The Milk Check T.C. Jacoby & Co. - Dairy Traders

This is the first podcast episode in our quarterly Understanding Export series. Today's special guest is Fernando Anaya, Director General at DILAC. DILAC offers powdered dairy products and has a 27-year track record within the Mexican dairy industry. Our Jacoby team includes Ted Jacoby, President; Yara Morales, Director of Sales for Mexico and Latin America; and Diego Carvallo, Director of Dry Dairy Ingredient Trading at T.C. Jacoby and Company, Inc.







Today's episode discusses the Mexican consumer market for dairy products. Fernando shares his take on how drought, exchange rates, and political waves will affect Mexico's milk importers in 2024. How has the extreme drought in Mexico impacted domestic milk and cheese production and consumer demand?

















Inflation has increased dairy prices, but could a strong peso offset this challenge for Mexican importers?







The Mexican government, one of the largest Mexican milk powder importers, announced that it will not import any milk powder this year. How will this big player impact the Mexican milk import market?







Mexican presidential elections take place this summer. Is this likely to affect milk imports?









This plus what importers should know about changes in milk import procedures and Fernando's opinion on the most important factor for milk imports in Mexico—dive in with us on today's Milk Check.























T3: Welcome to this month's episode of The Milk Check. I'm Ted Jacoby, president of T.C. Jacoby & Company. Today, we are joined by Yara Morales, sales director for Mexico and Latin America; Diego Carvallo, dairy ingredient trading director; and special guest Fernando Anaya, director general for DLAC. DLAC is a very good customer of ours in Mexico, and we're excited to have him. Fernando, welcome, and thank you for joining us today.







Fernando Anaya: Ted, thanks for the invitation. I'm really glad to be with you and your team.







T3: This episode will be released in Spanish and English, the first in our Understanding Export series, which we will publish quarterly. Today, my first question, Fernando, to you, is when we think about the Mexican dairy market and how much dairy Mexico imports, what is the number one thing exporters to Mexico must understand about the Mexican consumer? Obviously, one of them is price, but beyond price, what's important to the consumer in Mexico?







Fernando: Okay. Well, Ted, I think that's a really good question. Well, just to have a rough number of the imports into Mexico, I will say that 15% of our needs have to be imported every year, and that really is not changing a lot. I think that's the same number from maybe ten years into now.







So, what do the exporters have to be aware of to be in the Mexican market? The number one for sure will be price, the second will be price, and the third will be price. So that's something that I guess you can agree on that. Of course, Mexican customers will always look to have a better price, but again, it's not the only thing they are looking for. There are some things that the exporter has to be aware of, and one of them will be regulations. For the past two or three years, Mexico has been entering into new regulations.







For example, for non-fat, there's this new regulation, the NOM-222, and I know there have been a lot of challenges for the exporters because they must be sure they will be ready to fulfill this regulation. It's not that hard, but again, that's something that the exporters, mainly in the US, had to make some changes in their COAs, registering some labs to fulfill these regulations. So again, that's something that the exporters into Mexico mus...

Este es el primer episodio de nuestro serie trimestral Entendiendo Exportaciones. El invitado especial de hoy es Fernando Anaya, Director General en DILAC. DILAC ofrece productos lácteos en polvo y tiene un historial de 27 años dentro de la industria láctea mexicana. Nuestro equipo de Jacoby incluye a Ted Jacoby, Presidente; Yara Morales, Directora de Ventas para México y América Latina; y Diego Carvallo, Director de Comercio de Ingredientes Lácteos en T.C. Jacoby and Company, Inc.







En el episodio de hoy se discute el mercado consumidor mexicano de productos lácteos. Fernando comparte su perspectiva sobre cómo la sequía, los tipos de cambio y las corrientes políticas afectarán a los importadores de leche en México en 2024.

















¿Cómo ha impactado la sequía extrema en México la producción nacional de leche y queso y la demanda del consumidor?







La inflación ha aumentado los precios lácteos, ¿pero podría un peso fuerte compensar este desafío para los importadores mexicanos? El gobierno mexicano, uno de los mayores importadores de leche en polvo de México, anunció que no importará leche en polvo este año. ¿Cómo afectará este gran jugador al mercado de importación de leche mexicana?







Las elecciones presidenciales mexicanas se llevarán a cabo este verano. ¿Es probable que esto afecte las importaciones de leche?









Además de lo anterior, lo que los importadores deben saber sobre los cambios en los procedimientos de importación de leche y la opinión de Fernando sobre el factor más importante para las importaciones de leche en México; sumérgete con nosotros en el Milk Check de hoy.

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?

T3, Josh and Tristan sat down with Jeroen Lemmens, who joined Cefetra Dairy in Singapore after spending multiple years trading dairy in China.







We’d spent months looking for the right person to talk to about China’s dairy buying habits past, present and future. The conversation gave some color to the disappearance of Chinese demand for American milk and some backbone to the hope that some of that demand will return in 2024.







Discussion ranged from trade agreements with New Zealand and the state of the hog market to domestic macroeconomic factors like China’s property market and industrial challenges.







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























Ted: Our special guest today is Jeroen Lemmens from Cefetra. Jeroen lives in Singapore and handles the Asian operations for Cefetra. Jeroen, why don't we start by telling us a little bit about yourself?







Jeroen: I'm glad to be here. Thank you for the invitation. My name is Jeroen Lemmens. I have now been in dairy for, I think, close to 24 years. I worked in various trading firms in Holland, dealing mostly in Middle East, Eastern Europe, and Russia.







Then, about seven years ago, I went to China. I was active in the China operation, importer-distributor dealing in dairy commodities, dealing with the biggest dairy companies in China, both in food and feed. I think that was a very valuable experience. China has a dynamic all of its own. I think that's also showing in the market at this moment.







Also, during the dark times, the last few years during COVID, that was actually a very trying time. Then, early this year, I decided to leave the company I was working for and join Cefetra. For Cefetra now, setting up the operation in Singapore for Asia with, again, also a focus on China again.







Ted: Wonderful. China for the United States is a key dairy trade partner. Really, so much of what happens in China, all of Southeast Asia tends to follow that lead. A lot of times the dynamics tend to be very similar.







It's especially an important trade partner for the US when it comes to nonfat dry milk, and whey powder and whey derivatives. There's been a lot of talk lately about ... The import volumes in China are dropping, and, of course, in the US, our questions are always, "What does that mean for dairy prices in the US?"







I want to start with a very simple question, which is, from a dairy perspective, what is going on in China? What is driving the decrease in imports of dairy products? Is it across the whole spectrum of dairy products, or is it just certain dairy products? What are your expectations, going forward?







Jeroen: I think at the moment there's a lot of different things happening at the same time, all affecting the markets. I think a lot of buyers actually have been expecting that, with the reopening of China after COVID, there would be a boom in consumption. People were trying to take positions to be ready for this.







Actually the import values this year so far have been bigger than last year, year to date, whereas the consumption dropped away by a variety of reasons. One is local consumption took a hit, especially the consumption of, let's say, higher grade, fresh products. That consumption reduced a lot, so that's less consumption, more imports. That's one reason early in the year.







Second one is that the local production of milk powder in China actually continues to be strong. It has been very, very strong last few years, but it's still growing. You have growing local raw milk availability coupled with reasonable stocks and lowered amount, and I think that's dragging the market down now to a ce...

Industry discussion surrounds a docket’s worth of changes to the Federal Milk Marketing Orders (FMMO), and we feel like it’s high time that we weighed in.







The USDA hearing on pricing formulas reconvened November 27, and the Jacoby team can’t help but feel that much of the hearings will amount to wasted or misplaced effort.







On this episode of The Milk Check, recorded in mid-November, a group from throughout the company discusses the potential changes that might help dairies with ongoing profitability problems. Then, they share their thoughts on the contents of the hearing so far.























T3: Hello everybody, and welcome to The Milk Check podcast. Today, we are going to tackle the famous, or maybe rather infamous, subject of federal order reform. I think you'll find listening to our discussion, that you'll find us a little bit more ambivalent about the process than maybe you'd expect from a group that is experts in marketing milk and the federal order system. But I'll let the conversation speak for itself, as we talk about the different things that the federal order hearing is trying to tackle and what we think should be done. And hopefully, it'll be helpful to everybody. I look forward to discussing it further, when they finally come out with their recommendations for how the federal order needs to be changed.







Dad, obviously, the federal order hearing is going on. And my suggestion is the reality is the path we're going down really isn't going to change a lot, and maybe that's what we should discuss is how some of these changes aren't going to have a big effect because the market is going to change to that. Things like, okay, they're going to change the make allowances. How much of an effect are changing the make allowances really going to have on the farmer's milk price?







Ted Jr: Zero.







T3: That's my point.







Ted Jr: The real issue is qualification and not the classified pricing system. Instead of having bottling plant A, for example, responsible for balancing, you now kick milk back to somebody else, usually a co-op who has a butter powder plant and you give them the responsibilities for balancing and then of course you pay for that with an overrated premium.







And the alternative would be, in my view at least, to weaken the minimum price requirements and do it in such a way, and I'm not sure you're going to get out of the box with something like this, but do it in such a way that you can transfer some of the balancing requirements back to the bottling plant so that they can run sales on milk so we can get some of our customers back. Something that promotes marketing and allows at least a portion of the balancing to be transferred to the plant, I think would be beneficial. Is that going to happen? No, they're not going to touch that With a 10-foot pole, the minimum price requirements are the key to qualification, and so that's where the thing meets the wall. In the meantime, our Class I sales continue to decline.







Anna: I think the biggest issue for me is that Class I is completely hamstrung by how everything is based off of their sales, their qualification, their everything else. It means that we've talked about them not being able to be innovative before, just how much it really sticks them in a certain spot where they can't do anything new. I don't really have a major problem with qualification. I think when you change those provisions, you end up devaluing the whole pool, which is kind of against the point, right? But my biggest issue is that we're basing all of this on Class I and quite frankly, they're not the most difficult customer anymore. Class III is in many cases way more difficult.

Our team is (mostly) bearish right now. We’re seeing signs that recent Class III price rises aren’t supported by demand, and the lack of Asian demand for powders continues.







In the August episode of The Milk Check, we discuss a recent LinkedIn post Ted made and whether there’s any strong case against bearishness when looking at dairy prices.







Butter continues to feel like an exception, and Joe Maixner wants to go “on the record” with a bullish outlook for the rest of the year but also into 2024. The international outlook, according to Diego Carvallo, couldn’t get much more bearish.























Ted: Welcome everybody to the August version of the Milk Check. Today we're going to have an old fashioned market discussion. We have with us, Josh White, Diego Carvallo, Joe Maxster, Jacob Menge, and I. So guys, I thought I'd start this conversation simply by mentioning the post that I just put on LinkedIn and you guys can tell me what you think of the post and if you think you agree with me or maybe where I'm wrong.







So it's the middle of August, it's hot outside, you're seeing 100 degree temperatures all over the country. The milk supply is tightening as a result, schools will start up soon. So demand has picked up a little bit. The cheese market has popped, improving class three prices. And most of our other markets are starting to look like the bottoms are in. Does that mean the remainder of the year will be positive for dairy farmers?







My hunch is that domestic demand will not be good enough to sustain decent milk prices. I see subtle signs everywhere. Very few of our domestic customers are giving us glowing sales reports. Most are using descriptions like average at best or slightly under budget. And while Mexico continues to be optimistic, our Asian customers are using words like depressing and even horrific to describe their sales.







So even though milk production may turn negative year over year in the coming months, I just don't see enough positive demand to be bullish milk prices between now and the first half of 2024. Guys, am I being too bearish? Josh, what do you think?







Josh: Just talking to different people I would echo what you mentioned. I had a few calls where people have said to date their overall demand has been lackluster. Their coverage going forward is taking into consideration some of that uncertainty about their demand, but we're starting to notice a few more transactional type, a little bit more transactional type business happening in the recent weeks that leads me to believe that the forward coverage isn't as strong as everyone thought from these type of companies.







Ted: So what you mean by that is maybe the spot purchasing needs of some of the big buyers out there domestically between now and the end of the year may actually be a little bit stronger than it has been so far?







Josh: I don't know that I'm predicting it, but I think there's a real opportunity for that.







Jacob: The thing that I think is a bit of a black box still to this conversation is US demand, and I think you mentioned it in your LinkedIn post, Ted, but I think that's really the key here is that US demand piece. Because if you look at equity markets, for example, the US seems to be the favored child in the world right now where our markets are humming along, we're having the soft landing. Meanwhile, Europe specifically the UK, seemed to be on the brink or in a recession. And so again, will this kind of fiscal strength we've seen on the equity sides carry over into our household purchasing and as such mean we have good demand in the US. I think it remains to be seen.







We've seen a number of arguments be made that the...