In this week’s episode of The Milk Check, the Jacoby team convenes to dissect a dairy market that feels balanced – barely.
From milk still trickling in past the flush to range-bound commodity prices, this episode covers the major trends shaping the back half of 2025.
- Cheese exports are keeping Class III in check
- Culling numbers are down as producers are keeping heifers longer
- Global butterfat advantage fading with tighter GDT spreads
- WPC, WPI demand stable, but new production capacity looms
And what if prices fall off the edge? From trade risks to recession fears, the industry feels one light push from price chaos.
Listen now for insights on margins, milk flows and market forces.
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Intro (with music):
Welcome to The Milk Check, a podcast from TC Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.
Ted Jacoby III:
Hello everybody, and welcome to this month’s version of The Milk Check podcast by TC Jacoby & Co. This week, we will have a classic market discussion. It is June 9th, so we’re approaching the midpoint in the month of June 2025, and joining me today are Diego Carvallo, our Director of Dry Dairy Ingredients Trading. Jacob Menge is our vice president of risk management and trading strategy. Josh White, our Vice President of Dairy Ingredients. Mike Brown, our VP of Market Intelligence. Joe Maixner, our director of dairy ingredients and resident butter expert, is also there.
I think we’ll go ahead and start with milk. It’s the middle of June. We’re past the flush, but milk is probably a little bit heavier than we expected. Milk production has been up. We know what is going on. The dairy farmers are making money, and they’re keeping cows. Their culling numbers are down, and so we’re seeing cow numbers up, maybe a little bit surprisingly, given what we know about the heifer replacement numbers, which means they’re keeping them for an extra lactation, that is keeping milk solids output maybe a little bit lower than we expected. But the solids are still up as well. So as a result, we’re seeing milk still on the long side, not too much out of what is normal for this time of year, and I wouldn’t be surprised as the weather in the upper Midwest starts to heat up, we start to see that milk production drop off a little bit and everything get a little bit tighter. We just haven’t quite reached that high temperature yet.
And so that’s what we’re seeing in milk. Jake, how does that translate into cheese? What are we seeing in the cheese market right now?
Jacob Menge:
It’s funny, I think from the last time we had a market discussion to today, the message will be very similar, which is a lot of mixed signals on the cheese side. You can talk to certain people who say, Hey, our orders are way down. And then you might talk to somebody else, saying, Hey, our orders look pretty good, meaning the demand is there. I think it’s a bit of a tale of two cities regarding how exposed you are to the export market.
Exports have been the thing that has been keeping us afloat on the cheese side. I think domestically, we’re not doing great. I would say that the prices that we’ve been seeing, this kind of upper 190s, mid to upper 190s, we’ve come off in the past week or two, but I think that mid to upper 190s did hurt demand on the export side. I think that’s kind of where we’re at. I would say good, not great. It just seems like we’re going to be range bound a bit on the cheese market just given this kind of pendulum swing of our prices move too high, which kills exports a little bit, but if we go down even just a little bit, you think the export market comes back in, so that’s the feel we’ve got right now.
Ted Jacoby III:
How is the dollar affecting exports?
Jacob Menge:
Yeah, I think it’s helped certainly. That is probably the biggest risk to hurting exports going forward, but we don’t have a particularly strong dollar. I wouldn’t say we’ve a particularly weak dollar, but yeah, I would say that has been a catalyst, if anything. If I had to pick a direction of whether it could hurt or help exports moving forward, I would say if the dollar strengthens, it’s much more likely to harm our exports than the dollar weakening further in helping.
Ted Jacoby III:
So, Mike, I have a question for you. You’ve been looking at some of our milk production numbers lately. Have we been seeing milk move from class four to class three with these new cheese plants, or even though we’ve built some of these new cheese plants, are we still seeing milk production remain in class four?
Mike Brown:
Well, more of it’s remained in class four I think, than some of us expected because some of the startups have been slower than expected, so you still have some class four plants, particularly in the south central US that are balancing some of that market. So I think that the opportunity to move more milk into cheese than we currently have exists. So much of this key is exports, and one thing we did see last week with the GDT is we saw how the spread between US and world cheddar prices get a little tighter, which makes me a little nervous about exports moving forward, but we have the opportunity to move more milk into cheese and that milk is basically ready to move into cheese when those plants demand it from what I’m understanding, talking to some of my powder friends in the Southwest.
I think that there is still some opportunity for that to happen. We’ve also seen the spread between three and four has remained relatively tight compared to some recent years, which means that the incentive to move milk one way or the other isn’t maybe quite as great. It will be demand-driven and in my mind, those cheese exports going to keep that milk moving into the cheese plants, because they have been the key to the growth of cheese sales.
Ted Jacoby III:
Thanks, Mike. So, Diego, on the other side of the coin, non-fat and our powder market, is there any reason to see powder prices strengthening in a way that would pull some of that milk away from cheese?
Diego Carvallo:
I doubt it, Ted, because of the investment and the medium—and long-term plans these companies have for those new facilities. My expectation is that milk will be pulled from class four.
Ted Jacoby III:
So, as milk tightens up, would you expect that the class four plants will lose milk and that the cheese plants will keep it?
Diego Carvallo:
Yeah, there’s going to be exceptions, but I think that’s a general rule.
Ted Jacoby III:
Okay. Have we seen any pickup or any strengthening of international demand for non-fat and skim milk powder?
Diego Carvallo:
Not right now, and it’s because Europe is significantly more competitive than the US, but whenever we see Europe, the market tightening up, we will probably see a market that could move higher fast. At the current moment, the Europeans are the most aggressive in Asia, and at the same time, demand hasn’t really picked up, so for that reason, we have been range-bound for the longest time.
Ted Jacoby III:
Joe, if we’re making skim milk powder, that means we’re usually making either butter or cream and the butter fat market in the US been the talk of the year with cream multiples getting down into the 70s earlier in the year. We’ve been having a fair amount of butter exports. What do you think this butter market’s going to do going forward?
Joe Maixner:
Well, I think we’re going to continue to have exports and we’re continuing to penetrate new markets with multiple products. It’s not just 82% anymore that a lot of these markets are taking. They’re taking 80%. AMF has been extremely strong in the export markets. As long as cream continues to be readily available, which it has been for the entire first half of this year, we’ll continue to be a player in the world market. That coupled with the massive discount from the rest of the world.
Ted Jacoby III:
So what would you expect the butter price to do? Are we going to stay right around here or you think we’ll get higher or are we going to have one of those classic years where everything stays right around here, but we have this one, two week spike sometime in September?
Joe Maixner:
It’s a hard question to answer, Ted. I think we’re probably looking at more of a traditional year only because of the amount of exports that we’re able to put on the books. Otherwise, I think that we would be significantly more flush with inventories because domestic demand has been good, but it hasn’t been great. I think that if we can continue to get product out of the country, we should have a relatively stable butter price.
Ted Jacoby III:
I thought you said it was a normal year? Stable butter price and normal year don’t go hand in hand.
Joe Maixner:
Normal pre-COVID, how about that?
Ted Jacoby III:
Joe, that still doesn’t work for me, but I understand what you’re saying. We’re going to stick right around here. We’re probably going to have a relatively stable market that people should expect to stay in this range going forward, at least right now.
Joe Maixner:
Yeah. Take 2016 to 2019, for example, we spent the better part of almost four years in about a 40 cent range.
Ted Jacoby III:
Got it. I like the sound of that. I think the market would like a stable butter price. Everybody, we will be right back after these messages.
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Ted Jacoby III:
Josh, we kind of skipped over the whey market and the protein market. The protein market right now might be the craziest market of all this year. What’s going on right now in WPC and WPI?
Josh White:
Well, on the higher proteins, I think there’s a lot of different things pulling on this market in both directions. I think on the bull side, despite consumer trends, we continue to see really good and resilient per capita consumption across a lot of the different products, not just your traditional protein-enhanced beverages and some of the new and innovative ones like the clear proteins going into different drinks, but we’re also seeing, I think pretty good orders from consumer packaged good type products as well. What’s unclear is it really bucking the trend that we’re experiencing across other food service related items and other things, or is it just lagging? That’s really unclear to me at the moment. I’m pretty confused about the direction, but I think on the bull side of the case, we continue to see strong WPC 80 orders. Whey protein isolate feels like it’s in a bit of a short squeeze right now.
People need product. Both of those products have recovered to near the highs that we saw ending 2024 and starting 2025. I don’t know that I would say across the board that we’ve set new highs yet, so we’ve had arguably kind of a stable quarterly price market despite all of the trade rhetoric in both headwinds and tailwinds that we’re dealing with. We can’t ignore the fact Europe is still quite a bit higher than us for our whey proteins. That combined with a weak dollar, I think we’ve seen some pretty decent international interest. What’ll be interesting to see is what happens when we start to print some new headlines. I am certainly not going to predict it, but I think we all can see a scenario where we’re going to start headline trading a little bit again as some of these trade deals wind up to some milestones.
It’s not just the bullish side. I think that there are some things that we got to pay attention to on the bear side of the case right now. We’re realigning our price relationships with the underlying sweet whey powder and that market is experiencing some big changes this year. I mean, you had several factories go offline with sweet whey powder production replacing that with WPC-AD predominantly production. You saw some WPC-AD facilities expand and you’ve got some new whey protein facilities that are in the process of filling up those cheese vats, that at some moment will add some extra protein onto the market and right now I think it’s a coin flip on whether or not the market quickly digests or consumes that additional product or not.
Generally speaking, I would say that the trade distortion and headlines probably lean bearish initially when they come across, and so we got to pay attention to that. It’s a fun one. I think it’s going to be an interesting second part of the year and don’t forget, we’ve got another one of these cheese plants coming online right now that’s going to make a fairly sizable amount of sweet whey powder. There’s a lot of things pulling on both the bull and the bear side of the whey markets at the moment.
Ted Jacoby III:
So I have a question on whey proteins. We had some pretty high prices in the fall and then the calendar flipped to 2025 and usually that’s a time when price increases would be passed through at the retail level. Did that happen this year? Are we seeing demand stay this high even in the face of higher protein prices to the consumer?
Josh White:
I don’t know that I have a great answer for that. I think I would start by answering that question that I think there was room to absorb some of those price increases and those price increases were being layered in over multiple quarters and we’re now entering our third consecutive quarter, where I believe that the quarterly negotiations from processor to large packer have been at similar type levels. We haven’t been talking about quarter-to-quarter dollar a pound or more price increases for all of this year. And to answer your question, yes, there still seems to be demand. Now if you start to really unpack that, I think there’s probably a lot more of the story that we’re not seeing quite yet. It’s a long supply chain, but some of the growth that we’re seeing is in healthy eating snack foods, things like that, where the inclusion rate as a percentage of the total product cost is smaller.
They’re not realizing such a dramatic price increase as you would see in maybe your sports nutrition drinks and things like that. If we start to peel the onion back, there’s a lot of explanations for it and I believe it all drives back to the fact that just consumers are paying more attention to the type of calories they put in their body, and protein is one of the gold stars of that, and whey protein in particular seems to be doing quite well in that environment. Less frozen pizzas maybe and take out there, maybe people are still willing to buy the higher protein snack foods and supplements.
Ted Jacoby III:
Mike, what do you think is going to drive this market over the next six, seven months? What’s the thing that we’re not really paying attention to, do you think is going to surprise everybody?
Mike Brown:
Boy, we are at a point with this older dairy herd that if we get to where margins drop significantly, IE milk prices do see some decline. We could see some insane [inaudible 00:13:19] worth a couple thousand dollars. Not too many years ago we were paying less than that for a herd replacement for dairy. I think that’s something we have to keep our eye on is just that overall margin. High [inaudible 00:13:28] prices are contributing to a good margin on the dairy. World demand, we’re in such a tumultuous world right now in trade and tariffs. Our price advantage under the world prices has given us a huge advantage in exports, particularly on the butter and cheese side. Obviously not so much on the powders.
If we don’t keep that when we have lackluster food service and retail demand, will that give us some weakness in market moving forward? As long as exports stay strong… So far our expansion of American style cheese and to a lesser degree mozzarella seems to be moving and prices are staying pretty stable, but if we reach a point where that export market starts to not be the outlet that has been, that’s my biggest concern, that world trade is extremely important to keeping the whole supply chain healthy over the next 6 to 12 months.
Ted Jacoby III:
I couldn’t agree more with that, Mike.
Jacob Menge:
Yeah, I’ll chime in. Mine’s just going to be macroeconomic factors. It feels like we are kind of on a knife’s edge right now, frankly with a light push getting us off that knife’s edge one way or the other. Could be tariffs, could be recession in the second half of the year, who knows? Could be the trade war heating up again with either in a region we’re not really focusing on or the opposite, who knows? It just feels like we’re probably range bound. It feels like that’s kind of a delicate balance though. That if the shoe drops, it really could swing violently. It really feels like we’re potentially range bound on a lot of our products, not because supply and demand is in perfect harmony right now, but rather because the market’s kind of waiting for that next signal. So that’s just kind of a gut feel. I wish I had more data to put behind that, but that’s just how the market feels to me right now.
Ted Jacoby III:
So if we’re on a knife’s edge, I can come up with three or four different scenarios that would tip us off that edge into the recession side. What is it that would tip us off the edge into the economy is now going better than expected side?
Jacob Menge:
Yeah, I don’t know that it would be that the economy goes better than expected. It would be that the clouds clear, those uncertainties get cleared up. There’s kind of a definitive resolution of some sort to the trade war. Maybe the dollar recovers a little bit as a result. That’s how I think we get to that more positive outcome. I think there is a lot of uncertainty weighing on the market and if that gets cleared up, I think it’ll drive probably better domestic demand, maybe better global demand, et cetera.
Ted Jacoby III:
Okay. Is this just one of those markets where in just about every product right now we’re kind of range bound and we’re waiting for some piece of information that would tip us one way or another?
Josh White:
I think we’ve got to pay attention to the timeline that we’re on, and what I mean is the same fundamental variables that have influenced markets and price over the past six months will have a different impact on markets and price in the next six months. We came out of our heavier milk production season. The majority of milk in the world is produced during the Northern Hemisphere spring season. We’re going into lower seasons both in Europe and the US, which makes us slightly more vulnerable to just risks to our forecasted supply. Right now, I think we’re expecting Europe to be flat to slightly better on either side of unchanged, correct me if I’m wrong, and the US we’re expecting year-over-year growth in milk as well as growth in components. All of that being true. We are going into the season where we make a little bit less. And at the same time, if you look around the world, I would argue that the world is facing a lot of economic uncertainty.
The world has been in a position for the last several years to buy hand to mouth and do that without having big risks to their procurement strategies. But the world is destocked. This is not necessarily to say we should be bullish. I’m not suggesting that at all. I just think that we’re vulnerable to volatility and to some price movements. You add on the fact that, again, as I mentioned earlier, there’s a lot of headlines and the headline impact on the market can be there. You add on that we have shifting product mix in a couple of key regions of the world. We know that Oceana has been shifting their product mix over the past few years. Certain markets are emerging as exporters of dairy products that traditionally haven’t been exporters, and the US has added a whole lot of class three cheese production capacity that will consume some of that available milk, and I just think it’s tough to evaluate tomorrow based on yesterday.
Ted Jacoby III:
Makes sense to me. All right guys, thanks everybody for joining me. I think this is a great market discussion. I think the message is loud and clear. Markets are probably going to be relatively stable, at least for the short term, until there is something that tells us that markets need to move, whether it’s weather, like heat or it’s something in the macroeconomy or it’s something on the demand side, like less exports. Let’s go ahead and head into this summer and let’s see what the heat brings. Take care everybody.
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@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of TC Jacoby & Co.
