Last year didn't end up being too bad for the dairy industry. Even still, a massive milk supply and reduced processing have caused terrible premiums, and some producers are starting to feel the pain.

While strong export numbers show growth for the industry, it's little solace for many farmers. A big reason exports are up is because domestic pricing is so low.

Can the industry turn increased exports into healthy competition for milk from the farm or is market volatility too much to reign in?

This is the second of a two-part episode. If you haven't listened yet, hear how the labor market is affecting the dairy industry in part one.

T3: I think most dairy farmers would agree that 2020 and the pandemic was actually pretty good for the dairy farmer. Not only did a number of farmers have pretty high milk prices, especially in Class III markets, but there was also some government money, whether it's PP money or other money that went directly to the dairy farmer. So, their equity, most of them have pretty good balance sheets. And by the way, the real estate market right now is really hot also. And so, you know, the banks are probably looking at most dairy farmers and are more than happy to lend them money. To me, that's a little bit scary because it means there's no financial pressure right now on dairy farmers to reduce supply. And as much as nobody wants to talk about how dairy farmers going bankrupt would be a good thing, because it never is a good thing, that's usually what needs to be happening for us to reduce our milk supply. And right now I don't think that's happening, which means even if we have a lot of farmers talking about how they're not increasing their herds, it's unlikely that there are a lot of dairy farmers leaving the business, or maybe the best way to put it is cows leaving the business. There may be some dairy farmers selling out, but the cows are probably just moving down the street.

Anna: I think it was fair to say that a lot of people were in really good shape. I don't know that that's as true now. I think that the pain is starting to make its way down the pipeline.

T3: What are the silver linings? Exports have been good. And I'll be honest, we're recording this podcast on July 7th and just lately, we've made a number of good and high volume export deals, which is good, but there's a downside to that. I believe exports are very, very important for the future of the dairy industry so I want to make sure everybody understands what I'm about to say. Exports are necessary if we want to keep growing our dairy industry, but there is definitely a relationship between lower milk prices, especially futures prices and higher exports. The lower the prices in the U.S. typically, the more competitive we are in the international market. We're really competitive in the international market right now because prices are low. And so, we're exporting a lot. Well, that's great we're exporting a lot, but we're exporting a lot because prices are low, especially relative to other parts of the world. We are pricing our exports delivered to various parts of the world a lot higher relative to U.S. prices than we used to because our freight costs to get it there are a lot higher too. You know, whereas maybe we used to be able to get powder to Asia for 4 cents a pound. Right now we're pricing it at 8 cents or 9 cents a pound. Ultimately, that backs into what the dairy farmer gets for his milk, but that's where we need to be in order to be competitive. And so, even if you priced it differently ultimately, the dairy farmer would receive the same value for his milk. It would just maybe look like a different equation. So, exports are good, that's great, but they're good because prices are low.