An expensive game of musical chairs for milk The Milk Check

The T.C. Jacoby team got together to talk about a two-part phenomenon that we’re expecting to wrinkle the dairy markets over the course of the next year or two.







2023 through ’25, plant capacity expansions total 9% of all milk production. But heifers are short, milk production was flat in 2023 and we expect it to be flat (or close to it) in 2024. So who will be left out, short on milk? Or will dairies pull off a production miracle?







Director of Milk Marketing Greg Scheer, “Semi-retired member of the board” Don Street, Dairy Ingredients Vice President Josh White and Dairy Ingredients Sales Associate Tristan Suellentrop join Ted and his dad to speculate on how these issues will resolve over 2024 and 2025.







From high level discussions of price and premiums to granular conversation about regional dynamics and potential changes to the direction of milk flow in the U.S., the team covered a lot of ground in 20-ish minutes.







Give it a listen, and let us know what you think.























T3: Welcome everybody to this month's edition of The Milk Check. Today, I am joined by Greg Scheer, our director of milk marketing, Don Street, longtime dairy trader and industry veteran, Josh White, head of our whey and dairy ingredients group, my dad, another industry veteran, and then Tristan Suellentrop, who is part of Josh White's team and also part of our marketing.







So today we are going to try to answer a very interesting question, which is is the dairy industry about to embark on a very expensive game of musical chairs? Let me tell you what I'm thinking.







Two seemingly unrelated issues are starting to feed through the dairy industry. The first one is the fact that we've got a heifer supply shortage because since the pandemic, beef prices have been so strong that people have been breeding dairy cows to beef cows because the value of a beef calf has been a lot higher than the value of a dairy calf. This has created a heifer shortage where we just don't have enough heifers entering the milk supply right now, and it's going to be very, very difficult for the US dairy industry to expand milk production because we don't have the heifers to do so.







And think of it this way, if you make the decision today to breed to have a beef calf, you've got nine months of pregnancy, then you've got over two years of growth before that heifer can enter the milk supply, which means you have almost three years before you can change the dynamic that has already started. And everybody we're talking to today says dairy farmers, most of them, many of them are still breeding for beef calves and so this heifer supply shortage is not going away anytime soon. So that's one side of the coin.







On the other side of the coin, there is a lot of plant expansion going on right now. In fact so much that since the beginning of 2023 through 2025, that three year period, we are building enough additional plant capacity to equal about 9% of the total milk production in the United States. And given the fact that we're already done with 2023 and milk production was basically flat in 2023, it's hard for me to imagine, given the heifer shortage, that we're going to be able to increase milk production by 4.5% a year over the next two years. In fact, our experts, and we'll let them talk about it, are saying that we think '24 is going to be flat as well. So what's going to happen? All these new plants, how are we going to fill them? Where's the milk going to come from when we aren't going to have the additional cows to fill these plants?







I'll tell you what, Don, I'll start with you. What do you think is going to happen? How are we going to deal with this issue?