The dairy producer feels like they're between a rock and a hard place as premiums remain low while feed and shipping costs keep going up.

"So, what do we do about it," T2 asks on this edition of The Milk Check, a two-part deep dive into what the industry can do to get more money on milk checks.

In part one, we discuss how the fierce competition for labor in rural areas has reduced hauling and processing capabilities, decreasing the demand for milk while the cost of feeding the nation's large herd remains high.

Can rich Class III prices make up for low premiums and high input costs?

The conversation continues in part two, where we discuss the effects exports have on competition for milk from the farm.

T3: Welcome, everybody to the July podcast. We thought this would be a good time to have a discussion about markets. But not about markets the way that we usually talk about where we're talking about cheese prices, or we're talking about Class III prices or butter prices or powder prices. This time, I think we'll focus on the basis. How we're finding this market right now in the dairy industry throughout the dairy industry, from feed prices to milk prices, to finished product prices like cheese and butter, we're seeing major changes and big differences in the basis prices, the premiums for milk, the overages for cheese. It is just so different, especially in the spot market from what we're used to because it bears discussing because I think that's affecting how people's milk checks look, and I think it would be an interesting thing to discuss. Where should we start? Anna, Dad, do you guys want to start at the milk or should we start maybe with feed costs?

T2: Well, if you want to look back at it historically, we're taking the bull by the horns here, six or eight years ago when we delivered milk to a buyer's plant, we delivered it at class price, using Class II as the most obvious example plus a premium. And usually, the premium covered the freight, sometimes covered the freight and then even more in certain times of the year is that they'll be from the dairy or the farm, and the buyer paid the freight. Today, we're not doing that. And I guess the question is, why? Why are we delivering milk at prices considerably under-class? Does that mean that the people who are buying the milk are taking us for a ride and they're making all the money?

Well, I do think that the people who are buying the milk and taking it from the processing plant to the converter to the grocery store shelf, I think that's where the margin is. And we're not getting a piece of that margin right now. So, why not? First of all, is the margin really there? In some cases, it is. If we look at 18-month-old cheddar in Costco, $6 a pound, especially cheeses in Whole Foods that I look at, some of them exceed $20 a pound. Now, that doesn't necessarily tell the story in the cheeses that I see often, since we know who makes them, I bet you they are not running more than 100,000 pounds of milk a day, that's 2 truckloads of milk a day into a certain kind of cheese, and maybe they only run that certain kind of cheese once or twice a month.

So just saying that there's a big sale price on the cutting rack doesn't necessarily tell the full story. But it would seem to me today that the margin for the industry is in the marketing side. And we'll describe, for the purpose of this conversation, the marketing has been from the plant to the grocery store shelf. If you look at that, the dairyman is lucky to get 20% or 25% of the value on the grocery store shelf. The processor, manufacturer, if you will, he may get another 20% or 25%. It's hard to say to be so categorical depending on whatever product that you're loo...