On this two-part edition of The Milk Check, the Jacoby team lets listeners in on a monthly mass balance meeting. The meeting splits neatly into two episodes, one led by Global Strategy Director Don Street and the other led by Head of Risk Management and Trading Strategy Jacob Menge.

In part one, we evaluate milk production data and forecast what Q2 will look like in terms of overall milk production and class allocation. Ted disagrees with Don about supply-side expectations moving forward, and Don puts forward a modification to his predictive model.

In part two, we will zoom out to talk inflation, interest rates and the macroeconomic factors impacting dairy markets. Jacob presents a bird’s eye view of various commodities markets and interesting trends to note in dairy and beyond.

T3: Hi everybody, and welcome to the Milk Check. This month, we recorded our monthly mass balance and charting meeting. It is a monthly meeting that we hold internally where our whole trading team gets together. We look at the milk production and cold storage reports, and we look at some of the technical charts and we share our opinions about what we think this data is telling us and what we think this data is predicting about what'll happen in the future.

We had some really interesting discussions this month. I think you'll really enjoy eavesdropping into these discussions. It was a long meeting but it was a really good meeting. So, what we've decided to do this month is split it into two parts. The first part is Don leading the discussion about the mass balance. What we think is happening in Class I milk, Class II milk, Class III milk, and Class IV milk. It was a great discussion. I hope you enjoy it. Thanks for listening in.

Don Street: All right. You should see the PowerPoint for Mass Balance, April 2022. At this point, not completely, but all the data for Q1 that really counts we have. We'll get more early next week with dairy products. But we have it and now we're really at the point of what will Q2 hold. And I'm going to walk you through a couple of scenarios on that, and then we'll look for your guys' input.

So again, Q1s in the book, down 9/10ths of a percent on milk for the quarter. But clearly a steady progression towards trying to get to zero change year over year on milk. January was the big down, February less, March even less. We still have this reality that Q2 of last year was up 4% on average. And I think that's going to be difficult to be positive over it. It's just a question of how much negative under that will be.

But nonetheless, with these improving milk numbers, my projection is getting stronger. So, a month ago I thought we'd be down 1.7% for the quarter. Now I'm at 1.4% negative. You could argue, well, it's all in the same ballpark and I would concede that point. But nonetheless, two months ago I think I was talking over that we would have a reduction of over 2%.

So, when you add two months together, the second quarters not looking as dire as I once thought, but I still don't think the market's anticipating this very well. And to maybe add that, had several people tell me in Chicago this week that they thought we'd be even on milk production year over year by the end of the quarter. I just don't think that's possible. And mainly it's because of cow numbers.

Now, USDA really threw a curve when they restated the February numbers last week, adding about 10,000 cows that apparently shouldn't have been taken out of the herd. But I've now taken this forward projection and trying to listen to all the voices that will not see a strong change in cow numbers, but we should be past bottom. So,