Markets remain sluggish. Anna, Ted and T3 discuss whether that's partly due to a retrenchment in demand for dairy products. Ted and T3 believe milk checks are as low as they're going to get, and it could be mid-summer before a spike in milk prices is anticipated.

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Episode transcript

Anna: Welcome to "The Milk Check," a podcast from TC Jacoby & Co. where we share market insights and analysis with dairy farmers in mind. Today's February 15th and we have Ted Jacoby and T3 with us to discuss current prices. Most producers will be receiving their January final checks in the coming days and they will see yet another drop in the Class III or blend prices on their checks. When we've talked about prices in our office, one of the topics that keeps coming up is lack of demand. We did touch on this in the last episode. But for anyone who missed that conversation, can you give us a bit of a recap of where demand is now and any new thoughts or information you have on the issue?

T3: It's interesting, the other day, the "Daily Dairy Report" actually had an article about the disappearance of demand. And I thought that it painted the picture pretty well. It talked about how domestic demand has been surprisingly flat in 2017. But it also talked about how exports were up, I believe it was somewhere around 14%,15%. And I think that paints a pretty clear picture and it jives pretty closely with anecdotally what we've been seeing in the office. And unfortunately, I think what we've seen so far in the short time we've been in 2018 is a continuation of what we were seeing in '17.

Exports are okay, to decent. No one's hitting home runs but there's exports getting done and domestic demand just continues to be lackluster. And this isn't a phenomenon that's just happening in the dairy industry. If you look at just about every CPG company in the Fortune 500, they're all having the same problem. They've seen their sales flatten and in most cases, they're actually down. Yesterday, I had a long conversation with someone who I think pretty highly of who made an argument that I think bears discussing.

He said that what we're seeing, and I think in our office where we tend to really focus on the commodities side of the business, we're seeing very clearly a flattening of demand. You're not seeing growth in the commodity dairy products. And when I say commodity, I use that term loosely. I'm talking about everything from mozzarella cheese to cheddar cheese to, you know, yogurts that are sold on a mass level. And just about all of the high demand high volume dairy products, whether it's through the retail channels or through the food service channels, that demand has been very, very flat, and even a bit negative in some cases.

Yogurt demand in the last 12 months are down about 5%. Processed cheese demand in the last 12 months are down about 4.5%. Fluid milk sales, we've been arguing for years has been on a steady decline. The commodity dairy products are down. We are seeing growth on the more specialty and unique side of the business. Fairlife is something that certainly has seen a huge increase in demand lately.

I think when you go over into the specialty cheese category, you're seeing a lot of really good demand growth there too. And so, if you go into the places where there's a lot of unique product mixes, you are seeing growth. The problem is that you're comparing flat to decreasing demand in the high volume products that probably encompass 80% to 90% of the dairy industry. And where you're seeing demand, it's in the much smaller market segments that probably only use between 10% and 20% of the milk out there.

And I guess personally, unless we start getting some significant population growth in this country which I'm inclined to think is not going to happe...