The Milk Check

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. Ask The Milk Check 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 nearcumbersome. 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.

Does perfect weather mean bad news for dairy? In this episode of The Milk Check, Ted Jacoby III and the Jacoby team welcome guests from Cefetra Dairy, Henk-Jan Bouwman, Head of Account Management; Martijn Goedhart, Managing Director; and Veljko Perovic, Commodity Market Analyst and Derivatives Trader. Together, we unpack why the world is swimming in butter and what it means for producers, traders and processors heading into 2026. You’ll hear: Why too much 80% salted has the U.S. sloshing in inventory How Europe went from record highs to €2,000-per-ton losses When demand might finally catch up with supply Click play below and listen now to The Milk Check episode 84: Swimming in Butter – Global Insights from Cefetra Group. Got questions? Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast. Ask The Milk Check Ted Jacoby III: Welcome everybody to The Milk Check, a T.C. Jacoby & Co. podcast. We have a really exciting episode today. We are going to be discussing the U.S. and European butter markets and how that’s going to affect global butter supply, global butter demand, and obviously price. We are joined today by our good friends from Cefetra Dairy. We’ve got Martijn, Henk-Jan, and Veljko from Cefetra Dairy. Really looking forward to this discussion. Joe, we’re gonna start with you. What’s going on with the U.S. butter market? We’ve just dropped in the last two months, what, 60, 70¢? I feel like the bottom just dropped out. What’s been driving this, and how’s this gonna play out going forward? Joe Maixner: Well, long story short, there’s too much 80% salted sitting in inventories, both in trader’s hands and in manufacturer’s hands. There was a lot of product built earlier in the year when there was a great carry in the market [00:01:00] and when cream was plentiful. All of that product is coming back to the market because cream is still plentiful and manufacturers aren’t needing it for micro fixing. Demand has been good, but not great. Ted Jacoby III: Is it safe to say that even if we’re having good butter demand in the U.S. right now, it doesn’t compare to the increase in supply we’re dealing with? Joe Maixner: Absolutely. We’re so much higher year over year on fat component and milk production that we just physically can’t consume as much butter as we’re producing. Ted Jacoby III: Mike Brown, my question for you is this, we’ve come down from $3.50 two years ago, $2.50 earlier this year, now we’re at a $1.75. We’ve talked a lot about on this program how the genetics have dairy cows producing a lot more butterfat than they have in years past, and that’s a trend that has really changed the supply side dynamic for butterfat in the U.S. At a $1.75, does that trend change? Mike Brown: The genetic trend of course won’t change ’cause it’s permanent . People have been making decisions to improve fat content of milk for a long, long time. It’s been [00:02:00] emphasized because of the high value of fat. And so it’s already built into not only the current dairy herd, but the animals that will be replacements over the next two or three years. On the feeding side, that’s another story, but most folks I talk to say a $1.50, $1.70 fat probably isn’t gonna make a lot of change in feeding and management on a dairy farm. You may see some of those higher expensive fat additives that are used to increase fat used a little less heavily, but the trend overall will be there. Will the rate of gain continue to be as high? I think is a good question, but I don’t think the trend toward gaining fat’s gonna change certainly in the next two, three years. Ted Jacoby III: So, this is a question for both Mike and Gus. One of the rumors I’ve heard is that there have been some raw milk buyers out there who have been talking about putting caps on butter, fat percentage in milk, or at least what they’ll pay for. If that does happen, is that going to affect the increases in butterfat percentages in the milk? Gus Jacoby: I haven’t seen anything but your cheese make yield formula pay prices have some sort of discount for fat [00:03:00] at those higher levels. That’s the only thing that I’ve really noticed in the industry that’s in some way penalizing that increased fat in milk production. Other than that, I’m not aware of anybody who’s discounting fat in any other ways. Mike Brown: What I’ve seen is consistent with what Gus has seen so far, but there’s lots of things going on in the background. Federal Order fat is priced off the Grade A butter market, and that price is what it is. Most cheese plants can’t begin to recover that value of fat, particularly if they’re in the spot market with any extra cream or certainly with whey cream. So, they’ve been losing money. I particularly have seen out West, where the added value for the extra fat has been decreased. There’s plants looking at: should we be pricing it off what our whey cream is worth rather than the butter market? ’cause that’s more what the value really is. The other thing you’re seeing, I think, is even within formulas, should we be deflecting from fat a bit and putting more weight on protein because that’s what we really need to make the cheese. Not necessarily lower the price, but try to send some signal to producers to focus more on protein. ’cause the focus has certainly been [00:04:00] on fat with the high-fat markets. Most of your cheese plants cannot recover that value, particularly when you get fat that’s more than 130%, 140% the price of cheese. When butter gets that high, it’s a real money loser . Ted Jacoby III: Joe, one last question you before we bring our friends from Cefetra into the conversation.  Milk production is up, percentage of butterfat in the milk is up. Looks like we’re gonna have even more butterfat next year than the excessive amount we had this year. What do you anticipate from this butter market over the next 3, 6, 9 months? Are we at the bottom now? Can we go lower? Joe Maixner: We probably need to go lower before we stabilize and rebound. I personally don’t think that we see a two in front of the butter price before second half of twenty six. Ted Jacoby III: that’s an answer I can live with. I think dairy farmers can live with it probably at this point, too. They’d love to see a 2 in front of the butter market. Having said that, it’s safe to say we’re swimming in butter right now. We’re swimming in butterfat on this side of the pond. Let’s switch to the other side of the pond. We’re seeing record-high butter prices as recently as nine months ago. [00:05:00] What’s happened since what’s going on right now in Europe when it comes to butter? Martijn Goedhart: I think what’s happened here is that we were underwhelmed by the output of milk in general in the first half of the year, driven by the aftermath of some diseases. That pushed prices up to record high levels, especially on the fat side. At some point in time, we saw the spread between EU and U.S. butter widening. That also made us buy some U.S. butter for import into Europe. And that coincided with production going up, driven by good margins and cheese hampering a bit. That basically gave us our perfect storm. In the last three months, we lost about €2,000 of value per ton on the butter, which is huge. And this is still lingering on because just like in the U.S., we almost call it like a second peak in terms of output because some cows started calving later due to the blue tongue aftermath. So, we definitely have more milk than in a normal season. This caught us a bit by surprise. That also means that now the liquids are trading below the commodity equivalent, which is also unusual for the time [00:06:00] of year. I feel like we’re in a perfect supply storm at the moment because it doesn’t matter which region you look at, everything is looking absolutely perfect, and not even only from the milk side, but also from the bulk commodity side and vegetable commodities. That also doesn’t help the sentiment, makes buyers wait, makes suppliers look for buyers because they also don’t want to store it. Supply pressure is still here. We stabilized a bit. But that’s what happened, basically. Ted Jacoby III: So, if I’m hearing you correctly, in Europe right now, we’re getting perfect weather. Grain feed supplies are really good, therefore, we’re producing more milk. By the way, the same thing’s happening here in the U.S., and I’m pretty sure New Zealand’s in a pretty similar boat. They’re starting up their season and it’s going pretty smoothly so far.  We’re gonna have a lot of milk this year. A lot of milk solids, a lot of butterfat. That also means we’re gonna have a lot of grain, so we’re gonna be able to feed all the cows, all they need to be fed. Ted Jacoby III: It just feels like we’re just going into that classic situation we go in every five or six years where we’re just gonna have a lot of everything for the foreseeable future. Josh White: Can I ask a question though, on the European [00:07:00] side? It seems pretty clear that supply has outperformed expectations in terms of butterfat. Like I think every one of us agree with that statement. Different reasons out of the U.S. than out of Europe. It seems, the U.S. is structurally, genetically producing more. Europe got tight, did not expect ample supply growth in 2025 and is now being surprised with outperforming milk production expectations. From that standpoint, this is a excess supply driven issue. How much of the radical price change in Europe is also a slowdown in consumer demand because of how high the price got or is that really not an issue? Henk-Jan Bouwman : The demand is, I would say, not sufficient enough to absorb all the supply. And that’s internal European market. What we also see, in a little bit of a wider lens from a demand perspective, is that a lot of the export clients we used to have for butter, as European butter-producing countries, have switched to alternatives. You don’t have enough demand within Europe. And additionally, your [00:08:00] export business has dried up significantly because people have looked at alternatives when the prices were at record highs Josh White: Has the European per capita consumption of butterfat changed much in the past year or so? Historically, that’s very consistent. Martijn Goedhart: Yeah. Josh White: Has that changed much? Martijn Goedhart: It’s stable, Josh. It’s stable, but it is elastic. Across the board, you see prices have eased: for cocoa, for milk, for all the ingredients. But the shelf prices still need to react. So, how are these food processors gonna go about that? Because they’ve been losing, because they’ve been absorbing those high prices in their books. Are they now gonna keep the shelf prices high and get a bit of that loss back? Or are they gonna adjust it immediately and spark demand? With the butter market, the biggest market in Europe is Germany, it’s quite an elastic market. If people see package prices below two euros, they’re gonna stock up. But the question is what will retail do now?  Retail recently negotiated at much lower prices. At the market today, like €5,500 [per metric ton]. Will we see that on the shelves immediately or will we see it as volume promotions or something like that? That’s [00:09:00] gonna be the answer to the question, “How long will this take?” Martijn Goedhart: That’s my opinion. Josh White: Right now we’re in an oversupply situation and we’re feeling the price pressure. European demand is elastic, but relatively stable. And these price reductions over time will result in a return to normal consumption rates. Right? So, we’re not seeing any decline there. The U.S. market has matured quite a bit in its butterfat consumption. Overall, butterfat consumption through all products is still increasing year-over-year in the U.S., but maybe it’s slowed it’s sloped down a little bit, but it’s still increasing. What I’m worried might be covered up in the glut of supply of fat that we’re dealing with is the fact that the rest of the world now seems to be increasing its per capita consumption fat. And right now we are overwhelming the rest of the world with the excess out of Europe, the U.S. and that’s forcing New Zealand to compete, of course. Are you seeing that in the global markets that you’re selling to Henk-Jan? Henk-Jan Bouwman : Yes, but it’s not only capped to U.S., Europe, and New Zealand per se. We’re also seeing [00:10:00] fat coming out of originations that were, I would say, a little bit less known, where a lot of effort has gone into approving those origins, using them in recipes, and that has been found quite successful. And because of that, it dilutes demand away from the more traditional butterfat-producing regions. Joe Maixner: Yeah. The emerging markets is definitely taking market share away from the big three regions, especially in the further processing type manufacturing where the product’s being made into another finished good, and it doesn’t need to have a specific color or visual appearance. Ted Jacoby III: Joe, let’s expand on that really quick. Europe’s butter being 82% and also having a more yellowish, more flavor in the butter, let’s say, tends to command a premium in the marketplace. So, the U.S., as we’re switching from a fat deficit to a fat surplus dairy industry, is not competing really against Europe. We’re competing against New Zealand and even some of the developing markets [00:11:00] like India who are exporting butterfat. Is that what we’re saying? Joe Maixner: Well, even New Zealand has a much darker colored product. So, even New Zealand and Europe can be used interchangeably in a customer facing product. We’re really competing with emerging markets like India, China, and others that are primarily grain fed and produce that whiter-colored product. Henk-Jan Bouwman : To put a little bit more flavor to that discussion, we do see in our export markets that there are clients who prefer the color profile out of U.S., India, even China, over the more traditional yellowish color of butter. It really depends in what sort of end application the fat is being used. As much as we sometimes think that the pure white U.S. butter in comparison to yellowish New Zealand butter there’s a value difference. It could even flip the other way as well, where a more whiteish butter is preferred over yellowish. Martijn Goedhart: Yeah, we could break that down. I think what you’re saying, Ted, is you know, there are a few segments that butter [00:12:00] is sold to, right? So, the first one is bakery confectionary. In that application, it doesn’t matter because you need the fat and you turn it into something totally different. Maybe there’s a little bit with melting points, but that’s not huge. Then you have your direct consumption markets, and that’s consumer preference. They consume the butter exactly as they see it. And that’s typically a yellow butter market or yellowish. And then, you have your processed cheese producers, who prefer the white one because your spreadable cheese is nice and white if you have U.S. butter or white butter. We are competing in some sectors and in some we aren’t. Chinese butter is also very white, so there’s always someone to compete to, but you’re not competing with everyone at the same time. Veljko Perović : In general, the demand picture remains quite supportive. I think if we look at worldwide trade of AMF butter, but also bulk cream, we see that we made actually record high trade in the last 12 months on some pretty high prices from New Zealand and from Europe, but also from U.S. last year. The demand is there, and I think there’s gonna be people coming in to take it. In Europe, specifically, a lot of elasticity comes [00:13:00] from us being able to export and import. I agree with Martin there that our domestic demand was actually solid even when prices were higher. Elastic to a degree. But we could slash all the exports and leave them to New Zealand, and at the same time, we could import a bit from New Zealand and U.S. to help us solve the tightness. The European producers are now gonna turn to export market once again to try to alleviate the pressure and the export markets are gonna be a way for producers — whether in Europe or U.S. — to be able to ship some volumes when the S&Ds get pretty bearish, like right now. Josh White: With all four plus regions bearish butterfat, what does that do to the product mix out of New Zealand? Does that at all impact their decision making between skim and butterfat versus whole milk powder, particularly as they go into their peak season? Are we expecting any type of shift there as a result of the deterioration of the butterfat price? Henk-Jan Bouwman : Anecdotally, Josh, what I’ve heard is that it might cause a demand shift, first of all. It might cause certain producers of end product, especially in my region in the Middle East to [00:14:00] reconsider their import model. Whereas, over the last year or so, they have worked on a combination of skim milk powder and AMF and they might reconsider that and start using whole milk powder. There I definitely expect a bit of a shift in production, a bit of a shift in pricing and those kind of things, out of New Zealand. Ted Jacoby III: Has the butter market, and this is a loaded question because the graph I’m talking about looks a lot different if you’re sitting in the U.S. than if you’re sitting in Europe, but has the butter price dropped enough where we’re gonna spur a lot of really healthy additional demand for butterfat, globally? Martijn Goedhart: No, Ted, I don’t think so. Because the global growth in consumption is not very much a price issue. With high prices in China, bakery was still booming, so people are still gonna consume those croissants. The margins are gonna be better for the bakery shops, but the consumers still want it. I would reckon that the home markets of butter, so where the butter is coming from and is consumed Europe, U.S., they’re more or elastic than the upcoming markets. Ted Jacoby III: Interesting. Josh White: What about other products capturing [00:15:00] market share away from other fats? If we’re talking about bulk commodities being weak, is it safe to say that other fats have had an equal decline in prices, relative to the fat content, as butter has or is butter becoming relatively cheaper than other sources of fat? Martijn Goedhart: I would reckon the contrary, right? I think all the vegetable fats have also made a step up over the last few years. Veljko Perović : They did make a step up, although now we are also seeing steps down. I think the demand picture in global egg market is really bearish at the moment. So, I think it’s weighing on everything. I think also depends really on the region because we are talking about quite different milk fat prices right now in Europe and in the U.S. But in general, I think price competitiveness of dairy looks quite okay if we compare it to some alternatives, such as the protein, that will be meat. I think dairy stays a competitive source for both milk fat protein on a global level.  More than that, we are seeing the bakery really booming in Asia, and I think it’s a trend to stay in the coming years. The aggregate demand is just gonna grow, and there’s gonna [00:16:00] be plenty for everyone to grow their sales. Josh White: In the coming months in Europe is the relationship between the butter price and the cheese price going to dictate where the milk is processed? We highlighted earlier that one issue in the U.S. is the Class III facilities that are bringing in milk right now are having a difficult time standardizing to the cheese, resulting in excess fat that they’re forced to move into the market. And that is having an impact on our fat market domestically in the U.S. Is there similar issues within Europe, and will it be influential over the coming months on utilization ? Martijn Goedhart: The thing in Europe in general is that no one I think really budgeted for this second peak or whatever you would call it, or plateau. Whereas before you would see that surplus milk would be redirected to butter and skimmed, we have significantly ramped up the cheese capacity within Europe. If you have a new factory, and you have milk, you’re gonna redirect it to the new factory. But we now reach the point that the cheese is almost already [00:17:00] too old when it’s delivered. There’s definitely some stock building up. We’re at the limits of this cheese market and what the market can take. More product is redirected again to skim and butter. At the same time, if you have a drying tower or a butter churn, you’re not totally filled up. So, it’s also an opportunity for powder dryers to pick up some cheap concentrate. Supply is still overwhelming because we’re trading below the commodity equivalent.  There is more supply of liquids than there is demand for the commodity that’s produced out of it. Josh White: If we’re looking at too much butterfat, coming from good quality, milk growth across the entire world, we think demand for butterfat is good and growing, just not growing quickly enough to consume the amount of fat that we have. You have a couple options. Slow down your growth rate and wait for demand to catch up. Experience some type of disruptor to supply. That could always happen. Last year, disease was a big topic. Weather can always be a topic. Or you bring a price down to the point where you actually slow milk production. From both the U.S. and the European side, current spot [00:18:00] prices — which are lower than current pay prices to producers, right? The pay prices lag, I think in both continents — current spot prices. Are producers profitable at the current spot price or are we starting to flirt with decreased margins or something that could either slow or reduce our milk production quantities as we look ahead into 26? Veljko Perović : If we are talking about the price of raw milk as a commodity, it’s absolutely below the price where farmers are making money. Now if you are talking about the payout prices, which as you say, Josh are lagging behind, then there’s still a good margin for the farmers. I think in Europe, it’s now the matter of how long are the producers willing to take a hit? Because with the current S&P and butter prices they are taking a hit, and at some point they need to transfer this to the farmers. Now a key difference in the U.S. and EU dairy at the moment is: U.S. is built to grow. Well, Europe is not. In Europe, most of the bearishness does not come from us, like structurally oversupplying the market, but from [00:19:00] a short term surge in milk, which we are seeing, but we are still facing with structural problems that our herds are decreasing and we are not built to grow. I think, in Europe, there is a likelihood that we will solve the S&D issue, the oversupply which we have, sooner than the U.S. We will have to see more milk price cuts for that to happen. But when it happens with the herds, which are still losing I think we might see an abrupt change from adding a lot of milk to suddenly losing it. Ted Jacoby III: Do you have any idea how long it’ll take to get there? Veljko Perović : I don’t think we are there yet. I’m not calling it the bottom yet. Producers also earned quite some good money last year and in the first half of this year, I think they can take a bit more hits. We need to see the milk price drop. We saw 2.75 cents decrease for FrieslandCampina. I think we need to see two or even three more cuts like that before we seriously damage farm profitability. And at that moment, farmer might react. Martijn Goedhart: Then I guess, Veljko, from a seasonal perspective, you’re past the point that you’re gonna [00:20:00] adjust your herds for the flush, right? If it takes another two to three months, you have your cows set up, so then you’re gonna work your way through the flush before you do anything drastic, because anything else and that would be a waste of capital. Ted Jacoby III: It sounds like both in Europe and in the U.S., by the time you start getting an appropriate reaction by the dairy producers, you’re gonna be past the spring, and that means we’re just gonna have a lot of milk for most of 2026 and it won’t be till 2027 where we see an adjustment. Veljko Perović : That’s true. The farmer needs to make the decision how many cows to keep for the new season. I also think that when the incentive is gone to squeeze more out of the cow, they will stop squeezing because the amount that they’re squeezing right now in Europe is incredible. Martijn Goedhart: That’s a good point. So there’s also your delta on components, right? With profitability diminishing, you’re probably not gonna do your best job there. Although, people are hedging their inputs now, and that’s also looking very bright, so that’s also already set up for profit. Josh White: Seems to me like we’re in a game of chicken: who can wait longer between the [00:21:00] U.S. and Europe. My question is, the European model still has quite a bit smaller dairies than the U.S. model, as I understand it. And I also have the belief just in conversations with different people that, whereas Mike mentioned earlier that the U.S. will not likely turn down the way we feed and the growth that we’re seeing in our butterfat, that Europe is a little bit more sensitive to that, and if the butter price is lower, changes to the diet for the dairy cow can be made relatively quickly. Is that a true statement? Martijn Goedhart: The main difference is that in the U.S. it’s much more common to hedge your input and your output. If you would do that today for the coming season, you’re set up well. Whereas like you said, because we have a lot of smaller farmers, the average size of a farm is much smaller, people leave it floating, and if something changes, you’ll see more acute or abrupt reactions compared to when you’re hedged further out. Yeah, maybe the milk prices here move relatively [00:22:00] slower than in the U.S. but the margins might move quicker because they’re still exposed. It’s not managed.  On the U.S. side with current spot prices, is the dairymen profitable? Mike Brown: It’s how quick the response is. I’m here at World Dairy Expo, everyone says, our revenue from the beef stream is $3 higher than it was four years ago. And that’s what’s saving everybody’s, necks at the moment. Lots of talk where your big commercial herds, if they can get a, delivered milk price that is north of $16, $17, they’re doing great. They haven’t felt them yet in their milk checks ’cause a lot of this price declines the last couple months and it takes a while to get through the system. But, I think for the most part, at current spot markets, yeah, I think they are still profitable, particularly on the Class III side. ’cause the whey value is so high. That’s putting a big kick on that Class III price. So, I would say they are, but we get butter below a buck 50, and if we get cheese hovering down $1.50, $1.60, then maybe it’s a little different, but I don’t see a massive exit. The other thing is we’ve had a lot of growth in [00:23:00] capacity in plants we have producers that are committed to fill those plants, and those projects are going to continue. Will we see some decrease on the margin? Possibly. In the dairy genetics business, semen sales in beef remains the strongest it’s ever been, and and it’s all for dairy cows. They have herds anywhere from 20% to 70% using beef bulls on their cows, depending what the replacement needs are. If they’re growing, as you can imagine, they’re slower. And these are the big, well managed herds. So I don’t really think there’ll be an immediate response in our profitability. I think they’re still okay. But we don’t know what the floor is. If we all know what the floor is, we’d be very wealthy but we don’t. So I think it’s a little hard to say Josh, but I think right now, yeah, they’re cash flowing fine. Smaller ones are starting to struggle. They haven’t been sophisticated in their beef marketing and planning perhaps as the large guys have been. But in general, the bulk of our milk supply, I think is still pretty well positioned to do. Okay. Big exception is perhaps the Pacific Northwest. Other than [00:24:00] that, I think people are doing okay. Ted Jacoby III: Are the dairy farmers in Europe breeding to beef? And is the beef price as high? Is that dynamic going on in Europe like it is in the U.S.? Veljko Perović : Absolutely, yes . We are also seeing in Europe record high beef prices. It is adding to the profitability of the dairy farmers because they can get more from the meat. It’s a nice extra stream flow to keep the cash flow going. Ted Jacoby III: I just can’t help but feel like we’ve got a dynamic right now where we’ve gotta go to a pretty low price point to cause a supply side reaction, and it might be lower than anybody’s willing to come to terms with at the moment. Joe Maixner: Let’s keep in mind, on almost every product, too, we’ve increased or are increasing production capacity in the United States at a time where the markets are falling rapidly Ted Jacoby III: Yeah. And it sounds like the same thing’s going on in Europe, too. They just added cheese capacity there as well. Correct? Henk-Jan Bouwman : Correct. But that’s mostly driven by the desire of producing high protein. Martijn Goedhart: Yes, to some extent because that makes you win when it [00:25:00] comes to streams return. But you’re only gonna build cheese plant if you know you have the demand for it. But yeah, if everyone’s doing the same thing, then you might overshoot a bit. I think that’s what we’re seeing right now.  If you have a new origin, you also need to find customers to get it approved. Maybe one thing to add if you look at global commodities and here, we look a lot at weather and harvest, it’s looking absolutely perfect with all lights on green. The more macro commodity outlook also sometimes influences our little dairy world a bit, right? Josh White: Going back to demand, the confectionary industry was awful last year, right? Driven by the issues with chocolate, yet we’re still talking about consumption of fat being pretty good. We’ve just responded with great production. Where could we be missing pockets of demand growth on the fat side? Like confectionary, how’s that doing? Is that an opportunity to consume more dairy fat as we go into 2026 with lower prices?  Where can we capture fat business as a substitute from non-dairy sources. Is there anything we’re missing in terms of demand growth [00:26:00] for butterfat at lower prices? Joe Maixner: In confectionary, I think that the demand shrinks for next year. I think that overestimated for this year’s and they’re gonna be carrying supply into next year. And so I think that the demand is gonna be less. As far as other areas for growth? Emerging markets, we have to remain competitive in the U.S. specifically on exports. The longer we remain low priced, the more new markets we’re going to be able to penetrate. That’s going to be our real opportunity for growth into next year. Mike Brown: I’d agree with Joe. Same thing here with fat. Fat’s been a pretty low margin item in the butter aisle because they try to keep the price as competitive as they can. If we’re gonna have a dollar 50 butter, how much of that will be transferred to the consumer because then you still maybe have a chance to garner more of the margarine market away. You can get butter prices in that $2 range, And by the time you buy bulk butter and you package it and go get in a grocery store your net cost is gonna be, from my [00:27:00] experience, probably 30 cents to 35 cents over the commodity market. It’s not that much really. But are they gonna be willing to do that when they finally trying to recover some margin that they haven’t had? We’ll have aggressive promotions for the holidays, that’s for sure. But how much new business that picks up versus stealing it from each other’s label is a whole other question. Joe Maixner: Worldwide, we are entering the largest demand period for butterfat, right? The next three months is the largest demand period for butterfat, and then you’ve got an early Ramadan coming up at the beginning of next year, and those inquiries and orders have already started as well. My fear is that we front load both on the retail side and all of the product for this demand period. And all those orders come in and then we end up in a global fat surplus once we get out of the holidays and prices just collapse everywhere. Mike Brown: From my experience, supermarkets’ demand for butter is double fourth quarter than it is any other quarter. I mean, it’s huge. A lot of that butter is pre-bought because there isn’t capacity to [00:28:00] make it in fourth quarter. So even though the cash market may be significantly lower, the cost of goods isn’t necessarily that low. It takes time for that to work down into retail. So maybe we’re gonna have great butter sales in February, ’cause by then their inventory will be at a lower cost. But right now they’re blending the current market with some, pretty high price butter. Martijn Goedhart: That’s an interesting point, right? You have the retail lag. When the raw material prices reach the shelves, it’s like there’s a lag of three to six months, something like that. We’re also discussing like it’ll take at least three to six months for farmers to feel anything in terms of output and then probably another three months before they really react. Those two points where the goods have become cheap enough that customers are gonna buy more, but at the same time the farmers are gonna slow down because they’re not making money anymore. Those two points, they might be very nicely overlapping at some points, and that’ll turn everything around, I think. In my opinion, you’re talking post summer 26. Joe Maixner: Yeah, minimum second half of 26 before we really start to see that. Ted Jacoby III: Guys, is there any hidden demand in fat filled [00:29:00] powders? If the butter price gets low enough, could you see some of that fat filled powder business to Africa switch over? Martijn Goedhart: No, no, it’s direct to consumer product, so people have gotten used to specific taste and profile of fat filled. Ted Jacoby III: I understand. This has been a fantastic conversation. Martijn, Henk-Jan, Veljko, thank you so much for joining us today.

Are you leaving calf money on the table? Not long ago, a Holstein bull calf might have earned you 50 bucks, if that. Today, thanks to high beef prices and better breeding tools, that same cow might deliver a $1,000 calf instead. Beef-on-dairy isn’t just a trend; it’s changing how progressive dairies manage their herds and drive revenue. In this episode of The Milk Check, host Ted Jacoby III talks with CoBank’s Corey Geiger and Abbigail Prins about how dairy farmers are rethinking breeding strategies and how those decisions are reshaping herd structure, replacement numbers, and profitability. Why some farms are holding onto cows longer How sexed semen and genomics are guiding breeding calls And how beef calves are becoming a serious income stream Whether you’re breeding for replacements, premiums or profit, this episode unpacks how to make herd decisions that pay. Listen now to hear why the value of a cow’s uterus might be higher than ever. Got questions? Got questions for The Milk Check team? We’ve got answers. Submit your questions below and we’d be happy to get back to you or answer your question on the podcast. Ask The Milk Check 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, a T.C. Jacoby & Co. podcast. Really excited today to have two special guests from CoBank, Corey Geiger and Abbi Prins. We are going to talk about breeding to beef and the profitability of the dairy farm, and how that dairy farm profitability has changed over the years as this trend has come about, and what it means for the future of dairy. Excited to have this conversation, Corey, Abbi, thank you so much for joining us today. So Corey, what do you do? Corey Geiger: CoBank is actually short for cooperative banks, so we’re the bank of cooperatives. We’re part of the Farm Credit System. Abbi and I are part of the knowledge exchange division, so we have a group of 10 economists who work in dairy and animal protein, consumer package goods, digital infrastructure, and farm inputs and crops. I’ve been at CoBank for two years now. I have just started my third year with CoBank, and Abbi joined our team about a year ago. She can tell you a little bit about herself. Abbigail Prins: Thanks, Corey. I also joined CoBank about a year and a half ago. I helped cover the dairy and animal protein sectors, come from a very heavy dairy and agriculture background, originally from Tulare, California, based out of Minnesota now. We’re excited to be on the podcast with you today, so thank you for the invitation. Ted Jacoby III: Abbi, Corey, thank you so much for joining us. Really appreciate it. So our topic today is going to be about breeding to beef and the dairy farm profitability, and how the whole breeding to beef trend has been affecting dairy farm profitability. Give us a little background on this trend of how more and more dairy farmers are breeding dairy cows in order to get cows to enter the dairy herd. More and more dairy farmers are breeding to beef and how is that affecting the dairy breed right now? Corey Geiger: I have a broad background, having been in the editorial team of Hoard’s Dairyman for 28 years and a past president of Holstein USA, and this is a journey. It really involves a triple play. The first part of that triple play was gender sorted semen coming onto the scene. Then genomics came on the scene, and then it all kind of came together with the beef on dairy movement. Now, economics always enters the equation because if I were to come back and have a conversation with my late grandfathers and say, “We’re breeding some of our prize Holsteins to Angus,” they’d throw me out the window, thinking I fell on my head. But gender sorted semen came along. Fertility rates really improved in dairy cattle, and I think that’s another part of the story for fertility and conception rates, and we landed up with more dairy replacements. Those prices dropped tremendously in about 2015 and almost fell to under 1,200 a head. At that time, beef prices started climbing, and a new opportunity opened up. Abbigail Prins: We start to see beef prices rise, followed by the introduction of beef semen purchases by dairy producers. Of course, this was not actually confirmed by the National Association of Animal Breeders, which started tracking this until 2023; however, the trend began in 2015, 2016, and 2017. We start to see more of these beef semen purchases,, and we see them being implemented into the dairy industry. We then yield these beef on dairy cross animals. They just start their career on the beef track right away instead of the secondary career after being in the milk industry and having that extra revenue generator I think was a very important piece for dairy producers to take advantage of and try to figure out strategically on the dairy farm, where’s the money going to come from and how can we best utilize the dollars that are coming back from all of our animals, whether it be from milk sales or cattle sales. Ted Jacoby III: The surprise to me was that the beef price started going up because if you think of it on a real, simplified level, if you’ve got more beef cattle coming into the beef herd, then why wouldn’t that cause an oversupply of beef cattle and cause the prices of beef cattle to start going down, but the opposite has happened since. What’s the dynamic that’s causing that? Is that simply an increase in demand for beef, or is there something else going on in the beef side of the business right now? Abbigail Prins: This, I would say, starts back to 2019. We see the peak of the beef cow cycle, so that was the most recent time that we had the highest number of beef female cows; that number we’ve been liquidating ever since. And when you have a low supply and high demand, that means the price is going to go up, according to a straightforward economic equation. So, where these animals come into it is that if we see this decline in the beef cow herd, if there are fewer females available, that means that fewer calves are going to be born in the preceding years. And then we’ve seen this transition since the late 1990s, where beef quality has skyrocketed. We are seeing record amounts of prime and choice-grade beef, and as a result, we have extremely high consumer demand. We continue to see retail beef prices hitting records nearly month after month. They just keep going back to the meat case and buying more beef, which has caused cattle prices to really skyrocket and hit record levels nearly every week with regard to live and feeder cattle futures. And so that’s where we’re seeing this beef price really start to take off. Corey Geiger: Three bench posts to keep in mind total cattle inventory and that counts all beef cattle and all dairy cattle is at the lowest since 1951. The beef cow herd is the lowest since 1961, and feeder supplies the rest of us, which we would call those steers, are at the lowest levels since ’72. When you take those three data points and look at consumer demand and where we are today, limited supply, strong demand equals record prices. Ted Jacoby III: Did this really strong demand for beef start just before COVID, or has this increased beef demand been coming for a while yet? Abbigail Prins: I think it’s been a gradual shift in demand. I think the initial push started back in the 1990s to improve meat quality. Of course, that takes time, as we see gestation lengths in cattle are nine months, and then you still have to raise them until they can become part of the beef supply chain. I think that was the initial starting point where we see quality go up, and then just this gradual introduction back to consumers of we have this incredible quality of beef for you to be able to consume. I’d say it’s been a really big shift, probably over the past decade or so, and then moving into what it is today. Ted Jacoby III: When COVID hit, it was just kind of that perfect storm of everything is already tight, the demand for beef was already good, now everybody’s locked up at home, and all they want to do is cook steaks because they can’t go to the restaurant. They have a special meal, and the next thing you know, the beef herd drops a significant percent that just started the cycle, and when you’re talking about a herd, once it’s low, there’s no way to just snap your fingers and get that number back to where it needs to be, correct? Abbigail Prins: Sure. I definitely think that COVID kind of exacerbated the situation a little bit, and I definitely agree that COVID hits, you can’t go to the restaurant anymore, you’re going to buy a Pit Boss or a Traeger grill, and you’re going to start making all of those restaurant-quality dishes at home. I think because we’ve seen such a drastic change in price for food at home and food away from home, with regards to some of the CPI numbers that we’ve been seeing, that consumers would rather spend the money and “I can make a great steak at home. I don’t necessarily need to go out to a high-end steak house because I perfected it during COVID.” So I think that definitely brought it to an extreme very quickly. But yeah, I completely agree. Ted Jacoby III: Abbi, I think you’ve hit the nail on the head. I can tell you, for the last five years, when I go to a steak place, I don’t order steak. I can cook a great steak at home. I’ll usually order the fish or something that I’m not anywhere near as good at making as I am at grilling a steak at home. It makes perfect sense to me. So now we’re in a situation where the beef cattle herd is the lowest it’s been in, what did you say, Corey, 50 years? Corey Geiger: 1951. Almost 75, right? Ted Jacoby III: Jeez. So even though we are not only adding new beef cattle inventory from beef cows, we’re also adding new beef inventory from dairy cows. We’re still behind the eight-ball trying to catch up, trying to grow the beef herd back. Are we making any progress? Corey Geiger: When you look at the beef herd in general, where the source of beef is, a good thumb rule is about 20% or so comes from a dairy source, it might be a freckle higher, and then about 80% comes from native or purebred beef. Here’s a situation: the average age of a dairy farmer is about 58 years old, according to USDA data. The average age of a cow-calf operator, so the ones raising beef calves, is pushing 65 years old. If I have nobody standing behind me to take over my farm, and I am now at the point that I can cash in my poker chips, beef calves, beef steers, and beef heifers at the highest price ever, am I going to breed them all back, or am I going to send some of those to the feedlot at these prices? And that’s really the biggest question that everyone’s asking: when will that reverse? Right now, you might see a percent or two, a few more heifers being retained, preliminary in this data, but for the last three or four years, they’ve been sending them, even the heifers, to capitalize on these record prices. This is a historic run. Ted Jacoby III: So how does it end? What do you think the scenario is? And we haven’t even gotten to the point where we’re talking about exactly how profitable this is for the dairy farmer, which is really the goal of the conversation, but I can’t help but ask the question: How does this end from a beef perspective? At what point does it need to be completely demand-driven, that for whatever reason, beef prices start to come down because the demand changes, and are we going to continually be chasing our tail, or can this scenario play out, and can beef prices normalize? Corey Geiger: Every bull market has an endpoint. The question is when, the reason we’re going to have a long run here versus poultry or hogs is the life cycle. You breed a cow right now, you’ve got nine months, and then at least probably another two years. So let’s just round this up and say three years here. We have that situation taking place, and I think equally important in the dairy space, we have this $10 billion of new investment in dairy plants. Dairy farmers have pivoted so fast that dairy replacements are at a 20-year low. We’ve culled 600,000 fewer dairy cows in the last 100 weeks. Heifer replacement prices are at a historic high. So now the dairy farmers are faced with a new option: do I make more heifer calves? Do I make more beef on dairy? But the reason that many I’ll tip towards that beef on dairy yet, “I can get 1,000 to $1,500 for a calf that’s seven days old, and boy, my risk is gone.” So where does it end, Abbi? Abbigail Prins: Well, I don’t think it ends with the consumer. They have shown us time and time again that beef demand is just absolutely superb based on USDA forecasts. When we were looking at those last year, we thought 2024 was going to be lower in consumption in comparison to 2023, and we were flat out wrong. They actually grew in consumption. I would say the same is very likely, again, for this year. What’s really been interesting is the question about when the rebuild is going to happen. What’s changing now is that we’re adding more weight to these animals. They’re staying longer on feed, and so we do see a little bit of reduced overall annual beef production, but not to the point where it’s really causing prices to go too far out of hand that the consumer’s willing to pay for it. So I do believe that beef is definitely a demand-driven market, and I think there are a variety of factors that could turn it around with regard to pasture conditions. I think the age of the producer is something that definitely needs to be kept in mind. Who is the next generation coming to raise all of these animals? Do you have enough feed? Do you have pasture? Do you have capital? At the end of the day, we keep talking about record prices. Do you have the capital to be able to invest and ensure all of these animals that you own? So I think there’s a variety of factors that really play into this. I’m curious to see when the rebuild will actually happen, but when it does, I do think it will take longer to reach our next peak than what we’ve seen in the past. Ted Jacoby III: If it’s not going to end with the consumer, then it almost feels to me like, especially as we’re looking at how we’re probably going to see in the coming months, dairy heifer prices become really expensive. It almost feels like there’s always an end for a bull market, as Corey liked to say. But that end isn’t on the horizon at the moment. Abbigail Prins: I don’t think we are near it. No, even looking 12 months out, I would be pressed to say that we would be near the end. I think it’s going to be a little bit further than that. Corey Geiger: Different consumers buy different products. One of the other big things here is lean ground beef. The Burger Kings from McDonald’s to Burger King. If you’re in Canada, Tim Hortons relies on ground beef, and there was an article in the Wall Street Journal earlier this month that talked about Burger King. 25% of their costs right now is beef. It’s up 15% this year alone. That makes some of our fast food chains a little less cost-effective for consumers. Now we had been shoring that up with some lean ground beef from countries like New Zealand, Australia, and Brazil, but this is becoming a global phenomenon here on tight cattle inventories. This is beyond the U.S., and that’s why this bull market has a longer run. Ted Jacoby III: If feed prices are going to stay up here for at least the foreseeable future, how is that benefiting the dairy farmer? If we go back to 2005, a dairy cow calf, 50- 51% of the time, it was a cow. 50/50, 49-ish percent of the time, it was a bull calf, and that bull calf was usually sold for maybe $100. Gosh, am I a little bit too low? Was it maybe a little bit more than that? Corey Geiger: Maybe a little bit, but $100 is rounded to $100. Ted Jacoby III: Rounded to 100. Either way, what we’re saying is that on the balance sheet, it did not represent that much. Now they’re getting upwards of $1,000 for a beef calf. How has that changed profitability for the dairy farmer? If I’m a dairy farmer today, I’m getting income from my milk. That one’s pretty straightforward. We can more or less figure out what that revenue would be on a per farm basis based on how much milk they’re making. There would be revenue when it was time to sell their cows to slaughter. Now there’s revenue in many cases from their manure, and now there’s revenue as well from breeding to beef. How big a portion right now of that top line revenue for a dairy farmer is their beef revenue from beef calves? Corey Geiger: There’s some really good data out there from Farm Credit East and Frazer & Torbet that we just recently analyzed here. And you’re absolutely right, this wasn’t a big part of the ledger, but the numbers have really, really changed here in the last two to three years. Abbigail Prins: So the Farm Credit East data we’re looking at in Northeastern dairies includes some of their financial data. They break this down into milk sales and government payments. We have cattle receipts and then crop sales and things like that. So if you take all of that income and put it together, and you make a percentage of cattle receipts of this total income, we were sitting at about 5% starting in 2019. Even before then, it was a little bit smaller, but you can think of calf sales or cull cow sales falling into this category. Now that we’ve seen such a large revenue increase from what these animals are worth when they’re being sold, we’re close to about 9% as of 2024. It’s very likely this number will go up in 2025. And if you look at it on a chart, you’re moving up and to the right with regard to what these cattle are worth with regard to total profitability. The same kind of trend line can be seen from the Fraser data that Corey mentioned. This includes states like California, Arizona, Washington, New Mexico, and Texas. So very much the western region of the United States. And what’s interesting is that the trend is very much the same. They were sitting at about 2 to 3% back in 2019, so just five years ago, and that number is over 6% as of 2024. The same trend is being seen there, and they’re definitely making an impact on profitability at the end of the day. Corey Geiger: And those numbers are revenue, and I think the listeners got to keep in mind most of that’s also profit because if you’re looking at it at the farm level, a dairyman or dairywoman can milk a cow throughout the year and the net profit that they’re making in 2024 on those milk sales or that beef on dairy calf is almost equal at this point. So we’re seeing unusual retention of dairy cows these days because if I’m talking to farmers in the audience, the value of the uterus is so important. The value of getting another calf out of there supersedes the value as a cull cow because you’ve got to remember her beef is also worth something too. But what’s the next best alternative? Ted Jacoby III: Everybody, we will be right back after these messages. Center commercial (with music): I’m Diego Carvalho with T.C. Jacoby and Company. T.C. Jacoby and Company specializes in international dairy markets. For new customers that haven’t done business with Jacoby, I would tell them that we can provide them with many of the powders and dairy products that they consume, not only with the physical product, but we can also help them mitigate their risk. We know dairy, we know the main players, we know the main providers for the whole value chain. We are one of the strongest players in the U.S. market because we have contact all the way from the farmer moving the liquid milk all the way to the end users that buy the end products. I am Diego Carvallo with T.C. Jacoby and Company, and we bring dairy to the world. Ted Jacoby III: Where my head’s going as I’m listening to Abbi’s numbers, let’s just say 2 to 3% of revenue to nine, maybe 10% at the end of 2025, plus we’ve probably had some increases in manure revenue. Plus, as we transition into 2026, feed prices are probably going to be lower as well. I just drove from St. Louis to Michigan right through the heart of Illinois. We did not see one stock of corn that wasn’t absolutely perfect. The corn harvest this year is going to be phenomenal, and I mentioned that in the context that we just had milk production up 3.3% the last time we had milk production up over 3%, ultimately, the prices of milk really came down. But now we’ve got a number of other income sources for the dairy farmer. Are we going to see a reduction in cow numbers? If the Class III price drops $2/cwt, that’s probably not enough. We probably need to see the Class III price come down to $3, $4/cwt minimum and stay there for a while before we see any significant change in the way they manage their herd. Compared to 5, 10 years ago, when we’d see big swings in cow numbers, when we’d see big swings in milk production. Corey Geiger: You haven’t run the numbers on what it would take to drop a milk price to change cattle numbers, but you touched on the most important part first. I also run a six-generation farm. I sold some of my corn crop futures on July 3rd, and corn is down 45 cents a bushel since this is called Independence Day. That really changes the input part of the equation here, and it will be a lot more cost-effective to feed dairy cows in the coming season. The other thing we have to keep in mind is that we’re going to see some pretty high milk growth volumes here in the second half of the year because we have to remember that the number one dairy state, California, had 18% of the milk production battling HPAI, pathogenic avian influenza. And so 80% of those herds were impacted by it. So we’re going to see some big gains here. What will it take to reduce the dairy cow herd? I think it would be a significant shift in the milk price. Right now, we are on a record pace for exports, certainly something that your team works on each and every day. If my memory’s right, you opened up the first office in Mexico way back under the NAFTA days, so you were pioneers in that era. If we keep growing exports and domestic demand holds strong here, we’re not going to see a big run on cow numbers because if you look, again, come back to this pullback on dairy cow culling. There’s no national data, but cows are getting older. If we culled 600,000 fewer in the last 100 weeks, there’s a group of 20% that’s a lactation older now. And so we’re going to have to see some turnover, and based on semen sales, there are just so many moving parts that never happened in our lifetime. Beef semen sales in the last five years to dairy farmers are up 58%. Gender sorted semen sales to make a heifer calf, a dairy heifer calf is up 43.5. And conventional semen sales, what we would call random XY 50/50 bull calf heifers, are down 46%. So farmers are planning their future replacements, but because dairy replacement inventory is at a 20-year low, the pen of heifers in the national herd, we can’t grow topside right now. In fact, some numbers Abbi and I ran, we looked at in 2025 and 2026. Those two years, we’re probably running 400,000 fewer heifers than the year before each of those years, just because of this dramatic shift. So even if milk production’s going up right now, we don’t have a lot of upside capacity to grow it because we just don’t have cow numbers, future cows. Ted Jacoby III: The only way to grow it is an older cow’s back-of-the-envelope estimate. I’m almost afraid to mention this on a podcast, and if you guys have better numbers, please contradict me. But my back-of-the-envelope estimate is we grew the average number of lactation in the past year that a dairy cow would put out by roughly a third of a year. And so I think it was roughly 2.3, and after a year, it’s probably about 2.6, which means we can maybe do this for two or three more years. And then we’re now getting into the point where we’re at 3.5 to four lactations per cow. That feels to me like the point where we’re going to start having trouble maintaining increases in milk volume because the cows are just getting too old. Does my back-of-the-envelope math sound about right to you, Corey? Corey Geiger: You’re back at the envelope math. I could go a third. I could go for half a lactation. And this is such a big issue that the American Dairy Science Association had a discovery conference in May. We had people from 17 countries around the world talking about this because we have spent a generation taking better care of our first lactation cows, because they’re, think about being in high school when you’re a freshman versus a senior, you’ve got to take care of them a little bit differently. And now we have a bunch of seniors in the pen who have different challenges. Older cows when they are in the cabin have more metabolic and fresh cow issues. So yes, every time we make another turn on that lactation, we need really good cow people on these farms to bring them around to that next lactation. Those are just some of the high-level dynamics there. Abbigail Prins: I think something else that we need to keep in consideration. So Corey mentioned avian being in the dairy cattle herd, which is how we’ve seen that large year-over-year increase in milk production. Something else that Cory and I have really been studying for the past year is milk component production. When you’re asking earlier about milk pricing, well, we have over 90% of milk priced on multiple component pricing. And so if we are growing butterfat and protein production, that’s, I think, the key to what is being reflected in milk checks that are sent back to the dairy farmer. We’ve seen in some of the early data that, of course, it makes sense intuitively that if you have the next generation of heifers coming on farm, they are supposed to have the best genetics of all of your animals. So now, as these animals start progressing through the herd, they become more of the sophomores, juniors, and seniors that Corey just mentioned, that very early on they have that really high component production, and that stays with them. And as we keep bringing on the next best set of genomics and genetics on the farm, you’re going to see that component production start to grow, too. And I think that at the end of the day, to bring it back to your original question, what happens to the milk price to be able to shift cow inventories? I don’t think we’re going to see a bunch of declines in component production because that’s such a large part of the milk check, but anything is possible. I do think the health challenges that Corey mentioned are very important when talking about an older herd. You do need to manage them differently. And at the end of the day, it’s all about strategy, and you’re not going to take care of a newborn calf the same way you take care of a first-lactation cow or an aged cow. It’s going to be very different for each of those groups. Ted Jacoby III: I didn’t think of it that way, that you’re going to get more and more specialized in terms of how do we take care of these older cows and in the short-term we’re chasing it, but in the medium-term, they’re going to figure out how to take care of those older cows and they’re probably going to be able to keep them healthier for longer and get more milk out of them as well. Josh White: Listening to the whole conversation around non-milk income on the farm drives an entirely different set of decision-making rationale on the farm. You have a changing farm dynamic with certainly many larger style operations that have resources that the smaller farms don’t. And I just wonder with this income that’s being generated, do you believe the dairymen today are investing in these types of things? Are they in front of it, or did Ted mention chasing a moment ago? Do we think that the dairymen are out there really working with their nutritionists and others to make sure that the aging herd can perform? I’ll just preface it by saying there are a lot of people out there who will talk about the output of an older cow. That could be wonderful. It can be a great component output, it can be high-volume output. They’re just more vulnerable to illness, injury, and other factors. So do you think people are investing in that? Corey Geiger: Well, I absolutely do. People have different skill sets. There are regions of the country that used to run on high turnover rates in dairy replacements because you know what? When they were 11, $1,200 a piece, that’s a whole different fundamental equation. Now, the USDA’s July 2025 number is $3,000 average for dairy replacement. Wisconsin’s topping the country at 3,200, and in auctions in Pennsylvania, Pipestone, Minnesota, and over in California, the top Holstein heifers are bringing four grand. Well, that’s a whole different proposition level, and how you care for them and keep them around is you’re going to put more money into that. So that’s one part of it. The neat thing about beef semen on dairy, though, is that everyone can play. Everyone can play in that market. $4 I think would be a little bit on the high side for me, but I’ve seen numbers certainly touch $3 and crawl over that number. Doesn’t matter. Five years ago, that number would’ve been under $1. None of us would be talking about it right now. So it’s a big time game changer. Reemphasize the value of the dairy replacement because spending time on beef, and we’ve made that proposition in April of 2019, you could have paid under 1,200 and got choice and privilege for any good dairy replacement out of anyone’s barn, and they would’ve sold every one of them to you. So if July that number’s at 3,000, that’s a 165% increase. And so if you’re planning an expansion or you want to help fill one of these plants that are coming online across the country, and you’re talking to your banker, that’s a bigger gulp of a number. So now you’re faced with, “I’m going to grow, and I know there are dairy farmers out there. I’m going to plan my dairy replacements for a three-year horizon because at that price point, I can’t run around and buy them all either, right?” Josh White: One thing that shocks us during every cycle, and this goes back before my time, and I think Ted will echo it through generations, is the resilience of the dairy event. We’ll put them through tough times, and the response on the farm tends to be much different from what we would think when trading the product or moving the products. I guess if I’m hearing this discussion correctly, they’ve only built more equity. They have the sensitivity to the milk price, although extremely important, and the number one thing is a little bit less than it was in prior years and generations. And as a result of that, it really feels like the U.S. is poised to continue growing milk continuously over the next several years. Corey Geiger: In the last five years, I’ve had a number of livestock groups call a dairy guy up and really want to understand this, and if that call had come in 10 years ago, I would’ve called it lunacy or heresy. But now people are really trying to wrap their heads around it because it’s kind of fun being a dairy farmer. Because you have these different options to make, and you can make more dairy replacements, and you’re going to do quite well on them, too. Part of it may be, “Hey, I don’t want to build another barn. Let’s make more beef from dairy calves. Hey, I’m going to grow. I can put up another barn and raise more heifers. Hey, I can call and get those shipped out somewhere.” So there are just so many options in a decision tree right now. It’s kind of fun to manage them. Mike Brown: All right, this is Mike Brown. Well, if you’re going to commit to growing a dairy, you’re committing to a long-term horizon because it’s a lot of investment. People are truly in it for the long haul and a lot of them, they’re greenfield, they’re really going for the long-term return. We’re increasing the cost of assets, which means that the commitment is bigger than ever going to reinvest to grow. You better be planning for a long-term horizon. Corey Geiger: Absolutely. If you’re going to build a new dairy today and you just look at what that cost was 12 to 18 months ago with inflation, we’ve seen double-digit increases in concrete, in wiring, in labor, in steel. We’ve had over 25 quarters of insurance increases. So all these little things add up and it affects not only dairy farmers, but dairy processors. If you are going to retool and revamp and build something for the next 10, 25 years or longer, it is a long-term play and it will impact how you approach this entire situation. Ted Jacoby III: Just doing the math in the back of my head, even if we’re up $3/cwt in terms of extra revenue, that’s not even showing up on the melt check. You have probably since 2019 an increased minimum of 30% of costs for a dairy farmer. That’s my guess. Plus you’re probably also selling fewer cows at the end of their second and third lactation. So the number of fully grown cows sales has gone down, so that’s a part of it. And even though your component prices are up, so maybe you’re getting a little bit more revenue on your milk check there in the last six years, I think most dairy farmers would tell you the break even price on the milk check is not the same as it was five years ago. It’s still gone up even with those other revenue streams. Corey Geiger: Correct. Everything’s shifted higher, exactly. Tristan Suellentrop: We mentioned that over the last 20 years there’s been a lot of variables influencing cow prices, and Abbi mentioned that aging farmers without a succession plan is one of those factors. I was wondering if you see them trending to follow a specific path such as selling their herd, or is it just kind of too varied to predict? Abbigail Prins: So I could speak a little bit more to this on the beef cow side rather than dairy, but I’m sure the similar concept applies that if you are an older individual, you’re looking to retire and you do not have the next generation to come up behind you. Well, why not get out while the market is high? I mean, it’s better than getting out when the market is at a rock bottom, right? So intuitively, that makes a little bit of sense. We’ve also seen where, I mean, this plays a little bit into the rebuild as well, that they’re not keeping extra heifers back. And I could say the same thing that dairy farmers are not going to expand if they do not have the capital to be able to invest in those animals or they have other debt that needs to be paid off. When we talk about the dairy industry or even just other sectors of agriculture, it is very common to have a diverse business that you are not only raising dairy cattle or you are not only raising beef cattle, you’re doing crops or you’re growing trees or you’re doing something else to diversify your business. We’ve seen how crop prices have fallen over the past couple of years that you have producers in the beef sector that are selling off extra calves because they are at record high prices, sell them off and help cover some of that loss on the crop side. That also plays into this a little bit. I would like to believe that happens on the dairy side too, that if you have other things that are taking precedence of what debt needs to be paid off first, where’s the money going to come from? And when we’re talking about diversification of income, I think the dairy industry has really been a beacon or a front-runner where you have milk sales, you have cull cow sales, you have beef on dairy calf sales, you have all of these other revenue generators besides just milk, and that’s helping spread risk across the business so that when volatile times hit, because it’s not an if, it’s a when, that you are better prepared for those situations. Corey Geiger: Costs have gone up over the last five-year horizon. But the other thing is milk coming off a U.S. dairy farmers has changed tremendously. If 90% of the milk in this country is priced on multiple component prices with 90% of that price fixed to butterfat and protein, farmers are shipping a lot more butterfat and protein and a lot less water. I had the opportunity to co-present with Jonathan Lamb on New York dairyman at the USDA Ag Outlook Forum, and he put data on the screen. This was a data set, same herds, same management. His fifth and later lactation cows were averaging a three six butterfat. This is a Holstein herd. His first and second lactation cows were averaging a 50, 50 versus 36. Ted Jacoby III: Wow. Corey Geiger: From protein. The young ones were averaging 36, and the older ones were averaging 32. Now, nobody sells percentages, but when you multiply that by pounds, that means that milk coming off of Jonathan’s farm and he’s really representative maybe on the higher side because he’s all in on genetics and genomics. But look how much more valuable his milk got per pound over that five years. And those who are being very aggressive in this category and aggressive in my mind means using the top end Holstein and Jersey Bulls are your favorite breed, getting heifer calves out of those best cows and for dairy replacements, and then looking at the bottom end of that bell-shaped curve and saying, “Hey, you guys don’t need to put a dairy replacement here. I’m going to harvest and send your calf to the second career right away at beef on dairy.” There is a lot of revenue to be made not only on the beef side of this, but raising the component level. Because consumers, when we work the export market, we’re largely not shipping fluid around. We’re putting solids out there and processors want solids. And this story has just begun. Ted Jacoby III: Corey, I couldn’t agree with you more. I think Mike and I have already started talking about having an episode here in the next month or two where we’re talking about that very theme. And even more specifically, over 50% of all the milk in this country goes into making cheese and the fat component is growing faster than the protein component. And cheese plants are starting to really struggle with that. And so we’re traders here, everything’s about supply and demand, and right now we’re seeing a drastic shift in the supply-demand balance of butterfat as we speak because of that change. I’m very curious to see how that all plays out in the next three to five years as that fat percentage continues to go up. And also how cheese plants deal with the surplus fat that’s coming at them, especially as it relates to protein, because there’s more fat out there than protein, and it’s creating a very fascinating dynamic in the cheese plant right now. Corey Geiger: And from a genetic standpoint, so now you’re going to talk geneticy, but there’s a 80% correlation. So if you raise butterfat, there’s 80% chance you’re going to raise protein and vice versa. So these two traits are hitched to one another. Now the difference though is we can do more things through feeding to raise butterfat levels, and right now the dairy farmer is receiving signals that butterfat’s worth more in protein, and that’s where the processors need to deal with it on the next end of it. I agree though that long-term, when you’re looking to make cheese, half the milk in this country goes into cheese. We do need to be very cognizant of that fat-to-protein ratio because it’ll have some dramatic impacts long-term. Ted Jacoby III: Yeah. Well, and the math is simple, if I’m a dairy farmer. Whether the butter price is $4 a pound or $2 a pound, the formula still comes to a very simple conclusion, produce more butterfat. Corey Geiger: Bingo. Mike Brown: And over-exaggerate a bit on the cheese side because you can’t get the revenue quickly from the whey cream that you’re going to get from double-A butter, which determines the regulated price. And that’s part of the challenge as well. Grade-A butter is not the only value of fat, but is the one that regulates price and that’s causing some of the difficulty. Ted Jacoby III: All right guys, Corey, Abbi, this was a fantastic conversation. I learned a lot. I have a feeling everybody else in this call learned a lot. Look forward to seeing you soon. Corey Geiger: Take care. Tristan Suellentrop: Take care. Thank you guys. Ted Jacoby III: Bye. 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 at jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check, is a production of T.C. Jacoby and Co..