On this two-part edition of The Milk Check, listeners get a seat at the table during our mass balance report meeting, held after the release of monthly milk production numbers. Our traders gather to evaluate the data, forecast class allocations, share what they're hearing from buyers and sellers, and chart price data to predict market developments. 

Our regular cohosts, Ted, T3 and Anna, are joined by Don Street, director of global strategy; Gus Jacoby, executive vice president of the Fluid Dairy Group; Jacob Menge, director of risk management; Brianne Breed, vice president of cheese and butter sales; Joe Maixner, cheese and butter sales manager; and Diego Carvallo, director of dry dairy ingredient trading.

In part one, we evaluated the fundamentals of the dairy markets and what the monthly production numbers mean for different industry sectors.

Now in part two, we look at anecdotal evidence in the wider marketplace, such as the consumer price index and international trade, to forecast dairy's future in the global economy.

Anna: Welcome back to part two of the March episode of "The Milk Check," where we're going to continue to listen in as the team participates in our monthly mass balance report. If you missed Part 1, make sure to go back and listen.

T3: Thanks, Anna. In this section, we'll rejoin Jake and our dairy product trading team as we talk this time about things on a much more macroeconomic level. Jake gets into a fascinating discussion about what we think inflation is going to be doing over the next few years and, from that, we'll dovetail some of the more kind of higher-level issues that we're paying attention to and how those issues might affect dairy production. Jake, take it away.

Jacob: Alright. Let's kick off the product trade discussion side of things. A lot of times when we discuss the product group, we'll start kind of with a macroeconomic outlook. And I think today the obvious place to start is inflation. And we've been talking about inflation for a while. This week and last week, some really notable things happened on inflation, so I have to talk about it for two seconds here because it actually relates directly to milk in my opinion.

OK, so let's talk about the consumer price index for just one second, right? It's what everybody uses to gauge inflation. You've probably heard, like, "Oh, for the last decade, we've had very low inflation." And if you use the CPI as your gauge for that, then it's true.

I think the CPI is broken for gauging inflation and here's my reasoning behind that. Over the past 10 years, the wealth gap has gotten larger between the top 25% and the bottom 25%. And the CPI is terrible, terrible at capturing inflation on the assets where the wealth is actually growing.

And so here's my example. CPI. What is it? It basically looks at a basket of things like fuel, of food, of housing, stuff like that, OK? I'll be very blunt. If one person makes $100,000 extra in a year or 10 people make $10,000 extra, it turns out that person that made $100,000 extra doesn't go buy extra bread with their $100,000, right?

And so the CPI does not reflect that. What does the person that made the extra $100,000 buy? Stocks. They invest it. That, in my opinion, is where inflation has existed; it's the stock market.

And that is actually pretty well-reflected in P/E ratios, right? Everyone these days is saying like, "P/E ratios are worthless," blah, blah, blah. Well, why is that? It's really a function of inflation. It's a different type of inflation but that is really, really, really, really important to commodities to understand.