The crew comes back to the mic to predict how demand will respond to milk prices approaching record highs across the market.

Between widespread inflation and rising interest rates, the economy hasn’t been in a remotely similar situation since at least the 80s. The discussion touches on potential for a European recession, how interest rate increases affect nonfat trade with Mexico, milk consumption expectations and the barriers to a rapid supply response to record-high prices.

The team comes up with potential answers and a few more good questions. Ted Jr. closes out by backing T3 into holding onto a bullish position.

T3: So, this week, joining my dad and I in the discussion is Don Street, our head of global strategy, Jacob Menge, our head of trading strategy and risk management, and Joshua White, our vice president of whey and feed ingredients, and we thought this podcast, the conversation that would be pretty appropriate would be, given the current economic environment we're in, dairy products are 50% higher in price than they were just six months ago, and interest rates are climbing. Are the combination of those two factors going to start stifling dairy demand, and if so, how is it going to play through the system?

The old adage has always been the cure for high prices is high prices, which means as dairy prices go up, there'll be pushback from those high prices, and ultimately, demand will go down and it'll correct itself. Meanwhile, producers are making more money at higher prices, so they increase supply at the same time. The increase in supply, the decrease in demand tend to start getting prices to adjust. But we're in a very different environment this time around. The kind of inflation that we're experiencing is unlike anything I think we've seen in this country since the 1980s, and the interest rate response by the Fed is going to be probably unlike anything we've seen since the '80s, and I think as demand will adjust this time, it's not going to be like anything we've seen in the last 10 to 15 years, so I think it's worth bearing a discussion. Jacob, how do you think high dairy prices are going to affect demand from your point of view?

Jacob Menge: I think the first and most important thing to address is, are these prices high? What is a high price? I think that's an important part of the question to address because you said the old adage is the cure for high prices is high prices, but I think there's a lot baked into that statement. Part of that is historically when prices are high, that's an indication that suppliers probably have good margin baked into that number because their costs didn't really increase that much. So, when these prices really increase, suddenly they've got a lot of margin. That's an environment that can't really stick around. I would maybe push back and say prices aren't even that high, quote-unquote, anymore because we've really had the inputs increase so much, and I think that's really an important thing to address here, is you just need to reframe what the definition of a high price is and reframe the market overall in your head. Let's just run with it, though. The consumer's still going to push back with the higher number. You add to the overall prices, you're going to get pushback from consumers.

I don't think we're there yet. Consumers are pretty flush still with cash, just looking at consumer sentiment numbers, looking at all the numbers that we could get. We have a very good economy still, as much as it might not seem like it to the average household. You hear your good costs twice as much, but at the end of the day, if the consumer has the cash to pay for the goods, it's pretty unlikely that they change their buying habits. So, taking this one step further,