Dairy markets have taken a hit, with prices dropping across the board.
Global economic uncertainty, tariff concerns, and weak demand have sent prices for cheese, butter, nonfat dry milk, and whey tumbling. Our team tackles this and more, including:
- Pricing market predictions by dairy product category
- Tariffs and demand changes for U.S. products
- Global strategies to diversify supply chains and potential long-term impacts
- A potential shift on feed strategies and butterfat production
Don’t miss Ted Jacoby III and his expert panel’s market discussion on what’s going on and what may be coming next.
Listen now to The Milk Check.
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Intro (with music)
Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.
Ted Jacoby III:
Welcome everybody to this month’s version of The Milk Check. We’re going to have an old-fashioned market discussion this month. Joining me today is Diego Carvallo, Director of Dry Ingredient Trading, especially on the international side, Greg Scheer, our Milk Marketing Manager, Jacob Menge, Vice President of Risk Management and Trade Strategy, Jared Miklasz, Sales Manager for the UFC Group, UF Milk and Cream, Joe Maixner, Director of Sales for Dairy Ingredients, and our Head Butter Trader, Josh White, our Vice President of Dairy Ingredients, and Miguel Aragon, Director of International Cheese Sales for Latin America. We’re recording March 7th.
Before we get started, let me say this: stick around, and don’t go when we start to say goodbye. We’re going to have a Marvel version of this podcast. After we said goodbye, we ended up having another 15 minutes of conversation. That may have been the best part of the whole conversation. Thanks everybody.
Pretty much every single one of our markets has been down 20 to 30 cents in the last month, whether it’s cheese, butter, non-fat, or whey. They all seem to be down 20 to 30 cents. Jake, is this a function of all of the tariff rhetoric coming out of the Trump administration, or is there something else going on?
Jacob Menge:
It’s tough to separate the components of what are really driving these markets. I think tariff talk is absolutely part of it. In our last podcast we mentioned that uncertainty just weighs on markets, and there’s more uncertainty today than I would say. There was the last podcast we did. The can has gotten kicked on the Mexico tariffs. I’m not sure how many times you can do that.
This time when it happened, we saw it in equity markets, they didn’t really pop like they did last time. The can got kicked on tariffs and equities were like, “Oh, okay, good.” And when it happened yesterday, equities really just continued. They’re crying lower. I’m only bringing that up because this is obviously a macroeconomic-driven dairy and equities market.
Tariffs are part of the problem, but demand is just poor, according to everything we’ve seen. I think we’ll hear from all of our product traders. That is certainly a factor, but it’s tough to blame anything.
Ted Jacoby III:
All right, well, let’s start with butterfat today. I’m going to ask Jared and Joe together. The butter market is down 20 to 30 cents, and the cream market has been ugly since Christmas. What’s going on on the demand side? Will this market stay this way all year, or is it a classic seasonal phenomenon?
Because if there’s one market that’s probably the most insulated by the tariff talk, it would be the butter market, but butter, if anything, it almost feels like the heaviest of all of our markets right now.
Jacob Menge:
There are certainly quirks in each market. Dairy is not the only one seeing that, though, so if I had to lean one way or the other, yeah, there are macroeconomic influences in that demand piece.
Jared Miklasz:
Butterfat numbers are still hanging out somewhere in the 4.5% range compared to they’re about a year over year 2.5% jump in demand remains to be extremely long, and we’re seeing yogurt productions up, low fat cottage cheese as well. There’s just been a lot of fat added to the complex. As far as end in sight or pick up in demand, we’re sitting here on March 7th, six weeks before Easter, hoping to see a little uptick in demand as we get into the spring holidays.
But what also gives me a little bit of a pause for concern, and seeing that hard ice cream sales surged up almost 21% year over year in January, those ice cream manufacturers are taking advantage of these cheap cream, which we know certainly continued into February. So I anticipate that they’re building up their stocks and there may not be as strong of a pool from ice cream as we get into the first part of summer year.
This means we could be looking at a long pre-market into late summer. Maybe this lower demand will result in higher [inaudible 00:04:02] rates in Q2 and potentially impact the future of milk production, but we don’t see a real end in sight here.
Ted Jacoby III:
Joe, what about butter? Is the butter market long too?
Joe Maixner:
Yeah, butter’s long. It’s been reeling from the effects of this long cream market. Demand has been okay, but it has not been great. We’ve seen increased stock builds on the cold storage reports. We came in with 270 million on the January report, which is a pretty hefty number for that early in the year already.
The production report that just came out showed that we were only up about half a percent year over year. Last year’s January production report was the second-highest on record for the month of January, so we bested that. We’re seeing strong builds on the butter side.
We are the cheapest hat in the world. We’re trying to export what we can, but between the uncertainties with the tariff talk and the fact that our butter is only good in certain regions of the world, it’s tough to get things done.
Ted Jacoby III:
And I assume the reason it’s only good in certain regions of the world is ’cause we’re 80% fat versus the 82% fat coming out of Europe.
Joe Maixner:
Yeah, that and the fact that our butter color-wise doesn’t represent the same and the flavor profile is a little bit different because we’re not a primarily pasture fed dairy herd. So if it’s going into further processing, a lot of countries can use it. But if it’s table service or going into retail, a lot of people don’t want it because it doesn’t look or taste like the European or Oceania product.
Ted Jacoby III:
Those differences, what difference in price, how much lower does US butter prices need to be than European butter prices, for people to start considering buying butter from us instead as a result of those differences?
Joe Maixner:
I think we’re close. We’re about there. We’ve seen some business get done, but we’re coming up on some other global competitors as well that are marketing really cheap product coming out of China and India. We’ve seen product in the low fives being offered for that product 5,000 a metric ton.
Ted Jacoby III:
$5000 in metric ton. What’s that in dollars per pound?
Joe Maixner:
On an 82, that’s a 220. So we’re not there yet.
Ted Jacoby III:
Got it. So even though we’re a dollar lower than, let’s say, European prices, we don’t really compete against European butter, we compete against places like India and China and as a result, that’s where we need to be in order to really clear a lot of butter internationally?
Joe Maixner:
For those markets that are looking for a cheap fat option, yes.
Ted Jacoby III:
Got it.
Joe Maixner:
You have to keep in mind too, though, our two largest trade partners on butter export-wise are Canada and Mexico. And with all of the current political strife going on right now, there’s a lot of uncertainty there as well.
Ted Jacoby III:
Got it. Makes sense. Okay.
Josh White:
We continue to make more fat in our milk, and maybe this is the point at which we all of a sudden have saturated our market and that’s a real conversation, but I think one of the things Joe alluded to is even if we don’t have readily available trade between Europe and the US, for instance, just simply that the conversation’s happening and that we’re getting to use Joe’s words closer, that’s a signal.
There’s no reason that the US and Europe should trade product back and forth. And some of those conversations with the European companies are, how can we use this cheap US butter fat price? Now, does that mean the US comes up or Europe comes down or both? I’m not going to predict that. It means the world market’s out of balance and we’ve got to start to figure out how to balance that.
Ted Jacoby III:
Well, let’s switch gears and let’s talk a little bit about non-fat. Diego, non-fat price’s come down 20 cents in the last couple of weeks. What’s going on?
Diego Carvallo:
A lot of things have influenced the price of non-fat, and the main ones are poor exports. I would say that’s the main driver. And poor exports is the result of several factors. So the first one is that we haven’t been competitive for several months already. Europe has been taking demand away from the US for at least three to four months already. They have been, at some periods, as much as 350, $400 below US prices.
That obviously resulted in fewer exports from the US and more inventories in the US. The US had to export less product because of avian influenza, but I think that was maybe to an extreme, and as a result, we’re seeing that year-on-year inventories are way higher and at the same time the avian influenza is improving and production is slowly coming back, especially now during the flush.
And we had to come down in terms of price, we had to become more competitive in order to gain that demand that usually buys from the US. And a good example is Mexico. Mexico hadn’t imported product from the US in several years and this year, they started importing product because the spread was very wide. Product from Europe was very competitive.
Right now, that spread between the US and Europe has decreased significantly, and now we’re seeing way more demand from Asia, Middle East, Latin America, Mexico, all of these destinations, knocking on US doors and asking for prices. And we are, in fact, starting to see better traction, more business being done. That’s going to be seen probably in one or two months from now when we see exports actually increasing. But I think we’re on the right path. We needed this correction.
Ted Jacoby III:
So it sounds like we’re seeing exports increase even though the tariff rhetoric would almost make us feel a little bit otherwise. Is that true?
Diego Carvallo:
I would say we could start seeing more exports. We’re not seeing that yet. We are starting to see more customers interested in US product because the price is more competitive. It hasn’t yet materialized in a significant increase in exports.
Ted Jacoby III:
Got it. Miguel, you’re talking to a lot of our customers in Mexico. What are you hearing?
Miguel Aragón:
The uncertainty of the tariffs, of course it’s the number one talk with everyone. It is affecting our exports definitely. But again, as we talk in the last podcast, we have the issue of uncertainty of tariffs and we have the issue of the reaction to the Mexican peso. What we usually see people taking positions three months, six months, now everyone is being careful, hand to mouth again, just like we talked last time for two reasons.
One, they might like the reaction of the market to, for example, the price of cheese right now, but they want to be careful because if the peso is 20 pesos 30 cents right now and tomorrow is 21 when they have to pay that bill, it’s futile. So it’s just wait and see. We’re going month to month now, so hand to mouth.
Josh White:
Hey, Miguel, question on that. The argument might be, across all of our products, that in certain products the European market may be more competitive at the moment. Non-fat skim milk powder has been one of them we’ve talked about. But if you’re talking about the supply chain being so thin, when they’re ready to import the product or buy the product, it’s a hand to mouth situation and that really only leaves the US as a potential supplier for some of those imported products. How are those two things balancing out right now?
Miguel Aragón:
When this whole rhetoric about tariffs started, we saw some of the bigger importers started looking at European product, Canadian milk powder, for example, European cheeses, and they started bringing those. So we don’t know right now is actually how much did they bring, and is that now a new source? Now that we have better prices, we should see soon if we are again the principal source of import from Mexico, but they did diversify their supply chain.
Ted Jacoby III:
And that has a long-term effect, unfortunately.
Miguel Aragón:
Exactly. Just like Canadians not buying US-made products right now. That’s worse than the tariffs.
Ted Jacoby III:
Josh, what about whey? Whey price is down about 20 cents. Whey protein prices breaking yet?
Josh White:
No, I wouldn’t say that. And I think you got to think about the timeline. We in the middle of or the second half of the second quarter negotiations. Me personally, I don’t have a lot of the large chain discussions on what those prices look like, but anecdotally, it sounds to me like the prices have held better than people expected, maybe even ticked a touch higher in certain cases.
Now, while saying that, I’m also hearing more and more rumors of maybe a couple people dragging on their contracts, seeing a few more spot loads trade versus what we saw the prior two quarters. And in itself, none of that’s unusual. It’s just feels different because we spent six months without seeing that. We didn’t see very many spot offers.
Every quarter was higher than the last quarter, meaning it was easy to clean up any residual loads at even better prices. Now for the first time, we’re seeing some offers that are flat to the last quarter. That might be a signal or it might not be. I think if the market’s super disciplined and the suppliers are disciplined, and we were able to balance out the current production, which we’ve seen some production increases or in the process of seeing that for WPC 80 and we’re maximizing our isolate production right now.
With those things, if the market is happy to digest them at the current prices and we continue to see movement at the shelf outperform historically what it would do, then we might continue to see a higher weight protein value versus the rest of the market. The sweet whey powder one, I think is a bit more complicated. That’s historically not a very volatile product, but a product that moves significantly. It makes big percent moves up, big percent moves down.
This is a unique situation. Because of the increase of our total capacity of processing for WPC 80 and WPI, there’s been several different factories for sweet whey powder that have discontinued production of sweet whey in lieu of those products over the course of the last several months. There’s some that’ll be going off production in the next few months, and there’s a big sweet whey powder dryer that will be commissioning in the second quarter of this year and begin its ramp up.
And I think the market’s having a hard time digesting what that means for the absolute value of sweet whey powder. You’re going to see certain brands that traded a really nice premium to the CME price and you’re going to have some that traded a discount, all the while we took our sweet whey powder price far above the world market price.
And we are an exporter of sweet whey and that has hurt some of our sweet whey powder producers that are traditionally postured to serve the export market. So we’ve just got a lot of new variables that the market’s trying to digest and that is resulting in volatility for sweet whey, something that we’re not used to seeing.
Ted Jacoby III:
So do you think sweet whey powder prices is going to stay right around 50 cents here, or how’s it going to move over the next couple of months?
Josh White:
A lot of the answers to those variables will move that market one way or the other. In its current lane, I’m seeing more inquiries for sweet whey powder, which tells me we’re probably finding a short-term support price. But in the longer term, assuming WPC 80 and WPI remain high, assuming that the ramp up of new production that we talked about is a modest one, the market probably could be pretty stable here.
In the longer term though, I think you can’t ignore that whey protein as compared to other lower value dairy protein sources is a pretty high price and that relationship between whey and non-fat is pretty wide.
Ted Jacoby III:
All right, thanks Josh. Jake, I’ll ask you about the cheese market. We’ve dropped from about a dollar 90 to a dollar 60. Are we finding support here? Do we need to go a little bit lower? What do you think?
Jacob Menge:
I think any move higher from here will be a grind. I think it’d be tough to really make the case that we go back to the 180s anytime soon. It feels like we got the big move out of our system coming from really 190 fairly recently to this 160s level. That needed to happen. Business was just not getting done on the 180s and we’ve seen manufacturers now step in and really start selling. So now that big moves here, I don’t see another air pocket drop, but it just seems like sideways to lower is still probably the near term trend here.
Ted Jacoby III:
All right, thank you. Greg, we usually start with milk. Today, we’re going to end with milk. You’ve just basically heard everybody talk about how bad these markets are. Is the milk market bad too?
Greg Scheer:
This spot market has definitely dropped. Talk to cheese plants that have cheese in inventory, that is now devalued. They don’t want to make additional cheese, so they’re marking down what they’ll pay for spot milk or not buying any at all right now. So I’ve definitely seen some weakness in the spot market because of the weakness in the cheese market. One other comment I would have is that we’ve heard of some big producers that are looking at redoing their rations to not produce as much butter fat.
Ted Jacoby III:
Interesting.
Greg Scheer:
We may see that a little more where maybe we don’t see the increases in butter fat and maybe a decline and also the weakness in the spot market with, well, two factors. With the drop in the markets and also spring breaks coming up, there’ll be some milk pushback on the market for the next few weeks. So we’ll see how that does in April, but definitely some weakness in the spot markets anyway for March.
Ted Jacoby III:
Everybody, we will be right back.
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Ted Jacoby III:
Well, before we wrap this up guys, anything else we want to share with our listeners?
Jacob Menge:
We’ve been seeing tons of headlines, and I think some of them are really meaningful and some of them just aren’t. There’s so much data coming out, it’s hard to make sense of it all. I saw GDP forecasts now looking negative and seeing a lot of headlines saying that’s recessionary. That’s true, but we have a unique situation here.
It seems to suggest to me that a lot of companies are pre-importing stuff to get ahead of tariffs and guess what? That would make GDP look negative on growth. But that’s just a quirk, right? That should mean that in Q2, since we’ve pre-imported plenty, that we make that up in GDP. So it’s stuff like that that there’s really quirky things going on. I just encourage everybody not to be too reactionary to a lot of these headlines that we’ve been seeing.
Ted Jacoby III:
Sounds like what you’re telling us is uncertainty is probably here to stay for a little while, but the best thing we can do is stay the course.
Jacob Menge:
Seems that way.
Miguel Aragón:
In talking to clients in Mexico, Central and South America, they are looking to us in this podcast and in our weekly report or some type of guidance, some type of light out there. People are listening.
Ted Jacoby III:
I wish we could share with all of our customers that we know what’s going to happen next, but this uncertainty is pretty much affecting everybody. I think what we’re trying to do is just keep one foot in front of the other and keep moving forward and doing what we can to take care of our customers, take care of our suppliers, and just try to be a calm in the storm as we’re going through all of this. All right, guys. Hey, great conversation. Thanks for getting together today.
Josh White:
All right. I was tempted to jump in there and say, listen guys, the bottom isn’t endless because we’ve got a US dairy industry right now that doesn’t have replacement heifers, that has had good margins, and has older cows. And if this market gets pushed too far, the US dairymen will quickly respond. And if they do that, look out because it’s a long time before we can recover the milk that we lose. Something to that effect that just says it can’t forever be down. There is a risk of pushing this too far.
Joe Maixner:
There’s our traditional Papa Bear right there.
Josh White:
I just think we all are bearish right now. I didn’t have anybody to argue with because your points were right.
Ted Jacoby III:
All of it is this. We just saw the drop. The question is, is the drop going to continue? And the other thing, and maybe we didn’t highlight enough is, we’re probably closer to the bottom in butter than we were a few months ago. We’re probably closer to the bottom in cheese. We’re probably closer, if not at the bottom, in whey. We’re certainly closer to the bottom in non-fat, but I have trouble believing it’s going to go that much farther below 115.
That’s the other side of the story is we just got the drop. Yes, we’re going into the middle of the flush, but we’re getting to the point where any more downside beyond here is probably difficult.
Josh White:
I would argue with you just slightly there. The only thing I would argue with is I don’t know that I would make the statement we’re probably close to the bottom on whey. I think historically, I don’t know. You know what I mean? I think that that’s just a weird one right now. And I do think I would say we are close to the bottom on non-fat and agree with you in saying, but it might not go anywhere.
Joe Maixner:
Don’t you think we’re closer to the bottom on whey, no pun intended, but given the way that the market has shifted production-wise? It’s not a traditional market anymore.
Josh White:
I think so. My concern is that we can roll over our high protein really fast and that immediately shocks whey. But on the other side is I’m not convinced that Leprino won’t put more weight on what we already feel right now and without exporting, I still haven’t rationalized, at 50 cents, I think Europe’s just going to keep beating us. We’re closer, but we’re not going to do any of that. And how does that backfill into the Midwest?
And that’s why I was all over the place with basis because it’s not cheap to bring your export brands to the Midwest. So that’s why I don’t really know how to answer the question. I think so. But if you take that in conjunction with the fact that history will tell us that the high whey proteins are overpriced, Ozempic will tell you that maybe they can stay overpriced. Overpriced based on historical basis, but who here is qualified to judge how that balance balances? And I’m not.
And maybe it’s not the Ozempic type users that tip the market, maybe it’s something else. If you look at the math right now, you’re trying to figure out how to still keep whey protein on your label, but use MPC or MPI. The calf milk replacer guys are trying to figure out how to use non-fat instead of WPC. The market is going to figure out how to balance it.
It’s hard to see non-fat going up right now. It’s easier to see whey coming down, but it’s probably both happening somehow, and it might take a couple quarters or more. That’s why I have a hard time just knowing where Sweet Whey lands right now. If WPC 80 rolls over, we got more sweet whey than we want and we’re back to 40 cents, 30 cents. If it doesn’t, maybe it actually goes up to 60. I don’t know.
Ted Jacoby III:
I think admittedly whey is the hardest one to figure out how it’s going to play out over the course of this year. Non-fat, we’re moving a little bit lower, but I think non-fat at this price may find places where it can be used that at $1.40 we weren’t finding. And feed uses is what comes to mind there.
Josh White:
Already starting. I can tell you from our trip this past week, it’s already starting. People have figured it out. Second quarter is going to have a big shift from whey protein to non-fat solids in the feed sector. Imagine that’s probably happening in Europe as well, even though Europe doesn’t use whey as much. They typically use more milk powder blends.
But then a final variable that we didn’t even talk about at all is Greg basically said, if we can’t sell the cheese, the price for the milk is going down a little. We already know that you’re not filling all of that cheese processing capacity already, that means less whey.
So it might be that we’re maximizing our isolate and we’re maximizing our 80, then they will bid for those whey solids if their plant’s not full and they’ll steal it directly from sweet whey powder at the current price relationship between whey and WPC 80 and WPI.
Ted Jacoby III:
That’s true.
Josh White:
That’s another variable that would be supportive because that’ll be the first solids they steal to make sure we still have the protein production if the plant put-throughs are down. And I think we’re all already a little bit skeptical of how the Class III plants in the Midwest are going to stay full post flush.
Ted Jacoby III:
I would agree. I would also add that of all the things we talked about today, the nugget that Greg dropped in regarding dairy farmers changing their rations to reduce butterfat could be… It never happens fast. It’ll only be the smartest that’ll do it first. But if all of a sudden we’re back to not increasing two, 2.5% butterfat per year and milk, that will affect the price of butter without a doubt.
Joe Maixner:
That was a huge eye-opener for me as well. It’s too early to tell right now, but that could have a large effect if demand picks up as we lose butterfat components in the milk.
Josh White:
The Europeans make it sound like it is an easy formula for them. If they can pump in vegetable fat and get more valuable butterfat from the cow, they think it’s… I won’t say one for one, but they feel like they’ve got their head around that. And this is a market that, as I understand it, is far more pasture-based than we are, so they’re easily supplementing it in. I can’t imagine that even with our feed reserves and feed rations, the largest influencers on dairy milk production in the US can’t make that adjustment.
Ted Jacoby III:
The one thing I would say is I guess that the larger milk producers in the US are much more sophisticated in terms of putting financial numbers to feed costs versus milk costs in the output there than Europe. They can say that, but I can almost guarantee they probably haven’t put pencil to paper on spreadsheets like the US milk producer.
Miguel Aragón:
Right. When you said, did we hit the ceiling on WPC 80 and WPI, Josh, I was thinking, maybe an unintended consequence of all this tariff talk, remember, in Mexico, if you have over 80% protein, you pay value added tax, which adds 16% to the value of WPC and WPI and MPC and MPI. If, and I’m not saying it’s going to happen, but if somehow that goes away, then WPC 80 and WPI MPC 80 and MPC 85 are actually cheaper in Mexico. It’s not a ceiling anymore because 16% of the total is added if. It’s just something to keep in mind.
Josh White:
We didn’t talk about another distorting variable for WPCs right now, the tariff talk has been something we haven’t taken real seriously. It’s impactful, but we don’t know how to digest it yet because it’s on and off, on and off.
Ted Jacoby III:
Right.
Josh White:
But it’s on with China and WPC 80 and WPI, right?
Miguel Aragón:
Correct.
Josh White:
They were a material importer of whey proteins from the US in 2024, which is a big blow. It hasn’t been on and off, but to the best of our knowledge, it’s on right now. Time stamping this on March 7th, as of right now, is the blow to the consumption of WPC 80, particularly in WPI.
Ted Jacoby III:
Yes, but the product will still take a month and a half to arrive, so we’re still in wait-and-see mode. How much do you want to bet? We get many calls that ask, ” What was the best part of that conversation after you said goodbye?”
Miguel Aragón:
You have to plug in. Remember, the Marvel movies did this. They make [inaudible 00:27:23] and then after the credits, that’s the best part. It’s the best part.
Ted Jacoby III:
I like that.
Outro (with music)
We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, email podcast@jacoby.com. Phil Keaggy composed and performed our theme music. The Milk Check is a production of T.C. Jacoby and Co.
Ted Jacoby III:
All right.
