Milk prices are climbing back up from their low point in February, prompting Ted and T3 to predict how high prices need to get before dairy farmers on the fence about staying in business decide to stick it out.

They also discuss how the dairy exports situation could play out over the duration of this year.

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 April 9th, and with us we have Ted and T3, as usual. Today we need to talk about changes over the last few months. We had predicted that...prices were forecasted to drop into the $13 and stay there, but in reality were only that low for about a month. In terms of retraction, we need to look at what that does to our view for the future. We also need to talk about international markets, and trade agreements, and tariffs. So, I'll just open it up and let you guys go wherever you want.

T3: Do you want me to start it off?

Ted: You can start it off.

T3: Okay. I think, let's talk a little bit about pricing first. We bottomed out in February at $13...what was it, Anna?

Anna: $13.40 was February.

T3: So, we bottomed out in February at $13.40. We came up into March, I think we were up...what did we end up with...$14...

Anna: $14.22.

T3: $14.22 in March.

Ted: Those are the Class III prices.

Anna: Exactly....

T3: Those are the Class III prices and April is, right now, tracking towards about $14.85. And so, we're almost $1.50 above the low that we experienced in February.

Ted: In the Class III prices.

T3: In the Class III prices, right. I think Class IV prices have continued to stay in that $13 range, but at least in the Upper Midwest, prices have come up a little bit since there's a lot more Class III utilization in the Upper Midwest. My concern about that is that we were talking quite a bit in the beginning about a contraction in the milk supply here in the U.S. because of how low (the price) had gotten. But they didn't really stay down there long enough to have the effect that we were originally thinking. It looks like, by the second quarter, we're probably gonna be somewhere around $15 a hundredweight in Class III. Now, I'm not saying that anybody's getting rich off $15 a hundredweight, but that's not the financial pain that something around $13, $13.25 would give, which means there's probably going to be some dairy farmers who are gonna stay in the business, that we originally assumed might get out of the business. My concern is, without the contraction of milk supply that we'd been talking about, while demand has, I think, given us a nice floor and bounced this market a little bit up into the $15s, I'm concerned that without the reduction of milk supply it's gonna be difficult for us to get much more than $1, $1.50 higher than this. In other words, by the time we get up to about $1.70, $1.75 cheese, that's about as far as we're gonna go and our milk price will top out around $16.50 in the second half of the year.

Ted: You may be right on your projection for the second half of the year, but if you think that dairy farmers are gonna to be happy with a net price after discounts and after hauling at somewhere in the neighborhood of $13.50 to $14, that isn't gonna fly.

T3: I'm not saying they're gonna be happy, I'm just saying they're gonna stay in the business.

Ted: Well, I don't think they'll stay in the business anymore at $13.50 to $14 than they were at $12.75 or $13. I think the situation, as far as the dairy farmer is concerned, is extremely difficult right now. And I was in a meeting this morning with a couple of bankers who bank dairy farmers,