In our first episode, host Anna Donze, Ted Jacoby Jr. and Ted Jacoby III (we'll call them Ted and T3 from now on) recap movements in dairy markets in 2017. It was an abnormal year for many reasons, capped off by an oversupply of milk and weakened demand that will depress milk checks for months to come.

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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. Today is January 26, and I'm your host Anna Donze. With me today, we have Ted Jacoby and Ted Jacoby III, whom we'll refer to as T3 to avoid confusion.

So now, we'll get right to it. For this first episode, we'd like to talk about past events that have gotten us where we are, particularly in 2017. So first thing’s first, where are we?

Ted: Well, offhand, I'd say we're in one hell of a dilemma. If we want to look at all the bad news we got, we just came off of a year where the prices started out relatively high and continued to decline the whole year. We're in the middle of—the end of January, and the prognosis of everybody coming back from California is that the market is long and it's about to get longer. And that's in virtually all products. It's gonna be in cheese, in powder, even butter seems less exuberant than it has in the past. So, the question, then, is where is it gonna go from here? Have we hit bottom or is it gonna get worse before it gets better?

T3: Well, I could jump in, and at least from the product side of the equation, 2017 was a strange year, I would say. We went into the year knowing that we were gonna be long on milk in the upper Midwest and the Mideast. You know, the idea that we had a lot of milk in Michigan, and we didn't have the capacity for it was not a surprise. But what was a big surprise, especially on the cheese side of the equation, was that demand was not very good in 2017. We had an economy that seemed to go really well and seemed to be moving in the right direction, and yet cheese sales were up about only 0.5% through the year. And for the first six months of 2017, they were as flat as could be. And that follows two years in 2015 and 2016 where cheese demand was up almost 3.5% each year. And then, all of a sudden, we went flat. That caused, I think, cheese inventories to back up a little bit. Meanwhile, 2017 for butter was actually a pretty good year. But it wasn't driven by butter demand in the U.S. Butter demand in the U.S. was also very lackluster. Fortunately, they had a shortage of butter in Europe that drove international prices for butter up very high. And for a while, pulled the U.S. butter market with it. And we got up to prices around $2.70 and eventually settled back down into the $2.10-$2.20 area. So, I think, butter for around 2017, was a pretty good year. Cheese? Probably a little bit on the disappointing side, and then on any of the powder side, I think 2017 was very disappointing. There's a lot of inventory of non-fat dry milk and skim milk powder throughout the world, and we keep producing more. Europe has over a billion pounds of powder in intervention. And nobody's interested in buying it, and now it's almost two years old. Meanwhile, in the U.S., we have powder inventories being built up at the manufacturer level, at the trader level, at the wholesale level, and even at the end user level. And so, it's hard to imagine that things are going to suddenly get significantly better on the powder side.

And then, if you look at the whey market, we pretty much started the year up in the $0.40s and ended the year down in the $0.20s. And so, it was a steady grind lower, and that certainly isn't what we want to see either.

And so, as we get into January, we don't have a lot of good things to say about what's been going on in terms of wh...