of it ourselves too. But yeah, the peso definitely, it’s a bigger issue for us. Yara Morales: Yeah. I’m agreeing with Miguel. Is Mexico looking for another country? They are looking for $200 per metric ton discount from different country because by the time they’ve received the product, the market chain, that was the prices they are paying with a big, big discount buying for different country that is not United States. Even with the tariff, I think the closer that we are, it’s good for them, but there’s a lot of concern every single moment, what is going to happen with the peso? Every customer say, “No, no, I cannot buy dollars. I cannot buy dollars.” I mean it’s hard for them right now and for everybody. Mike McCully: I think that’s one of the under reported aspects of this whole discussion around tariff is that what it does to currency. If one of the justifications is to shrink the U.S. trade deficit by strengthening the dollar, you go to the opposite direction. That’s another one of the unintended consequences of this. Just recently, both the EU and Mexico agreed to a trade agreement. Now neither country has signed it, but if this is going to continue over the next four years, I would think at some point both Europe and Mexico will sign that free trade deal and all of a sudden maybe you have a different flow of product, more product coming in from Europe. I was just talking to someone a few days ago that they had heard that there was skim milk powder coming in from Europe to Mexico this week. We have to look at that as well, that Mexican market can’t be just the U.S. long-term, that there will be competition for it and this is a potential opening with the EU trade pact. Jacob Menge: My opinion is largely the market is pricing in tariffs not being implemented, at least nowhere near what has been hinted at by Trump. It’s just it’s not priced in. Ted Jacoby, III: Are you talking specifically dairy? Jacob Menge: I am talking across the board. I really don’t think it’s that priced in inequities. I don’t think it’s very priced in in our currencies we were just discussing. I don’t think it’s really priced in in dairy commodities. I think where we have started to see it be priced in is in the volatility metrics. If you want to go buy a [inaudible 00:22:56] to protect yourself, it’s a heck of a lot more expensive than it was a month ago, but as far as the prices on the outrights, I don’t think the market believes that we will have tariffs at the percent levels or on the products or you name it, that was put out there a week ago. Mike McCully: Yeah, Jacob makes a good point. I would argue that up until the inauguration, I would say dairy markets, both cash and futures really hadn’t factored in any risk to the market and then we flipped. The day after the inauguration, I think it was all of a sudden, “Oh, this is real and it may be coming sooner than what we think.” And I think to Jacob’s point, it started pricing in some volatility. We saw cheese drop from that low 190s down into the 180s, finally seeing a little break in the whey market or the sweet whey market at least, so it’s starting to price some risk in. But then you saw as of Monday when, oh, we’re going to 30 day pause and then it kind of recovered and just kind of wait and see. Definitely see this volatility swinging from day to day, week to week, which is … Some people like that for end users and others, it creates some headaches. Ted Jacoby, III: You can say that again. Jake, so what happens if tariffs are not really being priced in outside of volatility? What happens the day real tariffs get implemented or it gets announced in a way where we know it’s going to happen? Let’s talk about the dollar. Does the dollar start to weaken? Start to strengthen? How do these markets start to evolve at that point? Jacob Menge: Lovely economics theory question here because then the second they’re implemented, there’s the question of will they be walked back? Tomorrow? Will they be walked back the next week? There’s never going to be, in my opinion, a sure thing on this and so there’s always going to be some discount factored into that. Ted Jacoby, III: One way or the other? Jacob Menge: One way or the other. Exactly. Even once they’re implemented, then the pendulum probably swings to be, okay, well now we need to price in the scenario that they’re lifted. It’s really tough. I would not even try to put a number on what kind of move you see. Ted Jacoby, III: What about a direction? What direction does the dollar move the minute the U.S. truly starts implementing real tariffs beyond just 10% on China? Jacob Menge: We got to see it last week I would say, and the dollar rallied nicely. I wonder if the shine doesn’t come off after they’ve been implemented for a certain period, but the market’s initial take seemed to be bullish, the dollar. Ted Jacoby, III: All right, anything to add, Mike? Anything I missed on tariffs? Mike McCully: Good discussion. Very timely. A lot of questions that [inaudible 00:25:22] last week and they’re going to continue. I gave a presentation last week and I summed up by saying, “I’m confident in predicting that it’s going to be unpredictable.” Ted Jacoby, III: I think there is no more true statement on that. Let’s go around the room as we wrap up and we can share everybody’s biggest concerns on what may happen next and how it’ll affect our industry. Josh, why don’t you go first? What’s your biggest concern? Josh White: To me, it’s all about product mix and mexico. It’s very important, if the retaliatory tariffs, were to happen on what products they happen because it could be bearish certain products and bullish others. Miguel Aragón: My biggest concern is two weeks from now, two weeks from today, do we hear all Mexicans not doing enough? Then I’ll be concerned. The Mexican president is actually moving really fast on what they have agreed: putting troops at the border. Of course, we are only hearing and this is a little bit of aside, we’re only hearing to stem the flow of drugs and people. We’re all hearing that it actually is going to help Mexico to stem the flow of illegal arms going down to the organized crime. The way I see it in Mexico right now, it’s a win-win situation. As long as in two weeks from now we don’t hear like, “Oh, they’re not doing enough.” Then I think I’m good, but that’s the biggest concern. Ted Jacoby, III: Makes sense. I like it. Yara, how about you? Yara Morales: My concern is what is going to happen after the month that he say he’s putting in [inaudible 00:26:44]? So I don’t know what is going to happen after the month and the concern is every single day because Mr. Trump every single day has something new. Yeah, and I have a question for Michael or somebody else. Does anybody know about what happened in Germany with the mouth disease that they have, because Mexico is not accepting importation right now from Germany? Mike McCully: So there was a foot and mouth disease case in a herd of water buffalo outside of Berlin a month and a half or so ago. They quarantined the area around it, tested everything. Fortunately everything was negative. They killed all the water buffalo. There were supposedly three illegally imported ones that had it and it looks like this is just a one-off, but immediately other countries banned imports of German meat and dairy, at least for a while. Now some countries are starting to relax that a bit, but there still are countries that have that ban. It’s impacted a bit of trade here for a little while. It sounds like that if it was just a one-off, then eventually those trade bans will be relaxed and we’ll get back to normal flow at some point. Ted Jacoby, III: That’s good to know. All right, thanks Mike. Jake, how about you? What’s your biggest concern? Jacob Menge: I guess I’ll twist it into some advice and that would just be in general, I think in this environment you got to avoid emotional trading and just really have a risk management plan around your products and stick to it. Try to go to that 10,000 foot view and stay out of the weeds. Ted Jacoby, III: I like it. Diego, how about you? Diego Carvallo: My main concern is the impact on the freight, not just on the ocean freight, but also the impact that ocean freight has on internal trucking, so that could send the market higher like we saw it a couple of years ago. And if that happens, the U.S. would definitely be affected because we would be less competitive, so something to watch out. Ted Jacoby, III: Thank you and Mike, we’ll end with you. What are your concerns on how this all plays out? Mike McCully: All the above that everybody else mentioned. I’m also quite concerned longer term about what this does to the credibility of the U.S. dairy industry as a supplier. As the U.S. continues to have open window here to grow exports, to move into new markets, if your buyers in other countries, this is not a positive thing. That’s my long-term concern, the damage this is due to the ability for us dairy companies to export. I even hear every now and then, just in the last week or so for companies that aren’t really fully invested in the export business that we start getting some questions. They’re like, “Do I really want to do that? Do I just need to pull back and maybe just focus on the domestic market?” I don’t think it’s a positive for the U.S. dairy industry. Ted Jacoby, III: I completely agree with you, which kind of leads me to what my biggest concern is, which is that after six months, nine months of this tinkering around, everybody just finally … By everybody I’m talking other countries of the world, finally just throw up their arms and go, “We’re just going to ignore you. You raise tariffs, we’ll raise some tariffs, but we’re not going to spend our energy trying to cater to you,” and that creates an internal problem that really starts to erode the credibility of the United States, not just in dairy, but in just about almost anything. Miguel Aragón: I think probably Diego’s going to hear a lot about this when he’s at [inaudible 00:29:49]. I know we have a lot of listeners from all over the world and they should look up Diego. Ted Jacoby, III: Great timing Miguel. And Diego, good luck. Diego Carvallo: I’ll open up my schedule. But yeah, looking forward to seeing everyone at Gulfood in two weeks, we’re going to be at the U.S. tech stand, so looking forward to meeting you guys. Ted Jacoby, III: Perfect. All right guys. Mike, thank you so much for joining us today. We really appreciate it. This was a great discussion. Even though there is so little we’re certain of at this point in time, it is definitely a topic that everybody is discussing and glad you could join us to share our thoughts with all of our listeners. Thank you. Mike McCully: You’re very welcome. Ted Jacoby, III: All right. Mike McCully: Good seeing everybody. Have a good weekend. Josh White: Yeah, Likewise, Mike. Ted Jacoby, III: Hey, thanks Mike. Really appreciate it. Outro (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Company.…

The Milk Check

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Cows and commerce – Dairy’s 2025 outlook 37:16

منذ 24 weeks37:16

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What will shape the dairy industry in 2025? Are you ready for it? In this episode of The Milk Check , we tackle the big question: what’s ahead for the dairy market in 2025? Spoiler alert: There’s no shortage of opinions—or uncertainty. 🐮 Heifer shortages vs. USDA projections: are we heading for a reality check? 🐄How will shifting cow populations reshape regional American production? 🧈 What is going on with butter? What’s ahead for 2025? 🌏 Will export demand stabilize or shake up the market? Our team debates critical factors impacting the year ahead, including herd dynamics, regional processing capacity, and export competition. From farmers to Futures buyers, this is your go-to episode for staying ahead of the dairy market’s evolution. 🎙️ Listen now to gain insights about cows, cream, and commerce on this episode of The Milk Check . Intro (with music): Welcome to The Milk Check, a podcast from T.C. Jacoby and Company, where we share market insights and analysis with dairy farmers in mind. Ted Jacoby, III (T3): Welcome everybody to our January 2025 version of the Milk Check podcast. Today, we will do a bit of a market outlook for 2025, and I’ve got most of our traders on with me to share their thoughts on what might be coming down the pike. That would include my brother Gus, who runs our fluid group; Greg Scheer, who’s head of our milk division; Joe Maixner, who handles our butter desk; Don Street, who does a lot of our analysis in terms of milk production, heifer supply numbers, cold storage, those kinds of things. Josh White, head of our dairy ingredients, runs our whey protein desk. Diego Carvallo, head of our international sales and runs our nonfat book; Jacob Menge, head of risk management; and Brianne Breed, head of our cheese group. Today, the group of us will get together and talk about the different segments of the industry and what we think is in store for us in 2025. So, thanks for listening. I think you’ll enjoy this podcast. We have been talking a lot internally about the heifer supply and the fact that there just may not be enough heifers to grow the milk supply, but I was talking to someone whose opinion I think pretty highly of the other day, and he told me that he knows of 60,000 cows that are going on new dairy farms in 2025, which makes me wonder if what we’ve been talking about with the heifer supply is true or if maybe the numbers we’re getting from the USDA are wrong. Do you think the cows are really going to be out there? Do you think we’ll be able to grow our milk supply in 2025, or do you think the shortage of heifers is real? Greg Scheer: Well, I think some areas may have a shortage of heifers. Obviously, some big farms have planned expansions that may not be counted in that number, but there are still tight supplies of heifers. Some of the bigger farms have their own replacements available. So, I do think it’ll limit how much milk production can grow. Gus Jacoby: Yeah, it’s hard to argue with what Greg just said. I mean, the economics are there for Garmin to continue to go to beef, and therefore, we don’t foresee the heifer supply growing, only shortening. Now, that doesn’t mean that some larger farms that have some affiliations with calf ranches can’t manage their heifer supplies as they need to grow into some new farms or current farms that require more production for new plant capacity coming on in their regions, but I don’t think there’s any doubt that we’re going to have a limiting factor on cows that puts a lid on it. To be clear, Teddy, we had a big influx of cows in the middle of the year when some new capacity came on in the southwest. We only ended the year with 20,000 cows up, including over 300,000 fewer cows culled. So, to keep the cow numbers relatively the same, we must continue culling fewer cows. We’re just going to find out whether that’s something we can get away with for the foreseeable future because the herd will certainly get older, and we’ll see how that affects milk production, yields, solids, components growth, and so on. Ted Jacoby, III: So, I’m hearing from some of our traditional dairy economists that they think we can add as many as 100,000 cows this year. Is that high? Gus Jacoby: I think that’s high, but let’s say you have 100,000 come on, and we continue to cull 300 to 350,000 less than we did in 2023. It’s a plausible scenario, although I don’t perceive that happening. What I perceive is maybe another 20 to 50,000 cows increase. It will increase more in the areas around the new plant capacity. It will decrease less in other regions and continue to cull at very low rates because farm economics will be good enough for dairymen to do so. We’ll lose cows in certain regions, but those regions are without plant capacity, so we’ll still increase yields and components. Ted Jacoby, III: So, we’ve got new plants coming online in the I-29 quarter up in South Dakota, Minnesota, that area, and we’ve got new capacity in Kansas and down in the southwest. So, I’m assuming that’s where we’ll probably add cows. Where do we lose cows? Gus Jacoby: I think you’ll continue to lose cows out West, California, Pacific Northwest, and Southeast. These are the regions where you continue to show that trend of cows exiting. Obviously, in those areas where new plant capacity comes on, you will see some increases because people are bracing for that and preparing for that. Ted Jacoby, III: So if we summarize kind of what we think about milk production, we’re probably going to increase milk production and increase cow numbers in the upper Midwest, specifically, the I-29 corridor and in the Southwest, lose cows in the West, California in that area, which also means increased milk into Class III, decrease milk in Class IV, and then also we haven’t touched on it, but if we’re going to increase cow numbers without increasing necessarily the heifer supply, that means we’ve got older cows, which will slow down the component increases we’ve been seeing the last few years at the same time. Gus Jacoby: It’s not like we’re getting that much older. It’s a small percentage that are older. Obviously, if a dairyman has the ability to get one more calf out of a cow, considering the beef price and the opportunity to gain some revenue there, there’s an incentive for them to do that. There are dairymen out there who have the wherewithal to bring on heifers, more so than others, and those tend to be the folks in those regions where plant capacity is being added. Right? There are bigger farms there. A bigger question is focused on the northeast as we add a little bit of capacity there. I don’t think those dairymen have access to the heifers like those in the southwest, in the western portion of the upper Midwest. I think that while there are some dairymen that will build new farms in that region that I’m aware of, to counter that argument, I also think that area hasn’t really been hit with the bird flu to the degree that other areas have yet, and that’s a concern for me as we try to fill capacity in that region. So, there are some unknowns on the eastern side of our country. I think there are some limiting factors on how those regions will be able to get more cows. Josh White: Guys, I want to jump in, too, because we’ve been talking about this new plant capacity, and we’ve talked about it a lot over the past year, but those facilities are just now coming online. Generally speaking, from the moment someone decides to move forward with it to the moment they’re commissioning milk through a new facility, it is two to three years, from the moment you’re signing up to the moment you’re actually making milk. The Same happens with a dairy’s decision to breed heifers that return to the dairy herd. Before that animal enters the milking herd, you breed it; then you have nine months of gestation, 22 to 24 months before that animal’s in the herd. So you’re making those decisions to invest in dairy for two to three years forward. They align with each other; they’re linear. The decision to build a plant and the decision to expand herds are about the same. So we’ve talked about the plants that are coming on right now. I mean, there are a few of them that just have started taking milk over the past six months and some that we’ll be taking in milk over the next six months, but it seems like we haven’t had any major announcements. How many more announcements do we have for 2026 and 2027, or do we have an air pocket? Ted Jacoby, III: In terms of plant expansions? Josh White: Yeah, and then will that also result in an air pocket in dairy heifer decisions, especially giving compelling alternatives to take those animals to beef? Ted Jacoby, III: Josh, I think you make a really good point. Any new capacity that I’m hearing about that isn’t going to be coming online in the next, let’s call it 10 months. I’m not really hearing much beyond that unless it’s plants that haven’t even broken ground yet, and so we’re probably talking 2028. Josh White: So, that might be the missing piece in this equation because we are outperforming milk expectations right now. Would all of us agree? I mean, from a component standpoint and an animal standpoint, we’ve been on this narrative that the heifers aren’t out there. The beef market is so attractive that, at some moment, it will be very difficult to grow this herd. Yet we’ve found a way to do it, and many are projecting, at least for the rest of 2025, that we’re going to continue to do so, and we’re skeptical, skeptical about how we are going to continue to grow. How long can we continue to retain animals in the herd? What’s going to happen as the herd gets older? All of this matters, and for sure as material, but is it also the result of structural decisions made in 2022 and 2023 to expand dairy capacity, both from a manufacturing or processing standpoint, but also from the dairy herd? And when we look at what 2023 and 2024 were like, were those decisions being made under the economic conditions that we experienced, lower nonfat dry milk prices, volatile cheese prices, this awareness that there was going to be a lot of Class III manufacturing capacity coming online, some concerns over that, and all the while a very, very good beef price and alternative for those animals. Ted Jacoby, III: I think you make a good point. Gus Jacoby: Yeah, I don’t think there’s any doubt that those are good points. I think what you also are presenting here, Josh, is some unknowns going forward. Obviously, good, strong farm economics presents the opportunity for dairymen to do what they’re doing, to coalesce, and to deal with some of the things that they’re dealing with right now in the marketplace. If farm economics don’t continue to be strong, I start to wonder if we can achieve some of the same things we’ve been achieving over the last year. If the beef price, for whatever reason, whether it be tariffs or whatnot, goes down at a fast rate, we had a grain report this morning; there were fewer crops produced than we thought. These types of things, does that feed input get up there? That changes the game completely, and if it does get to a point where dairymen are stressed again with poor farm economics, under the same conditions of low heifer supplies, a need for milk out in the marketplace, but not necessarily a high milk price to incentivize them, I think that the conditions of our situation change quite a bit. I think culling has to get back up to where it was. I think all of a sudden, now you start to see cow numbers really decrease at a fairly rapid rate. Now granted, milk price will come in line thereafter because demand will increase with it, but nonetheless, there could be that glutton of time or that behavior acts in a manner that really changes the game for us. Josh White: So, with the topic being calendar year 2025, are we across the Jacobi Group of the opinion that milk production will likely outpace ’24 with some serious downside threats beyond 2025, or are we not convinced of that today? The analysts are coming out with some really strong, not only volume growth but component growth in milk. I see where they’re coming from. I’m a bit skeptical for all the reasons Gus just mentioned and for all the reasons you guys just mentioned, but what’s the low end of our view right now? I mean, do we think it’s at least going to match 2024? Gus Jacoby: Josh, I think the only way you can answer that question is under the same conditions we had; the answer would be yes. I think we’re going to be fairly close to the cow numbers we have today, maybe a little bit more, assuming again that beef prices continue to be high and the farm economics continue to be strong. I don’t see any major reason why that won’t be the case for most of this 2025 year. Under that scenario, then we are going to continue to cull at similar rates that we have in 2024, and we’re going to add cows at similar rates that we have. And therefore, even though we’re only slightly up on cows, the yields and the components will increase to some degree and we’ll have more solids out in the marketplace to take care of that growth. That’s the only way I can answer that question. If conditions change, the answer changes. Ted Jacoby, III: So Gus, let’s assume cull numbers in ’25 are very similar to ’24, and then let’s assume the available heifer supply in 2025 is very similar to ’24, low, stays low. This means if we increase cows at all, it’s simply because we’re increasing the number of lactations, so we’ve kept cows in the herd, and they’ve just gotten older. Gus Jacoby: Absolutely. That’s exactly what I’m saying. Ted Jacoby, III: Yep. Got it. Gus Jacoby: And we could very well do that, Ted. Ted Jacoby, III: Yeah. Hey Don, you’ve been analyzing this heifer supply for us. What are your thoughts on all that? Don Street: I think you’ve summed it up correctly, but what it means as you keep rolling the clock in another year or two, you’ll probably have more heifers, but they’re going to have to be used to replace these older cows. So you have a negative outlook on herd expansion not for a year but two to three years out unless you have farms that have consciously prepared calves to become cows to enter the herd; that’s a piece of this, too. But in that sort of other general pool that feeds heifers that get traded around and consolidated, that piece has shrunk and will not recover quickly. Ted Jacoby, III: This means we’ve got one of two things that will happen over the next three to five years. We’ve got a cow number cliff that we’re going to hit, especially if we have a year of difficult milk prices, where the cow numbers just drop 200, 300,000 cows. It almost will feel like overnight just because if they’re not making money, they know they’ve got these old cows to cull and will do it. Or, it’s an issue that just keeps petering slowly out into the future. And the problem is that we’re just kicking the can down the road and haven’t faced the music yet. Don Street: Right. And just to put context to this, we’ve been averaging new heifers, something over three million head a year nationally, and in ’24, well, we’ll know that in a few more weeks, but it’s going to wind up at 2.75 million, so we’re down 300,000 from the last several years. I don’t think we’ll do any better in ’25; we’ll probably do a little bit worse. That 300,000 shortfall if cows go to slaughter is a real number. Ted Jacoby, III: Yeah. The only other possibility as we look out toward the future is that beef prices will crater, and everybody will start breeding dairy rather than beef. But if that happens, it’s still three years before the new heifers arrive. Don Street: Correct. Josh White: Ted, just to pull us back, though, our topic is around 2025, and the outlook beyond 2025 has a lot of uncertainty. Even when we’re talking about this year, we’re on both sides of even; in a lot of discussions with everyone, I think agreeing on components should grow. One of the things you and Gus were talking about earlier that I thought was pretty interesting is even if we hold things the same as we did in 2024, the milk is in different spots. We have a decrease in the West and cows migrating from the West to the East. We have new processing opening up in the middle part of America and different processing in parts in the eastern half. How does that change the product mix we’re dealing with and the components we’ve been discussing, such as skim solids and butterfat? Ted Jacoby, III: I think that’s a great question, and I think the easy answer is to say more Class III and less Class IV, but on a certain level, it’s also dependent on prices. So I’m going to throw it back, Josh, on your team, you and Diego and Joe, let’s start by assuming we’re going to have less milk out West, we’re going to have more milk in the middle part of the country. I could probably go around the room and ask everybody what they thought milk production would do next year. The answers will vary from volume being close to flat to volume being up, let’s say one and a half to 2%, and then solids being up on top of that regardless of the volume, another one to 1.5%. Does everybody agree on that? Gus, you’re the one with the head going side to side instead of up to down. How would you disagree? Gus Jacoby: As far as milk production by itself, one and a half percent seems high to me, but one-half to up to 1% seems plausible, although, on a solids basis, I think it’ll be a fair amount more. Ted Jacoby, III: Yeah, but would you say up 1% in milk, up 2% in solids, up 3% total in solids, possible? Gus Jacoby: Possible, yes. Ted Jacoby, III: So, Josh, Diego, and Joe, what does that mean for Class IV? Josh White: It will be Joe’s show; if we want clickbait on this podcast, it’s butterfat. I guarantee that’s what everyone wants to understand right now. Because of how weak cream is, cheese facilities in the middle part of America can’t get the skim solids they need right now. Yet skim-solids such as nonfat are low. That’s the first part we must figure out: What does this milk change in these new processing facilities mean for fat? Joe Maixner: I do think that even though the shift in the milk going from Class IV to Class III does affect the fat side of it, I do think it affects the skim-solids side of it more because the less amount of milk means that cheese is going to suck up all of the additional skim-solids and protein. In contrast, they won’t soak up all the extra fat. They’re still going to push some of that fat back. So, I think it has a larger effect on the nonfat side and the MPCs than the butter side of the picture. Now, with that being said, most of the farmers are paid based on butterfat, so they would rather talk about the fat complex than the skim solids. Ultimately, yes, I think it’s going to affect butter. It will tighten butter up, but it will take some time to run through the cycle. I can make arguments for both sides of it as well, given that we’re already at a 280 market for 2025, and it’s January 10th. Is all that already priced in, or will we see another leg higher? I’m not really clear on that yet, but I do think at the end of the day, a lot of that will also be based on fat demand for other products, not just butter, and that’s what will affect the overall butter market. Josh White: Well, it’s a complicated one right now. Ted Jacoby, III: Everybody, we will be right back after these messages. Center commercial (with music): If you’re a dairy producer or cooperative looking for a better market for your milk or a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please contact T.C. Jacoby and Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support, and we’ll develop a sales or procurement strategy that hits all your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Ted Jacoby, III: Joe, I’ve got to ask the question. We’re seeing ridiculously low cream multiples in the Midwest, yet we’re at 280 butter. What’s causing the disconnect between the cream multiples and the butter market right now, and then how does that affect the rest of the year? Will it eventually get solved, or will that be an ongoing issue? Joe Maixner: I wish I had a solid answer to that question, Ted. I have been scratching my head and talking to many other people in the industry about why we have sub-flat multiples for cream going into butter churns, yet we’re at a 260 spot price and a 275 to 280 futures price. It doesn’t make sense. Eventually, economics fixes everything. We’re just at a really large disconnect right now. Ted Jacoby, III: Could it be a capacity problem? We’ve lost milk and, therefore, butterfat lately in California because of bird flu, so we have less butterfat in California, where there’s a lot of churn capacity. And we already have more butterfat and milk this year in the Midwest and the East. Could it be simply a case of all the butter churns being full in the Midwest right now, and that’s causing an issue with the cream going into the churns because they’re all running beyond capacity. Yet, we’re not producing as much butter as we have in the past because we’re not running the California churns full? Joe Maixner: That is a great point. We know that cream is waiting to get unloaded at multiple facilities because they just can’t take it. It is a large disconnect overall in the industry, but at the same time, I can’t shake the fact that even if everybody is churning at max capacity, then we still shouldn’t have the prices that we’re seeing. It’s the beginning of the heavy season. We’ve got a few more months of this, and then on top of that, California is getting ready within the next month to come into their flush. Granted, they’ve been suffering from many issues with the bird flu, and they’ve been down in milk production. We should also start to see that bounce back slowly to where they’re at least producing a decent amount of product or getting close to prior bird flu numbers—just a tough market to read right now. Ted Jacoby, III: But I can speculate over the next two to three months, milk production will start to come back in California because bird flu gets farther into the rearview mirror, so more milk and butterfat in California mean more butter in California. That would seem to be bearish to me. But at the same time, we’ve got cheese capacity coming online in late Q1 and into Q2 in the Midwest, so all that milk that people are currently struggling with from a butterfat perspective gets pulled into the cheese fat. And yes, some of that butterfat gets kicked right back out to butter churns, and Gus, I’m going to ask you to comment on this. Is the cream situation relative to the butter market going to improve if that happens, or do you think we’re just in a difficult spot? Gus Jacoby: Well, I do think we’re in a tough spot. It’s hard for me to say where we might go, Ted. We simply have more butterfat out there. What makes it worse is this lack of fortification solids for these and new cheese plants, right? So, more cheese capacity and less ability to supply them, fluid fortification solids, and a Class IV market that’s riding at numbers are going to make it difficult to fortify and sell commodity cheese. It can be done, but it’s not favorable. And so I guess we just have a situation right now where we’re just going to have a lot of butterfat being thrown at us from a lot of different directions, and unless the conditions of this market change, I can’t see how we’re not going to have a longer cream market. Ted Jacoby, III: But if the solids aren’t there for the cheese plants to buy, especially in liquid form, it just continues. Josh White: They got to find their way to be there. Ask Diego. Nobody wants non-fat in the global market. Bold statement, but the global market for non-fat is not strong. That’s why there’s such a price spread between cheese and non-fat right now. How do these cheese plants get those solids if there’s weak fat? Ted Jacoby, III: I think we’ve got a real capacity issue, because they can’t get what they actually want. On the skim solid side, they want UF skim solids. Gus, I’m assuming every UF plant out there, if they can, is running full and spinning off the skim solids and selling the cream. Gus Jacoby: Two things that create a premium on UF that is difficult for a cheese plant to consider. You have high wave prices and therefore high other solids values, so your permeate loss requires a big premium on the protein to make it work. The second thing is skim solids, quite frankly are tighter than they have been in a while. There’s just other sectors of our industry that are demanding it a bit more. There’s no need for somebody to UF their milk unless they have some advantageous reason or an ability to collect a return on their permeate streams or whatnot. Under that scenario, I don’t think a lot of UF will move like we’ve moved in the past. I just see very simply, cheese plants unable to get fluid fortification solids, the dynamics aren’t there. Highway prices, high other solids value and a tighter skim market overall. As long as that continues, especially on higher butterfat components, you’re going to have cheese plants who typically didn’t spin off that much butterfat spinning off quite a bit of butterfat and putting more cream onto the marketplace. So therefore that protein has some demand in other areas outside of Class III. You have a fairly healthy protein market right now. Is that safe to say, Josh? Josh White: Yeah. Gus Jacoby: Right? Ted Jacoby, III: Even with MPC. Gus Jacoby: I would say so, yeah. Josh White: Yeah. Gus Jacoby: I mean we’ve added capacity for MPCs to this industry in the last couple years, right? I think we’re going to probably add some more as we move forward. And this goes back to a little bit older discussion around what Europe and Oceania are able to do and how they’ve contracted a bit and they’re not making as much as they used to on a world where that demand is growing. That trend, maybe not as prolific in discussion right now, it’s still happening and certainly our skim solids isn’t growing like our butterfat component that just exasperates the situation with regard to fortification solids for cheese plants that much more. Ted Jacoby, III: So. Josh, is this protein market going to hold up all year? Josh White: The higher whey protein side of things is very firm right now, and we’re all still trying to get our head around this change in the utilization. Is this temporary? Can we price it out or is this a real shift in consumer demand that is asking for more and more whey protein and will continue to do so throughout 2025? You can’t ignore the fact that GLP-1’s are very popular. You can seem to draw a fairly tight connection with whey protein consumption, but it’s protein overall that should be in demand, and I think Gus mentioned the value in milk is not just the whey protein component of it, and milk proteins are probably the most affordable buy at the moment. I think if you’re talking about, will WPI prices remain this high and continue to do so? Yeah, maybe. Will WPC80 remain where it’s at? I would argue we’re going to see two-sided trade this year. We’re going to see both an uptrend and a downtrend in 2025. Will nonfat dry milk continue to be so cheap, or will that pull the whole curve higher? The demand for protein is there. Ted Jacoby, III: Josh, have you had any conversation with the buyers we work with about how these protein prices are too high and they’re killing demand? Josh White: No. Ted Jacoby, III: So we are at, we’re maybe not at all-time highs, but we’re in that range, and we are not seeing the rhetoric about these prices killing demand yet. Josh White: Thus far, nobody’s told me it’s reducing or hurting their demand. In fact, I would argue their demand’s still increasing. That being said, let’s not forget the supply chain is a long one for these products. Commodity prices from the third quarter are just now hitting the retail prices. It takes six to nine months, so we arguably don’t know that we’ve overpriced something for six months after we’ve overpriced it? That being said, it sure doesn’t feel like the third quarter prices are hurting demand right now in early 2025. Ted Jacoby, III: So it sounds like what I’m hearing from everybody is that on the skim solid side, everywhere from whey proteins to milk proteins through UF milk and cheese plants is we’ve got firm demand easily through the first half of the year. Josh White: But not for non-fat dry milk. Diego Carvallo: Definitely. When you look at the S&D, at how balanced the market is for non-fat, you see that supply is significantly down, at least from the U.S. We’re seeing California with 10% down milk production, their non-fat production significantly down at the same time. With a scenario like this, prices in any other situation, if demand was stable, they would’ve skyrocketed already. Right now, the demand is so poor, it’s still so weak, mainly coming out of Asia and to be more specific out of China that it doesn’t seem to be affecting prices that much. Right now, all of those offers from origins like New Zealand and Europe are competing heavily in international markets to the extent that they’re going into countries like Mexico, which is our backyard, and they’re stealing demand away from the U.S. Yeah, supply is significantly lower, but at the same time, demand doesn’t seem to be doing much to tighten the market up. Ted Jacoby, III: Is that going to change and what would be the indicator that it changes? Diego Carvallo: There are many. I would say one important one is a situation in China. If China starts to build stocks back up, which could happen from one week to another because a lot depends on sentiment on government policies, etc. That could be a trigger. Mexican government coming out and buying product and having a requirement if it’s a certain origin or not, that could also be a trigger. If California production comes back and rebounds faster than expected, that could also add more pressure to the market. So there are many variables. Ted Jacoby, III: So this weak demand in China, that’s got to be affecting New Zealand even more than it’s affecting the U.S. What are we hearing out of New Zealand right now? Are they feeling like prices are too low and they’re losing milk? What’s the rhetoric there? Do we know? Diego Carvallo: So farmers right now in New Zealand are having a really good season and they’re trying to pump as much milk as possible. They’re having a really healthy margin. They were able to buy feedstocks at a really good price. Some of those feedstocks come from palm and also grains, but they have lowered somehow their cost and they’re having a healthy margin. They’re making a lot of money and they’re trying to produce as much milk as possible. When it comes to production of the ingredients per se, they’re switching a lot of production to whole milk powder, which is a little bit more of a commodity for them, and they have more outlets for that product. That’s a quick summary. Obviously there’s a lot of treat with a grain of salt on a lot of those things that I mentioned, but that’s in general what we’re seeing in New Zealand. They were able to sell a lot of product to China before Chinese New Year, so it seems like that helped them clear a lot of inventory. But right now the situation in China has turned bearish again, quite bearish. Ted Jacoby, III: The other region we compete against internationally when it comes to skim solids like nonfat is Europe. What are we hearing out of Europe right now? Are they also in a good spot? Diego Carvallo: That’s a really good question, Ted, and I’m really surprised because Europeans are offering skim milk powder at prices that are insanely competitive. They don’t have too much inventory. Their production seems to be relatively stable in terms of fluid milk, but their offers are very aggressive. Their offers to Mexico, to Latin America and to Asia are probably two to $300 discounted versus the U.S. So that’s spread between U.S. and Europe is wider than we’re expecting at this time. Ted Jacoby, III: So essentially what I’m hearing is, we’re the last man on the totem pole. Everybody else is lower than us. Everybody else is clearing product. We’re not necessarily clearing product, but at the same time we’re not making it, and so we’re just in this static case of not great demand, but not great supply, so there’s no sense of urgency to go anywhere. Diego Carvallo: That’s a good summary. Yeah. Ted Jacoby, III: Well, that kind of brings us around to cheese Brie, and the one thing I think we’ve all been assuming on the cheese side is we’re going to make more cheese in 2025. What does that mean for cheese prices? How’s that going to play out? Brianne Breed: Well, I would think we would make more cheese considering there’ve been a few additional plants and a few significant expansions. It’s going to be a roller coaster of a year. I mean, everything you guys talked about with the changes as far as where milk is growing, where it’s shrinking, there’s a lot of things that need to settle down here in the next few months before I think we’ll have an idea as to how did we pan out on exports? A year ago we had a whole bunch of cheese locked up through, I would say at this point we were already through Q2. I don’t think that that’s the case right now. CWT is still kind of up in the air. We have a lot of different variables that we’re dealing with on the cheese side right now. We’ve also got less cheddar production that we’re dealing with. I do think we’ll make more cheese. I think there’s no question about it, and I do think that we will make more cheddar than we did last year, just given the fact that the new Hillmar plant, for example, they’re going to be making a lot of cheddar. The big question I think is what are exports going to do? We are cheapest in the world right now, but the freight dynamics, they’re not great. Our futures are inverted and future production is just not really all that easy to get a hold of at the moment. Ted Jacoby, III: How does it play out? The one thing we’re kind of hoping for is better exports from cheddar to keep this cheese market propped up a bit, but we’ve also got an inauguration in a few days where Trump comes into the office and his rhetoric on tariffs has been raise them, raise them, raise them. How’s that going to affect our cheese exports? How does that play out? Do we expect our buyers of cheese to raise tariffs on our dairy products in response, and what do you expect that’ll do to our demand? Brianne Breed: If tariffs are slapped on, it’ll affect Mexico the most, and we’ve exported a lot of cheese. Year over year growth has been significant the last few years. I would think that we would continue to export cheese and maybe the numbers just remain flat. I think it also depends on what the peso does. If the peso weakens, they may not buy as much. We could see that volume drop a little bit, but there’s a good demand for U.S. cheese in Mexico, and I think we’ve established some good relationships. I know that a lot of the U.S. manufacturers aren’t going to want to see that go. The logistics of sending cheese from the U.S. to Mexico is just easier than shipping it anywhere else in the world. As long as we can guarantee that the payments will happen, I think that we’ll continue to export into Mexico as much as we can, even with additional tariffs. Ted Jacoby, III: How easy or hard is it for those buyers in Mexico to switch from buying cheese from the U.S. to buying cheese from somewhere else like Europe? I mean, they’ve got an ocean to cross. It seems like that would be really difficult. Brianne Breed: Yeah, I mean, they’ve been doing it though for a long time. They’re pretty well versed in importing from Europe or Oceania. Will they want to make the change though, thinking that it might be just temporary? Depends on what the price difference is. If it’s significant, we will probably lose some business to those regions. We’re in for a roller coaster, that’s for sure. Joe Maixner: Ted, one thing we didn’t comment on on the butter side is exports and imports. And going back to butter, that is one thing that I do think that is aiding in keeping this market where it’s at, priced where it’s at is because we are the cheapest in the world right now in butterfat. I think we’re going to continue to be that way based off of the outlooks of Europe and Oceania and their production forecasts for this year. That’s something that we need to really keep in mind. That also will aid in keeping our markets elevated based on, we probably won’t import as much on the industrial side into the U.S. this year as we have in years past. Retail is going to get imported regardless because of the likes of people like Kerrygold and the brands that are in the marketplace. But on the industrial side, I do think that extra product is going to be soaked up domestically as opposed to import product because of that. We’re such a small player right now, but I do think we can see a significant increase in our amount of exports, but you have to keep in mind, a 400% increase in our export numbers is still a fairly small number in the grand scheme of our overall butter production. Ted Jacoby, III: Jake, as you’ve been listening to us talk about all of this, is there anything that stood out to you when you think about 2025? Jacob Menge: A whole lot of questions. From a 30,000 foot view, markets seem to be relatively in check besides maybe the proteins. It’s just going to take a push from something that we’re probably not even talking about right now to get these markets trending one way or another, so stay tuned. Ted Jacoby, III: Something we’re not even thinking about, black swan type of events. Jacob Menge: Not a black swan, nothing major. It could just be, hey, we tariff somebody and maybe they hit us with a tariff that we never would’ve anticipated. Just something that isn’t obvious, and if that doesn’t happen, we’re probably in for some boring markets ahead. Ted Jacoby, III: There’s a lot of uncertainty in this market. Protein prices are high, skim solids are high. We have too much butterfat in one part of the country, but maybe not enough in another part of the country. But it all comes down to export demand and it all comes down to domestic demand, and it all comes down to what supply has done, which basically is that it could come down to anything. Joe Maixner: Volatility. Ted Jacoby, III: That’s a great question, Joe, and I’m going to throw that one back on Jake, does that mean we have more volatility this year? Volatility of a wide range, volatility of a narrow range, or do we just go quiet? Jacob Menge: So let’s just quickly define volatility. A market that just trends up or trends down, it can make a big move. That does not mean it has volatility. We actually are in an environment that the volatility is probably too low. We’re starting to see volatility pick up on the equity side. I would not be surprised to see that start to flow through to our commodities. If I had to stick my neck out on one thing, if inflation stays high, equities aren’t super happy about that, they have an okay year, but not a stellar year. Maybe we get some managed money flowing in to the commodity space that we haven’t seen in a couple of years, which would contribute to more volatility. Ted Jacoby, III: Right now, there’s so much uncertainty in the market, nobody really is comfortable making any kind of a commitment on pricing and on thoughts on how the year’s going to play out, which means right now everybody’s kind of sitting on their hands creating a market that’s rather quiet, but it’s also a market that’s one spark, and this thing could become a full-fledged blaze. Is that a fair way to put it? Jacob Menge: Yeah, a bit. It could completely peter out. There could never be a spark, but keeping our ear to the ground and making sure one doesn’t come out of left field. Ted Jacoby, III: So as we wrap up this conversation, I think summarizing it may be stay tuned. It’s really difficult right now to figure out what’s going on. There seems to be an interesting balance between supply and demand. I think you can make cases for supply not being what a lot of people expect. I think you can make cases for demand getting weaker. You can make cases for demand getting stronger. Who knows what’s going to happen in exports, who knows what’s going to happen in tariffs. Maybe all we did was confuse you. Maybe we added a little bit more information to your plate. Either way, I hope you all enjoyed our podcast and thank you for listening. Outro (with music) We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@www.jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Company. Ted Jacoby, III: Take care. Bye.…

The Milk Check

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Protein power: The future of dairy in a nutritional world 50:03

منذ 28 weeks50:03

50:03

Where is the global dairy industry headed? In this episode of The Milk Check , we’re joined by Andy Powers , vice president of technical services at the American Dairy Products Institute (ADPI) , alongside members of the Jacoby team, to explore the future of dairy. Together, we tackle emerging trends, market forces, and opportunities for dairy proteins, fats, and other dairy products in the next 5 to 10 years. Emerging trends: The role of GLP-1 drugs in driving future global demand Dairy vs. plant proteins: How the structure of dairy and plant proteins differ and what that means for nutrition and health The rise of butterfat: U.S. butterfat and the role of exports in future consumption Cheese’s global opportunity: How cheese production is ramping up to meet international demand Dairy co-products: Innovations in whey protein, lactose, and milk protein isolates to address shifting market needs From health-conscious consumers to industrial applications, we examine how dairy is evolving to stay competitive. Plus, check out The ADPI 2023 ADPI Dairy Products Utilization & Production Trends report here and the ADPI Ingredient Resource Center here . Don’t miss this comprehensive look at the future of dairy with insights from Andy and the Jacoby team, including Ted Jacoby, III, CEO & President, cheese, butter & dry ingredients; Josh White, vice president, dairy ingredients; Diego Carvallo, director of dry dairy ingredient trading, and Tristan Suellentrop, sales associate, Into (with music): Welcome to the Milk Check, a podcast from TC Jacob and Company, where we share market insights and analysis with dairy farmers in mind. Ted Jacoby, III (T3) : Hello, everyone, and welcome to this month’s episode of the Milk Check. Today, we are excited to have Andy Powers, vice president of technical services for the American Dairy Products Institute, joining us. Joining us as well, we have some of our usual suspects. Josh White, vice president of Dairy Ingredients, Diego Carvallo, our Director of International Sales for Dairy Ingredients, and Tristan Suellentrop, our sales associate and resident 20-something on our sales team. Guys, thank you, and Andy, excited to have you with us. Thanks for joining us. Our topic today is: what’s the future of dairy? Where do we think demand is going to grow globally in the dairy industry? What are the components that this industry is going to see the greatest demand and opportunity for as we look out over the next 5 to 10 years? Andy, I’ll start by saying we just recently had a five 10 year vision conversation within our organization, and one of the things that we spent a lot of time talking about was how dairy proteins, specifically as you look at the way the developing countries and the way their diets are changing and growing and developing when you look at the aging populations of many parts of the world when you look at the addition of medicines like Ozempic and Wegovy, protein is just going to become a bigger and a bigger part of the nutritional profile of what human beings eat. I’ve got two boys in their twenties, and they are much healthier eaters than I ever was when I was in my twenties. That means they’re consuming a lot more dairy protein. Andy Powers: Right. T3: What are your thoughts, and where do you think dairy proteins fit in that space? Andy Powers: First and foremost, because I’ve worked for the American Dairy Products Institute, you’re going to hear me talk about dairy. I drank the Kool-Aid a number of years ago. I believe in dairy’s value proposition, and I believe in its strengths in terms of nutrient density and complete nutrition. You talked about some of the driving forces that are going to influence demand for dairy in the future. We’ve got population growth as the baseline talked about an aging population. I think that’s significant. The ongoing current modernization or GDP growth meaning that people can transition from the most commodity-oriented and cheapest foods up the value chain and start to consume according to their preferences instead of their absolute needs and availabilities. All those things, I think, are supportive of dairy, and then you add some icing on that cake. You mentioned GLP-1. Everybody’s talking about this class of drugs, the GLP-1 agonists. Ozempic is the one that’s maybe most consumer-forward. It’s off-label use for designer weight loss. I guess I would say it needs to be accompanied by the consumption of high-quality protein or loss of muscle mass as a problem. And so all those things, I think, speak to a higher protein diet in the future. I think if you follow the money, there’s been a lot of US investment in plants to process milk and turn that milk into, among other things, high-protein foods and ingredients. So all of those signs, I think, are positive. It’s just a matter for dairy to flex its muscles, showing its adaptability, and overcome some of the challenges to have a pretty bright future. That’s my view in a nutshell. Josh: You spoke of the GLP-1 drugs. Obviously, that’s topical, but the average person doesn’t really understand why that drives additional protein consumption, maybe in a short way. Can you go into a bit more depth? Is this medical advice by people who are put on this drug that they need to really, really increase their protein consumption? Are they steering people to dairy, or is that just the popular solution? Andy Powers: Yeah, great question, Josh. To be honest, I’m not sure that I could tease out the difference between people who are accidentally going in the direction of dairy and people who are being instructed to do so. And I’m certainly not a dietician. I’m not a physician. So whether or not the science says that dairy is the best, the one and only answer for the particular consequences associated with the GLP-1 drugs, I couldn’t say for sure. But what I can say is that on the label, it was originally developed to help people manage diabetes, right? A follow-on consequence of appetite suppression is reduced caloric intake. And without balancing that reduction in taking in calories with some sort of improvement in the quality of the calories that you take in or a deliberate choice to go after a high protein density diet, much like a sports nutrition sort of a diet, the consequence is loss of muscle mass. That’s definitely undesirable whether you are on-label or off-label for the drugs. And the good news is whether or not medicine is pointing people to dairy, dairy’s nutritional value proposition is very much aligned with those needs. If you’re going to try to build muscle or retard the loss of muscle, then dairy is far and away the best choice at this time. T3: Andy, why dairy instead of plant proteins? What makes dairy the better choice of protein relative to some of the other protein options out in the marketplace these days? Andy Powers: Yeah, it’s a couple of things. I’m going to start by just saying complete nutrition and what that means for us as animals consuming protein, in particular, is that we have to take in those essential amino acids or those indispensable amino acids to support our own protein synthesis. And that’s not just about muscle, it’s about hair, it’s about bone, it’s about connective tissue, so virtually all of the structural things that make us have a substantial amount of protein associated with them. We build those things through synthesis pathways, and that means that, in part, we can make some of those building blocks to create muscle, to create connective tissue with our own biomechanical machinery, but we have to take in some of those, and those are those essential amino acids or those indispensable amino acids. So when you start to look at foodstuff, what makes dairy special is that it has the densest concentration of, let’s say, especially muscle synthesis supporting amino acids of any foodstuff out there. And so far and away, it is the best choice when it comes to taking in quality calories that your body can readily transform into its substance, especially muscle. So, among those essential amino acids, and there are nine of them, you hear a lot about BCAAs. So, if you’re going to buy a protein powder at the store, maybe it’s saying on-label contains five grams per serving of BCAA. So those are branch-chain amino acids. We are mammals; cows are mammals. So, what cows are producing is very much aligned with what we need to take in. Dairy is very high in those branch-chain amino acids. It’s the densest of the essential amino acids and contains high levels of those branch chain amino acids. So we’re talking about valine, leucine, and isoleucine, and nothing better than that cocktail for us to take in and then turn into healthy tissue. T3: And so when comparing dairy proteins to many plant proteins, it’s the lack of those BCAAs and plant proteins that makes it harder for the human body to synthesize a lot of those plant proteins successfully at the same level of intake at the same efficiency. Andy Powers: That’s right. So you can still get it done with a plant-based diet, but sometimes you have to take in substantial multiples of alternatives that are plant-derived to hit those same minimum requirements that dairy can deliver more readily because it is a denser source of those same nutrients. And then you get into some factors on top of plant composition not being as well aligned with human dietary needs as animal protein sources are. Some, like soy, for example, contain anti-nutritional factors. This isn’t a made-up thing. I can’t pretend to understand all the science of it, but the reality is that as you take in soy, some of its composition will inhibit your ability to digest and take up those amino acids and peptides, and that means less efficient utilization of the nutrient, to begin with. So it’s one thing to analyze it chemically and say, Hey, the makeup is the same. But when you get into this digestibility piece, not only can plant proteins be less digestible innately, but some of them bring along these anti-nutritional factors that even further worsen that efficiency challenge. If you want to make a diet that’s based entirely on plant proteins, T3 : So regardless, you have to consume many multiples more grams by weight of, let’s say, most plant proteins to get the same efficiency as dairy proteins Andy Powers : Mostly, that’s true. So, if you look at soy protein and soy protein isolate in particular, it is very highly refined and contains minimal to no levels of these anti-nutritional factors. And the amino acid profile is pretty good, fairly readily digestible. So soy protein tends to be the one that competes most effectively, but some of ’em are pretty poorly. They fare pretty poorly when compared directly to dairy, and that’s part of the strength of our value proposition. Josh White : So, as we’re thinking about trends going forward, optimizing the diet in the US to fit whatever nutritional needs we need, you’ve got the aging population, you’ve got need as you’re aging for muscle mass retention, all these things, that all makes sense. I can’t get on YouTube without being overwhelmed with influencers and others telling me exactly how to optimize my diet based on my lifestyle, but it takes a pretty healthy income and disposable income to optimize that. As we’re thinking about the rest of the world, do we expect these same trends to unfold and that we’re going to continue to see growth in the dairy protein demand globally based on the ingredients that we’re manufacturing as opposed to just the raw milk aspect of it? Andy Powers : So, there’s a whole continuum even at what I would call the commodity end where you have relatively little differentiation. Dairy still has a strong value proposition, and that’s part of why you see it connected to nutrition in developing nations as well. Consuming milk directly from the animals, whether it’s cows or goats or camels or buffalo, whatever the case may be, that’s step one. And you’re still getting high-quality nutrition regardless. The minute you begin to refine that, and you make something like a skill milk powder or non-fat dry milk, all you’re doing is excluding water and converting that milk into a more portable form that has a longer shelf life. You’re making it easier to transport around the world. So you’re just adding some utility but not changing the nutrient density per se. And then downstream from that, if you further fractionate it, you not only increase the density, but you also frankly increase the price. So, if you look at something like whey protein isolate right now, if you have the luxury of optimizing your intake, you might choose to go after WPI. So that becomes a luxury choice that I think you’re talking about in the first world for the most part. But dairy’s got products along that continuum. So somewhere along, there is the right match between the available dairy product, whether it’s a commodity or a highly differentiated value-added ingredient, and the income level of the consumer. Josh : So, where we stand today, we’re starting to see whey proteins are a great example of growing up the value chain, finding their way into different products, and naturally, you’re going to have products that are using whey proteins for functional benefits that aren’t as valuable as nutritional benefits that are going to try to trade or substitute trade down the value chain at a certain moment. And so an interesting whey complex we’re dealing with right now where you have WPI, it’s at a historically high price is price relationship to the related whey products is as extreme as it’s been. Got continued investment in products like WPC 80, which is, I won’t go as far as saying commoditized at this moment, but there’s a lot of interchangeability between different products that are out there, and now we’re left with a void of Sweet Whey powder and WPC 34 and some of these other traditional products that may have to start looking to other dairy alternatives or substitutes outside of the dairy space to fill those needs. The functionality for baking filler products, things like that, and snack foods. What’s next? I don’t fully understand it, but there’s a lot of talk about acidified isolates today. How is that different? What’s different about those products? Andy Powers: First, you asked the question, what’s next? I do think that proteins, you talked about nutritional value, but you also talked about their functionality. Such characteristics like action, like water binding all of are important because they function when you combine a protein ingredient with other ingredients, which means certain characteristics in the finished product when you’re done with it. So, functionality is another way that you’re bringing value. And then, on top of that, you’ve got the nutritional value proposition. Maybe the sky’s the limit with regard to how many different kinds of modifications can be made to proteins. I would’ve gone in the direction of hydrolysates, for example, as saying that’s kind of a next wave of value, adding differentiation, hydrolyzing, the proteins can be thought of as kind of a predigestion, if you want to think about it that way. So, if you think about it from a nutritional point of view, you take in protein, and it’s already been broken down into smaller bites, as it were. Those smaller bites are more digestible. Uptake can be accelerated by this predigestion process. And as a result, then the consumer can enjoy a more rapid effect from consuming those proteins. So that’s one thing, certainly true, but where would you see hydrolyzed proteins appearing most? They’re being used in high-value applications like infant formula, for example. There’s a brand out there right now that on-label advertises that it’s more digestible, and it does so on the basis of using a hydrolyzed protein ingredient, which is already partially digested for the infant. And in that way, you’re just increasing the availability of those nutrients to the infant. You’re also improving comfort, reducing colic or gas, things of that nature, and so on and so on. So, in this whole realm of hydrolysis, I talked about it from a nutritional point of view, the impact on absorption, but it also changes the functional properties. So the minute you begin to transform that intact protein into broken down smaller peptides, or you can digest them all the way to amino acids if you want, and you’re completely altering the functional properties. And so in that way, you can also tune an ingredient to be most effective in a specific application, a partially hydrolyzed whey protein at a lower concentration, but a higher price might deliver the same effect in a food product as more of a different ingredient or the same amount of a more expensive ingredient. So again, this T ability from a functional point of view is an outcome that can be achieved by hydrolysis that’s done with enzymes most effectively. Enzymes are best for this because they’re specific enzymes do a very precise thing as opposed to using a chemical treatment like acid to break down protein. That’s kind of a hammer. It’s less precise. And the acid that you add to protein will not only start to break down the protein, but it will interact with anything else that’s there. So can potentially influence the flavor profile, for example, or the other sensory attributes because the acid is acting on everything that’s present and not just protein. An enzyme will do something very specific rather than a hammer. It’s more like a scalpel, and you can use it to go in and cut linkages within those protein molecules themselves in a very precise way. You can control them on or off with simple physiological simulations like controlling pH, for example. So you can tune the hydrolysis process with enzymes to yield a very specific profile for the final product that accomplishes the functional and or the nutritional needs that you’re looking for. And that sophistication, I think is a next wave of adding value to whey proteins that might be more strongly supplied in our near future because of all the investment that’s happened here in the us. Josh : So, let’s predict that that’s a natural movement, the value of dairy proteins, and we’ve been speaking of whey protein quite a while, and I think we can touch on the milk proteins differently, but as we continue to graduate up that value chain and we continue to find more value in these products, we’re left with byproducts. So how are we going to manage those byproducts? Mostly the carbohydrates. At the ADPi I seminar last week, there was a lot of discussion on whey protein, phospholipids concentrates and those type of products. What is the derivative of this whey protein value and what are some possible next steps for those products? Andy Powers : Well, good question. I jumped right to hydrolysates because I’m especially interested in them. There’s a lot of work going on with them, and we are involved with them pretty extensively in my workplace. But it is also true that existing technologies like fractionation using membrane filtration are the way that you already arrive at some of these value-added ingredients. If you’re going to make everything from WPC 34 to 80 to WPI or the analogous proteins on the milk protein side of things, you’re going to use membranes to do it. And whenever you’re using membranes, you’re really just concentrating one thing by excluding another thing. You’re concentrating the protein by excluding the lactose and minerals. And so to your point, you’re asking, well, the lactose and minerals then become a byproduct of making these concentrated protein ingredients. What do we do with ’em? Well, great question. Lactose, there’s a substantial part of the world that genetically speaking is lactose intolerant. So if you’re going to put lactose into the human food chain, again, enzymes may be a saving grace because you can use enzymes to convert lactose into lactose and glucose. A lot of the products that you’re seeing on the shelf right now where they say lactose free, they’re not sugar free, but they have been processed with enzymes to convert the lactose, which is a challenge for some people, digestively into more compatible sugars. And you can also reduce the levels of sugars through the same kind of processing through membrane filtration so that you are delivering a reduced total sugar product. All that’s being declared on the label, right? You see the nutrition facts on the back and the ingredient declarations part of the nutrition facts is about total sugars, and you can reduce the amount of sugar that you’ve got there by using membrane filtration as an example. But again, enzymes you can also use to process that lactose into digestible sugars, and that’s beneficial. So I think you’re going to see some of that lactose making its way through enzyme processing into reduced lactose or lactose-free products. That’s going to put a burden on regulations in the United States, for example, we don’t have a good definition for lactose-free, but there’s been some recent guidance from FDA on that point. I think they’re reading the writing on the wall that there will be more lactose in our world as we make more whey proteins. How do we help guide the industry and help utilize that ingredient appropriately? Also, there’s, I wouldn’t say almost no end, but there’s great value for lactose in high value animal feed applications. As an example. You can put it into a calf milk replacer as a carbohydrate source. It’s good for energy. And so any place where you want to feed in the livestock supply chain, you want to feed the animals a balanced ration, part of that’s going to be carbs and lactose is a great option there. The minerals tend to go along for the ride also until you get to the very highly refined lactose and the minerals, again, are excluded, but those minerals are useful too. So yet another byproduct where the intent is to take minerals away from permeate to make lactose, but now you have a minerals product that can be used for things like sodium reduction, for example. Lots and lots of calcium in dairy, also other valuable elemental nutrients. There’s potassium and there’s magnesium, and all these things are again nutritionally valuable. So they all have a destiny, and it’s really just been dairy’s challenge over time of thinking about both sides of that separation process. Let’s not think just about the value added ingredient that is our intended product, but let’s find the value proposition for that. I don’t think calling them waste is right. Find the value for that co-product and then position that appropriately in the market. Josh: So, Andy, it’s a real issue that the industry is facing right now. And before we move on and maybe talk about milk fats and some of the other potential ways we can go right now, the US dairy industry is facing this migration to, again, higher protein production, which yields a lot more permeate and that is more readily available and will continue to be sober the next couple of years, but less sweet whey powder production. Andy: Yeah. Josh: Earlier you highlighted the different uses for dairy products, both from a functionality standpoint and nutritional standpoint. Is there substitution possibilities in bakery and in WPG type snack foods and other things like that to be replacing whey products off of the ingredient deck and substituting that for products like whey permeate? Andy Powers : Yeah, certainly. I think the early history of 34, for example, WPC 34 is a marginal improvement over sweet whey powder, takes away a little bit of the lactose and a little bit of the minerals and leaves you with a higher concentration of protein that is now analogous to non-fat dry milk, right? So those two, they’re a great example of the interchangeability across dairy ingredients that can be driven by price. If a label has the flexibility to accommodate using either of those ingredients, then you’ve anticipated and prepared for the ability to swap back and forth between them based on your discretion as the price in the market shifts. Certainly as you separate these fractions though, also, I mean we talked about the lactose. If you lose lactose with a protein, but you still need your product to brown when you bake it, for example, you can put permeate there and provide enough additional lactose that the malar reaction can proceed and you can get that toasting or browning effect that you’re looking for, and all the while if you want to double dip, then by substituting permeate, you can potentially displace some salt and bring some other minerals, some potassium and some calcium into the mix and get another benefit on that nutrient disclosure. So yeah, lots of synergies there, but I gave you one example of the ready interchangeability, and then for example, if you add a protein ingredient for protein fortification, you can also bring in lactose as a separate ingredient and use that for browning as well or permeate if you can capitalize on that mineral composition too. Josh : So can we shift gears just a little bit to the other side of the dairy complex, what we call the Class IV products, milk powder and butter fat side of things. There’s been a big movement recently to see more higher protein products coming out of the skin solid side of things and more MPCs, things like that, but I don’t feel like it’s quite taken hold the same way the whey protein complex. Is that really because of true nutritional differences between the Cain protein and the proteins that come along with the milk side, or is that just the whey proteins are just a little bit further along in the inevitable path that we’ll see on the milk protein side? Andy Powers : Yeah, I mean, I think the real value that’s come from all this fractionation that has resulted in these whey protein ingredients, this proliferation of whey protein ingredients and their co-products, the real value is the versatility and that ability to tune those ingredients to do specifically what you want. So really, if you’re trying to get a clear beverage that’s heavily protein fortified, modified whey protein is probably the direction you’re going to go. And that has been for a very long time, a brass ring in sports nutrition. You want something that looks like a hydration drink, but also has protein fortification and whey protein is really the way that you need to go to get that done. Milk proteins have their own value, and you talked about cains. What makes a milk protein different than a whey protein is that you’ve preserved that natural ratio of whey proteins to Cain proteins that you find in milk. You’ve preserved that throughout the processing to make a milk protein. All you’ve done is to keep both of those together, kce plus whey in the same ratio, and you’ve again done the same thing. You’ve excluded lactose, you’ve excluded minerals to achieve those milk protein analogs to the whey protein complex. Where they really have value is where a whey protein just won’t do. Milk has a characteristic taste. I’m going to say that sensory becomes one of the main differentiators there. Milk has a characteristic taste and mouthfeel, and part of that stems from having both the cain proteins and the whey proteins together in that ingredient in milk. So as you get to the dry analogs there, preserving that same ratio means that you can get many of the same sensory characteristics in a product. And you’re not talking about any sort of disadvantage for casein versus whey from a nutritional point of view, definitely different functionality altogether. If you need the sensory and the functionality is compatible for you with regard to milk protein, you may elect to use that, but it tends to be a more niche application than the more universally useful whey proteins are. Josh : Sorry to keep asking all the questions. T3 : Go for it. Josh, Josh : Do you think there’s ever going to be a world that we derive whey proteins on a commercialized basis without making cheese, like actually running the milk through the facility, separating out the fat, and then figuring out a way to separate the different types of proteins to concentrate the whey protein side of things? Andy Power s: Yeah, I mean, so you can do it. It’s a few years old at this point, but that same membrane technology for fractionation is what enables you to go after milk itself and to tease it into its separate components without any further downstream. So whey, as an example, classically is the co-product from cheese make and processing that stream, which used to be discarded as waste, has yielded all these other value added ingredients. But you can absolutely take separate separation technologies and apply them to the milk itself and tease it into its parts. So if you’ve seen any of the manufacturers that make and sell native whey, it has not been through the cheese make process. So those whey proteins are completely unaltered and they have slightly different functionality and very clean flavor profiles and can be useful in high value applications. They’re absolutely out there. Again, it becomes a question of what’s the value at a price point? Will they outperform an analogous product that is derived downstream from cheese and where they do then those native proteins are absolutely going to be used Cain’s. Another interesting one though, I mean you’ve got the casein mis cell, which is a complex three dimensional structure. Of course casein, if you’re going downstream through a lot of processing, that structure can be pretty heavily altered. But if you’re performing a separation at the front end from milk, you can get casein in its mis cell form and it will behave the same way that casein in milk does. And that can be very desirable too. Again, at a certain price point, it’s all about where you want those classical dairy sensory attributes. Plus you can pay for the specific functionality that comes along with all of that fractionation, that intentional separation by processing. Josh, I thought you were going to go down the path of precision fermentation there. She threw the curve ball and started talking about separating the proteins out without cheese making. You can absolutely do that. It’s already being done. T3 : We will be right back after a short break. If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby and Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online@www.jacoby.com to get started. Thanks for listening to the milk check back to the show. Josh : So, Ted, do you see a world where native whey, a product that we’ve seen a little bit in the past, but it’s always been high priced, it’s not available really on a commodity basis for us to trade or to commercialize. Do you see a world where we might be actually making native way on a commodity like basis as opposed to the combination between cheese and whey? And do you think that processing facilities can be viable within the next five to 10 years doing so? Andy Powers : Was that question posed to Ted? I thought it was. Josh : I did. Yeah, I put that T3 : 5 to 10 years. No, look, it’s different for every product, but I would say in my experience, I think you need to usually assume almost 20 years of use to commoditize a new product. The description I’ll make is WPC 80. I think we’ve been producing as a nation WPC 80 in significant volume for about 20 years. And my sense is it’s commoditizing right now. It was not a commodity 10 years ago, but we’re producing enough WPC 80 today and the demand is high enough today and enough of the users of WPC 80 can interchange different producers, which to me is the important part of commoditization. You need to get to that point before a product will commoditize. And right now, do we have one producer of native way in the United States? In other words, there is a long line of demand development before we get to that place. Josh : Now, do you think the Chinese look at it differently? T3 : Honestly, I’m the wrong person to ask. I don’t know enough about the Chinese diet to know where they’re at. Josh : And the main reason that I bring that up is I have the impression, and again, a lot of the analysts and people that are much closer to this will probably beat up a lot of these assumptions. But I have the impression that the Chinese dairy industry continues to grow, but the Chinese dairy industry doesn’t consume the dairy product the same way that we consume the dairy product. And it’s left a natural vacancy or void to get the actual whey products that they want. They want to process it into whole milk powder, process it into other products. And the development of the Chinese cheese industry hasn’t been balancing to that need. They need more whey than the result of the cheese product that can be there. And if they can find a way to eventually get to the whey products without having to deal with the cheese because it’s not yet mature to their diet, they would do so. They’re one of the largest consumers in the world of what we consider our byproducts of the whey process. A few single producers of hogs in the Chinese market are larger than the US market. It’s that big. And they’re the largest consumer of whey permeate, for example, which again is the co-product, but ultimately has been viewed as a byproduct of a rapidly growing whey protein industry in the us. T3 : But here’s the other thing you have to keep in mind when you’re having that conversation. I would call our whey permeate market globally today, an oversupplied market. There’s more production of way permeate than there is natural demand, including all the hogs in China. Now, is it possible that we will see the Chinese swine industry grow in their use of permeate to the point where maybe that balance tips? It’s possible, but I think as it looks today and probably for the foreseeable future, there’s a price element to the fact that permeate is oversupplied because you’ve produced permeate in order to create whey proteins that the financial incentive isn’t there for them to go down that path. Josh : Well, we shouldn’t ignore. They’ve been a big importer of whey proteins, particularly from the us. And so ultimately the balance of using the whey product coming in has a lot more value than the cheese it takes to get to that whey product within the Chinese market, which is the origin of the question. If you want the way you must buy it from the US and Europe basically, and of course other parts of the world. T3 : And the other part of that question needs to be what’s the cost of making native whey proteins versus making it from cheese? And is that cost higher than the logistics cost of getting it to China from the us? And I would argue today it’s not. Josh : Andy, do you think the technology is extremely costly at this point in time, will become more economical in the future for people to make these type of products Andy Powers : To make the micella casing and native way pair out of fluid milk? Josh :Yes, sir. Andy Powers : As long as we’re continuing to make so much cheese, I’m not sure why you would. I think ultimately we’re going to figure out how to solve that problem with the proteins that are downstream from cheese making. T3 : Exactly. Josh : Well, let’s talk a bit more about cheese then. What cheese consumptions continue to grow? Our cheese production continues to grow. When I say our talking about the northern hemisphere, the mature markets, Europe, the US are consuming more cheese per capita each year developing markets are starting to consume more and we’re meeting that with production. Is that likely to continue? What is the big driver? Why do people want more cheese? Andy Powers : Yeah, we’re going to have to successfully connect the consumer with cheese around the world. I think that extra production is going to be satisfied largely in the export markets. You’re absolutely right. We’re eating more cheese than we ever have. How much more are you prepared to eat? I’m eating a lot. I dunno how many pounds per person it is. It’s a pretty bonkers number, isn’t it? Something like 50 pounds of cheese per person per year in the United States? It’s off the top of my head. But I do think that even at last week’s A DPI event, we heard from analysts like Mike McCulley for example, saying that cheese exports are a big opportunity for us dairy. I think it was well intentioned to build big cheese plants, especially in the southwest. And I think that as long as we continue to promote it successfully, you’re going to find that we can match that cheese output in the export markets with global consumers. T3 : And I would agree with that. From my perspective, there’s a path to higher level consumption of dairy on a per capita basis that starts with infant formula. And I think Japan over the last 50 years has been the great example. It starts with infant formula and then as those human populations that historically have become lactose intolerant as they’ve gotten into their teenage years and beyond, when they’re starting with infant formula, they continue to consume ice cream. Maybe they start having pizzas when they’re teenagers and they just keep dairy and they keep cheese in their diet, and that’s where cheese consumption grows. Last generation was the generation where the infant formula use per capita really grew. I think the generation today that’s being born in China and in a lot of those developing Asian countries, that’s where you’re going to see the increase in cheese consumption grow and the increase in ice cream consumption grow in some of the other dairy products. Andy Powers : Cheese is pretty useful. Cheese is a pretty durable way to get good nutrition to move it around the world. It’s high in protein. We’re seeing more and more research around the benefits of milk fat and cheese contains fat. Getting the style right makes a big difference to that consumer. We can’t continue to push just yellow American cheddar into global markets. A little bit of differentiation there probably wouldn’t hurt, but at the end of the day, a pretty dense way to move large amounts of dairy solids economically around the world. And to Ted’s point, I think there will be demand homes for it globally. T3 : I think it’s also worth noting that 80 to 85% of all cheese is consumed as an ingredient. It’s very common to mix cheese into a recipe versus consume it on its own, which increases the options and the waste cheese is consumed. Andy Powers : We’ve got some other things. There’s some consumer attitudes around food right now. If you think about the movement towards Whole Foods, and if you think about the concerns about food processing, cheese is in an interesting spot where it’s viewed as a whole food and it’s also viewed as minimally processed. It also occupies that fermented foods category. So there is an intersection here of a few trends that I don’t know are the primary trends, but they’re emerging as influences in consumer behavior. And I think those are relevant. I think you’re going to be able to find a value proposition articulated in those three languages that will help to continue driving cheese demand. T3 : While we’re talking about cheese, let’s pivot a little bit and talk about butter fat. Andy, how is butter fat going to evolve? And I’m going to start by going out on a legend making this statement. We have seen some pretty significant increases in per capita butterfat consumption in the US in the last 10 to 15 years, just incorporating it in more and more foods and replacing margarine as the go-to fat that’s put in foods. But I can’t shake the gut feeling that we’ve been on this high growth curve for so long that we’re about to approach that curve plateauing here in the us. Meanwhile, the amount of butter fat per pound of milk that dairy farmers are producing is going up at over 2% a year. My gut is we’re going to start exporting butter fats. My question for you is where do you see that dairy component growing? Andy Powers : Yeah, so that’s a good point. Again, the scientist in me would like to believe that consumption of butter fat is going to be driven by the science. And we’ve had two things really that have happened. You’ve had the awareness rebellion against hydrogenated vegetable oils and trans fats that has led a defection back to traditional sources for fat. So that’s one piece of it. And another piece is that research is reversing. Also, we’re starting to look at fat, fat components and also fat as a part of the milk nutrient complex. So all of those things are starting to remind us that there is real health value in milk fat ingredients, and that’s a stark reversal from where we were 30 years ago. So with those forces in mind, the science is really starting to show some good things. I didn’t have a chance to read it. Moises Torres Gonzalez just recently shared the results of another milk fat related study, and I think it was centered around consumption of whole milk powder as opposed to alternatives. And there was a strong correlation observed in that study between consuming whole fat milk and reduction in appetite, for example, which has direct implications for weight gain. It’s good science that I think shows us what milk’s real value is from a fat perspective. The question becomes how much of that can you translate to the consumer? Science seems to be the wrong language through which to communicate. But again, butter as an example, if you like the idea of buying foods that are produced somewhat locally or having a strong identification with or connection to the source of your food, and you can visit the farm where the milk is turned into butter and that’s a product that you like to buy. You’ve got the grassfed proposition that goes along with that and so on and so on. Butter’s got a pretty strong story. I think whole milk and whole milk powder have a pretty strong story. And then at the other end of the spectrum, you’ve got some really, really specific value added ingredients like milk fat globulin membrane that are only beginning to be understood for the amazing bioactivity that is shown there. And that’s a fat based nutrient delivery system. So the more the science shows us that these things are interesting, the more we can carve out these opportunities for some of the milk fat. Now, don’t get me wrong, butter will make a difference if we can keep the world eating more butter and the science shows that that’s a good idea. Same thing with whole milk powder. The fat solids can go with that powder and be consumed around the world. And again, highly transportable, highly portable, pretty stable on the shelf and so on and so on. MFGM is not an ingredient where any of us is going to be consuming 20 grams of this stuff every day, not the case right now. It goes into infant formula applications. The Chinese take whole milk powder and along for the ride in that milk fat, they’re getting milk fat globulin membrane. And so the cognitive benefits for brain tissue formation in infants are being delivered through a more basic ingredient. But you see other formulas out there on the market that specifically have whey protein phospholipid concentrate or whey lipid concentrate, or maybe even just hide the benefits in an ordinary whey protein concentrate. But the lipid parts are there and they’re delivering those nutritional benefits to infants. That’s the first tier. But you’re starting to see some science, again, that’s showing that there’s benefit for seniors, for example, to consume MFGM as well. One of the bellwethers or senior health is mobility. If a person can maintain mobility late in life, quality of life is higher, life expectancy is higher, chronic disease rates are lower, and so on and so on. Part of maintaining mobility is muscle. So that’s the protein piece we were talking about. But another part of it is the inevitable degeneration that happens with our nervous system. So when we’re infants and we’re developing, we’re growing nerves and then insulating those nerves with fat and spino, myelin specifically the fat that is being taken in, whether it’s from breast milk or it’s being taken in by MFGM or whole milk powder in infant formula. And that’s what’s helping infant brains to grow. But as we get older, then the reverse begins to happen. It happens in our minds. It also happens in our peripheral nervous system. And this is how it relates directly to mobility. If you can’t activate your muscles so that you can move, then you can’t move. And it’s not about losing muscle mass, it’s about not having the right insulation on those skeletal nerve fibers anymore. Technically it’s called demyelination. If you can slow that down and it looks like MF GM has applications in this, then you can improve neural signals and you can then stimulate muscle. You can maintain muscle mass or lose it more slowly. You can preserve mobility and you get all of those healthy aging late in life benefits. There’s science that was all originally about infants and now is starting to be about adults too. And I think we’re really just scratching the surface of what we’re going to find as we start to look at the fat part of milk’s health and wellness, nutritional benefits. Diego Carvallo : Andy, before you go. Yeah, Diego, do you guys get a chance to talk about the possibility and the options that some customers have to switch between? Andy Powers : We didn’t a little bit. Diego Diego : Right now, MPI is widely available if you compare it to gopi, right? So a lot of people probably have that question. Andy Powers : I would say those ingredients are not interchangeable when you’re looking at functionality. They are somewhat more interchangeable when you’re looking at nutrition because all of the dairy proteins have a very high level of nutritional quality and nutrient density. Milk proteins also though, become the choice of preference when you’re looking for those milk flavor attributes, for example, as opposed to where you’re looking for the cleanest, most neutral flavor profile achievable. And that would be with some of the ultra high purity whey protein isolates that are out there to make a clear sportsbet, for example. So no, they aren’t a hundred percent interchangeable by a long shot, and I think you have to know what those differentiators are. Maybe a final note for you, and I’m not the expert on those nuances, but we recently created a new guidebook for ingredient utilization and it includes some tables that summarize all this information for you pretty well. So if you want to know from a functional point of view how milk protein isolate and whey protein isolate compare, you can look right in the table and see here’s how it works on ation, here’s how it works through heat processing, here’s how it works in terms of sensory and so on and so on and so on. You can find those in some of our informational resources. That’s a great place for a lay person to go and find comprehensive guidance. It’ll get way more down into the weeds about those functional and applications differences than I can in the context of the podcast. Anybody who has specific functional or applications questions, KJ Barrington is far and away the expert both within the dairy industry and then definitely on the A DPI staff as compared to me. I think she would be a fantastic resource. Diego : Fantastic. Andy, I think many customer have that question. Appreciate you for everything. Andy Powers : You’re certainly welcome. Appreciate you speaking up. T3 : I couldn’t agree with you more, Andy. Alright, Andy, so we’ve covered whey proteins, milk, proteins a little bit. We’ve covered cheese, we’ve covered butter, fat, even a little bit of lactose. As we’re wrapping up here today, is there anything we didn’t cover, anything that you’ve seen out there that you think is worth talking about that we didn’t cover today? Andy : Yeah, there’s this whole category and you’re going to find coincidentally milk’s ingredients. Its composition can be categorized in some major buckets and protein is one of those buckets, right? Carbohydrates is one of those buckets and fat is the remaining bucket. And maybe we could talk about minerals a little bit and we did, but in the proteins bucket and in the milk fat bucket are all these different types of what I call them bioactives. Now with FDA, that’s not a fun word when you say bioactive to F-D-A-F-D-A thinks drugs. And so when you’re talking about food, as medicine begin to transition over that line into a more regulated space and a more challenging space when it comes to trying to connect label claims that you’d like to make on your product with the benefits of the healthy ingredients that are in that product, the reality is that milk is full of bioactive stuff, all kinds of them. We were talking about milk fat globulin membrane. It’s a fat delivery system for a whole bunch of these bioactives and some of them are proteins. So we know about lactoferrin, for example. We know about osteopontin, but you’ve got a host of proteins that are embedded in this lipid tri layer of no fat globulin membrane, and we’re just starting to figure out what they all do. Another fact is that the delivery system itself might be the only effective vehicle for the full benefits of all of those fractions. We’ve tended to be reductionist, I would say, in our approach to nutrition thinking, well, okay, I figured out that lactoferrin is the thing that mediates iron metabolism in humans, but I’m not going to deliver that lactoferrin in a complete system. I’m going to refine that lactoferrin out into a pure ingredient. The higher purity, the better higher price point, the greater margin, and we’re going to sell that. And that’s a panacea, that’s a silver bullet. That’s a magical ingredient. That doesn’t mean that we don’t need to keep figuring these things out. And it doesn’t mean potentially that there might not be avenues for continuing to attract these things and refine these things and then deliver them as a pure ingredient where you can control exactly how much someone can take in. You can supplement an infant formula with them or what have you. But this whole world of bioactives, both on the fatty side and on the protein side, we’re figuring out what those individual constituents do. But we’re also having to start to think in a much more complex fashion about how these things synergize in a system to deliver a health benefit that is greater than the sum of those parts. So that’s a whole other arena of understanding. I think our minds are starting to become attuned to the concepts. If you’re trying to prove a claim though, let’s say you want to get into this almost drug-like arena. Well now you’re talking about clinical trials for example. It’s challenging enough to isolate one attribute and to prove scientifically that there was a correlation between the health benefit you’re trying to derive and the ingredient that you’re feeding to a test population. But now you’ve got a matrix of these things. You’ve got two ingredients, so three ingredients and four ingredients, and that becomes an exponent on the complexity of that experimental design for a clinical trial. That means it’s that much harder to get all the science you need to make a compelling case that an ingredient does what you say it does and it does so safely, and you can make a label claim about that. That becomes more difficult when you start systems thinking instead of a reductionist individual component thought process. T3 : Cool. So Josh and I, as usual dominated the conversation. Tristan, I would be remiss if I didn’t ask you if you had any questions prepared for the day. Tristan Suellentrop : I have a few. I would like to ask, which regions are markets do you see driving the biggest demand for high protein dairy products? T3 : Good question. Andy Powers : Well, okay, so let’s start at the highest protein levels. Those isolates, they’re expensive. Josh said this before, whey protein isolate is at historic highs right now, the only people that can afford those are buying them because they choose to buy them and they have to have the discretionary income to do it. So I think it makes sense that you’re talking about developed nations first world countries. Those are going to be the markets for it. And then you have to be really in touch with consumer attitudes to figure out how you’re going to position that high protein ingredient to justify the cost of including it in a food. So that’s a thing. And then it’s really easy to look at the bookend on the other end of the continuum and say, for basic nutritional needs, you got to get milk in there. Maybe you are commoditized milk powders, maybe even Ted, to your point, maybe WPC 80 kind of fits in that category just by virtue of being so grossly robustly supplied, right? But the in-between is where you make your money. And I got to say, Tristan, if I could predict those kinds of details, like where exactly should I ship my marginal ton of WPC 80 to optimize my profit? That’s complicated. It’s a great question, T3 : Andy. You can tell me the truth offline. We’d like to know. Gotcha. Andy Powers : Happy to keep that secret between us. Ted, I know you won’t let the word get out. Tristan : So which product categories like sports, nutrition, meal replacements, healthy snacks, would you say has the most significant growth potential done? Andy Powers : Yeah, great question. Healthy snacking is a big category right now, And people are excited about that. It’s interesting though. So I try to be simultaneously aware of conflicting forces. So we like healthy snacking and how do we encourage healthy snacking? Well, we take proteins primarily. We turn them into fun things like crisps for example. And we put those into a dairy novelty. And now when you bite into that, you got a crunchy little bit of mouthfeel or maybe they go into a bar or something along those lines. So maybe you get this fun dimension of texture that goes along with it. And in that way, you can not only satisfy an indulgence, but you can also deliver on that protein intake thing because people almost universally equate protein with health, with a healthy lifestyle. So that’s great. But on the flip side of it, that’s processed foods and ultra processed foods. There’s a pretty strong current against an attitude against multiple steps to take a thing and turn it into a more complicated thing. There seems to be a direct connection. And this is born of some of the classification systems like Nova, for example, where consumers think that processed food is bad. So how do you tell ’em what a processed food is? Well, you got really two measures that people can make. Does it go through a lot of processing steps? That’s one way to say it’s ultra processed. Does a complex food have more than five ingredients in it? That’s another way to say that. It’s ultra processed. And so on the one hand, we do a lot to tease out protein, for example, and make a whey protein isolate, but will the consumers start to rail against that and to view that as an ultra processed food? And the bad news is that facts and science aren’t the primary driver for informing and influencing the consumer. I mentioned cheese, earlier. Cheese in its many iterations. We only deal with a few kinds of cheese for the most part in the United States. But look around the world and you’ve got hundreds if not thousands of types of cheese that are out there. It’s one of the most sophisticated, one of the most ancient products on the planet. Can have so many different flavors, can have all kinds of different cultures in it. It can be covered in wax, it can have a rind, it can be washed, you name it, any permutation of processing that you can think of. And it’s been applied to cheese. And yet people view cheese as safe, as natural as a whole, food as not heavily processed. And there’s a cool alchemy that goes on with the microorganisms to translate the ingredients of cheese into the magical finished product. Healthy snacking, yes, fantastic. But at some point that seems to butt heads with or come at odds with concerns about ultra processed foods. Tristan : Thank you. T3 : All right, Andy. Hey, thank you so much for joining us today. This was a fantastic conversation. I really, really enjoyed it. You’re certainly welcome. We really thank you for joining us today, Andy Powers : And thank you also for the informed question. To your point, we touched on carbs and we touched on protein, we touched on fat. Hopefully there are a few insights in there. Most of my perspective is driven based on nutrition and functionality and the scientific side. I’m much more removed from the economics of day-to-day trade than I used to be, but we’ve got experts out there that help keep us informed, and you guys are on that list. Thanks for inviting me, appreciate being here and having a chance to talk. T3 : Thanks a lot, Andy. Keep up the great work you do for the ADPi. Josh : Good stuff, Andy. Appreciate it. Thank you. Bye. Outro (with music) : We welcome your participation in the milk check. If you have comments to share or questions you want answered, send an email to podcast@www.jacoby.com. Our theme music is composed and performed by Phil Keagy. The milk Check is a production of TC Jacoby and Company. T3 : All right. Is this a wrap?…

The Milk Check

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Understanding Exports – New Zealand 33:38

منذ 30 weeks33:38

33:38

Today’s dairy market is global. In our latest episode of The Milk Check, we dive into the New Zealand and Oceania markets to understand how they may impact the U.S. dairy market. Join Jacoby and our two special guests Jo Bills, ag market analyst and director of global Insights at Ever.Ag, and Steve Spencer, managing Director at Ever.Ag as we dive into dairy. Tight global supplies of skim milk powder and strong demand will likely keep prices high through 2025 New cheese plants in the U.S. market increase Class III supply and may drive cheese prices down and limit powder output, tightening global powder supply New Zealand enjoys tariff-free access to the Chinese market, but China’s economic woes have reduced dairy demand Lower Chinese demand pushed New Zealand to focus on skim milk powder, butterfat, and cheese And lots more information on the global dairy market and our predictions 2025. We have a positive outlook for dairy in 2025, but cheese may be our wild card. Get the market scoop from the Jacoby team, including Ted Jacoby, III, CEO & President, Cheese, Butter & Dry Ingredients; Josh White, Vice President, Dairy Ingredients; and Diego Carvallo, Director of Dry Dairy Ingredient Trading. Intro (with music): Welcome to The Milk Check, a T.C. Jacoby & Company podcast where we share market insights and analysis with dairy farmers in mind. Ted Jacoby, III (T3) Hello, everybody, and welcome to The Milk Check. This month, we are excited to welcome special guests Joanne Bills and Steve Spencer from Freshagenda to share their thoughts on milk production and dairy demand in Asia, Oceania, and internationally for 2025. Joining us from the Jacoby team are Josh White and Diego Carvallo from our dairy ingredients team. Welcome, everybody, and thank you for joining us today. Steve Spencer: Thank you, Ted. It’s great to be here. We enjoy these. We’ve done a few of these, so it’s always good fun. T3: We’re about to enter year two of China’s tariff changes regarding New Zealand dairy products and how they are imported into China. For our audience, many of whom are dairy farmers here in the U.S., why don’t you give us a quick overview of those changes? Then, we can discuss what that has meant for dairy markets in that region and how it affects dairy prices. Steve: In basic terms, New Zealand has tariff-free access to the Chinese market. That was preset for an extended period. They were on a slow rundown of tariffs over a long haul. A few years before that was due, they had a review, and it seemed to be that that was just a little period to push it out a bit longer, and that’s in the rearview now. So, we’re in a very tariff-free environment for New Zealand exports, which you’d think has freed them up to go wild. The only trouble is China’s not a market that is allowing many people to go wild right now because that’s come at the same time as China hitting a phase of the second wave after Covid; the second wave lockdowns were much harsher, much longer, much more damaging to the economy and so that’s crippled demand for dairy in many parts of the market because spending, consumer spending has been depressed and many things are contributing to that right now and that’s still a happening thing. So, that has freed New Zealand up to grow its share of the market in skim milk, powder, cheese, and butterfat and they’ve certainly done that at a time when the import volumes are a lot lower. So, we’ve got to sit back and look at the overall trends in China. We think they’re just off the bottom regarding those import trends, but New Zealand has certainly picked up share, and their exports to China are falling. You could take the story of product by product because the products that China isn’t producing or doesn’t produce, skim milk, powder, butterfat, cheese, a small production of those, really the trade is probably following the pattern of demand we’re seeing in that market. There have been some false starts, and some volumes pick up and go in slow again, so they’re seeing lots of volatility in the trade over time and whole milk powder; it’s about how much of a balance China’s got, how much they’re producing internally, what’s happening to their milk use across all categories, and then what role do imports play in that. That’s still a sad story. We have seen the whole milk powder trade over the last six months, but it is still 28% down year-on-year. New Zealand is exporting, and New Zealand has the dominant share of that. T3: Do you expect what’s happening in China with their import volume? Is this a new normal? Do you think we will stay down here or end up closer to where we were four or five years ago or somewhere in the middle? What should our expectations be going forward for China? Joanne Bills: Yeah, I think, Ted, it will depend a lot on what happens with their internal production. We have seen good growth in milk production over several years, but more recently, that growth has stalled. Raw milk prices are well down, and there have been rumors talk of the government starting to take action to reduce cow numbers. They certainly did that in the pig herd. We haven’t seen any follow-through in the dairy industry, but they’re very focused on getting that internal Chinese dairy supply chain rebalanced and aligned with demand. You would have to think that they’ll still have some demand for, particularly as Steve said, the things that they don’t produce internally. Butter demand has been surprisingly good, given what prices have done, and there’s also been fairly steady growth in cheese. It’s really hard with China I think, Ted, to know what normal is because we’ve had all these levels of normal over the years that there’ve been such a dominant force in dairy, but we probably won’t get back to where we were in terms of whole milk powder demand and that’s probably why Fonterra is very much about diversifying into other markets and products. T3: And that was where I was going when I was asking that question. We’re dealing with a new normal when it comes to China and we’re going to be exporting less to China globally, which means New Zealand may be increasing their market share, but they’re increasing market share of a shrinking or at least a smaller market. Joanne: That’s spot on. T3: New Zealand’s dealing with this smaller import market in China for their products, even though they’re increasing market share, they’ve got to find new places for their product. Steve: I think they’re doing it with a brave face, Ted. I think they’ve done a good job. They’ve had some help. So, when the whole milk powder demand plummeted and charts and that are spectacular, I think they had to pivot towards skim and butter and hopefully build their cheese trade. That didn’t happen in cheese, but so they’ve had to put that milk in a different uses. Around the same time, we had a few problems in South America, so their whole milk powder trade was helped. They were able to push things into markets, push product into markets where the South Americans couldn’t supply, but now I think we’re seeing a adjustment to say, “Yep, that’s a market that isn’t going to grow much from where it is in terms of our whole milk powder requirements.” And now the focus for them is very much on protein, milk protein, high functional evaluating in that respect to use up skim solids. Josh White: Is that fair to say that during peak production there’s a certain amount of whole milk powder that always has to be made? It’s a shrinking amount it seems like every year, and we should expect it to continue to as we go into 2025, giving them more versatility as to where they can allocate the raw milk to in New Zealand. That being said, if China demands whole milk powder, they’ll be quick and the obvious ones to respond. Steve: Yeah, they can flex, Josh. I think they can divert tankers literally. It’s just which plant do they send certain tankers to when it really matters. I think the flex is still there. The hint about how they’re going in terms of their total book and what they’ve got in front of them is the annual GDT forecasts they put out of their total almond powder trade on GDT is usually a good sign for where their overall production and demand is in their book, and that hasn’t shifted much in this year. It shifted down a little. We think it’s probably a little bit up on last year even, but the peak is much stronger this year and we’ll come to that I’m sure, but that’s a different dimension they happened to manage. Josh: So, before we shift to talk about supply across the board, maybe touch on a couple other interesting data points on the demand situation. How would you describe the rest of Southeast Asia and then you mentioned a bit more about South America. Are we forecasting or expecting South American situation to change from a demand standpoint much or is that really all supply driven? Steve: Yeah, let’s start there first. So, the issues is how the America were about supply out of Argentina and Uruguay where their milk production really tanked down 10 or so percent for a period of time. The economies down there aren’t great either, so their domestic consumption has been impaired. Looked okay for a while, but that’s now coming back. So, they are putting more into whole milk powder now, but the whole economy is trashed. Input costs are very high for farmers, they were having to struggle through on very thin margins and difficult cash flow, different currency situation. I think it’s improving now. Production is back on par, year-on-year, so that is starting to ride itself. We talked about the China demand thing first. We talked about the supply side, supply chain balance, but the demand side and China’s still got, we think, a long way to go, Josh, in getting back to some sense of growth. We’re certainly seeing it in a few little sectors, but consumer spending has been knocked around by the impact on housing. Household incomes or household wealth has been damaged by the property market being oversupplied, prices crashing. So, consumer confidence has been impacted by that. So, discretionary spending, dairy catches quite a lot of that discretionary spending, people doing impulse buying through convenience, gifting milk, there’s a whole lot of things where dairy is a prize product or a prize category that is damaged by the fact that people have less money and they’re less confident in spending money and they’re trying to rebuild wealth. So, that’s going to take a while to come back. I think retail sales are showing some improvements, but the last quarter of milk sales reported by the two big milk companies, they’re still down six or 8% year-on-year in volume, which is, that’s a lot of milk in anyone’s terms, so that’s got to go somewhere. Those companies are talking about their use of milk is still good, they’re still processing more milk. I think what they’re becoming very good at is filling warehouses again with UHD containers. They reckon demand is coming back, they’re seeing resale sales pick up, so maybe the buds of growth are starting to return. So, that balance thing is really important. Cheese trades picked up a little, so fast food is probably catching more spend, because it’s cheaper. People are going out a bit, perhaps more. It’s a lower meal cost. Southeast Asia. Jo, what do you reckon we’ve got? Joanne: I think Southeast Asia, a lot of those economies were really quite badly damaged by COVID even though in some senses they were really good at controlling the spread of the virus. There wasn’t a lot of financial support provided in some of those key importing in Southeast Asian countries, so it has been disruptive to those economies. We’re starting to see them come back now. The tourism trade is certainly picking up in a lot of those regions and that’s really helping to support a bit more of a rebound in demand. So, certainly at GDT events in the last couple of months we have seen them in and out, quite active in some auctions and then stepping back in others. We think we are starting to see that recovery in terms of demand, not just restocking supply chains, but actually a bit more demand pull through just as those economic conditions pick up a little bit, but it’s certainly taken a while just to get over that disruption of the pandemic, arguably a bit longer than in some of the developed markets. T3: What product are we seeing a pick-up in demand? Is it skim milk powder, whole milk powder or is it maybe some of the others like cheese or whey or butter? Steve: Whole milk powder came first. I think that certainly picked up in the last 12 months. Whole milk powder trade into the whole region’s up 13% year-on-year, and that’s starting to tail off now. I think a bit of price sensitivity might be coming into it, because we’re seeing quite strong prices again. Skim milk powder was really knocked around badly, but it is also back up or it’s trending back up. It’s not back to where it was. The two powders have improved quite a bit. We’re seeing that different patterns in different regions, so some markets have been far more price sensitive due to spending. Philippines and Indonesia have taken quite a while to get back on their feet spending wise, but some other economies have been much stronger coming out of the blocks. Cheese is pretty good generally. So, cheese is a good reflection of some of that tourism fast food, more of that trade I guess, but cheese has continued on. It’s been reasonably steady. Butter’s been patchy and butter will be price sensitive and we’re seeing very giddy prices now, but surprisingly the last 12 months, even though where butter’s been and it’s only been the last few months where we’ve really picked up the effect of those higher prices, butter trade’s been flat in the Southeast Asia in the last 12 months. It’s a mixed story, Ted. T3: Steve, it sounds to me that the powders, year over year in Southeast Asia, it sounds like the imports have been strong versus last year we’re seeing a steady increase in cheese demand across the board we have for quite some time, and it looks like that steady increasing trend continues, but then butter is relatively flat. Is that a good way to sum it up? Steve: It is, yes. Yeah. Josh: When we think about that on a milk solids basis, is 2024 better than 2023? Steve: I’ve got an answer on that. It is up. Last 12 months, milk solids up 8%. A lot of that’s the powders. Whole milk powder is a big driver of that cheese also, obviously because of the full fat and protein impacts of that. Where it was down quite low, Southeast Asia, we missed them as well as China in terms of total trade. Yeah. Josh: The reason I bring it up is a year ago I think we were starting to feel confident that 2024 would be better than 2023 and 2023 was the low, but at least in this conversation thus far and listening to you speak about the climate in the markets, Jo speak about it, it feels like we’re gaining momentum on the demand side as we look ahead to 2025 and of course as us in the balancing of dairy products space and then looking at it from a global scale, you’ve got your milk solids, your milk production, more specifically the actual component value of that milk. You’ve got the demand by product and then of course you’ve got the processing product mix. And as we go into 2025, that can be a bit volatile in the U.S. with the cheese factories coming online, the general view on what U.S. milk production looks like, what the actual component value of that milk looks like and where that milk gets processed. We’re expecting a lot of curveballs as we move into 2025. Feels like we’re going to be experiencing that at the same time that we’re experiencing a little bit of a rebound or gaining momentum in terms of global demand for dairy products. Is it safe to say that, I hear you say earlier that right now New Zealand is at least experiencing better than last year milk production or a strong peak or how are you viewing the climate out of New Zealand and then last year Australia was a bit of a story coming together with additional product. How’s that looking? Steve: Okay, which one do you want to take? Joanne: I’ll go New Zealand first. Steve: Mm-hmm. Yeah. Joanne: If that’s okay. New Zealand’s having an absolute, as they would say, cracker of a season. They had ideal calving conditions coming into this season. So, we saw the first few months up double digits and up very high year-on-year and that’s really continuing, particularly in the North Island, conditions are really good. Lots of pasture, lots of conserved feed. South Island, there’s been a few areas where it’s been a little bit wet and perhaps a little bit cold, but really overall it’s been a fantastic season so far. We don’t think there’s been any big change in cow numbers, but just the yield per cow is going to be really strong through this year. Just in terms of, we said earlier that Fonterra was putting on a bit of a brave base. I thought it was interesting. They just increased their forecast for the payout to $9.50, so we’re getting up close to $10 New Zealand per kilogram milk solids in terms of the payout for this current season, which is really positive for Kiwi farmers, but they also sounded a little bit of a note of caution. They did the usual, “We’ll be watching global supply and demand, but also the supply out of New Zealand in the second half of the year.” So, I think there’s a note of caution there in terms of if we actually have too much product, this forecast is going to come under a little bit of pressure in the second half of this season, because they are looking at placing that product very carefully. As we said earlier, just managing that whole milk powder supply and demand, trying to get a bit of that butter action, limiting skim milk powder. They’re putting a lot more into NPCs and some of that’s winding up in the states. So, it’s a real balancing act I think from here, from New Zealand, that they are going to have a really strong season and they’re going to be managing that product mix really carefully over the next few months. Josh: Do you believe that there’s any way that the increase above expectations or the current situation in New Zealand is enough to adequately fulfill the increased appetite for dairy products as we go into the first half of next year? Joanne: It’s hard to say, Josh. They will have plenty of product and it’s just going to come down to that price sensitivity in some of those markets that I guess we see swinging and out from time to time in the Middle East and Southeast Asia where that price and price demand situation winds up. But I think there will be a lot of products out of New Zealand, given the seasonal conditions, and there doesn’t seem to be anything in the way in terms of increasing supply. So, the last reading we had on New Zealand, it was up 5% in September. It will probably keep that percentage increase. I don’t know what our forecast is at the moment, Steve, for New Zealand, but it’s pretty strong. Steve: Yeah, there’s two effects I think this year. You talked about the early calving that’s brought some production forward, so because they’re able to get their cows out earlier, got milk earlier, there’s a bit of an earlier flush. So, New Zealand’s all about the shape of the curve and that is pretty locked in, but they’ve also had a bump in the amount of feed they’ve got. So, there’s two effects. As we got through the peak, the year-on-year growth is shrinking, because there was freakish early conditions has brought that bit forward, but I think the strength of the North Island will counter the weakness in the south. We think over the peak, probably three to 4% as it crests, maybe a little higher than that, but as we go later, now we get into more difficult weather situations because the La Nina is not so assured. So they’re getting into this area where in the peak of summer they can run into some difficult conditions. It can be hot and they lose feed, but they’ve got a lot of stored feed in front of them. The second half has got some weird comparatives to look at, so our forecast is I reckon two to 3% up, full season. The front half, different back half effects, so it is complicated, I guess. We’re not trying to make it up into a complicated story. There’s a lot of different moving parts. You asked a question about what that $9.50 price translates to. I think it’s about a $21.50 per 100 weight roughly, about that sort of number. T3: Stay tuned. The Milk Check will be right back. If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to T.C. Jacoby and Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show. Josh: You have the New Zealand situation, which is much more weather-dependent, et cetera, but there’s absolutely an incentive to push as much milk out of the animal as possible. The margins are good, but there’s a limitation on the of animals. Same situation, different reasons. In the U.S. right now, there’s a limitation on the number of animals. Genetically we continue to show amazing component growth, and right now margins promote the best feeding practices possible. I believe there’s quite a difference in view across the industry and what that translates to for 2025 in terms of U.S. milk production growth, but are we looking at a situation where both the New Zealand market and the U.S. market is really pumping out more than they did in 2024, in your opinion? And then we have to end the conversation on Europe. Probably the most important in the skim milk powder trade. Steve: Yeah, I think we’re definitely looking at both New Zealand and U.S. and our ever colleagues of course have bumped up recently their forecast. That’s certainly our collective view that we’re going to see more out of the U.S., much stronger growth, chasing that new cheese capacity, filling that new cheese capacity and even more on solids obviously. And New Zealand solids will also be impressive, Jo. They’re going to be bumping out much more, because the feed supply is quite good. Good quality. Yeah. Do we want to go into Europe? Josh: Maybe quickly, are there any thoughts as it relates to inhibitors to growth in the Northern Hemisphere? Both the bird flu and the bluetongue? Steve: We’re more versed the bluetongue effect. I think across the affected areas. The flu is going to take a winter break, hibernates or it goes into hold if you like. It did this the prior year, so it flared up in ’23 and ’24 has had a very strong run. It has not been eliminated and will go into hibernation during the winter. It’s also moved into new areas. So, it will come back when the weather is warm enough, but that may not be until May or June. I think this year we didn’t see it flare up until June. So, Europe’s got strong milk prices, got some limiting factors around environmental restrictions. Some regions are under increasing pressure to reduce numbers. Netherlands, Ireland, Denmark, because of environmental regs, despite what’s happening in the politics. So, there are going to be constraints as Europe goes into the new year. Just again, whether, Josh, whether they have a decent spring, whether they get a decent bump there, they’ve certainly got the milk price incentive out there in front of suppliers and that’s not going to back off soon, because the butter market’s looking strong through Q2 at least, which will keep payouts pretty brisk. I think in a global balance sense we’ve got a real limitation in skim milk powder in terms of availability in the Northern Hemisphere, and if we do see demand, strength of demand in those developing markets, continue, skim powder’s on a run, we are seeing pretty tight situation. I saw a presentation from New Zealand that the SGX event recently in Singapore where there was a bit of an outlook given by their head of risk, Dave McGowan, who talked about how they’re seeing this play out on them and they’re looking very optimistically at the skim milk powder market and the higher value protein solids because of that demand uptick they’re seeing that come through, but also they’ve got to believe that, right? They’ve got more to sell. So, I suppose that’s part of that story. Joanne: But I guess the other part, Josh, would be when you mentioned bird flu, where bird flu is most prevalent is in California at the moment, and that’s certainly limiting nonfat dry milk and skim in your part of the world. So, Europe’s tight, the U.S. is going to be tight. It’s going to be a lot more solids when they’re available going into that cheese area. So, skim’s an interesting one that it does have the opportunity to move up pretty quickly if demand picks up again. Josh: Yeah, we couldn’t agree more. I think anecdotally it’s important to note that we’re getting a lot of feedback that the November impact, at least in California as a result of bird flu is pretty significant. So, I think a lot of people reacted when the October numbers came out, but I think the November is going to be very… Or excuse me, when the September numbers came out, we think both October and November has a real potential in showing noteworthy challenges, at least in that part of the world. T3: I can’t help but play a little devil’s advocate. Is China going to import? Are their imports going to be up in 2025, do we think or are they going to be weaker? And will that be enough to take the bloom off the road, so to speak? Steve: Our forecast suggests they’re up a little bit on ’24. T3: Okay. Even though demand seems to be down right now? Steve: Well, demand is down, but I think demand will start to recover. T3: Okay. Steve: I think we’ll see a little bit of an improvement. When they throw things at the economy, China can throw a lot at the economy to try and stimulate. I think we were in the fifth or sixth tranche of stimulus, I’ve lost count, but they are working very hard at getting spending, getting confidence to kickstart and it will happen. Trickling down to households and making them feel better about their own situation, that’s always tough. You see that in the U.S. right now, but it’s a similar challenge everywhere really getting them to feel like they want to go out and spend money. They’ve tried coupons, they’re trying to alleviate housing costs, it’s all sorts coming at them, so it will show up. Joanne: Yeah, I think that’s going to be the big difference, Ted. Last year they held off on that economic stimulus for a really long time. I mean for most of 2024 they were saying, no, we’re not going to go there, and then all of a sudden they went there and as Steve said, they’re throwing everything at it. T3: No, I think that’s a really good point, because what I’m hearing is China’s imports should be pretty strong next year. Southeast Asia’s imports have been strong and should continue to be strong. Milk production may be up in the U.S., but it’ll be limited. Milk production in New Zealand will be up, Europe relatively flat, but production of skim milk powders will probably be limited. So, we could see strength in the skim milk powder, non-fat dry milk arena, with demand just exceeding the global supply. Diego Carvallo: Something that I read today that was very interesting is that I saw four charts that talked about China’s milk production and stocks. One chart was whole milk production. The other one skim milk production, and the other two were whole milk powder inventories and skim milk powder inventories. It’s a chart of the past five years. All of those four charts are at their historical lows in the past five years. So, their inventories for both products are the lowest they have been in five years, and their production for those two products are at the lowest they have been in five years. So, I think I agree with Steve and Joanne. I don’t see a way China’s imports next year can be lower. I just don’t see that happening. Steve: Diego, stocks are low, but the usage is low. Diego: Sure. Steve: So, I think what we’ve just seen the measure of stocks to use, and I know the charts you’re talking about, the stocks to use is probably back to pre-2020. It’s back to how they were managing things before this all went through great turbulence. So, about 2018 and 2019, if you look back to stocks to use back there, we’re about back to that. So, we’ve had a bit of a clean-out and got ourselves back to normal. Josh: I agree. Yeah. What else are we missing? What else stands out as you guys look at your modeling and just listen to the market anecdotally on a global basis? What stands out as unusual as we look ahead to 2025? Steve: Well, we have to say butterfat, Josh. The other half of the solids, just how long the European market holds it together at this very elevated level. We did a little comparison last week when we did our little weekly video, looking at the seasonality of the correction. When you get to the correction in butterfat, it happens like clockwork a bit earlier in the U.S. this year, but in Europe, it hasn’t happened yet, and it typically happened in the last five and 10 years average. The 14th of November was the day that the cream market or the butter market crashed for the C2 contract. It shows no sign of doing that. Cream prices are still going up. We’re really close to Christmas, and there’s a cliff coming, but there doesn’t seem to be much expectation in that market that it will change a great deal. It might be a fraction down when Christmas demand and cream is satisfied, and we’ve got a lot more sloppiness, and then a bit more butter comes, but milk has only just moved off the bottom of the trough. The seasonal low occurs in November in France and Germany, and that’s just starting to move, and there are some headwinds. I think the cheese market’s also helping keep the situation tight. This cheese prices have come off a bit, but demand seems reasonably steady, and there has been no significant pushback yet. But I still do not believe that’s been thoroughly tested with end users and consumers for longer. So, we may see some pushback there, but I think how long butterfat stays elevated, whether New Zealand impacts that market with the product going into Europe or not, we’ve been talking about that for months as well. Not much has happened yet, but it’s a bit early. Yeah, I think the strength of butterfat in Europe is playing at a cheese that’s creating some engaging scenarios for exports out of the U.S. next year. If those European prices stay elevated, does that help the U.S. out with this new production? To some extent, so, I think those dynamics are really important. Josh: Well, that makes me want to move to another important piece that we haven’t touched and we’ve been bouncing around the world on both supply and demand, but the Middle East and North Africa demand, it’s my understanding that they very much helped out the Oceania heavy production season a year ago, when China stepped away by buying a fair amount of product. The first that you would assume is when they capture that market share, that that comes at the expense of Europe, and then, of course, the U.S. in the third position, but as you’re looking ahead to the early part of next year, obviously we have an earlier Ramadan period than we certainly had a decade ago. How does that look? What does that demand scenario look like as we look ahead to 2025? Steve: Very interesting, Josh. Yes, I mean a very price sensitive mark. We went there a year ago, and it gave us a great insight. It was nothing like going to Gold Food and getting on the ground there. We’ve taken a long time to do that, to appreciate what the products are that are in front of consumers, what their attitude to buying is when they’re supplying essentially it’s a big cheese market, a big beverage market, how they buy, what they buy on, who they look at sourcing from. That’s a real eye-opener, and I think while we were in Dubai you’ve got Saudi there, but you got reasonable flavor elsewhere as well. They’ll still remain. I think they’ve taken great advantage of when the prices were low; they came strong, bought up, stocked up well, and now, when prices are high, they’re backing off a bit, so the trade has slowed. They very much work on the value of fat, and when you get the difference between whole milk powder and the skim butter equivalent, they’ll move across the whole milk, and they’ve done that lately. So, butterfat is… Everything’s price-sensitive. Everything is a numbers game. Most of that trade is done that way, and I think cheese, we were there looking at some cheese markets, and that is fascinating, because it’s what they call cheese is something with pretty low dairy solids in it. So, they’re buying all these different dairy ingredients to partly feed that market as well as buy cheese to certain extent, from whoever is prepared to meet their price and spec. And I think that continues, but it’s certainly healthy that it’s reasonable income growth for consumers. I think the stability of the oil market certainly being part of that, I think Saudi Arabia is a very healthy economy, that’s showing up in the way that food trade is then backing into what their volumes look like. Joanne: Yeah, I think what was interesting when we were there earlier this year, Josh, was that they’re really keen to push tourism, particularly in Saudi and the UAE, obviously in Dubai, and so that’s going to help a lot of that food service demand that will pull through cheese. So, they’re certainly interested in U.S. cheese. At the moment it’s at a price, and as you said, Josh, probably the third ranked at the moment, but there was a lot of interest in the cheese that will be coming out of the U.S. because they see limitations certainly out of Europe, and it’s going to be that issue of meeting spec, because they do have a strong preference for the grass fed cheese, just the look of it and the taste. But there is definitely an opportunity there for the U.S. to get into that processed cheese market, which is huge, like massive. Just low milk solids, as Steve said, and price sensitive. Steve: I think that’s the other stunning facts we saw that food service growth in that market is astounding. It is going to stay double-digit for the next five to 10 years. Their lifestyles are changing. I mean, reform in Saudi Arabia has talked about a lot and you get a lot of that, but on the ground, when you hear the dairy companies talking about what it actually converts to and how you see behavior and spending change, that is a very healthy growth market. Sure, it might be keen, but there’s also opportunities for higher value going in there too, because it’s not all commodity. It’ll create segments and become more affluent in certain parts of it, so there’s a bit for everybody. The other part of that puzzle is Algeria, which is a very important powder market and always difficult to read as to the way in which the government wishes to attempt to feed the population or ensure the population is happy and contented and paying reasonable prices for food, because that keeps the angst down, keeps civil unrest low and that’s a huge priority. That market has been a bit patchy, and I think we haven’t seen the consistency of large tenders coming out of Algeria. That’s probably been a bit disappointing. The other markets might’ve picked up volume that market’s been a little bit lower and North Africa is over the year, whole milk powder trade is down. Nearly 10% down on a yearly basis. Skim is up. I mean, they traded to skim, which is interesting to understand given the different… That’s probably just an absolute price of the powder, but a lot that trade’s small, but holding up, yeah, they’ve seemed to have moved away from whole milk to some extent, which is a factor for the South Americans and the New Zealand, because Europe is still in there with a little bit of that, but it’s mostly south hemisphere trade. Diego: There’s also rumors that there’s going to be a tender coming for Algeria, so let’s see how that affects the stock market mainly in Europe, because Europe is still at a steep discount to the U.S., so that’s going to be interesting. Josh: For skim milk specifically you’re talking about, right? Diego: Yeah. Josh: Yeah. Diego: Correct. Josh: This was good. We covered a lot. T3: We covered a lot in a pretty condensed amount of time. And just to summarize it up as we start to wrap it up, it sounds like what we’re hearing is demand’s going to be good in Asia, demand’s going to be good in the Middle East. Production may be good in Oceania, production may be good in the U.S., but probably not necessarily as good as it needs to be on the powder side of the business, especially from the U.S. with the new cheese plants being built. And so we probably can expect pretty decent skim milk prices either in the form of skim milk powder or non-fat dry milk going forward into 2025, at least in the first half of the year, and probably even butter as well and I think the big wild card is what cheese will do, because we will have more cheese. Before we wrap it up, I think I’ll throw that one at you guys, Joe and Steve. With more cheese being made in the U.S., do we expect international cheese prices to stay up or is that maybe one weak spot in the horizon? Steve: Yeah, we think that’s a weak spot. T3: Okay. Steve: Yeah. It’s where the export volumes are going to be satisfied, I think, because New Zealand is certainly counting on more cheese exports as well. The U.S. will have more. Europe, depends on their overall balance, but Europe likes to export cheese to keep balancing that internal market as well, right? And mozzarella is very important there. They’re very good at it. But the contested markets where the U.S., New Zealand and Europe go head-to-head, that’s North Asia, Japan, Korea, you get in the Middle East, you get Australia. Those markets, the U.S. has lost some share to New Zealand. Europeans have been out of that a little bit. They’ve lost a bit of share as well. Australia’s picked up share, can you believe? But I think that contested zone is where those marginal volumes will go and that I think that will be bought at a lower price. So, we think the export trade will be, chief prices will be under pressure. T3: Okay. I would say we agree with you on that one. Joanne: A little bumpy as that cheese comes online, I think. As that finds a home, it will be bumpy for the first half of 2025, you would think. T3: I think I would’ve to agree with you. Joanne: Everyone’s bracing for it. Yeah. T3: But that’s the interesting thing about markets, isn’t it? When everybody’s expecting something, it doesn’t always manifest it that way because of the plans that everybody puts together. Well, I thought this was a fantastic conversation, a little bit of hope or at least Class IV prices coming out of the U.S., a little bit to be concerned about maybe for Class III prices coming out of the U.S., but overall, nothing for us to go hide in a hole and bury our head over. Steve: There’s never a reason to go and hide your head somewhere. There’s always plenty of color. T3: There always is. Steve: Yeah. T3: All right, guys, as always with dairy markets, it’s going to be another interesting year. Well, Steve, Jo, thank you so much for joining us today. This was a great conversation and we really appreciate it. Steve: Thank you for asking us. We’re really happy. It’s great to see you guys. Thanks for the opportunity. T3: Absolutely. Joanne: Thanks everyone. Diego: Nice to see you. Be well. Thank you guys. Appreciate it. Have a good one. Outro (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast at www.jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby and Company.…

The Milk Check

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Low herd numbers, peak demand: Your update on the shifting milk market 21:18

منذ 41 weeks21:18

21:18

As summer fades, we're moving into peak demand season for the U.S. dairy market. Keep on top of shifting trends with The Milk Check. Guest host Josh White and a panel of industry experts discuss the latest trends and projections for U.S. dairy as we approach this critical period. 💸 Blue tongue’s impact on European milk production.🧈 Butterfat is bucking the trend with a strong inventory.🍦 Cream prices have softened after a brief surge in the last few weeks.🧀 Cheese markets set record-high prices this year, but is the tide turning?🐄 Milk powder prices are on the rise as we head into peak demand season. Plus, we’ll look ahead to 2025: What impact will the expanded cheese production capacity have on milk prices in the second half of the year? Get the market scoop from Josh White and his team, including Diego Carvallo, director of dry dairy ingredient trading; Greg Scheer, manager of milk marketing; Jacob Menge, vice president of risk management & trade strategy; and Joe Maixner, national sales manager of dairy ingredients. Intro (with music): Welcome to The Milk Check, a TC Jacoby and Company podcast where we share market insights and analysis with dairy farmers in mind. Josh White: Hey, everyone. Welcome to The Milk Check. Today is Friday, September 20th. I am Josh White, filling in for Ted this week. We've entered that time of year when producers or processors, customers alike, we all put that summer fun behind us here in the Northern Hemisphere and focus a lot more attention on what's happening in the market today, closing out the year and thinking about what could influence the next calendar year. As a result, we think it's a great time to have what TC would call a good old classic market discussion. Today, I'm joined by most of our traders here at TC Jacoby and Company, and I'll lead that discussion in Ted's absence. So I'll do my best Ted impression and say, "Hey guys, where do we start?" Does anybody have a thought as to what we should cover at the beginning? I personally think it all starts with milk. Greg, I would love your opinion as to what's happening today and the market as it relates to milk moving across the country and what your thoughts are looking ahead. Greg Scheer: Thanks, Josh. Yes, we've seen tighter spot markets this summer and this spring compared to previous years. We have tighter milk supplies. We have a lack of replacement heifers. We have very expensive replacement cows. Producers have been holding back from culling as heavily as they usually do. We just don't have the replacements to increase milk supply. So we have firm spot markets. We've seen that this summer. We expect to see that this fall, but we are setting up for 2025 to be a tighter year for milk supplies because of those reasons. Now, that could be mitigated some. I've heard of very good harvests being put up, good quality, cheap feed, and producers will be able to feed those cows maybe a little better, but the fact of the matter is it's going to be hard to get cow numbers up. They'll probably decline, and the cost of any kind of replacement will be high. Josh: So Greg, you're talking through those dynamics and that doesn't take into account what the industry has discussed a lot about all these new plants coming on a new capacity. We've got another plant firing up any day now, another large one in the southwest that will likely start early in 2025, and a few plant expansions in the upper Midwest. How do you think that that influences this tightening milk dynamic as we go into next year? Greg: It will make the milk competition just that much stronger. For the producer, it should help get higher premiums for milk in those competition areas. Plants will have to plan ahead, and even in some regions where milk's traditionally been very long and can get all the milk they want, it will be harder next year. It's just more competition. It will maybe pull some milk from other plants, and some older,…

The Milk Check

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Silencing the Hecklers with Tim the Dairy Farmer 32:43

منذ 45 weeks32:43

32:43

In today’s episode of The Milk Check, we’re joined by Tim the Dairy Farmer, a farmer, speaker and ag comedian. If you think dairy farming is no laughing matter, then you haven’t met Tim. Tune in for a special episode of the podcast, where Tim and the Jacoby team discuss: Strong harvest likely leading to lower feed prices Could dairy heifer prices rival Black Angus prices in the near(ish) future? Could the milk price reach $30? Things you should never plan near the cow pasture Plus, learn how Tim got into the comedy biz and how he silences the hecklers. Don’t miss this episode of The Milk Check with Tim the Dairy Farmer. Intro audio (with music): Welcome to the Milk Check, a TC Jacoby & Co podcast where we share market insights and analysis with dairy farmers in mind. Ted Jacoby II (T3): Welcome, everybody, to the Milk Check. This month we've got a very special episode, we have a special guest, Tim the Dairy Farmer is with us today. Tim is going to ask us what we think is going on with these dairy markets, and we're going to do our best to give him an answer, and we'll see where the conversation goes from there. Tim, why don't you tell us a little bit about yourself? Tim the Dairy Farmer: I've been in the dairy business for 30-something years, taken my licks, started doing standup comedy as Tim the Dairy Farmer about 22 years ago, and I speak at agriculture events. I'm a standup comedian, I'm not a motivational speaker. I'm horrible at marketing myself there, Ted. So basically I'm a dairy farmer that does standup comedy, and they hire me to come to meetings, to wake up after guys like you talk. And here's another thing, this podcast is called the Milk Check, correct? T3: Yes. Tim: All right. This is how you know I'm a dairy farmer, y'all call it the Milk Check, I'm just happy my last milk check had a comma. T3: Well, that's why we call it the Milk Check, because we want to talk a little bit about markets and what's affected dairy farmers' milk checks. Hopefully most dairy farmers do have a comma right now because prices are halfway decent. But before we go to markets, Tim, I've got to ask, tell me about one of the most interesting agricultural events that you participated in. I'd love to hear a good story. Tim: Oh, man. I've got so many. It's not the good ones that you remember, it's the horrible ones. There's three shows, there's the one you planned to do, the one you do, and the one you wish on the drive home that you would have done. I've had all kinds of stuff go wrong. No, for the most part they're always fun. T3: All right. Josh White: So Tim, how often are you on the farm versus having to hit the road for comedy? Tim: I probably go off and do 30, 35 shows a year. Normally I fly out the night before and I'm back the day after. My brother's always been my biggest supporter, he covers while I'm gone. I couldn't have made it this far doing comedy without my brother's support, because we're partners in the dairy and he's always covered for me when I'm gone. T3: Where is the dairy located, Tim? Tim: Central Florida. We're actually over between Fort Myers and Tampa, where all the elderly people go to pass away, you take a right and that's where we're at. T3: When that hurricane came through Fort Myers last year, that affect you guys at all? Tim: No, it affected a few of my buddies. Nobody lost any cows, but barns were just crinkled up like aluminum foil and tossed around. I think over the years I've lost three barns to hurricanes. T3: Oh, really? Tim: Yeah. They tell you how it's rated for 80 mile an hour or whatever, and then when the tornado or the hurricane comes through it wads it up like a piece of paper and chucks it 100 yards. You're like, "Well, that wasn't rated right." Anyway. Go ahead, this is your podcast. T3: Tim, if you have a question to get the market discussion started, why don't you go ahead and shoot?…

The Milk Check

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Jacoby’s 75th Anniversary, Part 2: The Milkshed of the Globe 15:19

منذ 46 weeks15:19

15:19

Today, we share Part 2 of a special two-part episode celebrating TC Jacoby & Co’s 75th anniversary. We’ll talk about the milk industry from the '90s to the dairy world of the future. Join Ted Jacoby II, Gus Jacoby, and Ted Jacoby III for the conclusion of our special 2-part episode as we discuss: The first TC Jacoby & Co. cheese desk Our projection for future growth in U.S. cheese exports Our forecast for the future of the global dairy industry We love the dairy industry and look forward to what the future will bring. So, raise your glass of milk, and let’s celebrate TC Jacoby’s 75 wonderful years in the U.S. dairy industry. Intro audio (with music): Welcome to the Milk Check, a TC Jacoby & Co podcast where we share market insights and analysis with dairy farmers in mind. Ted Jacoby III (T3): Hello, everyone, and welcome to The Milk Check. Today, we have a special edition of our monthly podcast because this year, 2024, TC Jacoby & Co celebrates 75 years of serving the dairy industry. In honor of this special anniversary, we are publishing a two-episode edition where, in the first part, my father, my brother Gus, and I discuss and – in my father's case – tell tales of the first 50 years of our history. In part two, we share the more recent 25 years as well as our thoughts on what the future of the industry may hold. Welcome to part two. There are a lot of other things that were going on in the 90s. I mean, that all started in the 90s. We started our office in Mexico in the 90s. When I came to work for TC Jacoby & Co. in 1996, I spent about four or five months in St. Louis, and then I moved down to Mexico to help us start that office. That was quite the experience, living for a year in Mexico. Ironically, trying to move cheese to Mexico led me back to the States, and starting to sell it in the States. Eventually, I worked with risk management. At the time, we were moving nonfat dry milk into Mexico. We had a company in Mexico then, so we were TC Jacoby & Co in the U.S. selling to TC Jacoby & Co in Mexico. We were warehousing the product in a warehouse in Mexico, selling whey powder, nonfat dry milk, and various other powders to multiple distributors in the area, but then also moving a little bit of cheese. I had one of my suppliers, the cheddar cheese, cancel on me, and so I was calling around looking for cheddar cheese, and another supplier said, “Not only do I have a load of cheddar for you to ship to Mexico, but I also have about 50 other loads of cheese. You should call the guy who canceled on you and see if he needs any extra.” Next thing I know, I'm moving more cheese back and forth in the U.S. than I'm moving to Mexico. And that was when I called you and said, “Dad, I think I'm going to move back to the States, and I'm going to start up a cheese desk.” That was in 1997, and that's how we started trading cheese. We went through the 50s, 60s, 70s, and 80s, and just about everything you, Uncle Bill, and Uncle Tom moved was mainly fluid. Then, in the 90s, we started moving powder. Bill, I think in the 80s, had begun moving powder and butter in the U.S. Ted Jacoby II (T2): Billy used to move a lot of cream from California to the Midwest. Gus Jacoby: Well, remember that was a big time for us because his development of California and the cost to move fluid product at that time was economically feasible in making cream and condensed products supplied by the California Central Valley and delivered on an annualized contractual basis to places as far as the upper Midwest and even into the Mideastern U.S. at time. Understanding the CDFA and the arbitrage between that and the Federal Orders was another thing we took advantage of for a few decades. So that was a big and successful time for us from a trading standpoint of fluid products. T3: And then he was moving non-fat to many of the mozzarella guys in the Midwest when the mozzarella industry was in its infancy; that was when ...…

The Milk Check

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Jacoby’s 75th Anniversary: Part 1 – Dive into our history 23:23

منذ 47 weeks23:23

23:23

A lot has changed in the dairy industry in the 75 years since Ted Jacoby, Sr. founded TC Jacoby & Company in 1949. Today, we share Part 1 of a special two-part episode celebrating TC Jacoby & Co’s 75 wonderful years in the U.S. dairy industry. From picking up 10-gallon milk cans on the farm in the 40s to shipping internationally, we’ve come a long way. Join Ted Jacoby II, Gus Jacoby, and Ted Jacoby III for part 1 of a special 2-part episode as we discuss: How tank trucks fundamentally changed the U.S. milk supply Consolidation in the dairy industry When computers came for milk Plus, Ted Jacoby II shares his eyewitness account of the introduction of ultrafiltration (UF) milk. It all began with a coffee break. Join us for a walk down the milk memory lane in our 75th-anniversary episode, Part 1: Dive into our history. Ted Jacoby III (T3): Welcome and enjoy the show. Episode Intro: Welcome to the Milk Check, a podcast from TC Jacob and Company, where we share market insights and analysis with dairy farmers in mind. T3: Hello, everybody, and welcome to the Mouth Check. Today, we have a special edition of our monthly podcast because this year, 2024, TC Jacob and Company celebrates 75 years of servicing the dairy industry. In honor of this special anniversary, we are publishing a two-episode edition where, in the first part, my father, my brother Gus, and I discuss and, in my father's case, share tales of the first 50 years of our history. In part two, we share the more recent 25 years of our history and our thoughts on the future of this great industry we work in. Dad, I'll ask you: when Grandpa started the company in 1949, we still picked up milk in 10-gallon milk cans on the farm. So what was it like those first 10, 15 years of the company Ted Jacoby II (T2): When my dad, your grandfather, got out of the Navy in 1945, I think he and two other fellas bought a dairy in Highland, Illinois, and you're right, they had milk coming into that dairy in cans. He and his partners operated that dairy for a couple of years. They sold the dairy to Midwest dairies. Midwest Dairies was then taken over by a company called City Corp. And City Corp, and Midwest Dairies had consolidated almost all the dairies in southern Illinois. All these dairies were consolidated, then spun off to Prairie Farms, and Fletcher Gorley took over Prairie Farms and turned them into one of the premier co-ops in the United States. After they sold the dairy, he booked office space in St. Louis on the ninth floor of what was the commerce building. So he would act as a broker of barrels of this and drums of that and set up shop as a middleman for mostly dairy ingredients. There was a relationship that developed between us and Prairie Farms that has extended over all these years. We know each other quite well. The relationship has been strong for a long, long time. In the 40 years between the sixties and the nineties, pardon me, 30 years, you had several things occur. First of all, the consolidation people were picking up milk and bringing it to receiving stations, and then you could go from the receiving station to your regular market, or you could go somewhere else. There were receiving stations, called bump overs, which would consolidate the milk from many small farms and put it in a position to take it somewhere. You didn't have any dairies that shipped truckload quantities in the nineties in the Midwest. And then gradually, over that period of 30 years, you had large dairies that shipped truckload quantities, and that all occurred in the nineties and two thousand. T3: Once those bulk tank trucks became common, when we started seeing milk move to the southeast in the fall when milk got tight, T2: When tank trucks came in, it was about 1953 to 55, somewhere in that area, and the tank trucks were relatively small. 3,500 gallons was a big truck in those days, and when it became practical to move milk,…

The Milk Check

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Our pre-ADPI outlook and thoughts on 2024 29:54

منذ 1 year29:54

29:54

The 2024 ADPI/ABI Annual Conference starts next week and will likely move the dairy markets. What does Jacoby predict for dairy production and demand for 2024? Join Ted Jacoby III and our guests Jacob Menge, Vice President of Risk Management and Trade Strategy; Joshua White, Vice President of Dairy Ingredients; Diego Carvallo, Director of Dry Dairy Ingredient Trading; Gus Jacoby, President of Fluid Dairy Ingredients and Dairy Support; Joe Maixner, National Sales Manager of Dairy Ingredients; and Ted Jacoby Jr. We discuss: Jacoby’s predictions vs. results for 2024 YTD Factors impacting prices for Q3 and Q4 Continued downward pressure on milk production and lackluster fluid milk demand The impact of the Avian Flu on dairy production Plus, is whey the new canary in the coal mine? Find out more on today's episode of The Milk Check. Ted Jacoby III (T3): Hello, everybody, and welcome to the Milk Check. It's April 22nd, a week before the ADPI meeting in Chicago. And I thought this timing would be right for us to have a market discussion going into an annual conference that does have a tendency to be a bit of a market mover. Today with me, I have Jacob Menge, our head of trading strategy and risk management, Joshua White, head of our dairy ingredients group, Diego Carvallo, our head trader for non-fat, dry milk and other dairy powders, Gus Jacoby, head of our... President of our fluid division, milk cream, UF milk. Joe Maixner, head of our butter trading, and my dad, of course, joining us to give his thoughts on these markets. Welcome, everybody, and let's get to it. I was looking at our markets this morning, getting ready for this podcast and I kept asking myself the question, where did we think we'd be this week when we started the first week in January. And I don't think in any of our markets we really were thinking that we'd be dealing with what we're dealing with right now. So, I think, maybe, what we'll do is we'll start with cheese. Jake, when we were entering the year, if I remember correctly, we were pretty bearish the cheese market, and if we were talking about what we thought the second quarter was going to bring in cheese, I didn't think it was a market that was going to be up 8 cents today and in the seventies, and probably, going higher over the rest of the week. So, what do you think is going on in cheese, and compare and contrast what we thought would happen at the beginning of the year and what we're seeing right now? Jacob Menge: I would say cheese has probably been the most in line with our expectations of all our commodities from where we started the year. We were bearish, and I would argue we saw that bearishness, right? I mean, we were in the 140s for a while in both blocks and barrels, and so, I think, yeah, we've seen a pretty good push the past week or two. But otherwise, I think cheese, more or less, went in line with what we expected. Demand's been off a little bit. We've seen exports numbers are starting to look pretty good, but in general, sluggish has been what it's felt like for most of the year up until the past few weeks. I'd say cheese kind of went along with what we expected, and it's been this cycle that we've seen for about a year now, right? We get a good push higher. Last year in July, we saw a pretty good push up into, I think, the upper 180s, and then, we seemed to kind of kill demand [inaudible 00:02:57] we've been getting to those levels. And then, we've fallen into the 130s, 140s, low 150s, that generates some more demand, and we yo-yo from there. So, yeah, I wouldn't say anything too crazy from expectations on the cheese side. Joshua White: You asked at the beginning of the year, would we have expected prices in our market conditions to be where they're at now on April 22nd? And I just did a quick look back right when you asked that, just to see what our commercial meeting notes and what our dialog and discussion are.…

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