Some "ugliness" in dairy product markets remains, but Anna, Ted and T3 discuss how it's not as bad as it could have been.

Higher EU cheese prices bode well for the U.S.

Butter prices aren't stellar, but they're not awful either.

What will a gradual shift from Holsteins to Jerseys mean for milk markets?

Ted cautiously predicts when dairy farmers may begin to see higher milk checks.

What's the situation where you are? Send your observations or questions to [email protected].

Episode transcript

Anna: Welcome to "The Milk Check," a podcast from T.C. Jacoby & Company where we share market insights and analysis with dairy farmers in mind. Let's start today with a follow-up on a topic from last month's discussion, the Gulfood show was in mid-February and T3, you mentioned being interested in feedback from that show, particularly in getting some indicators of whether it be the U.S. or Europe getting the export sales in the coming months. I've only heard a little bit of the feedback, but it sounded to me like the answers were pretty mixed. What were your impressions?

T3: I think they were mixed by product. So the nonfat dry milk market is, in a word, ugly. There's too much in Europe. There's too much in the U.S. There's too much everywhere. And that's a problem that's getting worse, not better. So I don't see a quick recovery from the price issues we have with nonfat dry milk powder or skim milk powder anytime soon.

And unfortunately, the weakness in the nonfat dry market is cascading over into the other powder markets. Lower nonfat prices lead to lower protein prices, and so you're getting weak prices in the milk protein concentrate part of the business, the whey protein concentrate part of the business and ultimately, even in the sweet whey powder part of the business because some of the older nonfat dry milk is starting to enter into the feed market. And it's an issue of sweet whey powder's 12% protein. Nonfat dry milk is about 34% protein, and so it's close to a three-to-one ratio which means if we're at 60 to 65 cents a pound for older nonfat dry milk, divide that price by a third and you get 22, 23 cents, which is why that's where the whey prices is.

The good news is on the cheese side, we came out of that show more bullish. Cheese demand globally was surprisingly good. Europe is getting a fair number of decent cheese contracts, and the U.S. is getting a fair number of decent cheese contracts. I think global demand for cheese is up, and I think it's benefiting everybody at the moment. We came away with some good opportunities, some good export contracts. We know that some of the big manufacturers did as well. The mozzarella market was particularly strong, but the cheddar market was strong as well. Well, I think right now while we're during the flush, the cheese market, and the cheddar market specifically because that's what drives price, is going to be well enough supplied that I don't expect any sudden big increases in cheese price today in March or in April. I think it sets the tone for the rest of the year where cheese inventories are not gonna become terribly burdensome and cheese demand will probably be pretty good. And as a result, I think we can be optimistic about the trajectory of cheese prices between now and the end of the year.

Ted: I agree that the prognosis for the rest of the year isn't as bad as it could be. Powder nonfat dry milk, SMP is bearish. It's probably gonna be bearish for quite a while, inventories in Europe, inventories in the U.S., and I agree with you, inventories everywhere. However, the other side of that line is butter. While it's not as strong as it has been in prior years, it's certainly not weak. The prices are still holding above two bucks, which will tend to hold the Class IV price up. We watch the synthetic Class III and Class IV prices...