The Milk Check

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.

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...

Market analyst Sarina Sharp, of Dairy Business News, joins The Milk Check crew to talk about the lacking rain in the West, labor shortages and demand expectations for the second half of the year.

While the drought won't drastically affect overall milk production, it will put Western dairy producers in a bind as feed prices and hauling rates increase. California producers also have to weigh the rising cost of scarce labor.

The crew also discusses issues like the accuracy of Class III price forecasts and how freight uncertainties continue to challenge exporting efforts.

T3: Welcome, everybody. Today's June 10th. And welcome to our June podcast recording. Today, we have a special guest and great friend, Sarina Sharp, who is the market analyst for The Daily Dairy Report. She also writes the Jacoby Weekly Market Report. And we spend a lot of time, you know, talking to Sarina about markets and getting her insight and what she thinks, and we thought it would be a great time to have her join us today.

One of the things that we've been reading a lot about, I woke up this morning and I read an article in "The Wall Street Journal" about the Western drought and how low Lake Mead is. It's like the lowest it's been since 1933, I believe. And it made me wonder how much this drought was going to affect the dairy industry.

So I think my first question for you, Sarina, and I know my dad has a bunch of questions for you, but how serious should the dairy industry be taking this drought that everybody's talking about?

Sarina: Well, like most weather issues, it's gonna be localized, but it will also have a national and an international impact. The thing to remember is that the drought is severe in the West and it will impact feed costs for dairy producers in the West, there are certainly some key dairy states there. But we've actually had really good rains in the Southern Plains, including in some large dairy states like Texas.

And then we have had good rains up until a few weeks ago in most of the Corn Belt. The Northern Plains are very dry as well. And it is just starting to get dry to an extent that it's a concern for farmers in Iowa, which has obviously a very big corn state. And then in the Northern tier of the Corn Belt, so Minnesota, Wisconsin, Michigan. Those latter three, those are not where you get your big, big crops. Minnesota is a very significant corn state, but Michigan much less so.

So the weather impact on feed prices, I think right now is actually less significant than the demand impact on feed prices. We just had the USDA crop report today and they estimate that we will use more than 15 billion bushels of corn in the current crop year, which ends September 1. That's by far a record high. We are planting a lot of corn acres this year, but feed costs are going up because of demand.

Getting back to the drought and its impact on dairy producers and to milk production, we will see feed costs rise because of the drought, but I don't think that the immediate impact will be less milk production. In fact, in the Southwest where a lot of cows are on dry lot pens, they're very comfortable. The heat would be a greater concern for their immediate impact on milk yield.

T2: Sarina, this is Ted. You know, for 50 years, we've been hearing about droughts in Western California, low water supplies, and the effect that it has on a dairy and feed for dairy and so on. So you have to almost excuse us for not being very concerned, but is there a real concern this time as opposed to the other times we've seen the reservoirs in California and in the Sierras go down a little bit at this time of the year and everybody has their heart i...

We welcome our Jacoby trading team back to discuss the rapid increase in milk production so far in 2021, compared to 2020 in which the national herd decreased by 30,000 cows. 

Don Street, our director of global strategy, explores production issues like the hefty 3% increase in cheese as compared to last year, driven by American and cheddar. 

Jacob Menge, future and options trader, leads a discussion about what inflation could mean for dairy as foreshadowed by the increasing cost of many commodities, from lumber to diapers. 

T3: Welcome, everybody to our monthly mass balanced discussion. Today, we've got my father, Ted Jacoby. We've got Joe Maxtor, who's our butter trader. We've got Don Street who tends to lead the mass balance discussion and heads our powder group. We've got Diego Carvallo, also from our powder group. We've got Gus Jacoby, who heads our milk and fluid team. We've got Greg Scheer from our milk team. We've got Jacob Menge, who's gonna lead the charting discussion who also heads up our risk management group.

We've got Anna Donze who handles pooling for the milk group. Welcome, everybody. Don, why don't you take it away?

Don: I think we have a real roller coaster that's getting ready to happen, certainly on milk production. And I'll just get right into this, we’ve seen a very tight protein market in the last 10 days. Cheese has been a bit more sideways but price-wise hanging in there. When you just kind of look where we've been for Q1 we had 2% more milk, and we were running 90-some-thousand cows more than a year ago. The roller coaster starts because in Q2 of last year, the cowherd shrunk by over 30,000 head. When you look at when we start in April, instead of being 90,000 head higher than a year ago, April is going to be 110,000, let’s say, it's going to be a significant jump up. That number only grows to when we get to June, we could be 150,000 cows ahead of one year ago.

T3: Don, has that jumped because we shrunk the herd at this time last year because of the pandemic? Are we expecting the herd to grow over the next three to four months, or is it a combination of two?

Don: I think mostly the drop of Q2 last year when the pandemic really began because we had from 5,000, 13,000, 9,000 cows every month. Take that times 12, you have 8,000 on average, you get 96,000 more cows every year. So most of this is simply the drop that took place a year ago. Plus, milk per cow a year ago was also pulled back as more co-ops instituted base programs. So my milk gross projection for Q2, it’s a really solid 3% out, which is 50% more than the growth we had in Q1. To me, that's the biggest change that's coming down the dairy road in this Q2.

T3: Is it fair to say, Don, that the number is going to be twice as big in Q2 and Q1, but the real trend from Q1 to Q2 isn't more increased milk, it really reflects what happened last year because the pandemic hit and we shrunk the milk supply?

Don: That is correct. If I look month-on-month, you're clearly going to have more cows. Productivity growth seems to be pretty reasonable. Ignoring the seasonal trend on milk, Q2's gonna be just a really quarter for milk. Try to think about this in terms of what we do with the milk that's produced. In Class I, bottled milk, same old story, for the two months that we've reported in 2021, were down about 2.5% over the prior year. Last two has been really strong with the exception of cottage cheese, sour cream, ice cream, yogurt has just been on a tear production-wise, 8% to 10% up, which even on a small class of milk is significant.

Total cheese production was negative in January. February was really up strong.

On this edition of The Milk Check, T3 and Anna join our dairy market sage and patriarch, Ted Jr., on a trip down memory lane to talk about how the dairy industry has developed over more than 50 years.

They discuss changes in trucking, processing and entrepreneurship, among many other topics.

The trio also debates how the Federal Order System has impacted the industry, whether it still holds water in today's market and the perception that dairy producers are often the most impacted by market downturns.

T3: I thought this podcast would be a great opportunity to just talk a little bit about history. Talk a little bit about what were markets like back in the '60s and how have they evolved into what we're dealing with today? And maybe what are some of the things that are still the same and what are some of the things that are different? And I just thought it would be a great perspective to talk about how milk and cheese and whey and cream, how it all moved back then, and how it all moves around and gets balanced today. We really haven't talked about things from a historical perspective, and I thought it would just be a great conversation.

T2: Well, let's start in the '50s. Tank trucks came in in the mid-'50s. They were relatively small, they were about 30,000, 35,000. By the time you got to 1960 or so, you're up to a load somewhere between 45,000. In those days, the Class 1 utilization was paramount. Depending on where you were located, you had basically 60%-plus Class 1 utilization and milk move from upper Wisconsin, Eau Claire and Bloomer and Turtle Lake, during the short period of the year, we...back to almost everywhere, to Florida to Louisiana, New Orleans, Dallas, you name it, St. Louis was a big market. Indianapolis in the '60s had 20 to 30 loads a day moving out of basically the Fond du Lac area down to Indianapolis, which is why Foremost is prominent in Indiana these days is because a lot of that milk was Foremost Milk, they actually had an office in Indiana, which wasn't closed until a few years ago.

The market was much different. Class 1 utilization was the big item and we had a much more cyclical milk production profile, if you will, where in the fall of the year when it got hot, and it seems to me, if my memory serves, it got much hotter in the '60s and '70s than it does today. And production really languished, particularly down in the Southeast. And so huge volumes of milk moved and most of that milk was moved directly out of plants. It wasn't moved directly from the farm, never moved directly from the farm until, oh, probably sometime in the '90s. Farms got big enough and the technology of dairy farming reached that point. That was the way the industry was structured in those days. And it's a much different structure today.

T3: To be back in the '50s and 60s, you also had a lot of Grade B milk, we don't ever talk about Grade B milk anymore. How did that affect the industry?

T2: Actually, we didn't have that much Grade B milk, and most of what we had stayed home. Yeah, we moved a little, it wasn't really that much. There were quality standards when you moved. Acid was the primary quality standard, acid and temperature. And you expected the milk to show up at a bacteria count of something less, basically, than 750,000 or half a million. Again, depending on where you were, and temperature less than 45 degrees. So that was the standard. And it wouldn't make any difference whether it was B or A in those days. Quality was not a matter of somebody saying that it was B or A, it was a matter of what showed up at the plant. And if it wasn't suitable when it showed up at the plant, it was rejected. It wasn't a question of arguing about it, it was rejected.

This time on The Milk Check, we welcome a leading mind in international trade policy and personal friend of the podcast.

Jaime Castaneda is senior vice president of policy strategy and international trade for the National Milk Producers Federation, where he oversees the development and implementation of domestic policy. He also leads international trade negotiations for the U.S. dairy industry as senior vice president of trade policy for the U.S. Dairy Export Council.

Jaime joins the Teds in a discussion of how trade policy developed over Jaime's 22 years in the industry, from dairy farmers' early reluctance to accept imports to the industry's ongoing efforts to improve and enforce trade agreements.

Among other topics, they also debate whether the Federal Order System and tariff rates are holding back U.S. dairy in international markets, or if the problem is our slow response to short-term international economics and low customer loyalty outside of domestic markets.

T3: Hello, everybody. Welcome to the "Milk Check," episode 35. It is March 16, and our guest today is Jaime Castenada from the U.S. Dairy Export Council. But I believe you wear multiple hats. So, I'll let you describe what roles you fill with USDEC and National Milk.

Jaime: Yeah. Thanks. Good afternoon to everyone. I am actually the senior vice president for the National Milk Producers Federation. Under that capacity, I oversee the development and implementation of domestic policy, an area of different issues, including from the initiative of Foundation for the Future, that was the preload to the dairy margin coverage to Farm Bills to just name it. At the same time, I served in my capacity, as senior vice president for policy and trade, I also lead our partnership with the U.S. Dairy Export Council and serve now, for almost, actually, next month is going to be 22 years that I am with the industry and that I have been serving as our partner with the U.S. Dairy Export Council.

T3: Well, wow, we're lucky to have you. And T.C. Jacolby & Company is one of the founding members of the U.S. Dairy Export Council and we've been involved with the U.S. Dairy Export Council from the very beginning. Have you been involved with the U.S. Dairy Export Council the whole time?

Jaime: Yes, yes. In fact on Suber, really, I discuss joining the U.S. Dairy Export Council. The way that we work is that we operate everything that relates to policy under National Milk, specifically related to trade, just to make sure that, if you remember, the U.S. Dairy Export Council, it's a cooperator for USDA, which receives monies from MAP, the checkoff funds as well as MAP money. So, in order to make sure that advocacy is properly and it's done using membership dues, then we created this ability. And I do remember sitting... And now at U.S. Dairy Export Council is a large organization, 150 members more or less. And I do remember when sitting with Ted Sr. in a small table, Lei Jensen and a few other folks that were the original founders of the U.S. Dairy Export Council.

Ted: Those were the days. I remember those days very vividly. It goes back, what, to the '90s?

Jaime: Yeah, 1999. 1999, and that's where we began developing the trade policy. If you remember, prior to 1999, even dairy farmers, and this is a lot of credit to folks like yourself and Tom Camaro that look at the vision and the future. And if you remember, dairy farmers were not very keen on trade. In fact, if you talked to them on trade, in the 1990s, it was all about, "We hate imports." And it was the development through this small group of folks that were the visionaries that we developed this trade policy and this perspective,

On this two-part edition of The Milk Check, listeners get a seat at the table during our mass balance report meeting, held after the release of monthly milk production numbers. Our traders gather to evaluate the data, forecast class allocations, share what they're hearing from buyers and sellers, and chart price data to predict market developments. 

Our regular cohosts, Ted, T3 and Anna, are joined by Don Street, director of global strategy; Gus Jacoby, executive vice president of the Fluid Dairy Group; Jacob Menge, director of risk management; Brianne Breed, vice president of cheese and butter sales; Joe Maixner, cheese and butter sales manager; and Diego Carvallo, director of dry dairy ingredient trading.

In part one, we evaluated the fundamentals of the dairy markets and what the monthly production numbers mean for different industry sectors.

Now in part two, we look at anecdotal evidence in the wider marketplace, such as the consumer price index and international trade, to forecast dairy's future in the global economy.

Anna: Welcome back to part two of the March episode of "The Milk Check," where we're going to continue to listen in as the team participates in our monthly mass balance report. If you missed Part 1, make sure to go back and listen.

T3: Thanks, Anna. In this section, we'll rejoin Jake and our dairy product trading team as we talk this time about things on a much more macroeconomic level. Jake gets into a fascinating discussion about what we think inflation is going to be doing over the next few years and, from that, we'll dovetail some of the more kind of higher-level issues that we're paying attention to and how those issues might affect dairy production. Jake, take it away.

Jacob: Alright. Let's kick off the product trade discussion side of things. A lot of times when we discuss the product group, we'll start kind of with a macroeconomic outlook. And I think today the obvious place to start is inflation. And we've been talking about inflation for a while. This week and last week, some really notable things happened on inflation, so I have to talk about it for two seconds here because it actually relates directly to milk in my opinion.

OK, so let's talk about the consumer price index for just one second, right? It's what everybody uses to gauge inflation. You've probably heard, like, "Oh, for the last decade, we've had very low inflation." And if you use the CPI as your gauge for that, then it's true.

I think the CPI is broken for gauging inflation and here's my reasoning behind that. Over the past 10 years, the wealth gap has gotten larger between the top 25% and the bottom 25%. And the CPI is terrible, terrible at capturing inflation on the assets where the wealth is actually growing.

And so here's my example. CPI. What is it? It basically looks at a basket of things like fuel, of food, of housing, stuff like that, OK? I'll be very blunt. If one person makes $100,000 extra in a year or 10 people make $10,000 extra, it turns out that person that made $100,000 extra doesn't go buy extra bread with their $100,000, right?

And so the CPI does not reflect that. What does the person that made the extra $100,000 buy? Stocks. They invest it. That, in my opinion, is where inflation has existed; it's the stock market.

And that is actually pretty well-reflected in P/E ratios, right? Everyone these days is saying like, "P/E ratios are worthless," blah, blah, blah. Well, why is that? It's really a function of inflation. It's a different type of inflation but that is really, really, really, really important to commodities to understand.

On this two-part edition of The Milk Check, listeners get a seat at the table during our mass balance report meeting, held after the release of monthly milk production numbers. Our traders gather to evaluate the data, forecast class allocations, share what they're hearing from buyers and sellers, and chart price data to predict market developments. 

Our regular cohosts, Ted, T3 and Anna, are joined by Don Street, director of global strategy; Gus Jacoby, executive vice president of the Fluid Dairy Group; Jacob Menge, director of risk management; Brianne Breed, vice president of cheese and butter sales; Joe Maixner, cheese and butter sales manager; and Diego Carvallo, director of dry dairy ingredient trading.

In part one, we evaluate the fundamentals of the dairy markets and what the monthly production numbers mean for different industry sectors.

In part two, we will look at anecdotal evidence in the wider marketplace, such as the consumer price index and international trade, to forecast dairy's future in the global economy.

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 on "The Milk Check," we're doing things a little bit differently. Every month, the T.C. Jacoby & Company, we have a conversation that we call the mass balance report, and it happens right after the monthly milk production numbers come out. We get all the available traders in the company together to discuss what the most current reports and numbers mean. This month, our listeners will get an opportunity to eavesdrop on that conversation. This edition will be released in two parts, so be sure to listen to both to get their thoughts on a variety of topics, from production and utilization to inflation.

T3: Thanks, Anna. And thank you everybody for listening today. So when you're listening to our traders talk, the thing to keep in mind is a lot of times when we're trying to get our head around what we think prices might do, there're really three elements to that process.

The first element is evaluating the fundamentals. As you hear Don Street talk about what the milk production report has done and what we think milk production is going to do and where milk is gonna be allocated between the different classes of milk, you're really gonna be hearing us talking about the fundamentals.

The second part that goes into our evaluation is what I call the anecdotal evidence, which is the fact that our traders are talking to buyers and sellers of dairy products in the marketplace every day. And what we're hearing from those buyers and sellers also goes into our opinions of what the market might do.

The final thing that comes into play is where we are evaluating what we call the technical information. All of the futures and options markets we have in the dairy industry today and all of the spot auctions that we have in the industry today ultimately create a series of price data. And as you chart that price data, those charts often give you signals as to what you think this market might do next. And when you hear Jacob Menge, our director of risk management, talk, that's mostly what you're going to be hearing, him looking at those charts and telling us what those charts are hinting at. So I think this conversation today is gonna be a very interesting conversation, and I hope you enjoy it as much as we do.

T3: Joining us today is Don Street, our director of global strategy.

Don: Hey, Ted. Glad to be here.

T3: Gus Jacoby, executive vice president of our fluid dairy group.

Gus: Hello,

The Milk Check welcomes guest J. David Carlin to discuss the role of dairy lobbyists in Washington, how they've adjusted to the pandemic and industry outlooks during the Biden administration.

Carlin is the International Dairy Foods Association's senior vice president of legislative affairs and economic policy.

Ted, T3 and Anna talk with their guest about issues like how lobbying via Zoom allows for additional public input, the importance of enforcing international trade deals, volatility in dairy pricing and much more.

T3: Good morning, everybody. Welcome. Today, we have a guest. I'd like to introduce everybody to Dave Carlin. Dave is senior vice president of legislative affairs and economic policy for the International Dairy Foods Association. Dave, welcome. Thanks for joining us.

Dave: Thanks, Ted. Glad to be with you.

T3: Why don't you just, kind of, tell everybody a little bit about what you do? What's your job in Washington?

Dave: Well, I'm one of those lobbyists that probably keeps the town running in a lot of different ways, but we're not very popular outside the Beltway. So, that's what I've been doing in Washington for the last, oh, I guess, 30, 35 years. And I came to IDFA about six and a half years ago; grew up on a dairy farm in central Kansas. So, a little bit of a homecoming for me and decided at least that I could, if I'm going to lobby, I could lobby on behalf of an industry that I care about and believe in.

So, I'm part of a team of folks over here at IDFA that advocates for policy positions with the Congress and the administration that we think will benefit the dairy industry. And we work with our members to prioritize those policy requests and make sure that whatever we're working toward is going to be impactful and meaningful.

So we've, of course, been very active in the COVID policy debate. We work a lot on nutrition issues and trade issues, given how important trade is to our industry, and a lot of other issues that come up here in Washington. We also do little work in the economic policy area as my title, kind of, indicates. So, milk pricing issues and FMMO issues or other things that we sometimes focus on, and I get involved in here.

That's, kind of, a 30,000-foot view of what I do. I'm not walking the halls of Congress these days, that hasn't been possible since COVID started last March. So, my world, like everybody else's, is very virtual, but we've managed to create some new pathways and make it work, from a virtual standpoint. So, advocacy continues here in Washington, and hopefully, as I said, it will benefit our industry going forward. So, that's my 30,000-foot overview of what I do.

T3: As I was hearing you talk, Dave, you provided what I thought was the perfect segue. Tell us about what lobbying Congress was like during COVID, because so much happened in the last 12 months as this pandemic evolved. Kind of give us a walkthrough of how that played out, from your perspective.

Dave: Yeah, and I will start by saying it played out much better than I would have ever expected when we first got into this mess. Typically, as I said, I'm able to go to the House and Senate office buildings, I can set up meetings with staff and see members, and we did fundraisers and events in the evenings on the political side. That was what I did for 30 years and then COVID hit. And the Congress basically shut down like everything else shut down, all the buildings were closed, members were working from their home states and districts a lot of times, staff were scattered to the wind.

And I really thought, "Gosh,

Did you rediscover the joy of cooking this year?

You're not alone.

There's no doubt that dairy consumer behaviors have changed in the COVID era. Who does it help and who does it hurt? Who can capitalize and who's in trouble? Ted, T3 and Anna debate.

Also, T3 observes an even more worrying trend among Millennial and Generation Z consumers on the horizon—and it's got nothing to do with the pandemic.

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.

Ted: You know, we're heading down the road from fall into winter, and temperatures are dropping and worried reports of the virus picking up speed in various parts of the country. Do we expect to have another debacle of dumped milk because of it? Obviously, my answer would be no.

T3: Mine would too.

Ted: And I think that there may be a silver lining, you know, not because of the virus but because of the fact that we now have some experience with it. I think it's correct to say that retail cheese sales are up. And I think they're up by, I saw, I've seen a number of different reports but anywhere from 1% to 3%.

T3: Oh, I think it's more than that. I think most assumptions right now, they may be up 1% to 3% in the current week. But I think, you know, since let's say April 1st, most of the numbers I see are within, let's say 3 or 4 percentage points of 10%.

Ted: Retail.

T3: Retail. And there's an offset obviously on the foodservice side.

Ted: Yeah. Well, the question that I wanted to raise, even though I don't recall 10% but the question that I wanted to raise is, will we lose that going forward? And I'm beginning to come down on the side that we won't, I don't think it'll sustain necessarily that level of increase but I doubt if it's going to go back to where it was before the pandemic. People started using cheese and eating cheese and became more accustomed to cheese. And I've several times used the example of my cheese counter at one of the stores I shop at that specializes in organic and really good specialty cheeses, and sometimes their cheese counter, which is relatively small but really well-stocked, is so crowded. I can hardly get at it. I have to elbow my way in and they stock a lot of artisan cheese and foreign cheeses and so on. Especially cheeses with cranberries and chives and all sorts of stuff.

I think the increase in sales of cheese are locked in. Now, is that going to translate to increases in cheddar block or barrels? Well, that's another question, isn't it? And I don't know whether it will or won't. I tend to think that we may see this vertical integration sort of come to a halt and we see more diversification in cheese manufacturing towards different styles of cheese. In the last—Teddy correct me if I'm wrong—10, 20, 30 years. We've seen vertical integration where people have gone huge plants to mot the cheddar blocks to cheddar barrels, in some cases to parmesan, and they basically chew up milk at a commodity sale cheese.

I think we're heading more towards specialty kinds of pieces. I think of Emmy as a good example. They produce a lot of different styles and they market them. I get this one website called The Deli Markets or something like that, that I happened to be on the email list for and all those different styles of cheeses, Carr Valley, Cowgirl Creamery, and all those different styles of cheese are on display at these cheese counters now. And people are picking up these little pieces and trying them. I think it tended to go in that direction.