Milk production is up 4.2% year over year, components are climbing and prices are falling.

As holiday orders wrap up and we head into the long winter, The Milk Check team digs into whether dairy markets have already found a floor, or if there’s still another leg down to go.

With milk products everywhere (except for whey), the Jacoby team shares where the market is and where we’re going.

They churn through:

• Butter at $1.50 and what heavy cream and higher components mean after the holidays
• Why cheese feels like a calm before the storm, and how far Class III could grind lower
• Nonfat and skim: long milk, growing inventories and buyers shopping the cheapest origin
• Why whey proteins are the outlier, with tight supply, strong demand and GLP-1 tailwinds
• Global milk growth, clustered demand (Ramadan, Chinese New Year, Super Bowl) and who blinks first between the U.S. and Europe

In this episode of The Milk Check, host Ted Jacoby III is joined by Joe Maixner, Jacob Menge, Diego Carvallo, Josh White and Mike Brown for a rapid-fire market session on butter, cheese, nonfat and proteins.

Listen now for The Milk Check’s latest market read on butter, cheese, nonfat and whey.

Got questions?

We’d love to hear them. Submit below, and we might answer it on the show.

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Ted Jacoby III: Welcome back, everybody, to The Milk Check podcast. Today we’re gonna have a market discussion.

It is November 10th.

We are in the last couple of weeks of the quote-unquote busy season, starting to get a feel for what we think is gonna happen to dairy markets as holiday orders are filled, and we transition into the long-term period of the year.

In the last few weeks, we’ve actually seen prices drop, but it feels like butter’s kind of dropped down to about a $1.50/lb and seems to find at least a brief floor. We’ll talk to Joe and find out if Joe thinks we’re gonna stick around here for a while. The cheese market was up in the $1.80s/lb.

It’s dropped to a little below $1.70, starting to hit a little bit of resistance. Jake will share with us a little bit about what we think is happening with cheese going forward. Nonfat dropped a little bit down to [00:01:00], about what Diego, about a $1.10/lb and had a little bounce off its floor. Meanwhile, the whey complex just continues to go up. We’ll check in with Josh and find out what’s going on there.

Well, let’s go ahead and start with milk production.

We just got released today, the September milk production, and it says it’s up 4.2%, which is a very, very big number. It’s November; milk is longer than it usually is this time of year. Usually, it’s quite tight, and it’s not quite tight, but I wouldn’t call it long. However, all the signs are there that once we get past the fall holiday order season, milk could get quite long. If September milk is up 4.2%, I think it’s safe to say that if that continues, we will be quite long milk as we transition from the typical seasonal tightness of the fall into the winter and the flush of the spring. 4.2% is a big number, and that’s not even taking into account the fact that the solids in the milk are up as well. That’s not the kind of tone that a dairy farmer wants us to set as we’re talking about what supply and demand looks like, but there’s a lot of milk out there, [00:02:00] Joe, does that mean there’s a lot of butter out there, too?

Joe Maixner: Well, there’s still a lot of butter out there; sounds like there’s going to be a lot more butter coming soon. If milk’s up 4%, cream was heavy all of last winter and into last Spring, extremely heavy.

If we have higher components, more milk, and we’ve got a full amount of milk coming outta California as well after coming off of bird flu last year, there’s just gonna be that much more cream in the system and more getting pushed back into the churns. So, it’s a very good possibility that we’re gonna go even lower than where we currently are.

Volume seems to be trading well. The cream demand has been fairly steady, going into cultured products and the shorter shelf-life products. Cream’s still long, but it’s not swimming yet.

Ted Jacoby III: Will we hold this $1.50 area through Thanksgiving, you think?

Joe Maixner: Yeah, it seems like we’ve hit a spot where buyers are willing to step in. So, there’s a good chance that we could hang around this $1.50 area for the next couple of weeks. Once the last little spurt of holiday demand is over, we’re gonna take another leg lower.

Ted Jacoby III: Okay. Jake, what about [00:03:00] cheese?

Jacob Menge: I think we had a little reprieve from some cheese bearishness with the holiday demand. It’s tough, though, especially with this wall of milk that’s headed our way.

Does it seem like the bottom’s ready to drop out? Probably not yet. But it still seems like it’s a possibility. It almost seems like the call before the storm.

Ted Jacoby III: What you’re saying is: we’ve already dropped quite a bit, but we’re in typical low points, but it’s possible, considering the amount of supply coming our way, that there’s still another cliff to negotiate, and we could go a lot lower when it comes to Class III milk and cheese prices.

Jacob Menge: If you zoom out a ways, going back to mid-2022, we’ve really not liked to go below that $1.55 level on futures.

We’re kind of at another support level at this $1.65. Those seem like our two support areas, historically, for the last 3, 4 years. So, it’s probably gonna be one of those grinds lower if we move lower from here, versus that $1.85 to $1.65 was almost an air pocket drop.

[00:04:00] It seems like the market’s gonna have to earn it if it moves lower from here, but it does seem like a possibility.

Ted Jacoby III: When we get down to these levels, this usually tends to form the floor, and if we have so much cheese out there and so much milk out there that we’re gonna go lower from here, it’s probably not an air pocket drop; it’s probably a grind lower from here.

Jacob Menge: Yeah, I think our lows, on the futures, for the past 4 years have been that $1.55. Don’t quote me on that, gimme a couple of cents on either side of that. But that means we got a dime from here to hit those five-year lows, you know, besides COVID. There’s a lot to be said for technical trading at those levels. So, it would take a big fundamental kind of wave supply to get us to crack that.

Ted Jacoby III: Got it. Thank you. Diego. What about nonfat? What’s the international market doing? We know we have a lot of milk in North America.

We have a lot of milk everywhere. And what does it mean?

Diego Carvallo: Customers are also seeing the data, and it seems like they’re in no rush to buy nonfat. Right. Nonfat seems to be the product that is 00:05:00 consistently available. We haven’t seen a very tight market in several years. So, it seems customers are more concerned about other products like WPCs or maybe cheese, other products besides nonfat. So, they’re staying very hand-to-mouth. They’re being very flexible when it comes to origin and just buying spot and from the origin that offers them the cheapest skim milk powder delivered price, which, in most cases, for the past few months, has been either European or New Zealand product because of the shipment time, transit time, and tariffs.

Ted Jacoby III: Has the inventory in the U.S. been building as a result?

Diego Carvallo: Yes, it has, Ted. Yep. Inventory has been building. I was looking into the milk production numbers for September. California was relatively stable compared to the previous year. I think we grew by 2.5% versus the previous year.

But the strong impact from avian [00:06:00] influenza was actually in October. So, that’s when we might see a big jump between California production for 2024 and California production for 2025. So, I thought the Milk Report was pretty bearish for nonfat. Next month could be as bearish or even more.

I still believe that we’re gonna see a lot of product going into the dryers, and that’s gonna add pressure, and that’s gonna increase inventories for U.S. products.

Ted Jacoby III: What does milk production look like in Europe?

Diego Carvallo: They’re actually up quite a bit. I think their September number was also stronger than expected. I can’t recall the exact number, but it was stronger than expected, even though they have cut down on the farmer price, the FrieslandCampina, which is the number one benchmark. It still seems like, with corn moving lower, there’s still a number that incentivizes more milk production. For the next few months until we see a stronger cotton price, we’re gonna see plenty of milk from the U.S. and from Europe.

Ted Jacoby III: [00:07:00] Okay, thanks. Appreciate it, Diego. Josh, so what about the protein market?

Josh White: Yeah, same story. I don’t know why everybody else is having so many problems with their products because whey proteins are in demand and it continues to be very strong.

WPC 80, WPI demand is outpacing supply. People are trying to book forward and can’t. By all reports, the demand on the consumer level remains pretty good. It’s a bit of an outlier. It’s definitely a mystery. A lot of the discussion centers around GLP-1 adoption in the U.S. Compared to a year ago, I think I read this morning, something like 12% of Americans are allegedly using GLP-1-related drugs for weight loss.

Assuming that’s an accurate statistic, that’s a noteworthy number of people. There was a lot of discussion last year that as people come on things like Wegovy and Ozempic, at what moment do we mature to the point that people beginning their cycles of taking the drugs equal those coming off of those drugs?

There’s just been a lot of headlines about more affordable access to these types of products. If that continues, that shifts this curve even a little bit further up. [00:08:00] What can reverse that trend or slow down the demand for the whey protein side?

I think it takes a production response. I can imagine that any manufacturer that’s making whey-related products as a byproduct of their cheese production is exploring how to access this demand, in particular, the whey protein isolate demand. I don’t have the impression that equipment is any easier to get, and there are still plenty of obstacles in terms of making production changes at the processor side.

It feels to me like at least through the first half of this year, we’re gonna continue to be under-supplied relative to the demand that’s out there. And I think it’s important to note that although we’re talking about good demand for these products, the GLP-1-related impact on the dairy market isn’t all positive.

It’s certainly a positive on the whey protein side. Still, I think, as it relates to consumer demand for butterfat, cheese products, and some of the other snack foods that dairy products are used in, in the CPG space, people are consuming fewer calories. Throughout the rest of the world, this health and wellness [00:09:00] trend and this appetite for quality protein are everywhere. Their demand continues to be very strong internationally.

Maybe a couple of other things that are noteworthy, maybe early indicators of the price stabilizing, it looks like Europe and the U.S. might be closer to parity for the first time in a while. So, we should watch that. We will see seasonal production levels start to increase a bit. I don’t know if that will one-for-one find its way into additional whey protein availability, but it certainly should help the situation as we get into heavier production months in the Northern hemisphere markets that produce these products.

But other than that, demand remains very, very strong. Prices are firm. They appear they’ll continue to be through at minimum the first quarter. And I don’t think it’s going out on a ledge to say through the first half of the year. And then we’ll see what happens on the other side of it.

But yeah, definitely a firm marketplace right now, Ted.

Ted Jacoby III: What about milk protein concentrate, milk protein isolate? Are we starting to see the value of those products increase and close the gap between the [00:10:00] whey protein, since the whey proteins have gotten so expensive?

Josh White: I’ll jump in and say we’re starting to see some early indications of that: people looking for substitutes where they can. If you’re not in these markets every day, you don’t know what products are available.

If you’re in the CPG space or using it as one of many, many SKUs that you’re buying, you’re not aware of the functional properties and some of these other things. And there’s also a decision-making timeline that people have to consider. Not only are there labeling concerns and other things, but there’s a lot of protein that’s consumed as an ingredient and maybe not the primary ingredient. And oftentimes, those decisions are not easy to formulate or change, and they’re also made over larger durations of time, like annual pricing. We’ve had such a wide gap for a long enough time now that we have customers asking questions, and customers that are on the lower end of the valorization for these products are looking for substitutes. Those substitutes come in a couple of ways. They can come from substituting away from dairy, substituting for other [00:11:00] dairy or trading down to lower dairy-related protein products. We’re seeing people investigate all of them.

Diego might be able to speak more precisely about what’s happening with the MPC prices. But generally speaking, the majority of people out there are starting to ask questions. I’m not so sure it’s having a material impact or moving the needle quite yet on substitution.

Ted Jacoby III: Okay, well, it feels a little bit like a broken record. Milk everywhere, product everywhere except for whey, maybe that’s exactly the loop we’re in right now.

Joe Maixner: We’ve talked a lot about supply and excess and whatnot, but demand, it feels like we’re increasingly teetering towards a crumbling economic situation with higher debt, people not having much discretionary income, and just overall demand being weak.

Ted Jacoby III: So, if you’re looking at the demand numbers that we track, restaurant traffic is definitely down. It is clear that the economic environment we’re in, people’s pocketbooks are being stretched thin, and they’re cutting back on how often they go to restaurants and eat at [00:12:00] restaurants.

Now, usually when that happens, there’s an offset into the retail side, and the retail side numbers usually go up a little bit. You are seeing that. Speaking to some of our branded customers, what they’re telling us is their sales are down, and the private label guys are saying, well, their sales are up, but frankly, not as much as they expected.

The bottom has not dropped out yet. I think everybody’s watching it pretty closely. I think the industry’s concerned. I’ll leave it at that.

Mike Brown: I think food service continues to be the big stickler on overall dairy sales.

Grocery sales are okay. Food service continues to be weak, and that’s gonna affect us. Mm-hmm. Particularly, I think some of the high-fat products.

Josh White: When we’re looking at it from the home front, it doesn’t feel real great, but if we’re looking at just how much additional milk we have globally, including out of Oceana and out of South America, and looking at how much of that surplus milk globally is being consumed in Asia right now, I mean they’ve been buying I wonder if that points to some brightness, at least some positives? Now, I also am a little [00:13:00] concerned that we have a consolidation of demand events, with Chinese New Year buying at the same time that Ramadan continues to move earlier and earlier every year.

And prices are low right now. Feels like we might have a big concentration of demand that’s meant to satisfy local needs in the early part of 2026, but there has been a lot of international trade.

Ted Jacoby III: I think you’re absolutely right. Ramadan and the Chinese New Year are both in February.

Diego Carvallo: The word in the street, Ted, is that most of the Ramadan and New Year’s demand is gonna be fulfilled by the middle of November.

Ted Jacoby III: In other words, by the time we get to January 1st, those orders are gone.

Mike Brown: Yeah. And Super Bowl is 10 days before the start of Ramadan in the Chinese New Year. So, they’re all pretty close together.

Josh White: I went back to saying that, hey, we’ve got a lot of milk globally, every surplus region’s producing more milk than expected.

You mentioned earlier, Ted, that doesn’t even account for the component growth that we have here. That’s been fairly impressive. [00:14:00] What’s been interesting about that is it hasn’t felt this heavy. You might believe, well, it doesn’t feel as heavy because the Northern Hemisphere is at its low milk production points.

Maybe it doesn’t feel as heavy because we’ve got a concentration of additional demand, but we’re trading a lot of anticipatory supply concerns. We’re really trading the fact that tomorrow we’re worried we have a lot of incremental milk, globally, that we don’t necessarily know where we’re gonna go with it.

That’s not a reason to get bullish, to be super clear, but I do think that if we’re thinking through vulnerabilities in the market, that might be one.

Ted Jacoby III: I would agree with that. I think there are three things that are probably keeping this market from going straight to the bottom.

One, as you said, we’re at the low point seasonally for milk production in the Northern Hemisphere. Two, we are at the high point for demand everywhere. And three, you get to a certain point, and I think we are there in all products, we may actually be passed there in butter, but we are there in cheese, I think we’re there in nonfat, where [00:15:00] in order to go lower, you need to build up supply to the point where the inventories become actually burdensome, and I don’t think they have become burdensome yet, but I would expect that sometime in the first quarter of 2026, they will. You’ll start hearing reports that warehouses are full.

You’ll start hearing reports that, from a cashflow perspective, whether it’s traders, whether it’s manufacturers, you have people who just need to dump inventory because they don’t have the cash flow to continue to hold inventory. Those are the things that drive markets to their lows.

And so, if you think about the old saying: the cure for high prices is high prices, and the cure for low prices is low prices, that’s when you find out what the low price is, and then you go to that place that sends the strongest supply signal possible to suppliers that they need to cut back.

Mike Brown: I was at a cattle show of all things this weekend and was talking with someone about feeding palm oil to get butterfat. His rule of thumb was that a pound of palm oil costs about a dollar, and you get about a 00:16:00 three-to-five-point increase in fat test from that. So, if you say 0.4 and you’re a 90-pound Holstein herd, that’s 0.36 pounds of fat.

So, you’re paying a dollar to produce, there’s roughly 50, 60 cents worth of butter fat. So, we may start to see that come into conversations on rations.

Josh White: And if we’re looking for optimism, I think that formula is pretty openly discussed in Europe as well. So, you’ve got a situation now where you have the on-farm milk price that is beginning to drop, the signals there that it needs to come down.

It’s moving at a decent clip, to Diego’s point, maybe not enough to make any major change yet, but for planning purposes, things like feeding for fat might be a bit more vulnerable going forward there. So yeah, if we’re looking for what could start to correct our oversupply situation or what could potentially stabilize or support the market, we need time.

I think that’s the most important thing that needs to happen, is we need time, and we need a milk price that curtails any additional production growth [00:17:00] for the moment so that demand can catch up. We talked about the U.S. situation and how the consumer spending situation doesn’t feel great.

But globally, per capita butterfat consumption globally is growing. Per capita protein consumption is growing. We just need to give the demand time to catch up. Inventories might be starting to build, but they’re nowhere near
cumbersome.

I would actually argue, our supply chain is still very thin. I wouldn’t even argue that we’re getting to a point where we’re normal by historical standards. I think that we have a pretty thin supply chain, and that’s everything from measurable inventory and reports, like cold storage reports and manufacturing stocks here in the U.S., but all the way through the pipeline.

I don’t believe that many end users are sitting on excess product or have too many days in inventory. I think they’ve been quite comfortable buying hand-to-mouth. And the only product they’re being punished on right now for that is whey proteins.

Ted Jacoby III: I think you’re right, Josh. I would agree with that statement.

I think butter [00:18:00] is somewhat of an exception.

Joe Maixner: I don’t know. Butter, it just depends on product mix, right? It’s CME eligible salted bulk. I think overall inventories are not burdensome. But we do have too much older CME-eligible salted bulk butter out there.

Ted Jacoby III: That’s actually where I’m going, Joe. What do butter manufacturers do if they’re worried about having produced too many quarters and too many solids? They’ll just produce bulk. And so bulk is the overflow because they know the worst-case scenario, they can dump it onto the CME. And so that is where we end up with excess surplus, just like we get the same with a cheddar block in the cheese market.

Josh White: How is international demand for U.S. butter at the moment, Joe, compared to where you would expect it to be and compared to where we were a few months ago?

Joe Maixner: It’s steady right now. New inquiries are still coming in, but inquiries have lessened compared to a month or two ago; there’s a lot being made and shipping right now.

International markets are starting to open their eyes to something other than [00:19:00] 82%. They’re starting to expand into the 80% because they are finally starting to realize that the numbers that they see on the futures don’t equate to the numbers they pay for an 82% product. And so anybody that’s really just using it for solids, for processing, is starting to convert, which is helping clean up some of that 80% salted butter, but it’s still not fast enough to really move the needle yet.

Josh White: So, if the outlook for butterfat really doesn’t have any material upside in the near future, and we’re currently looking at Class III and IV prices, where they’re at, when do we start to impact the U.S. producer’s decision on making incremental milk beyond just the fat component? Are we close or are we still a long way away?

Jacob Menge: Look at this Milk Production Report. We are up 268,000 head since June of 2024. That just keeps going up. There was an August revision of 71,000 head higher.

The answer is a pretty [00:20:00] conclusive, not yet. I’m looking at the last time, September milk production beat the prior month, so beat August, which was 2001. And it just did that; September just beat August, and the last time it did that was 2001.

Josh White: We’re not even talking about adjusted for components.

Jacob Menge: That is correct.

Joe Maixner: I can’t imagine that $16 to $17 Class III causes any worries right now for the farmers, with $4 corn and $1,200 feeder calves.

Mike Brown: As long as you’re in a Class III market, if you’re heavy Class IV, your price isn’t $17.

It depends on where you’re located, Joe. But for the most part, if you’re in a cheese market, it’s still decent. You’re right because the whey is also contributing a lot to that Class III price right now with a 70¢ whey market.

Ted Jacoby III: Yeah. And the cows are all increasing in the states where there is increased processing capacity as well.

Jacob Menge: These guys have had time to hedge this, and they still almost can hedge this, right?

Going into later next year, where I think it’s gotta be at a point where they can’t hedge at a profit, and then you’ve [00:21:00] really got issues.

Josh White: If we’re in a situation where the global economic outlook isn’t great, so that means we shouldn’t expect any major demand booms to pull dairy up We’re realizing supply growth in all major dairy surplus regions; the only correction for this is supply. And who’s the first to react? The obvious answer is it’s gonna be head-to-head with Europe and the U.S. Who breaks first?

These are very, very different markets with different drivers, and they’re actually experiencing growth for different reasons related to the big picture, but different reasons. Europe just went through a situation where its butterfat carried the day. And butterfat was incredibly high, much higher than the U.S. price.

They were an importer of fat from New Zealand, bringing in a noteworthy amount of product. And then now going into this year, they’ve seen a really significant drop, well below the support level that most traders would’ve held for butterfat.

You assume [00:22:00] that they’re not gonna import a bunch of that product, forcing that product on the rest of the market. They’re going through a pretty negative situation right now as well. One thing you can’t forget about the European producer is that if you kill cows, it’s really tough to replace them, not for the same reasons we have in the U.S., that right now it’s just difficult to compete with beef.

But they don’t wanna make those changes for a lot of regulatory reasons. So, they’re gonna hang on as long as possible. The U.S. model, we’re not in pain yet, generally speaking. Some smaller producers might look at higher beef prices and lower dairy outlook as an opportunity to exit.

But there is way more structural expansion in motion or down the line that I think that train’s moving down the tracks. So, it’ll be really interesting to see if and who breaks first between the North American market and the European market.

Ted Jacoby III: My hunch is it’s the U.S. market.

I still think we’re a minimum of six months away, maybe even 12 to 18. Now there are signs, like you look at the Milk Production Report, the state of Washington is down [00:23:00] 8.5%. So, there are places where we are losing cows. Even though the majority of the country has gained cows recently, I would argue that with the drop in the butter price and the weakness in the nonfat market, California is the next one that I think will follow.

They’ll struggle to get a decent milk price given that those are the two dominant price drivers for the California market.

Diego Carvallo: But if you look at Idaho’s strongly up. So, it seems like a movement between Washington and Idaho.

Ted Jacoby III: I think you could be right.

Joe Maixner: California, their numbers this month were slightly higher than their peak production year 22. They’re on the uptrend. That’s a large ship that takes a while to turn around.

Ted Jacoby III: I don’t disagree. I also think you’re still measuring against bird flu in California.

You could argue that it may be a little artificially high.

Joe Maixner: I actually questioned that because of the lower increase than I had anticipated for the September number, and bird flu didn’t actually start in California until October.

So, we will see even larger increases next month forward in California.

They [00:24:00] have that Class I plant that they opened as well out there.

Mike Brown: They’re also getting hit with a big assessment, a lot of the producers out there, because the butter market changed, there’s been a lot of inventory loss, and that’s gonna hurt some producers as well.

No one I talk to in California is worried about finding milk. They’re worried about finding a place to put it right now.

Ted Jacoby III: I don’t think that’s isolated to being a California problem right now.

Mike Brown: I would agree. You’re right.

Ted Jacoby III: On that note, I think it’s a good time to wrap. Thanks, everybody, for joining us this week.

Look forward to talking to you guys again soon. Thank you.