On this bite-sized episode of the Milk Check, Ted Jr. and Ted III take a look ahead to discuss one of the industry’s most pressing questions: how will deflating premiums and rising labor and manufacturing costs affect market inflation? 

Ted Jr. begins by observing how decreases in Class III and IV premiums over the past five years have exacerbated the domestic industry’s reliance on exports, and Ted III follows by outlining the encroaching dangers of inflation to the domestic and international industries.  

The hosts go on to predict the timeline of market inflation, the dangers imposed by international supply chain issues and the reformations needed to counter rising prices. 

Ted Jr.: What we were talking about this morning was the change in the hauling rates and how it affects the dairymen. Talking with our milk group, five or six years ago, the norm on hauling from picking up the milk on the farm and delivering it to the usual handler or a plant, let's say. Call it 50 to 75 cents depending on location. Maybe less up in Wisconsin and maybe the handler, whether it's a co-op proprietary, is picking up part of the tab on the hauling. But today that hauling cost is pretty much double. And you're not going to have, even if the manufacturing plant is across the street, you're not going to really have it for less than a buck, and a buck and a half we decided is probably the norm. Well, the issue is, and this relates also to Ted's meeting on how to handle Class III and IV. Five and six years ago, the norm was to sell the milk to the manufacturing plant at a premium, and premium over the Class III or IV as allocated.

Ted Jr.: And today premiums are difficult. If we get any premium at all, they're relatively small. Five and six years ago, maybe a buck in some cases, a buck and half over delivered. Today, 25 cents if you're lucky to deliver it to a manufacturing plant. Then in addition to that, you have operating costs not only for the manufacturing plant, but also for the handler who happens to be handling the milk, whether it's cooperative or proprietary, and those costs continue to go up. So, we're asked from time to time, when are we going to get back to a premium? Well, I don't see it coming. I do see the price possibly going up, the net return to the dairyman. But if you do the numbers right now, you've got Class III and IV at roughly $20, a hundred weight. Hauling costs in a buck and a half or so. The dairyman is lucky to wind up with $15.

Ted Jr.: It's a rare dairyman who's going to make money at $15. Yeah, there's some very efficient, large dairyman who could probably do it, but the everyday dairyman is going to have a problem with that. I think this is a reality which needs to address, which of course is one of the reasons that…why you had the meeting. Obviously the people who call the meeting are feeling the same heat that I'm detecting with regard to how much money is actually being filtered back to the farm. And we're becoming more and more reliant on exports. And what a mess that is when you look at the logistics for getting containers, whether it's cheese or powder or whey or whatever. Getting it to the port and then there seems to be quite a bit of controversy on who's the problem at the port, whether it's the port facility or the trucker or the steamship line, it's a mess.

Ted Jr.: You wind up losing business. You wind up with much, much higher costs and very little margin left when you're done. So this is an issue that I think we need to deal with. I'm not sure how we're going to deal with it. I think inflation will probably take care of it and the result of that would be that there would be continuing diminishing milk supply. We dropped to 1.1 last August.