We welcome our Jacoby trading team back to discuss the rapid increase in milk production so far in 2021, compared to 2020 in which the national herd decreased by 30,000 cows. 

Don Street, our director of global strategy, explores production issues like the hefty 3% increase in cheese as compared to last year, driven by American and cheddar. 

Jacob Menge, future and options trader, leads a discussion about what inflation could mean for dairy as foreshadowed by the increasing cost of many commodities, from lumber to diapers. 

T3: Welcome, everybody to our monthly mass balanced discussion. Today, we've got my father, Ted Jacoby. We've got Joe Maxtor, who's our butter trader. We've got Don Street who tends to lead the mass balance discussion and heads our powder group. We've got Diego Carvallo, also from our powder group. We've got Gus Jacoby, who heads our milk and fluid team. We've got Greg Scheer from our milk team. We've got Jacob Menge, who's gonna lead the charting discussion who also heads up our risk management group.

We've got Anna Donze who handles pooling for the milk group. Welcome, everybody. Don, why don't you take it away?

Don: I think we have a real roller coaster that's getting ready to happen, certainly on milk production. And I'll just get right into this, we’ve seen a very tight protein market in the last 10 days. Cheese has been a bit more sideways but price-wise hanging in there. When you just kind of look where we've been for Q1 we had 2% more milk, and we were running 90-some-thousand cows more than a year ago. The roller coaster starts because in Q2 of last year, the cowherd shrunk by over 30,000 head. When you look at when we start in April, instead of being 90,000 head higher than a year ago, April is going to be 110,000, let’s say, it's going to be a significant jump up. That number only grows to when we get to June, we could be 150,000 cows ahead of one year ago.

T3: Don, has that jumped because we shrunk the herd at this time last year because of the pandemic? Are we expecting the herd to grow over the next three to four months, or is it a combination of two?

Don: I think mostly the drop of Q2 last year when the pandemic really began because we had from 5,000, 13,000, 9,000 cows every month. Take that times 12, you have 8,000 on average, you get 96,000 more cows every year. So most of this is simply the drop that took place a year ago. Plus, milk per cow a year ago was also pulled back as more co-ops instituted base programs. So my milk gross projection for Q2, it’s a really solid 3% out, which is 50% more than the growth we had in Q1. To me, that's the biggest change that's coming down the dairy road in this Q2.

T3: Is it fair to say, Don, that the number is going to be twice as big in Q2 and Q1, but the real trend from Q1 to Q2 isn't more increased milk, it really reflects what happened last year because the pandemic hit and we shrunk the milk supply?

Don: That is correct. If I look month-on-month, you're clearly going to have more cows. Productivity growth seems to be pretty reasonable. Ignoring the seasonal trend on milk, Q2's gonna be just a really quarter for milk. Try to think about this in terms of what we do with the milk that's produced. In Class I, bottled milk, same old story, for the two months that we've reported in 2021, were down about 2.5% over the prior year. Last two has been really strong with the exception of cottage cheese, sour cream, ice cream, yogurt has just been on a tear production-wise, 8% to 10% up, which even on a small class of milk is significant.

Total cheese production was negative in January. February was really up strong.