Dairy markets are getting stronger, and dairy farmers are earning higher paychecks as a result. Ted and T3 welcome Vice President of Powder Sales Jeff Johnson to The Milk Check to help project how much higher the Class III price goes by the end of the year.

But, as Ted warns when things get too bullish, "careful is the watchword."

Episode transcript

Anna: Welcome to "The Milk Check," a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind. Today is May 10th. This is Anna Donze and with me, I have Ted and T3 as usual. We also have a special guest, our vice president of powder sales, Jeff Johnson.

Things have changed over the past month and instead of our usual “wait and see” discussion, we seem to have good news to share. The Class III market bottomed out in February at $13.40, went up to $14.22 in March, and $14.47 in April. So what's going on?

T3: Well, not only that, but it's probably gonna come out somewhere around $15.30, $15.40 once May's done pricing. To be honest, markets have gotten stronger. We've seen good exports, good cheese exports, we've started to see, I think, good powder exports. It's not the environment that we expected back in February. We're seeing much better demand not just domestically, but internationally. And that started to kind of change the supply and demand dynamic.

Ted: What do you mean we didn't expect this in February? You wanna go back and listen to the last podcast?

T3: Okay. So, I didn't expect this in February. You did, you did.

Ted: If I recall correctly, we said exactly the base for what we're talking about right now. And I don't think there's any mystery at all as to what's going on right now. We have a good economy. We have increased demand in the U.S. as a result. The world economy is also strong and we have increased exports at almost 2014 level. In fact, in some areas, actually a little bit higher. Now, the markets have gone up, they've gone up. If you wanna look at February versus May, the Class III price has gone up something a little less than two bucks. But if we look at the cheese market now, using that as a barometer, the spread between the European prices, the Oceania prices, and the U.S. prices has narrowed.

So, it doesn't mean that the increase is over, but I think that we're probably looking at a plateau here for May and June as far as Class III pricing is concerned somewhere in the $15, mid to low $15s. And then depending on how the harvest goes and depending on how the summer goes, if it's hot, you know, we could be looking at $16 by the time we get to July. I think we'll be at least another couple of bucks higher than that by the time we get to November. So...

T3: So, you think we're gonna see $18 Class III in November?

Ted: I don't know about $18. A couple of bucks to me is $17.

T3: Okay.

Ted: $17 to $17.50 on the Class III.

T3: And you think this is gonna be driven by demand?

Ted: I don't see anything to stop it. Production has sort of plateaued, it's still going up. But the European, the increase in production is down. And the U.S. increase in production is down. Culled cow rates in the eastern part of the country are up, but they're down in the west, southwest and the west. So, I think that basically we're gonna continue to see strong markets through the year. I don't think it's gonna be explosive. I think it'll be a steady increase at least through November. And then we'll see where we go from there. If, you know, we're gonna see some attrition with dairy, but we're seeing it. But it doesn't mean we'll have a negative number. At least I don't see that yet. But, you know, zero growth with an increase in demand is a very bullish situation.

T3: And to be honest,