What will shape the dairy industry in 2025? Are you ready for it?
In this episode of The Milk Check, we tackle the big question: what’s ahead for the dairy market in 2025? Spoiler alert: There’s no shortage of opinions—or uncertainty.
🐮 Heifer shortages vs. USDA projections: are we heading for a reality check?
🐄How will shifting cow populations reshape regional American production?
🧈 What is going on with butter? What’s ahead for 2025?
🌏 Will export demand stabilize or shake up the market?
Our team debates critical factors impacting the year ahead, including herd dynamics, regional processing capacity, and export competition.
From farmers to Futures buyers, this is your go-to episode for staying ahead of the dairy market’s evolution.
🎙️ Listen now to gain insights about cows, cream, and commerce on this episode of The Milk Check.

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Intro (with music):
Welcome to The Milk Check, a podcast from T.C. Jacoby and Company, where we share market insights and analysis with dairy farmers in mind.
Ted Jacoby, III (T3):
Welcome everybody to our January 2025 version of the Milk Check podcast. Today, we will do a bit of a market outlook for 2025, and I’ve got most of our traders on with me to share their thoughts on what might be coming down the pike. That would include my brother Gus, who runs our fluid group; Greg Scheer, who’s head of our milk division; Joe Maixner, who handles our butter desk; Don Street, who does a lot of our analysis in terms of milk production, heifer supply numbers, cold storage, those kinds of things. Josh White, head of our dairy ingredients, runs our whey protein desk. Diego Carvallo, head of our international sales and runs our nonfat book; Jacob Menge, head of risk management; and Brianne Breed, head of our cheese group. Today, the group of us will get together and talk about the different segments of the industry and what we think is in store for us in 2025. So, thanks for listening. I think you’ll enjoy this podcast.
We have been talking a lot internally about the heifer supply and the fact that there just may not be enough heifers to grow the milk supply, but I was talking to someone whose opinion I think pretty highly of the other day, and he told me that he knows of 60,000 cows that are going on new dairy farms in 2025, which makes me wonder if what we’ve been talking about with the heifer supply is true or if maybe the numbers we’re getting from the USDA are wrong. Do you think the cows are really going to be out there? Do you think we’ll be able to grow our milk supply in 2025, or do you think the shortage of heifers is real?
Greg Scheer:
Well, I think some areas may have a shortage of heifers. Obviously, some big farms have planned expansions that may not be counted in that number, but there are still tight supplies of heifers. Some of the bigger farms have their own replacements available. So, I do think it’ll limit how much milk production can grow.
Gus Jacoby:
Yeah, it’s hard to argue with what Greg just said. I mean, the economics are there for Garmin to continue to go to beef, and therefore, we don’t foresee the heifer supply growing, only shortening. Now, that doesn’t mean that some larger farms that have some affiliations with calf ranches can’t manage their heifer supplies as they need to grow into some new farms or current farms that require more production for new plant capacity coming on in their regions, but I don’t think there’s any doubt that we’re going to have a limiting factor on cows that puts a lid on it.
To be clear, Teddy, we had a big influx of cows in the middle of the year when some new capacity came on in the southwest. We only ended the year with 20,000 cows up, including over 300,000 fewer cows culled. So, to keep the cow numbers relatively the same, we must continue culling fewer cows. We’re just going to find out whether that’s something we can get away with for the foreseeable future because the herd will certainly get older, and we’ll see how that affects milk production, yields, solids, components growth, and so on.
Ted Jacoby, III:
So, I’m hearing from some of our traditional dairy economists that they think we can add as many as 100,000 cows this year. Is that high?
Gus Jacoby:
I think that’s high, but let’s say you have 100,000 come on, and we continue to cull 300 to 350,000 less than we did in 2023. It’s a plausible scenario, although I don’t perceive that happening. What I perceive is maybe another 20 to 50,000 cows increase. It will increase more in the areas around the new plant capacity. It will decrease less in other regions and continue to cull at very low rates because farm economics will be good enough for dairymen to do so. We’ll lose cows in certain regions, but those regions are without plant capacity, so we’ll still increase yields and components.
Ted Jacoby, III:
So, we’ve got new plants coming online in the I-29 quarter up in South Dakota, Minnesota, that area, and we’ve got new capacity in Kansas and down in the southwest. So, I’m assuming that’s where we’ll probably add cows. Where do we lose cows?
Gus Jacoby:
I think you’ll continue to lose cows out West, California, Pacific Northwest, and Southeast. These are the regions where you continue to show that trend of cows exiting. Obviously, in those areas where new plant capacity comes on, you will see some increases because people are bracing for that and preparing for that.
Ted Jacoby, III:
So if we summarize kind of what we think about milk production, we’re probably going to increase milk production and increase cow numbers in the upper Midwest, specifically, the I-29 corridor and in the Southwest, lose cows in the West, California in that area, which also means increased milk into Class III, decrease milk in Class IV, and then also we haven’t touched on it, but if we’re going to increase cow numbers without increasing necessarily the heifer supply, that means we’ve got older cows, which will slow down the component increases we’ve been seeing the last few years at the same time.
Gus Jacoby:
It’s not like we’re getting that much older. It’s a small percentage that are older. Obviously, if a dairyman has the ability to get one more calf out of a cow, considering the beef price and the opportunity to gain some revenue there, there’s an incentive for them to do that. There are dairymen out there who have the wherewithal to bring on heifers, more so than others, and those tend to be the folks in those regions where plant capacity is being added. Right? There are bigger farms there. A bigger question is focused on the northeast as we add a little bit of capacity there. I don’t think those dairymen have access to the heifers like those in the southwest, in the western portion of the upper Midwest.
I think that while there are some dairymen that will build new farms in that region that I’m aware of, to counter that argument, I also think that area hasn’t really been hit with the bird flu to the degree that other areas have yet, and that’s a concern for me as we try to fill capacity in that region. So, there are some unknowns on the eastern side of our country. I think there are some limiting factors on how those regions will be able to get more cows.
Josh White:
Guys, I want to jump in, too, because we’ve been talking about this new plant capacity, and we’ve talked about it a lot over the past year, but those facilities are just now coming online. Generally speaking, from the moment someone decides to move forward with it to the moment they’re commissioning milk through a new facility, it is two to three years, from the moment you’re signing up to the moment you’re actually making milk. The Same happens with a dairy’s decision to breed heifers that return to the dairy herd. Before that animal enters the milking herd, you breed it; then you have nine months of gestation, 22 to 24 months before that animal’s in the herd.
So you’re making those decisions to invest in dairy for two to three years forward. They align with each other; they’re linear. The decision to build a plant and the decision to expand herds are about the same. So we’ve talked about the plants that are coming on right now. I mean, there are a few of them that just have started taking milk over the past six months and some that we’ll be taking in milk over the next six months, but it seems like we haven’t had any major announcements. How many more announcements do we have for 2026 and 2027, or do we have an air pocket?
Ted Jacoby, III:
In terms of plant expansions?
Josh White:
Yeah, and then will that also result in an air pocket in dairy heifer decisions, especially giving compelling alternatives to take those animals to beef?
Ted Jacoby, III:
Josh, I think you make a really good point. Any new capacity that I’m hearing about that isn’t going to be coming online in the next, let’s call it 10 months. I’m not really hearing much beyond that unless it’s plants that haven’t even broken ground yet, and so we’re probably talking 2028.
Josh White:
So, that might be the missing piece in this equation because we are outperforming milk expectations right now. Would all of us agree? I mean, from a component standpoint and an animal standpoint, we’ve been on this narrative that the heifers aren’t out there. The beef market is so attractive that, at some moment, it will be very difficult to grow this herd. Yet we’ve found a way to do it, and many are projecting, at least for the rest of 2025, that we’re going to continue to do so, and we’re skeptical, skeptical about how we are going to continue to grow. How long can we continue to retain animals in the herd? What’s going to happen as the herd gets older?
All of this matters, and for sure as material, but is it also the result of structural decisions made in 2022 and 2023 to expand dairy capacity, both from a manufacturing or processing standpoint, but also from the dairy herd? And when we look at what 2023 and 2024 were like, were those decisions being made under the economic conditions that we experienced, lower nonfat dry milk prices, volatile cheese prices, this awareness that there was going to be a lot of Class III manufacturing capacity coming online, some concerns over that, and all the while a very, very good beef price and alternative for those animals.
Ted Jacoby, III:
I think you make a good point.
Gus Jacoby:
Yeah, I don’t think there’s any doubt that those are good points. I think what you also are presenting here, Josh, is some unknowns going forward. Obviously, good, strong farm economics presents the opportunity for dairymen to do what they’re doing, to coalesce, and to deal with some of the things that they’re dealing with right now in the marketplace. If farm economics don’t continue to be strong, I start to wonder if we can achieve some of the same things we’ve been achieving over the last year.
If the beef price, for whatever reason, whether it be tariffs or whatnot, goes down at a fast rate, we had a grain report this morning; there were fewer crops produced than we thought. These types of things, does that feed input get up there? That changes the game completely, and if it does get to a point where dairymen are stressed again with poor farm economics, under the same conditions of low heifer supplies, a need for milk out in the marketplace, but not necessarily a high milk price to incentivize them, I think that the conditions of our situation change quite a bit. I think culling has to get back up to where it was. I think all of a sudden, now you start to see cow numbers really decrease at a fairly rapid rate. Now granted, milk price will come in line thereafter because demand will increase with it, but nonetheless, there could be that glutton of time or that behavior acts in a manner that really changes the game for us.
Josh White:
So, with the topic being calendar year 2025, are we across the Jacobi Group of the opinion that milk production will likely outpace ’24 with some serious downside threats beyond 2025, or are we not convinced of that today? The analysts are coming out with some really strong, not only volume growth but component growth in milk. I see where they’re coming from. I’m a bit skeptical for all the reasons Gus just mentioned and for all the reasons you guys just mentioned, but what’s the low end of our view right now? I mean, do we think it’s at least going to match 2024?
Gus Jacoby:
Josh, I think the only way you can answer that question is under the same conditions we had; the answer would be yes. I think we’re going to be fairly close to the cow numbers we have today, maybe a little bit more, assuming again that beef prices continue to be high and the farm economics continue to be strong. I don’t see any major reason why that won’t be the case for most of this 2025 year. Under that scenario, then we are going to continue to cull at similar rates that we have in 2024, and we’re going to add cows at similar rates that we have. And therefore, even though we’re only slightly up on cows, the yields and the components will increase to some degree and we’ll have more solids out in the marketplace to take care of that growth. That’s the only way I can answer that question. If conditions change, the answer changes.
Ted Jacoby, III:
So Gus, let’s assume cull numbers in ’25 are very similar to ’24, and then let’s assume the available heifer supply in 2025 is very similar to ’24, low, stays low. This means if we increase cows at all, it’s simply because we’re increasing the number of lactations, so we’ve kept cows in the herd, and they’ve just gotten older.
Gus Jacoby:
Absolutely. That’s exactly what I’m saying.
Ted Jacoby, III:
Yep. Got it.
Gus Jacoby:
And we could very well do that, Ted.
Ted Jacoby, III:
Yeah. Hey Don, you’ve been analyzing this heifer supply for us. What are your thoughts on all that?
Don Street:
I think you’ve summed it up correctly, but what it means as you keep rolling the clock in another year or two, you’ll probably have more heifers, but they’re going to have to be used to replace these older cows. So you have a negative outlook on herd expansion not for a year but two to three years out unless you have farms that have consciously prepared calves to become cows to enter the herd; that’s a piece of this, too. But in that sort of other general pool that feeds heifers that get traded around and consolidated, that piece has shrunk and will not recover quickly.
Ted Jacoby, III:
This means we’ve got one of two things that will happen over the next three to five years. We’ve got a cow number cliff that we’re going to hit, especially if we have a year of difficult milk prices, where the cow numbers just drop 200, 300,000 cows. It almost will feel like overnight just because if they’re not making money, they know they’ve got these old cows to cull and will do it. Or, it’s an issue that just keeps petering slowly out into the future. And the problem is that we’re just kicking the can down the road and haven’t faced the music yet.
Don Street:
Right. And just to put context to this, we’ve been averaging new heifers, something over three million head a year nationally, and in ’24, well, we’ll know that in a few more weeks, but it’s going to wind up at 2.75 million, so we’re down 300,000 from the last several years. I don’t think we’ll do any better in ’25; we’ll probably do a little bit worse. That 300,000 shortfall if cows go to slaughter is a real number.
Ted Jacoby, III:
Yeah. The only other possibility as we look out toward the future is that beef prices will crater, and everybody will start breeding dairy rather than beef. But if that happens, it’s still three years before the new heifers arrive.
Don Street:
Correct.
Josh White:
Ted, just to pull us back, though, our topic is around 2025, and the outlook beyond 2025 has a lot of uncertainty. Even when we’re talking about this year, we’re on both sides of even; in a lot of discussions with everyone, I think agreeing on components should grow. One of the things you and Gus were talking about earlier that I thought was pretty interesting is even if we hold things the same as we did in 2024, the milk is in different spots. We have a decrease in the West and cows migrating from the West to the East. We have new processing opening up in the middle part of America and different processing in parts in the eastern half. How does that change the product mix we’re dealing with and the components we’ve been discussing, such as skim solids and butterfat?
Ted Jacoby, III:
I think that’s a great question, and I think the easy answer is to say more Class III and less Class IV, but on a certain level, it’s also dependent on prices. So I’m going to throw it back, Josh, on your team, you and Diego and Joe, let’s start by assuming we’re going to have less milk out West, we’re going to have more milk in the middle part of the country. I could probably go around the room and ask everybody what they thought milk production would do next year. The answers will vary from volume being close to flat to volume being up, let’s say one and a half to 2%, and then solids being up on top of that regardless of the volume, another one to 1.5%. Does everybody agree on that? Gus, you’re the one with the head going side to side instead of up to down. How would you disagree?
Gus Jacoby:
As far as milk production by itself, one and a half percent seems high to me, but one-half to up to 1% seems plausible, although, on a solids basis, I think it’ll be a fair amount more.
Ted Jacoby, III:
Yeah, but would you say up 1% in milk, up 2% in solids, up 3% total in solids, possible?
Gus Jacoby:
Possible, yes.
Ted Jacoby, III:
So, Josh, Diego, and Joe, what does that mean for Class IV?
Josh White:
It will be Joe’s show; if we want clickbait on this podcast, it’s butterfat. I guarantee that’s what everyone wants to understand right now. Because of how weak cream is, cheese facilities in the middle part of America can’t get the skim solids they need right now. Yet skim-solids such as nonfat are low. That’s the first part we must figure out: What does this milk change in these new processing facilities mean for fat?
Joe Maixner:
I do think that even though the shift in the milk going from Class IV to Class III does affect the fat side of it, I do think it affects the skim-solids side of it more because the less amount of milk means that cheese is going to suck up all of the additional skim-solids and protein. In contrast, they won’t soak up all the extra fat. They’re still going to push some of that fat back. So, I think it has a larger effect on the nonfat side and the MPCs than the butter side of the picture.
Now, with that being said, most of the farmers are paid based on butterfat, so they would rather talk about the fat complex than the skim solids. Ultimately, yes, I think it’s going to affect butter. It will tighten butter up, but it will take some time to run through the cycle. I can make arguments for both sides of it as well, given that we’re already at a 280 market for 2025, and it’s January 10th. Is all that already priced in, or will we see another leg higher? I’m not really clear on that yet, but I do think at the end of the day, a lot of that will also be based on fat demand for other products, not just butter, and that’s what will affect the overall butter market.
Josh White:
Well, it’s a complicated one right now.
Ted Jacoby, III:
Everybody, we will be right back after these messages.
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Ted Jacoby, III:
Joe, I’ve got to ask the question. We’re seeing ridiculously low cream multiples in the Midwest, yet we’re at 280 butter. What’s causing the disconnect between the cream multiples and the butter market right now, and then how does that affect the rest of the year? Will it eventually get solved, or will that be an ongoing issue?
Joe Maixner:
I wish I had a solid answer to that question, Ted. I have been scratching my head and talking to many other people in the industry about why we have sub-flat multiples for cream going into butter churns, yet we’re at a 260 spot price and a 275 to 280 futures price. It doesn’t make sense. Eventually, economics fixes everything. We’re just at a really large disconnect right now.
Ted Jacoby, III:
Could it be a capacity problem? We’ve lost milk and, therefore, butterfat lately in California because of bird flu, so we have less butterfat in California, where there’s a lot of churn capacity. And we already have more butterfat and milk this year in the Midwest and the East. Could it be simply a case of all the butter churns being full in the Midwest right now, and that’s causing an issue with the cream going into the churns because they’re all running beyond capacity. Yet, we’re not producing as much butter as we have in the past because we’re not running the California churns full?
Joe Maixner:
That is a great point. We know that cream is waiting to get unloaded at multiple facilities because they just can’t take it. It is a large disconnect overall in the industry, but at the same time, I can’t shake the fact that even if everybody is churning at max capacity, then we still shouldn’t have the prices that we’re seeing. It’s the beginning of the heavy season. We’ve got a few more months of this, and then on top of that, California is getting ready within the next month to come into their flush. Granted, they’ve been suffering from many issues with the bird flu, and they’ve been down in milk production. We should also start to see that bounce back slowly to where they’re at least producing a decent amount of product or getting close to prior bird flu numbers—just a tough market to read right now.
Ted Jacoby, III:
But I can speculate over the next two to three months, milk production will start to come back in California because bird flu gets farther into the rearview mirror, so more milk and butterfat in California mean more butter in California. That would seem to be bearish to me. But at the same time, we’ve got cheese capacity coming online in late Q1 and into Q2 in the Midwest, so all that milk that people are currently struggling with from a butterfat perspective gets pulled into the cheese fat. And yes, some of that butterfat gets kicked right back out to butter churns, and Gus, I’m going to ask you to comment on this. Is the cream situation relative to the butter market going to improve if that happens, or do you think we’re just in a difficult spot?
Gus Jacoby:
Well, I do think we’re in a tough spot. It’s hard for me to say where we might go, Ted. We simply have more butterfat out there. What makes it worse is this lack of fortification solids for these and new cheese plants, right? So, more cheese capacity and less ability to supply them, fluid fortification solids, and a Class IV market that’s riding at numbers are going to make it difficult to fortify and sell commodity cheese. It can be done, but it’s not favorable. And so I guess we just have a situation right now where we’re just going to have a lot of butterfat being thrown at us from a lot of different directions, and unless the conditions of this market change, I can’t see how we’re not going to have a longer cream market.
Ted Jacoby, III:
But if the solids aren’t there for the cheese plants to buy, especially in liquid form, it just continues.
Josh White:
They got to find their way to be there. Ask Diego. Nobody wants non-fat in the global market. Bold statement, but the global market for non-fat is not strong. That’s why there’s such a price spread between cheese and non-fat right now. How do these cheese plants get those solids if there’s weak fat?
Ted Jacoby, III:
I think we’ve got a real capacity issue, because they can’t get what they actually want. On the skim solid side, they want UF skim solids. Gus, I’m assuming every UF plant out there, if they can, is running full and spinning off the skim solids and selling the cream.
Gus Jacoby:
Two things that create a premium on UF that is difficult for a cheese plant to consider. You have high wave prices and therefore high other solids values, so your permeate loss requires a big premium on the protein to make it work. The second thing is skim solids, quite frankly are tighter than they have been in a while. There’s just other sectors of our industry that are demanding it a bit more. There’s no need for somebody to UF their milk unless they have some advantageous reason or an ability to collect a return on their permeate streams or whatnot.
Under that scenario, I don’t think a lot of UF will move like we’ve moved in the past. I just see very simply, cheese plants unable to get fluid fortification solids, the dynamics aren’t there. Highway prices, high other solids value and a tighter skim market overall. As long as that continues, especially on higher butterfat components, you’re going to have cheese plants who typically didn’t spin off that much butterfat spinning off quite a bit of butterfat and putting more cream onto the marketplace. So therefore that protein has some demand in other areas outside of Class III. You have a fairly healthy protein market right now. Is that safe to say, Josh?
Josh White:
Yeah.
Gus Jacoby:
Right?
Ted Jacoby, III:
Even with MPC.
Gus Jacoby:
I would say so, yeah.
Josh White:
Yeah.
Gus Jacoby:
I mean we’ve added capacity for MPCs to this industry in the last couple years, right? I think we’re going to probably add some more as we move forward. And this goes back to a little bit older discussion around what Europe and Oceania are able to do and how they’ve contracted a bit and they’re not making as much as they used to on a world where that demand is growing. That trend, maybe not as prolific in discussion right now, it’s still happening and certainly our skim solids isn’t growing like our butterfat component that just exasperates the situation with regard to fortification solids for cheese plants that much more.
Ted Jacoby, III:
So. Josh, is this protein market going to hold up all year?
Josh White:
The higher whey protein side of things is very firm right now, and we’re all still trying to get our head around this change in the utilization. Is this temporary? Can we price it out or is this a real shift in consumer demand that is asking for more and more whey protein and will continue to do so throughout 2025? You can’t ignore the fact that GLP-1’s are very popular. You can seem to draw a fairly tight connection with whey protein consumption, but it’s protein overall that should be in demand, and I think Gus mentioned the value in milk is not just the whey protein component of it, and milk proteins are probably the most affordable buy at the moment. I think if you’re talking about, will WPI prices remain this high and continue to do so? Yeah, maybe. Will WPC80 remain where it’s at? I would argue we’re going to see two-sided trade this year. We’re going to see both an uptrend and a downtrend in 2025. Will nonfat dry milk continue to be so cheap, or will that pull the whole curve higher? The demand for protein is there.
Ted Jacoby, III:
Josh, have you had any conversation with the buyers we work with about how these protein prices are too high and they’re killing demand?
Josh White:
No.
Ted Jacoby, III:
So we are at, we’re maybe not at all-time highs, but we’re in that range, and we are not seeing the rhetoric about these prices killing demand yet.
Josh White:
Thus far, nobody’s told me it’s reducing or hurting their demand. In fact, I would argue their demand’s still increasing. That being said, let’s not forget the supply chain is a long one for these products. Commodity prices from the third quarter are just now hitting the retail prices. It takes six to nine months, so we arguably don’t know that we’ve overpriced something for six months after we’ve overpriced it? That being said, it sure doesn’t feel like the third quarter prices are hurting demand right now in early 2025.
Ted Jacoby, III:
So it sounds like what I’m hearing from everybody is that on the skim solid side, everywhere from whey proteins to milk proteins through UF milk and cheese plants is we’ve got firm demand easily through the first half of the year.
Josh White:
But not for non-fat dry milk.
Diego Carvallo:
Definitely. When you look at the S&D, at how balanced the market is for non-fat, you see that supply is significantly down, at least from the U.S. We’re seeing California with 10% down milk production, their non-fat production significantly down at the same time. With a scenario like this, prices in any other situation, if demand was stable, they would’ve skyrocketed already. Right now, the demand is so poor, it’s still so weak, mainly coming out of Asia and to be more specific out of China that it doesn’t seem to be affecting prices that much. Right now, all of those offers from origins like New Zealand and Europe are competing heavily in international markets to the extent that they’re going into countries like Mexico, which is our backyard, and they’re stealing demand away from the U.S. Yeah, supply is significantly lower, but at the same time, demand doesn’t seem to be doing much to tighten the market up.
Ted Jacoby, III:
Is that going to change and what would be the indicator that it changes?
Diego Carvallo:
There are many. I would say one important one is a situation in China. If China starts to build stocks back up, which could happen from one week to another because a lot depends on sentiment on government policies, etc. That could be a trigger. Mexican government coming out and buying product and having a requirement if it’s a certain origin or not, that could also be a trigger. If California production comes back and rebounds faster than expected, that could also add more pressure to the market. So there are many variables.
Ted Jacoby, III:
So this weak demand in China, that’s got to be affecting New Zealand even more than it’s affecting the U.S. What are we hearing out of New Zealand right now? Are they feeling like prices are too low and they’re losing milk? What’s the rhetoric there? Do we know?
Diego Carvallo:
So farmers right now in New Zealand are having a really good season and they’re trying to pump as much milk as possible. They’re having a really healthy margin. They were able to buy feedstocks at a really good price. Some of those feedstocks come from palm and also grains, but they have lowered somehow their cost and they’re having a healthy margin. They’re making a lot of money and they’re trying to produce as much milk as possible. When it comes to production of the ingredients per se, they’re switching a lot of production to whole milk powder, which is a little bit more of a commodity for them, and they have more outlets for that product. That’s a quick summary. Obviously there’s a lot of treat with a grain of salt on a lot of those things that I mentioned, but that’s in general what we’re seeing in New Zealand. They were able to sell a lot of product to China before Chinese New Year, so it seems like that helped them clear a lot of inventory. But right now the situation in China has turned bearish again, quite bearish.
Ted Jacoby, III:
The other region we compete against internationally when it comes to skim solids like nonfat is Europe. What are we hearing out of Europe right now? Are they also in a good spot?
Diego Carvallo:
That’s a really good question, Ted, and I’m really surprised because Europeans are offering skim milk powder at prices that are insanely competitive. They don’t have too much inventory. Their production seems to be relatively stable in terms of fluid milk, but their offers are very aggressive. Their offers to Mexico, to Latin America and to Asia are probably two to $300 discounted versus the U.S. So that’s spread between U.S. and Europe is wider than we’re expecting at this time.
Ted Jacoby, III:
So essentially what I’m hearing is, we’re the last man on the totem pole. Everybody else is lower than us. Everybody else is clearing product. We’re not necessarily clearing product, but at the same time we’re not making it, and so we’re just in this static case of not great demand, but not great supply, so there’s no sense of urgency to go anywhere.
Diego Carvallo:
That’s a good summary. Yeah.
Ted Jacoby, III:
Well, that kind of brings us around to cheese Brie, and the one thing I think we’ve all been assuming on the cheese side is we’re going to make more cheese in 2025. What does that mean for cheese prices? How’s that going to play out?
Brianne Breed:
Well, I would think we would make more cheese considering there’ve been a few additional plants and a few significant expansions. It’s going to be a roller coaster of a year. I mean, everything you guys talked about with the changes as far as where milk is growing, where it’s shrinking, there’s a lot of things that need to settle down here in the next few months before I think we’ll have an idea as to how did we pan out on exports? A year ago we had a whole bunch of cheese locked up through, I would say at this point we were already through Q2. I don’t think that that’s the case right now. CWT is still kind of up in the air. We have a lot of different variables that we’re dealing with on the cheese side right now.
We’ve also got less cheddar production that we’re dealing with. I do think we’ll make more cheese. I think there’s no question about it, and I do think that we will make more cheddar than we did last year, just given the fact that the new Hillmar plant, for example, they’re going to be making a lot of cheddar. The big question I think is what are exports going to do? We are cheapest in the world right now, but the freight dynamics, they’re not great. Our futures are inverted and future production is just not really all that easy to get a hold of at the moment.
Ted Jacoby, III:
How does it play out? The one thing we’re kind of hoping for is better exports from cheddar to keep this cheese market propped up a bit, but we’ve also got an inauguration in a few days where Trump comes into the office and his rhetoric on tariffs has been raise them, raise them, raise them. How’s that going to affect our cheese exports? How does that play out? Do we expect our buyers of cheese to raise tariffs on our dairy products in response, and what do you expect that’ll do to our demand?
Brianne Breed:
If tariffs are slapped on, it’ll affect Mexico the most, and we’ve exported a lot of cheese. Year over year growth has been significant the last few years. I would think that we would continue to export cheese and maybe the numbers just remain flat. I think it also depends on what the peso does. If the peso weakens, they may not buy as much. We could see that volume drop a little bit, but there’s a good demand for U.S. cheese in Mexico, and I think we’ve established some good relationships. I know that a lot of the U.S. manufacturers aren’t going to want to see that go. The logistics of sending cheese from the U.S. to Mexico is just easier than shipping it anywhere else in the world. As long as we can guarantee that the payments will happen, I think that we’ll continue to export into Mexico as much as we can, even with additional tariffs.
Ted Jacoby, III:
How easy or hard is it for those buyers in Mexico to switch from buying cheese from the U.S. to buying cheese from somewhere else like Europe? I mean, they’ve got an ocean to cross. It seems like that would be really difficult.
Brianne Breed:
Yeah, I mean, they’ve been doing it though for a long time. They’re pretty well versed in importing from Europe or Oceania. Will they want to make the change though, thinking that it might be just temporary? Depends on what the price difference is. If it’s significant, we will probably lose some business to those regions. We’re in for a roller coaster, that’s for sure.
Joe Maixner:
Ted, one thing we didn’t comment on on the butter side is exports and imports. And going back to butter, that is one thing that I do think that is aiding in keeping this market where it’s at, priced where it’s at is because we are the cheapest in the world right now in butterfat. I think we’re going to continue to be that way based off of the outlooks of Europe and Oceania and their production forecasts for this year. That’s something that we need to really keep in mind. That also will aid in keeping our markets elevated based on, we probably won’t import as much on the industrial side into the U.S. this year as we have in years past.
Retail is going to get imported regardless because of the likes of people like Kerrygold and the brands that are in the marketplace. But on the industrial side, I do think that extra product is going to be soaked up domestically as opposed to import product because of that. We’re such a small player right now, but I do think we can see a significant increase in our amount of exports, but you have to keep in mind, a 400% increase in our export numbers is still a fairly small number in the grand scheme of our overall butter production.
Ted Jacoby, III:
Jake, as you’ve been listening to us talk about all of this, is there anything that stood out to you when you think about 2025?
Jacob Menge:
A whole lot of questions. From a 30,000 foot view, markets seem to be relatively in check besides maybe the proteins. It’s just going to take a push from something that we’re probably not even talking about right now to get these markets trending one way or another, so stay tuned.
Ted Jacoby, III:
Something we’re not even thinking about, black swan type of events.
Jacob Menge:
Not a black swan, nothing major. It could just be, hey, we tariff somebody and maybe they hit us with a tariff that we never would’ve anticipated. Just something that isn’t obvious, and if that doesn’t happen, we’re probably in for some boring markets ahead.
Ted Jacoby, III:
There’s a lot of uncertainty in this market. Protein prices are high, skim solids are high. We have too much butterfat in one part of the country, but maybe not enough in another part of the country. But it all comes down to export demand and it all comes down to domestic demand, and it all comes down to what supply has done, which basically is that it could come down to anything.
Joe Maixner:
Volatility.
Ted Jacoby, III:
That’s a great question, Joe, and I’m going to throw that one back on Jake, does that mean we have more volatility this year? Volatility of a wide range, volatility of a narrow range, or do we just go quiet?
Jacob Menge:
So let’s just quickly define volatility. A market that just trends up or trends down, it can make a big move. That does not mean it has volatility. We actually are in an environment that the volatility is probably too low. We’re starting to see volatility pick up on the equity side. I would not be surprised to see that start to flow through to our commodities. If I had to stick my neck out on one thing, if inflation stays high, equities aren’t super happy about that, they have an okay year, but not a stellar year. Maybe we get some managed money flowing in to the commodity space that we haven’t seen in a couple of years, which would contribute to more volatility.
Ted Jacoby, III:
Right now, there’s so much uncertainty in the market, nobody really is comfortable making any kind of a commitment on pricing and on thoughts on how the year’s going to play out, which means right now everybody’s kind of sitting on their hands creating a market that’s rather quiet, but it’s also a market that’s one spark, and this thing could become a full-fledged blaze. Is that a fair way to put it?
Jacob Menge:
Yeah, a bit. It could completely peter out. There could never be a spark, but keeping our ear to the ground and making sure one doesn’t come out of left field.
Ted Jacoby, III:
So as we wrap up this conversation, I think summarizing it may be stay tuned. It’s really difficult right now to figure out what’s going on. There seems to be an interesting balance between supply and demand. I think you can make cases for supply not being what a lot of people expect. I think you can make cases for demand getting weaker. You can make cases for demand getting stronger. Who knows what’s going to happen in exports, who knows what’s going to happen in tariffs. Maybe all we did was confuse you. Maybe we added a little bit more information to your plate. Either way, I hope you all enjoyed our podcast and thank you for listening.
Outro (with music)
We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@www.jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Company.
Ted Jacoby, III:
Take care. Bye.