Will the U.S. dairy market grow fast enough over the next five years to sustain 2% milk production? 

The Milk Check crew welcomes back directors Don Street and Diego Carvallo and Jacob Menge, our futures & options trader, to take on the million-dollar question.

The crew dives in deep on a vital point of growth for the industry — U.S. exports and their ability to keep up with foreign markets. The conversation jumpstarts with a discussion on the impact of Cooperatives Working Together (CWT) and its effect on buyers foreign and domestic. 

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

T3: Hi. This is Ted Jacoby. I'm joined as usual by my father and Anna Donze. Today, we're also joined by Don Street and Diego Carvallo from our milk powder team, who handle the majority of the exports for T.C. Jacoby & Co., as well as Jacob Menge from our risk management team. We start by asking a question. Will U.S. dairy exports be able to grow fast enough over the next five years to sustain a two percent milk production increase?

T3: Because if we continue to grow milk production at a two percent clip, we're going to have to continue to grow dairy exports at a record clip. Now, the truth is we never end up answering the question specifically, but we go off on a tangent that ends up in a very interesting place.

T3: As usual, this podcast is about food for thought. This is a question of whether or not the dairy industry in the United States is set up properly, structurally to encourage exports. I hope you enjoy this conversation as much as we did. Thanks.

T3: I was reading that Matt Gould's Dairy Market Analyst over the weekend. And he mentions at the beginning of his write-up that the price of cheese is weak. One of the factors that is contributing to weak cheese prices is weak exports. Then later on in the letter, he mentions that June exports as a percentage of milk solids is 8.1%.

T3: I did some research, and in April and May, it was 8.9%. The Q2 average as a percentage of total milk production, we exported 18.6% of our milk solid, which I believe is a quarterly record for the largest percentage of milk solids we've ever exported. It just occurs to me that there's a real disconnect right now between what we're hearing in a lot of places that we need to export more in order to get prices up, and at the same time, we're exporting more milk solids than we ever have.

T3: It would lead to a really good discussion about what's really the issue here. If we're going to continue to have 2% milk production growth, and milk production growth continues to look strong. It means we're going to have to export a larger and larger percentage of the milk solids that we're creating in this country.

T3: The question is the export market capable of handling and taking on that additional volume? I think even more importantly, is it capable of handling that additional volume at decent milk prices? Because it's one thing to say, "Hey, we're going to export a ton of milk powder, and we're going to do it at a dollar a pound."

T3: It's another thing to do it at a price like a dollar 28-29, like we are today, or even a dollar 50. I don't think most dairy farmers are really interested in massive increases in export volume, if we're doing it at super low milk prices because that really doesn't add to the profitability. We've invited Don Street, who's the Head of our powder group who handles the majority of the exports for our company, as well as Diego Carvallo.