So far, milk production across the eastern U.S. is trending downward. Cheese prices are strengthening. The pieces are in place for an industry-wide recovery. Will it happen?

Also, Ted, T3 and Anna answer some questions submitted by a listener.

Anna: Welcome to "The Milk Check," a podcast from TC Jacoby and Company where we share market insights and analysis with dairy farmers in mind. We've seen an increase in the cheese price and the Class III price is looking up for March. Do either of you think that's sustainable, and has that changed your forecast for the end of the year?

T3: It looks like the Class III price in December and January are both gonna be somewhere right around $13.96, $13.95. You're probably gonna have two months in a row where your Class III price is within 10 cents of each other. Last couple of weeks we've seen a bit of a pop in the cheese market. So we've seen the cheese market go from...

Ted: Why did we see the pop?

T3: A couple of factors. One, I think December and January were pretty good months for export orders. Mostly...not necessarily a traditional market like Mexico. More, you know, Asia, the Middle East. I think we saw a pickup in demand for U.S. cheese in those markets because, one, Europe's milk production continues to struggle and the U.S. cheese market in December and January was lower than the world price. I should qualify, the spot market was lower than the world price, but the futures market was actually higher than the world price. So you saw a lot of spot buying that was going into the international markets, but that kind of kept the U.S. cheese market cleaned up a little bit.

And I think what happened is we got into February, that started to become a little bit more apparent to the buy side of the equation domestically. Now there's a warning embedded in this as we've gotten into a price and the $1.50s for blocks and the $1.40s for barrels, we've taken ourselves out of the international market. And so we've lost a nice chunk of demand that we were getting 15 cents ago when we were in the $1.30s.

Ted: But the futures market hasn't really changed that much.

T3: No, it hasn't. And we've had a lot of discussions about that in our office as to why. And I have two beliefs about that. The first is I don't think that our cheese markets are ready for a big rally. I do think they're coming back, in other words, I don't think a $1.58, $1.59 block price is sustainable in the middle of February. I don't think a $1.42, $1.43 barrel price is sustainable in the middle of February. And so I suspect that sometime in the next three to four weeks, we may be up here for a few weeks, but at some point in the next three to four weeks, I expect those prices will come back down.

However, I'm also gonna say it this way, bull markets aren’t straight linear lines that go from a low price to a high price. They evolve over time and they evolve within volatility. And usually the way it works is you start out with a really low price, you go to a higher price, then you'll pull back to another low price. But that low price is a higher low and then you ended up with a higher high and then a higher low. And so the market's still cycling from high prices to low prices, but every low price is a little bit higher than the last low price and every high price is a little bit higher than the last high price.

And so the way I expect that this cheese market's probably gonna play out over the next, let's call it 12 to 24 months, is we're still going to see volatility. You know, maybe we peak this cycle around $1.59 in blocks and maybe $1.42 in barrels. And then we pull back maybe to $1.45 in blocks and $1.32 in barrels, which is...maybe even $1.25 in barrels. That's still higher than the low a month ago. And then the next cycle through,