Is there a structural problem plaguing the dairy industry?

In this discussion, Ted, T3 and Anna dig into some fundamental changes in the way Americans are eating that spell bad news for the supply side of the industry, which seems unable to shut off the spigot.

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. As we'll discuss in a moment, markets haven't changed much since last month, but we plan on having a wide-ranging conversation about a few market dynamics that have us worried, and it has nothing to do with tariffs. T3, get us started.

T3: We're sitting here in the first week in August, the markets, at the moment, are very similar to the markets of July. Not a lot has changed in terms of tone in the last month or two. Cream multiples have been better, so maybe on the butterfat side things have been a little bit better. But probably not enough to create a material difference in a farmers' milk check. My guess is that the August milk check isn't going to be that much different than the July milk check.

As you get into late August, schools are getting back in session, the Class I plants will be pulling some milk away from the cheese plants and the Class IV plants. And so, you may see a small increase in cheese prices, you may see a small increase in powder prices, which may mean the Class III and Class IV prices go up a little bit. But the way I look at the market right now, if you look at the current spot prices for cheese and whey and non-fat dry milk and butter, and you look in what that calculates out from a Class III, Class IV perspective, and you compare it to the futures. You'll see there's about a 75 cent to a dollar gap between where we are now and where the futures are predicting, September, October, November are gonna be.

We certainly have a different attitude about the strength of dairy markets in the fall today than we did four or five months ago. We're definitely not as confident about better demand and higher prices today than we were. And as a result, we've kind of gone off into a different kind of path in our discussion on the podcast today.

Ted: I'm troubled by the fact that everything I read is trade and tariffs.

T3: Right.

Anna: Yeah.

Ted: Everything. We're obsessed with it, and we have record trading, okay, right now. And everybody says, "Well, this is the source of the low prices." It's not.

T3: Well, it's a timing issue though. Most of the tariffs...

Ted: I will grant you that if all of a sudden we have embargoes and a full-fledged trade war, it will happen, but we haven't got that at this point.

T3: Right. Most of the tariffs didn't go into effect until the first week in July. And so far, our trade data is through June. And so, we won't know the effect of the tariffs until they start producing the July data.

Ted: Well, why doesn't the world know that? You know, this has reached the point of the most disingenuous thing in the face of the Earth. It's not. It may be one day, but it's not right now. What we got right now is too much milk and not enough sales.

T3: And not enough domestic sales.

Ted: Yeah. Domestic sales are the issue.

T3: The first question is gonna be, "Why are sales down?" The second question is gonna be, "Where did the sales go?" You know, and so, that's what we don't know, is where the sales went. Now, I suspect, you know, the vague answer to that is there's a lot of little privately-held food companies out there that are grabbing a lot of these new sales. I know part of it is also they keep saying they've lost a lot to private label. But we see the private label side of it with Schreiber and Great Lakes and those guys.