The Milk Check

Our team is (mostly) bearish right now. We’re seeing signs that recent Class III price rises aren’t supported by demand, and the lack of Asian demand for powders continues.

In the August episode of The Milk Check, we discuss a recent LinkedIn post Ted made and whether there’s any strong case against bearishness when looking at dairy prices.

Butter continues to feel like an exception, and Joe Maixner wants to go “on the record” with a bullish outlook for the rest of the year but also into 2024. The international outlook, according to Diego Carvallo, couldn’t get much more bearish.

Ted: Welcome everybody to the August version of the Milk Check. Today we're going to have an old fashioned market discussion. We have with us, Josh White, Diego Carvallo, Joe Maxster, Jacob Menge, and I. So guys, I thought I'd start this conversation simply by mentioning the post that I just put on LinkedIn and you guys can tell me what you think of the post and if you think you agree with me or maybe where I'm wrong.

So it's the middle of August, it's hot outside, you're seeing 100 degree temperatures all over the country. The milk supply is tightening as a result, schools will start up soon. So demand has picked up a little bit. The cheese market has popped, improving class three prices. And most of our other markets are starting to look like the bottoms are in. Does that mean the remainder of the year will be positive for dairy farmers?

My hunch is that domestic demand will not be good enough to sustain decent milk prices. I see subtle signs everywhere. Very few of our domestic customers are giving us glowing sales reports. Most are using descriptions like average at best or slightly under budget. And while Mexico continues to be optimistic, our Asian customers are using words like depressing and even horrific to describe their sales.

So even though milk production may turn negative year over year in the coming months, I just don't see enough positive demand to be bullish milk prices between now and the first half of 2024. Guys, am I being too bearish? Josh, what do you think?

Josh: Just talking to different people I would echo what you mentioned. I had a few calls where people have said to date their overall demand has been lackluster. Their coverage going forward is taking into consideration some of that uncertainty about their demand, but we're starting to notice a few more transactional type, a little bit more transactional type business happening in the recent weeks that leads me to believe that the forward coverage isn't as strong as everyone thought from these type of companies.

Ted: So what you mean by that is maybe the spot purchasing needs of some of the big buyers out there domestically between now and the end of the year may actually be a little bit stronger than it has been so far?

Josh: I don't know that I'm predicting it, but I think there's a real opportunity for that.

Jacob: The thing that I think is a bit of a black box still to this conversation is US demand, and I think you mentioned it in your LinkedIn post, Ted, but I think that's really the key here is that US demand piece. Because if you look at equity markets, for example, the US seems to be the favored child in the world right now where our markets are humming along, we're having the soft landing. Meanwhile, Europe specifically the UK, seemed to be on the brink or in a recession. And so again, will this kind of fiscal strength we've seen on the equity sides carry over into our household purchasing and as such mean we have good demand in the US. I think it remains to be seen.

We've seen a number of arguments be made that the decent demand we've had so far this year is going to kind of falter in Q4. I think I might be in that camp. But if it doesn't, you pair decent demand along with a contracting supply, and especially if what Josh alluded to comes true, you have multi nets come in and do some buying on products here or there,

On June 12, we brought a group together to share perspectives on the dairy markets, along with thoughts on what we might expect moving forward.

And there wasn’t a strong consensus. Josh thinks supply-side factors point to a relatively quick supply-side response playing out over months that produces some price upticks to offer some cover in the short term.

Ted Jr. thinks price recovery will be slow and has his own counterarguments against the expectation of further production slowdowns.

Jake feels bullish about spot prices on every product right now, but bearish in relation to current futures prices. Gus thinks dairy prices would need to climb above current futures prices to $19 or $20 milk before dairy farmers started feeling good again.

And T3 worries that any recovery in the second half of 2023 will act as a “head fake” leading into fallout from macroeconomic weakness in 2024.

T3: Welcome everybody to The Milk Check. Today we're recording this Milk Check on June 12th. The reason I'm giving you the date is because we're going to have an old-fashioned market discussion today. I've asked Jacob Menge, our director of trading strategy and risk management, to join us. My brother Gus, president of our fluid milk group, my dad, and Josh White, our vice president of dairy ingredients, to join us.

In all of those markets, prices are low. I think probably the number one question dairy farmers are asking right now is, okay, these prices are really low. Are these prices going to stay down here for a long time? What are we dealing with?

Jake, I'm going to ask you the first question. Where did demand go? Are these prices low because we're having a demand problem? If so, how'd we get here?

Jake: I think pretty indisputably it is a demand problem, or at least that's a significant contributing factor. There's lots of little data points that support that, some anecdotal, some not. I know internally I've tossed a few of these out before. But exports out of China, way down. You look at foot traffic in stores like Target, that is significantly off. Those are things that are hinting at poor demand. I mean you can go as far as to look at the amount of cardboard boxes produced in the US, and it's a number that is significantly down year on year.

Demand is notoriously hard to measure, but it's kind of like a black hole. You can't measure a black hole by looking at it directly, but you can measure it by looking at what it's doing to things around it. So looking at the things surrounding demand, they're not good. They're trending in the wrong direction, I'll say that.

T3: How long do you think these demand issues have been happening? Has it just been 2023? Has it been the last couple of months?

Jake: It's interesting. I think it's probably actually started in 2022, and it's something that just takes a long time to feel on the supply side here. When you have a push on one side of the market, it takes a while to feel that on the other side of the market.

So my feeling is it probably actually started last year. We saw the stock market have a really negative year last year, and, so far, especially over the last two months in 2023, we've seen the stock market go gangbusters a little bit, and we haven't necessarily felt that bullish on the commodity side yet. So it's just got a long tail.

T3: So even though we have a demand problem, unemployment's still pretty good. It's still quite low. Sounds like the Fed is still talking a more ... That it's more likely going to raise interest rates next than lower interest rates next. That seems to be a disconnect to me. How can demand be bad, yet the economy ... At least the Fed seems to think it's good? Does it mean demand is going to continue to be bad until something does break and the Fed has to start reacting to it? How do we get to a point where demand comes back?

Jake: Awesome question. Wish I had an equally awesome answer for you.

On Episode 57 of The Milk Check, Tara Vander Dussen joins us to talk about sustainable agriculture. She is an environmental scientist and fifth-generation dairy farmer known online as the New Mexico Milkmaid.

We celebrate some of the regenerative agricultural practices that people often take for granted, and Tara walks us through some of progress she’s seeing in New Mexico dairies today.

We discuss dairy’s image problem and the steps folks can take to help consumers see dairy in a greener light. Our favorite quote from Tara: “Agriculture sees a waste in their stream, they’re going to find a way to make it a value.”

T3: Welcome, everybody, to The Milk Check, where we talk about things that are relevant to dairy farmers. I'm really excited about the podcast that we're putting together today. We have a special guest. Her name is Tara Vander Dussen.

But before I introduce Tara, I want to tell you who else is on the podcast with us today. Joining my father and I, we have Tristan Suellentrop. Tristan is in our sales and marketing department. And we have Josh White. Josh heads up our dairy ingredients division.

Tara, better known online as the New Mexico Milkmaid, she is a fifth generation dairy farmer, a farm wife, environmental scientist, mom to two girls, and a New Mexico native. She is a dairy advocate, a whiskey drinker, I like that, a fast talker, a lover of all things Southwest, and an avid boho braid enthusiast. Tara, I want to start off the podcast by asking what in the world is an avid boho braid enthusiast?

Tara Vander Dussen: I know. I'm kind of surprised I don't have a braid in this morning. I almost put one in. No, I love braiding hair. Actually, when I first started sharing online, it was one of the things I shared about, and it was a great way to connect with people actually outside of agriculture and kind of bring them into the dairy fold.

T3: Awesome. Thank you. So what we want to talk about today is sustainability and how sustainability is relevant to the dairy farmer. From my perspective, we work with a lot of dairy farmers in this industry, and the idea that dairy farming as an industry is not considered sustainable, it just strikes me as something so counter to all of the dairy farmers that I know.

Dairy farmers work outside with nature. They care deeply about nature, they care deeply about animals. So when some of the things that I hear in the press about sustainability, about carbon emissions, and about dairy farming, more than anything else, what strikes me is if there's one thing I fully expect dairy farmers to do is to resolve this, is to attack this issue and say it's not just an economic issue, it's deeply personal to the dairy farmers that I know. The last thing that the dairy farmers I know ever want to be considered is somehow anti-environment, anti-sustainable.

So my question to start this conversation off is what are the dairy farmers that you know, what are they doing, what is the industry doing to become more sustainable? You're an environmental scientist. I'm sure you know the background there. And then once we become a sustainable industry, how do we go back to the media and the general public and convince them and send the message that it's no longer relevant to consider the dairy industry unsustainable?

Tara: Yeah, so many good questions in there. I'll start by saying I completely agree with you. That's kind of how I started sharing online as I was working as an environmental consultant on dairies throughout New Mexico. And then at the same time, I was seeing so much misinformation online, and it was like if people could just see what I see every day, they would see how much dairy farmers are doing to be more sustainable. That's really what led me to start sharing online.

And as far as how we're like a piece of the land, one of the things I always tell people is the water that goes to my cows' water troughs is the same water that goes in my house.

You don’t need technical analysis to tell you that dairy prices are low right now. But stocks are still high, which suggests demand is weak.

The questions are: What gives? And when?

In this episode of The Milk Check, we talk through the feeling that our current bearishness points to a strong price rebound later in 2022 or early 2023. But not before Trading Strategy Director Jacob Menge takes us through technical charts on dairy products and macroeconomic indicators like copper and the dollar index.

In the end, Jake suggests that a “max pain” moment would be necessary to kick off a violent upward price swing, and the team talks through what “max pain” might look like for different products.

Jake: I'm going to start just with one thing. For those of you that were on the call last Friday with Alan, that ITR economics presentation, we actually had talked about this exact graph, the consumer loans and how it's a pretty eye popping number. He basically said it's nothing. It's really irrelevant. It's more or less on trend, and I agree completely. That's what we had been saying for months now, that this is showing up in a lot of newspapers, ignore it. The one thing I do have to add that I've actually learned in the past couple months, just talking around, that there is something to pay attention to on the consumer loan side, that is just not in this graph at all, and I had no idea about, frankly. It is buy now, pay later. Buy now, pay later was a 2 billion market in 2019. Anybody want to guess what it was last year? Any brave soul going to stick a number out?

Joe: 5 billion.

Don: 50.

T3: 30. 30 billion, isn't it...?

Jake: Ted's closest. Ted's closest. It's like 25. Okay, so we went about 10 x on the buy now pay later market, and it's still going up. And here's the rub. Of all buy now pay later users, about 10% have a credit card, the other 90% don't. And that tells you they probably have such poor credit, they can't even access the formal credit lending market with protections on it. And so, this is the exact kind of thing that preceded 08, where they basically had not enough checks and balances on a certain credit lending market, and eventually, it got overworked. And you know the rest of the story. So that's the kind of thing to pay attention to. There are things in the background that are kind of sketchy. There's a million apps that you can do buy now pay later on literally anything now. So it's kind of interesting.

Now, it's 25 billion. You look at total revolving credit here, which is 900 to a trillion. We're not talking a huge percent, just call it two to 3%. Okay? Not huge, but still, it could be a domino, that starts some ugliness. Because the valuation of these buy now pay later companies is massive. The regulations around it are basically nothing. It does not show up on credit reports. So literally, you could have $2,000 a month in buy now pay later and go apply for a home loan or go apply for a credit card, and everyone pulling your credit report has no idea that you have these other bills outstanding. So that's the kind of thing that, even though officially credit cards don't look risky right now, how much else is tied up here? This is not the big one or anything to me, but it's just something that I thought was kind of interesting and kind of indicative of the economy as a whole, that people are starting to really ramp up use of products like that. Over to the fun stuff here.

Going to start with cheese. We talked about this. We haven't done one of these charting meetings in a while, but we talked about this buck 93 level, which I think, in Class III, was... What was it? Like 1980? We were right on that line, and that has been a sticky, sticky support or resistance line for a long time. And we cruised right through it. There's a little bit of hesitation, but we are firmly below that now, and there's just not a ton of support anywhere up until like a buck 80, I would say.

The USDA’s milk production report for December surprised us and sparked some interesting discussion in a recent mass balance and charting meeting. We thought it made sense to pull back the curtain and share some of that discussion on the podcast.

What does the USDA revision of cow numbers tell us? Should we worry about falling Texas cow numbers with cheese plants coming online this year?

Director of Global Strategy Don Street talks through his expectations for Q1 milk production in the wake of recent numbers, which leads to some back-and-forth about the adverse economics facing producers now.

Don: All right. Do you want to get rolling?

T3: Yeah, let's go ahead and get rolling.

Don: Okay. I've struggled to come up with a title. I finally settled on, Once You Count the Cows Before the Barn Door is Opened, which I realize doesn't make any sense. But USDA is having some difficulties on cows. So, November production was revised lower by three-tenths of a percent. And to do that, USDA reduced cow numbers by 9000 head, kind of spread over a whole bunch of states.

Nobody more than 2000 down a couple, or even a 1000 or 2000 up. And milk per cow was down 0.2%. So, given where margins are, not much excitement on pushing cows to really produce more milk. December, production was reported as up 0.9. Again, this is 24 states. I was at 1.7. So clearly, an overshoot because I was two-tenths of a percent off on number of cows at the end of the day. And then about again, a half percent off on milk per cow.

So, even though December of '21 was weaker on milk production, it didn't translate into a bump in December. The other interesting thing to note is that USDA dropped the herd 5000 head in Texas in December. And we continue, well, we, me, continue to think that Texas cow numbers have to go up. But there again, counting cows is more of an art than a science, apparently.

All of this leads to thinking the milk supply will be more limited going into '23. So, we're at the end of January tomorrow. We'll have January milk numbers in three weeks after that. But my projections now, down to 1.7. I think at one time, I even threw out the number it could be up 2.5 in January. That just simply isn't going to happen with the downward pressure on milk per cow. Stated differently, the lack of growth in milk per cow.

Q1 2023, I'm now at up 1.1%. I think originally when we first started to look at this, I was at just over two. So, this is much less surplus milk in Q1 than I was expecting. And the next step from that is looking at Q2, not a lot of change. I think we're going to be stuck for some months in about 1% overall growth in milk production, probably for the first-half of the year. January continuing to be the exception because it was down so heavily.

There will be a little bit of a bounce just from the math of that reality. If you assume, and this is where we ended 2022, 24 states, 8,918,000 cows, and just hold that steady for the whole year. You can see in January we're up a half percent less than February. And then we're just kind of even with the prior year, a tenth percent up down a little bit, up barely. So, without more cows coming into the system, all the growth after February is going to be dependent on milk per cow. And we already know that's pretty minimal.

So, earlier this month, because of the delay in Christmas, we did talk about that you could expect 100,000 cows added to the herd for the two plants that are coming online in Q1 and Q2. If you actually had a 100,000 cows coming in, then your growth in number of cows would contribute much more significantly to overall milk production growth. I think at best, this is probably half of this number. So, I think even with that expansion, with depressed margins, non-aggressive feeding of cows, we're going to be in a milk production environment where we're kind of 1% up.

Just to review quickly, the plants that are coming online, that's where you get 98,

T3 and Ted Jr. got together to talk next year’s milk pricing, and they made pretty quick work of the topic. Both have bearish outlooks to start the year. After Q1, their predictions start to diverge.

How far down will milk prices go? Will they jump back up above $20 next year? When? How will the market respond to recession? The duo works through Class III and Class IV supply and demand to come up with some answers.

T3 expects macroeconomics to stifle demand, and Ted Jr. puts his faith in butter to maintain its position as a staple spread. They skim the surface of an exports discussion, with China in lockdown but looming. Fifteen minutes and a friendly wager later, they settle on a confident outlook for most of next year.

T3: Alright. So, Dad, you tend to be bullish, especially compared to me, but lately it seems to me that you've been a little bit more bearish than me. So since we're sitting here in the middle of November, what do you think markets are going to be like in 2023? What are your thoughts right now?

Ted Jr: Well, I think it's rather scary that I'm the bearish one right now and evidently you're not.

T3: I'm not saying that I'm not bearish. I'm just saying I'm not as bearish as you are.

Ted Jr: First of all, let's look at the overall marketplace. We've got production now on the upside in the US. Cow numbers are up. Production’s up over 1%. We're heading into a recession. I think that's generally an accepted dogma. But the international environment is also changing. The European production is starting to mosey up a little bit. And evidently, feed is moving out of the Ukraine and feed prices are not on an upward trajectory anymore. I'm not saying that the feed prices are going to go down. I guess, the point that I'm trying to make is that the dichotomy has ratcheted up to a little bit lower level.

So if we go back a couple of years, pulling numbers from the air, the lower level was probably Class III somewhere around $15. And today with the corn price doubling or more, I'm going to argue that the lower level is probably somewhere around $19 on the Class III. That translates to cheese prices around a $1.90 and it translates to for whey prices to be somewhat higher than they are now, which my suspicion is even though China's got their own ration economic problems, they're still going to need to feed pigs.

And then the butter market is going to be stronger than normal, but it's certainly not going to be $3. So that also would translate to a Class IV price somewhere in the $19 range. So look at where we are. We're up limit today and evidently people are buying cheese and I don't really get the feeling that cheese is all that short. I think filling the pipelines for Christmas is more than likely still the reason it's going up. But with butter and with cheese and other dairy products, when we get to Christmas time, as far as I can see, it's over. So I'm not arguing that the bottom is going to drop out and we're going to get down into the lower teens, but I'm arguing that the market is going to settle to what I consider a lower ratchet level in the $19 range. So that's the extent of my bearishness.

There's obviously other things that could happen. I mean, you have a war going on in Europe and maybe the feed price situation changes and maybe a lot of cows expire and so on.

T3: And actually I would agree with you. I think we'll be right about in there too. So, Dad, here's my question for you. I've got my Class III and Class IV calculator spreadsheet out. So what do you think the butter market's going to be in the first quarter?

Ted Jr: I'm going to say $2.

T3: What do you think the nonfat market will be?

Ted Jr: It's hard to say bucking a quarter $1.30 maybe, somewhere in the area.

T3: I'll put in $1.30. So if we have $2 butter in 1.30 non-fat, you're talking a Class IV price of $17.48. Let's go ahead and round it up to $17.50. Now in this case,

Geoff Vanden Heuvel of Milk Producers Council and Sarina Sharp of Ag Business Solutions and Daily Dairy Report joins T3, Gus and Ted Jr. for a discussion on California water today and moving forward.

Geoff enlightens the group on localized production cost challenges and shares some anecdotes about farmers dealing with expensive feed. Sarina and Gus talk about regional challenges to expansion and the adverse economics limiting dairy in much of the eastern U.S. 

T3 sees cause for Class IV prices to stay high, and, after a lively conversation, the group shares a healthy laugh at Ted Jr.’s expense.

T3: Welcome everybody to the Milk Check. This month we've got two guests. Welcome Sarina Sharp with the Daily Dairy Report in Ag business and also Geoff Vanden Heuvel. Geoff, why don't you quickly introduce yourself?

Geoff Vanden Heuvel: Well, Ted, it's great to be here. I'm a faithful listener of the Milk Check, so it's fun to see you guys by the power of Zoom. I'm not sure if our listeners will see that. But I was a dairy farmer in Southern California for 39 years, and at 2018, urbanization took my dairy. I was very involved in water and milk pricing issues as part of the Milk Producer's Council, which is Dairy Farmer Trade Association board. And when I sold my cows in 2018, I was going to move to the Central Valley because I had kids and grandkids here. Given my experience in water policy, the Sustainable Groundwater Management Act had just been passed in California and was being implemented throughout the Central Valley. And Milk Producers Board asked me to be the dairy industry's guy on water supply, and the implementation of what we call SGMA, Sustainable Ground and Water Management Act.

So since 2018, mid-year, that's what I've been focusing a lot of my time on. That particular Act is designed to be implemented at the local level. So what that meant was I needed to identify where we had dairies in the Central Valley that were in what the state had designated as critically overdrafted basins. That turns out that's pretty much all of the Central Valley. It's critically overdrafted. There were dozens of new groundwater sustainability agencies that had been formed as a result of that law. They were all in the early stages of organization, and then gathering data, with a goal of putting plans together for how they were going to bring their area into basically balance or sustainability. So in the course of that I cover, we have dairies from south of Bakersfield all the way up to Stockton that are in overdrafted basins. That's about a little over 200 miles. So north to south, I spent a lot of time on the road. But that's what I do, is focus on water supply for the California Dairy Industry.

T3: Well thanks Geoff and welcome. Dad, I know you've got a question that you're burning to ask, so I'll let you go ahead and start it off.

Ted Jr: I've bet every time you open the papers these days you're seeing pictures, and hearing dissertations on how miserable the water supply is in California. Just yesterday I picked up the Sunday edition, and I had pictures of parched land, perfectly brown, not a bit of green on it, but the last number we have on milk production is up 2.5%. So how do we manage to have all these dire predictions of drought? And we've had predictions about drought for 50 years. And every time we hear it, the milk production in California goes up. Is this the year that all of a sudden we're going to have a drought that really counts? Let me pose that question to you as a matter of getting the ball rolling.

Geoff: I hope not. We would hope that we can manage our way through it. But it's real. If we don't get some rain and snow, and we don't have any surface water, I think we are going to begin to bite down on the water availability, particularly in the Southern San Joaquin. Because those water districts there now, the groundwater sustainability agencies that I've described to you,

With August’s milk production report in mind, the trading team gathered for another monthly mass balance and charting meeting. This month, though, we were blessed by two special guests: Steve Spencer and Vuko Karov from Freshagenda.

Don kicked the meeting off by modeling domestic milk production and mass balance expectations for the rest of the year, with special focus on Q4. Then, we handed the reigns over to Steve and Vuko, who guided us through a workshopping version of their Dairy Trade Simulator (DTS).

The Freshagenda team tested some ‘What if?’ questions on their model and argued that market fundamentals suggest that we should see cheese futures over $2 soon. T3 countered with some points about difficult domestic freight and contractual obligations forcing cheese from high-growth areas.

Then, to shift perspective entirely, Jacob suggested that historic correlations driving market fundamentals could break, and that there may be reason to feel bullish Class IV and bearish Class III after all.

T3: Welcome back to The Milk Check. This month we return to our mass balance discussion with Don Street and the rest of the trading gang, and this time we have a couple of special guests: Steve Spencer and Vuko Karov from Freshagenda, an Australia-based supply chain and market analysis firm with some great data about how milk production and pricing may evolve in 2023. Welcome to this discussion, let’s get started.

Steve: Thank you.

Vuko: Thanks so much.

Steve: Thanks for having us in your meeting. We appreciate the opportunity to join the discussion, let's have some fun and see what it brings.

T3: That sounds great. So Don, why don't you go ahead and lead us off.

Don: All right, here we go. Balance update, August, 2022. So in spite of Ted being more accurate than I am on these projections and winning bourbon from me, I just want to say that if USDA would get the cow numbers right the first time, I'd be much more accurate. But June was revised downwards to where it was flat. I had actually had a negative 0.02 prediction, so I think that's reasonably close. And for Q2, which we finished down an average of 4/10 for a percent on milk. July finally goes positive. If that holds through the revision, when August is announced again, I was 2/10 of a percent over the 3/10 that was actually reported. Steve and Vuko, these are all 24 state numbers, not national numbers. I think I'm reasonably dialed in spite of the revisions, which brings us to August.

I'm, at this point, thinking we'll be up 1% on milk, but the bottom line is that the cow herd will, in the couple of months, be higher than prior year instead of lower than prior year. Instead of being 60 or 78,000 cows below a year ago in August, when we see the numbers, we're going to be 25 to 30,000 cows below a year ago. And in September, we're going to more or less be equal. And then we start to see whether this grows or not. We're going to have more cows than we did in the prior year, which will contribute to higher milk production numbers. I've tried to recast this a little bit to just show you the impact, because June, July, we're up 8/10, one full percent on milk per cow, but fewer cows is the offset.

In August, I think we'll be a little bit higher, mostly because of the poor performance of August '21. So I think we'll be up 1% on milk for August, but then I don't want to say that we're just going to continue to move higher but these changes in milk per cow are going to be 1.2, 1.3, maybe 1.4, but we're going to be something over 1%. And then you start to add more cows. And this is of whole certainty, unless we all of a sudden see a shrink in the herd that we don't anticipate because slaughter rates still seem to be lower, not higher. You're going to wind up with 1.4% more milk, maybe as much as 1.8 but somewhere in that range, but it'll be a marked difference than what we've experienced so far this year. Maybe just to take a look at components.

With the T.C. Jacoby & Co. trading team in the office for quarterly strategy huddles, we decided to record a special Q&A discussion for this month’s podcast episode. Each trader had the opportunity to ask a question of another trader, in order to gain some insight into expectations for the rest of 2022.

Their discussions, with some questions sent in by customers and via LinkedIn, produced a discussion that spanned cheese pricing, international trade and tight butter markets — among a number of other topics.Yara is bullish nonfat, Diego and Don see potential for the U.S. to move in on some of Europe’s export business, and Jared doesn’t see where extra cream for butter churns east of the Rockies might come from.

T3: Welcome everybody to this month's podcast, The Milk Check from T.C. Jacoby and Company. This month, we're going to take a different approach to the podcast. Seated around the table are most of the traders in our company. We are having our quarterly strategic planning meetings and huddles. As we talk about what we think markets are doing at this time and what we think maybe they're going to do for the rest of the year. And the approach I thought we would take is have each trader ask a question of another trader at the table of what are they curious about going on in the market. Not necessarily in the products that they focus on, but in some of the other products that we trade in the company. So I thought I'd start off. And I have a question for Yara. Mexico is the largest milk powder export market for the United States. What do you expect nonfat, dry milk sales to Mexico to be like for the remainder of the year, do you think they're going to be strong or weak and why?

Yara: I think it's going to be a strong and the Mexican buyers is going to support and buy a more inverse in the second half of the year. Why? This is different reasons because all the milk that Mexico produced has been reduced because it has been reduced the production. Besides the deficit, We have the production milk in Mexico. So I think it's about 3% went down the production mill in Mexico, and the weather is so hot so the cow doesn't produce more milk. Besides Mexico has been making product for export like infant formula that's increase about 45% exportation to another countries. And one of the countries, it was United States. So that's just another thing.

And the other one is because Mexico has been producing products to export to another countries like whole milk powder, known federal milk, cream, butter, and they export to South America, and in Caribbean, in Asia also, the whole milk, they sell it. So the exportation has been increasing inclusive cheese because they has been exploring cheese too. So that's the main reason that I'm thinking that the Mexican customer are going to start buying more products the second half of the year.

T3: Are you telling us you're bullish, nonfat, dry milk for the remainder of the year?

Yara: Well, you know what? The basic consumer guys increase all the costs because to fill in the cows, all the input, like a corn and soybean has been increasing. So the inflation has been increasing too between 10 to 15% everything. So I think the price is going to be...

T3: You think things are going to stay strong.

Yara: Yeah, I think it's going to stay strong.

T3: That's awesome. Good deal, Josh. I'm going to go to you next. You have a question for someone.

Josh: Oh man. I want to break the rules already though. Like, I don't like the one person question, but I'm going to start. I think this actually kind of goes to both Bri and Don, and this didn't come for me specifically, but I think it was a really good question. Someone responded on LinkedIn with this one. The question specifically was over the past couple years, we've seen a lot of additional cheese production capacity in the US. Additionally, we're expecting more capacity to come online over the next year or two,

With the T.C. Jacoby & Co. trading team in the office for quarterly strategy huddles, we decided to record a special Q&A discussion for this month’s podcast episode. Each trader had the opportunity to ask a question of another trader, in order to gain some insight into expectations for the rest of 2022.

Their discussions, with some questions sent in by customers and via LinkedIn, produced a discussion that spanned cheese pricing, international trade and tight butter markets — among a number of other topics.Yara is bullish nonfat; Diego and Don see potential for the U.S. to move in on some of Europe’s export business; and Jared doesn’t see where extra cream for butter churns east of the Rockies might come from.

T3: Welcome everybody to this month's podcast, The Milk Check from T.C. Jacoby and Company. This month, we're going to take a different approach to the podcast. Seated around the table are most of the traders in our company. We are having our quarterly strategic planning meetings and huddles. As we talk about what we think markets are doing at this time and what we think maybe they're going to do for the rest of the year. And the approach I thought we would take is have each trader ask a question of another trader at the table of what are they curious about going on in the market. Not necessarily in the products that they focus on, but in some of the other products that we trade in the company. So I thought I'd start off. And I have a question for Yara. Mexico is the largest milk powder export market for the United States. What do you expect nonfat, dry milk sales to Mexico to be like for the remainder of the year, do you think they're going to be strong or weak and why?

Yara Morales: I think it's going to be a strong and the Mexican buyers is going to support and buy a more inverse in the second half of the year. Why? This is different reasons because all the milk that Mexico produced has been reduced because it has been reduced the production. Besides the deficit, We have the production milk in Mexico. So I think it's about 3% went down the production mill in Mexico, and the weather is so hot so the cow doesn't produce more milk. Besides Mexico has been making product for export like infant formula that's increase about 45% exportation to another countries. And one of the countries, it was United States. So that's just another thing.

And the other one is because Mexico has been producing products to export to another countries like whole milk powder, known federal milk, cream, butter, and they export to South America, and in Caribbean, in Asia also, the whole milk, they sell it. So the exportation has been increasing inclusive cheese because they has been exploring cheese too. So that's the main reason that I'm thinking that the Mexican customer are going to start buying more products the second half of the year.

T3: Are you telling us you're bullish, nonfat, dry milk for the remainder of the year?

Yara: Well, you know what? The basic consumer guys increase all the costs because to fill in the cows, all the input, like a corn and soybean has been increasing. So the inflation has been increasing too between 10 to 15% everything. So I think the price is going to be...

T3: You think things are going to stay strong.

Yara: Yeah, I think it's going to stay strong.

T3: That's awesome. Good deal, Josh. I'm going to go to you next. You have a question for someone.

Josh White: Oh man. I want to break the rules already though. Like, I don't like the one person question, but I'm going to start. I think this actually kind of goes to both Bri and Don, and this didn't come for me specifically,