The Dryer’s Getting Robbed

Flush season is here. Protein solids are up. Global milk production is up.

So… Where’s all the skim milk powder?

In this episode of The Milk Check, host Ted Jacoby III and the Jacoby team sits down with Martijn Goedhart and Henk-Jan Bouwman of Cefetra Dairy for a European perspective on the volatility rippling through global dairy markets. We talk through how traders got caught short and why the spring flush might not loosen up the skim milk powder/nonfat dry milk market.

Plus, are we pricing U.S. out of the export market?

We’ll get you up to speed on:

• Why skim solids are being pulled away from dryers and into protein streams
• How hand-to-mouth buying turned into a short squeeze
• What record-high butter stocks in Europe mean for upside potential

Tune in to hear how Europe and the U.S. are navigating one of the most volatile stretches in recent memory. L

If you’re making sourcing or coverage decisions right now, don’t miss The Milk Check episode 94: The Dryer’s Getting Robbed.

Got questions?

We’d love to hear them. Submit below, and we might answer it on the show.

Ask The Milk Check

TMC-Intro-final

Ted Jacoby III: [00:00:00] Coming up on The Milk Check.

Martijn Goedhart: You have supply growing, and then you think, “Oh, we’re gonna build stocks.” But then, demand caught up. And quite viciously.

Ted Jacoby III: Welcome to the Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in.

This week we are excited to have two special guests, Martijnjn Goedhart and Henk-Jan Bouwman from Cefetra Dairy in the Netherlands.

We’ve been working closely with these guys for some time and we thought it would be a great idea given all the craziness and dairy markets going on in the United States, to ask them to give us a little bit of perspective on what’s going on in Europe so we can get a feel for how the global markets are affecting our U.S. dairy markets.

Martijn, Henk, thanks for joining us today.

Martijn Goedhart: Thanks for having us, Ted.

Henk-Jan Bouwman: Thank you, Ted.

Ted Jacoby III: I feel like what’s going on in nonfat right now more has an origin in the U.S., but I also noticed that you guys started to feel that maybe this market was gonna be a little bit shorter than we expected over in Europe before we realized it in the U.S.

[00:01:00] Tell us about the skim milk powder market in Europe and what’s been going on the last month.

Martijn Goedhart: In Europe, we’ve been overwhelmed by milk production growth since the second half of 2025, due to bluetongue, late calving, second peak, as some of us call it.

And that has resulted in good outputs, and that output needs to go to the commodities. So, we’ve seen butter stocks build up significantly, and everyone assumed that that would mean that the skimmed stocks were also building up because that’s basically the other product you’re gonna produce when you do butter, right?

A few things we, I think, overlooked is like the general protein trend in the world and the demand for protein, both on the whey side as well as on the milk side nowadays. So a lot of protein has ended up in other products than your typical skimmed nonfat production bucket.

Adding to that, Europe has been the most competitive source in the world market for a long time. Demand wasn’t great because buyers were buying hand-to-mouth because they would basically wait for that carry to come toward them and buy at the lowest price at the last moment. But [00:02:00] now we see that the exports out of Europe have been great.

And that’s been keeping the market clean. I think some traders speculated on lower prices and got caught short, basically needed to cover. And that’s where we are at now. And I think more than ever, if you look at NZX (New Zealand Exchange), this all started with a firmer GDT (Global Dairy Trade), with China stocking up a bit.

So, if you look at NZX, CME (Chicago Mercantile Exchange) and EEX (European Energy Exchange), those markets are starting to correlate better than they did before because everyone’s looking at the developments of the other exchanges and then draw their conclusions for their own home base. And yeah, that cocktail, together with some U.S. developments that we’re gonna dive into, has caused record-high volatility over the last few weeks.

Ted Jacoby III: So, Martijn, you’re telling a story that sounds very familiar ‘ cause that’s exactly what we’ve seen here in the U.S. We’re not making anywhere near as much nonfat dry milk as we expected because the protein demand is forcing those skim solids into other places. What are those other places in Europe?

Where is that protein being used and what is it being made into in Europe right now?

Martijn Goedhart: I think there’s two main [00:03:00] streams. Bear in mind that the milk pressure in Europe was so high that you need to burn milk, and the way to do that is to produce casein. So, I think casein production has increased by like double-digit numbers, that’s not because it was such a nice valorization, you can just dry more milk per hour.

And considering the liquid markets over the last few months, during our low season, liquid milk was trading way below the commodity equivalent, proving that there’s a surplus of liquid milk that can’t be processed by drying it or churning it. So, that’s one part. The other part is, it’s the same in the U.S.

We’ve been around here for a few days now, but in Europe, you see the same: everything is protein fortified, extra protein, in basically everything you can buy. So, a lot of protein that is processed in line before it even reaches the other class. So, like the dryers basically.

Ted Jacoby III: Martijn and Henk, do you guys think that the skim milk powder market in Europe has tightened up primarily because everybody who was living hand-to-mouth saw the market started going up, and they decided they wanted to buy more now because they wanted to get the product at a lower price before the price [00:04:00] went higher, and then they just started chasing the market?

Or do you think demand has shifted and there’s a true increase in the demand for the product?

Henk-Jan Bouwman: There’s two things to touch upon here, Ted. One is, you’re absolutely right: people were buying hand-to-mouth, and they were actually rewarded for doing that because everybody believed that the price of tomorrow was better than the price of today.

And for a fairly long period of time, they got rewarded for that. That also led to traders being short, as Martijn touched upon. From a demand perspective, yes, there’s actually quite some demand, and people also realize that they have to turn to Europe to find their cheapest skim. That also creates a bit of a demand pull towards European skim, which makes the price go up.

And we’ve seen that, in particular, in low heat in comparison to medium heat. But in general, export markets for us are pretty strong, and, I would say, pretty much all the demand ends in European skim milk powder of origins.

Josh White: Is anybody extending days in inventory? Do we think that there’s a short squeeze driving international clients to buy a couple extra weeks, a month, more than that of product?

The nature of your question, Ted, [00:05:00] is what’s caused us to tighten up on that product? Is it truly demand for nonfat dry milk, or is it just reduced production overall? And I think maybe it’s both in a way. On the one hand, Martijn mentioned that the catalyst of this was actually a GDT event where China stepped in and bought more. And I think that we’ve been talking about the disappearance of China as a structural buyer of milk powder for quite some time. But their stocks to use ratio has been reported to be fairly low, and maybe they felt it was time to extend some days of inventory.

At the same time, you evidenced what’s happening in the U.S., And Martijn alluded to it a little bit in Europe as well, that the pull for dairy protein in general is actually vacuuming some solids away from the dryer, and particularly the SMP or the nonfat dryer.

So, is it both? Are we seeing people look to build a little bit more safety stock at the same time that our production is down a bit because protein demand overall is robbing our supply.

Henk-Jan Bouwman: There’s a, there’s a couple of things to touch upon, Josh.

One is in this whole upward movement, there were quite some international buyers [00:06:00] who still had demand open, for instance, for Q2 and Q3, and decided to step in and said, “Hey, this is a moment to buy, to cover that demand, because I am anticipating an upward movement.” So, in that sense, I’m completely with you.

Producers did the same, as well. For them it was also attractive to lock some forward sales. And that has led to lesser availability of skim in EU. And that basically also caused the rally to continue.

Martijn Goedhart: I think the difference with the U.S., as I understand it, is we have never not been able to buy product during this whole volatility.

So, producers were always offering, customers would like step in, step out. If they really need it, they would book. They were also cautious. And we went up, then we went down, then we went up again. But in that down movement, customers were like, “Yeah, you see, so it’ll come off again.” So, that didn’t prompt them to build any length.

I think producers did fairly well in putting a fundament below their sales book for the flush that’s upcoming. Traders are holding a fair bit of cash product right now for the next three, four months. It’s not tight as [00:07:00] such, but you see that certain buyers need certain origins that are scarce.

So, it’s very much about the origin, the spec, and the product that you have, whether you can monetize on those higher prices.

Ted Jacoby III: It seems to me, just listening to you guys talk about Europe, that the U.S. and Europe are both experiencing a very similar phenomenon in our supply chain. Demand for protein is pulling skim solids away from the dryer, first and foremost, which means on a skim milk powder / nonfat dry milk supply-demand balance, you’re reducing the supply even though we are both experiencing pretty significant increases in milk production. The traditional math is: more milk means more skim milk powder. It didn’t happen this time around, and it caught people by surprise. The demand for protein in Europe, just like in the U.S., is exceptional right now.

But then that makes me ask the question: if we have less skim solids, in the form of skim milk powder and nonfat, in the global supply chain, is this increase in price directly proportional [00:08:00] to reduced supply, so we got more people buying because they want to get in the front of it.

So, you got this bubble. But you also have had this slow decrease in overall skim milk powder demand going on. Like a slow creep every year. I’m not sure if it’s about 1%, but we’ve all kind of felt it that the global demand for skim milk powder has been just slowly weakening, but this sudden supply crunch was a bigger issue than the slow decrease in demand, and it caused this price bubble that’s just gonna take some time to work itself out.

And if the protein continues to take the skim solids away from the dryers, it may be a really long time before it works itself out.

Martijn Goedhart: Q4 of global SMP export has been very strong, but Q3 and Q2 were relatively weak. I’d have to look at how the balance looks at the end of the year.

Also, the export figures have been more volatile than

Ted Jacoby III: Yeah.

Martijn Goedhart: Before. So, I think everyone thought like, “Okay, demand is sluggish. We have so much milk in the U.S. We have so much milk in Europe. [00:09:00] New Zealand’s season is looking good.” So, in your mind, you extrapolate that demand.

Then, you have supply growing, and then you think, “Oh, we’re gonna build stocks.” But then, demand caught up. And quite viciously. So, that’s the thing I think people underestimated. We’re in a situation where we don’t see any old stocks or inventories building up.

Josh White: So I wanna throw three thoughts out. On the first hand, we know our global milk supply is year over year up significantly.

Martijn Goedhart: Yeah.

Josh White: On a solids basis, protein and fat are up significantly. We’re talking about the overflow valve, the powder stocks not being very robust, and that on the end-user level, globally, people didn’t have a lot of additional days of inventory.

So, that would suggest on one hand, maybe we need all this milk. Maybe we need it. Demand for protein and other products is up enough that we need all this milk. But then on the other hand, I think there’s probably two things that we need to be careful that we don’t overreact to. There’s seasonality in our products. We know that the northern hemisphere heavy milk production season is upon us. We’ve [00:10:00] started in California. We’re gonna continue to see our daily milk volumes increase seasonally in the U.S. as we get into the second quarter. Another thing that I’m wondering being, you guys with more international trade experience coming out of Europe is: buying seasonality.

So, Ramadan every year moves up a little bit; Chinese New Year, there’s usually a surge leading up to it. And it’s gotten to the point where that was almost a collision with the traditional holiday season of December. Is it possible that we just robbed demand from the first quarter, and everyone tried to get in front of some of that demand in the late third and early fourth quarter, and that we’re about to go into a unique seasonal period where customers have now gotten scared.

They’ve extended a few days in inventory, the structural demand won’t be there at the same time that the northern hemisphere flush is upon us. I mean, is it possible that we were just short squeezed based on seasonal issues in the first quarter, and we’re gonna resolve that with plenty of product in the second quarter?

One final note I think that we [00:11:00] shouldn’t forget is that our year over year comparables are against a disease-infested 2024. We had bird flu in the U.S.; we had bluetongue to in Europe. How much are we actually over 2023 going into 2024.

Ted Jacoby III: On 2023 versus 2024, I think Europe, you guys were down like a half a percent to 1% in 24. Does that sound about right?

Martijn Goedhart: 23, 24 was pretty much flat.

Ted Jacoby III: Mm-hmm.

Martijn Goedhart: And 24, 25 we added like a hundred thousand metric tons. So, like, 6%, 7%. 24, 25.

Ted Jacoby III: So you guys had a couple of flat years, followed by a year where you added quite a bit.

Martijn Goedhart: Yeah.

Ted Jacoby III: Which actually is pretty similar to what happened in the U.S. Yes. We had some disease like avian flu , and bird flu hit California ,and we were down in some places and up in others, but overall we were flat. But the solids were up a little bit.

Martijn Goedhart: Yeah. Yeah.

Ted Jacoby III: While dairy prices were decent, I didn’t feel like we were facing a massive supply scarcity in those two flat years, which is one of the [00:12:00] things that has me very perplexed about what’s going on now. Because it’s one thing to say, Hey, there’s all this new demand for protein.

All the skim solids are going to protein, and that’s why there isn’t any skim milk powder in nonfat. Okay, let me phrase this a different way. That means that we are suddenly being faced with massive increases in demand for protein. The price of protein today is a lot higher than it was a year and a half ago when we were dealing with flat supply.

 So, why is protein demand so much higher now compared to a year ago? Is it completely and solely demand driven?

As amateur economists , like all traders are, that math doesn’t seem right.

Martijn Goedhart: Last year, we had significant competition among our export customers from Iran and Belarus, in terms of SMP. The Iran exports were surging. I think it was like 150,000 tons of skim, something like that, that suddenly shows up. Europe is doing about 700. So, that has an impact when you’re talking to [00:13:00] buyers. But that disappeared just as quickly as it appeared. Which yeah, that 150,000 tons, or whatever it was, it will turn back to the next cheapest origin, which was Europe.

So, demand didn’t grow, but shifted towards another origin being EU.

Henk-Jan Bouwman: Yeah, I think in general, overall competitiveness of EU skim milk powder is a lot better than last year, even in comparison to a bigger skim producing regions. As Martijnn touched upon, being based in the Middle East, I saw a lot of competition coming out of origins, which were a bit more nontraditional. Iran was one of them. What happened is their overall competitiveness finished really, really quickly due to a couple of things. One of them being disease. So, they had foot-and-mouth disease in Iran. Two, their overall ability to import a sufficient amount of feed, and three, their competitiveness due to a currency standpoint, which quickly changed.

That, indeed, meant that the material that was supplied by Iran is now being supplied by Europe.

Diego Carvallo: It’s a fascinating situation. Some of those [00:14:00] solids that are going into MPCs are definitely reducing the demand for skim, unless it’s coming from a different end-user application.

If we’re seeing the MPCs going into sports nutrition, it’s definitely new demand that is finding a new end-user. It’s a combination of a lot of the things that we have discussed in this call: the whole market being short and getting super used to being hand-to-mouth for years, where you could buy product cheaper a month from now, so, why would you buy it? Especially if you have high interest rates, right? So, that’s part of it. The other factor is definitely the whole market was shocked by the impact of the UF pull of the additional MPC production and the amount of solids that we’re not going into a dryer that everybody expected would go right.

Also a few additional manufacturing productions, a few key plants in the U.S., this is starting to look like more of a fundamental shift than a short squeeze.

[00:15:00] And three weeks ago, everybody was saying, “Yeah, short squeeze, it’s an amazing short squeeze. It’s gonna come down.” Right? And now that same rhetoric has been changing to, “Actually, this is not that much of a short squeeze, but it is more of a there are not that many solids.”

There’s a new big plant in Texas. There’s a new big plant in New York. There’s a lot of solids that are being pulled, and nobody was taking that into account. Everybody was expecting after the bird flu in California, we’re simply gonna go back to producing the same amount of nonfat that we were producing two years ago.

And if you look at the data, it’s not correct, you know,

Josh White: We also gotta give credit to substitution and other things. And what I mean by that is like calf milk replacer industry in the U.S. Historically, we’ll toggle for the cheapest protein between whey and milk powders.

For sure, we’re seeing that appetite pick up for nonfat dry milk right now. Whereas two years ago there was a lot of WPC 34 on the market. All of that’s gone [00:16:00] because of the whey movement. I think the utilization is shifting quite a bit. We’ve talked about where it’s more difficult to track where milk solids are being consumed into a lot of protein enhanced beverages and things along those lines.

That’s becoming more difficult. We’re saying demand’s not great globally, but if you pick up feed demand because they can’t buy the whey products they bought before, that is more demand for milk powder. And by far the cheapest dairy protein right now is nonfat dry milk.

The big question I have is seasonally in the second quarter, are we going to catch up? Are we gonna be able to catch up globally or not? I think the whole market’s really struggling to try to form an opinion on that.

Mostly because we can’t really measure and put a finger on just how much new protein-related demand there is in that difficult to measure space that I alluded to earlier.

Diego Carvallo: Particularly in the U.S. right? In Europe doesn’t seem like that situation is as strong as it is the U.S. It seems like in the U.S., you have all of these new [00:17:00] cheese plants and UF plants, Class I plants, et cetera. It seems like, at least in the U.S. that inventory building is gonna be more difficult than in other regions.

Josh White: And the European dryers are full right now, correct?

Martijn Goedhart: Yes.

Josh White: And the California dryers are full right now.

Midwest dryers are nowhere near full. The answer to that might be a little bit easier than we’re making this discussion. We’ve added a whole lot of cheese capacity. There’s plenty of milk, but a lot of it’s being processed into cheese.

Ted Jacoby III: Are there many new dairy plants of any kind in Europe right now?

Martijn Goedhart: Not coming online this flush as far as I know. Not surprisingly, but most of the investment obviously is in WPC and WPI, I think Friesland has a big plant coming up, but it’s 2027, am I right, Henk-Jan?

Henk-Jan Bouwman: Their latest expansion is 27. Yes.

Ted Jacoby III: So we’re not really seeing any milk solids going to new places in Europe. It’s all still within the traditional milk sheds going to the usual suspects.

Martijn Goedhart: Yeah.

Yeah.

Ted Jacoby III: Okay. Let’s switch topics to butter. The [00:18:00] U.S., a year ago, a year and a half ago, we were around $3 butter.

It came down into the 2s, $2.50ish, and then the bottom dropped out, and it went all the way down to, I think, $1.28 at one point in the U.S. Now it’s back up in the $1.70s. But Europe dropped even more from an even higher precipice. Where have we been over the last year and where’s the butter market now in Europe, and what’s it doing?

Martijn Goedhart: Yeah, well, butter was the main driver of the volatility that we see right now because €7 butter prices, the fed and the milk would already pay an above break-even price to farmers. And then your skim return is just bonus, right? Friesland just released their yearly report and they’ve been paying like, I think 56¢ on average, which is, well it’s a bit debatable, but I would say at least 16¢ above break-even.

And then they get even a bit more profit share. That has like sparked that extra milk output, because every liter you produce is making you money as a farmer. You wanna get your components up, you wanna squeeze the maximum out of the milk. That’s how we ended up in this situation and the vicious correction at the other end of it that [00:19:00] we’ve seen. We’ve seen inventories build up and anecdotally we’ll also hear that all the chilled storage is full.

That’s still the case. Those stocks haven’t disappeared. And also we’ve imported quite a bit when the spread with the U.S. and before New Zealand was significant enough to do so. That product is arriving now. And that adds to the supply pressure. However, that market has been stable for the last few months.

I would say it’s been volatile, but we’re at the same levels than one and a half, two months ago. So that also shows that price correction ultimately also triggers extra demand. It’s an elastic product, especially on the consumer side. However, it’s also capped in terms of upside because those stocks are there.

The liquid equivalent, cream, if you would buy cream today, you’d make it into butter. You’d be like at €3.30–€3. 40 cost price where the market is trading at €4.20–€4.30. So, there’s like a thousand euro.

Ted Jacoby III: So the multiples in cream are low.

Martijn Goedhart: It has been like this during our whole down season, which is very atypical. You could [00:20:00] argue that that multiple is only gonna weaken because milk starts flowing.

Ted Jacoby III: Mm-hmm.

Martijn Goedhart: The main discussion we have is like, is all that bearishness already priced in?

And have we hit the bottom? Have we hit a level at which people are happy to buy? Or is there more to come?

Ted Jacoby III: So you guys aren’t really seeing much upward-ness in the butter market in Europe right now?

Martijn Goedhart: No. No. If you look from a, let’s say, traditional supply and demand theory, we have record-high stocks and record-high stocks, they basically kill any prolonged upside to a market, I would say, until you work through it.

Ted Jacoby III: What about the cheese market in Europe? Is the cheese market high or low right now? And how’s it acting?

Martijn Goedhart: It’s surprisingly tight. You would think that especially over the past few years, quite some capacity has been added to the European landscape.

You would reckon that this extra milk would flow into the cheese plants, and you can’t find demand for it, so you’d have to move your cheese, and you’d see supply pressure from producers. But, the opposite is true actually. The cheese that’s supplied is very fresh. Within the range of what you can supply, it’s on the fresher side.

That [00:21:00] indicates that there are no older stocks or backlog in terms of supply. I think producers have done a good job in capturing those moments when they were competitive on the world market by getting to make cheese disappear out of Europe. And then the last few weeks there were some production disruptions, some factory outages, and that even caused a bit more tightness in the cheese market.

But it has stabilized ever since. It has been stable like butter. We’ve seen the bottom for now, and it went up a bit. The only thing is that in cheese there are no inventories. That makes you think that there’s more upside in cheese when milk growth starts to slow compared to butter because there’s no inventory holding it back.

Ted Jacoby III: Why isn’t there any inventory? Was Europe doing some really good exporting for a while?

Martijn Goedhart: Yeah, that’s the main reason. Big producers did big sales of gouda at some point or mozz when they were competitive, just to keep that supply chain clean.

Butter, you can freeze, carry if the market pays for it.

Ted Jacoby III: Mm-hmm.

Martijn Goedhart: Cheese, you can only do it on paper, but not in reality. You need to get rid of it.

Ted Jacoby III: Right.

Josh White: How far out do we think the [00:22:00] international cheese buyer is covered right now?

Because that was a big topic coming into the first quarter is how much of the cheese business, particularly in contestable markets, did Europe win away from the U.S. Ted correct me if I’m wrong, but our exports have been fine, haven’t they?

Ted Jacoby III: Our exports have been fine. That’s actually a good way to put it. We experienced a real nice pop in exports last year. I would say this year, second half of Q4 into Q1, we’ve experienced exports that were relatively similar to last year. Maybe a hair behind. And I think we’ll start seeing those numbers soon, but I wouldn’t be surprised that when we finally see January export numbers, we’re down like 5% versus last year, when last year was a really, really, really good number. I’d almost say down 5% is unexpectedly good relative to how good it was last year.

Martijn Goedhart: Josh, coming back to your coverage question, I think both our markets have seen massive carries right over the last few months. So, that’s not a very interesting structure for buyers to cover long. Our market was [00:23:00] trading like spot plus two months maximum. And producers would only make big sales if they have the product already, if they feel it already a little.

So, I would suggest that cheese buyers in Europe, as well as around the world, are relatively shortly covered, just the same as with nonfat.

Henk-Jan Bouwman: Yeah, I see the same in my export markets where basically all the inquiries we are getting for cheese, are relatively close to home, so maybe one maximum two months out from a shipment perspective.

Ted Jacoby III: Mm-hmm.

Josh White: So, Ted, are you interpreting this though, that the pressure’s gonna be on more so in the U.S. to win that business going into the second quarter? Based on what you just heard from our European friends? How are you digesting this discussion?

Ted Jacoby III: That’s a great question. I would say yes, but price action makes me wonder if the U.S. is trying to price itself out of this market.

Martijn Goedhart: Take cheddar for example. EU is about $300 per ton elevated over U.S. So, in certain applications, such as process cheese, I think, by default the U.S., will win that export business.

Ted Jacoby III: Even [00:24:00] at current futures prices for April and May of a $1.80?

Martijn Goedhart: Little bit of a different story. But that also depends on the outcome of European flush and the effect of that flush on cheddar pricing in Europe.

Ted Jacoby III: I would agree with you that about three weeks ago, we were cheaper, but after this rally, I don’t know if that’s still true.

Josh White: The point Ted’s driving home right now is the big carry in the Class III cheese markets in the U.S., you’re concern is pricing out the second quarter?

Ted Jacoby III: That’s exactly right. I’m concerned we’re in the middle of pricing ourselves out of the market.

Josh White: Are we putting ourselves in a spot where we’re the best priced cheese product. We know, out of the U.S., our daily milk volumes are gonna increase. We know that a lot of that milk’s gonna go into cheese.

We know that we’re gonna have to compete for cheese business. But even despite the fact that Europe’s relatively balanced, it feels like on cheese, are we putting ourselves in the global market in a position where Europe may win?

Martijn Goedhart: It’s gonna be a good fight, Josh.

 None of the origins can afford to lose a lot of export business over the flush. We need to get those volumes [00:25:00] moving. So, the products where we compete, we will compete.

Ted Jacoby III: Mm-hmm. And here’s what’s likely to happen. The U.S. having a little bit more mature and developed futures market means that as Europe goes out there and makes sure they get that business, the U.S. at some point will say, rather than going and exporting this cheese, I’m just gonna put it in a warehouse and hedge it out on the futures because there’s a carry in the futures market right now and I can make 10¢ just sitting on it for a month or two.

If we are gonna have to go head to head with Europe, to get that export business, we might not get as much as we did last year in the second quarter, because in the second quarter we really did get a lot of that cheese export business.

Martijn Goedhart: I agree. Only, to what extent can you actually carry it, physically, without refreshing, Ted? Because in Europe, that’s a bit of an issue.

Ted Jacoby III: In the U.S., there’s a number of strategies, a lot of it being rolling your inventory. So, you take your working inventory and you just start rolling it because I don’t think there’s a huge difference between 30-day-old cheddar and 90-day-old cheddar to a lot of people. There are strategies to [00:26:00] manage through higher inventory levels.

But at a certain point, even that working inventory carry, it starts to max out the warehouse, start to get full, and then they just gotta sell it.

Martijn Goedhart: Right.

Ted Jacoby III: What’s interesting is, I think that a lot of people went into 2026 thinking, “We’ve gotta make sure we’ve got a home for this cheese, because there’s a lot more cheese, and the U.S. market demand is not that great.

It’s very flat. And so, if we’re gonna make 4% or 5% more cheese, we’re just gonna have to export it.”

Martijn Goedhart: Yeah.

Ted Jacoby III: And so, they weren’t even looking at that equation. But I think what’s happened in the last month with this volatility in the market, it’s gonna have the inverse effect of getting everybody to actually sit on that cheese and keep it at home, and you’d think it would be the opposite, but no, I think we’re gonna end up bringing more cheese home and letting you win some of those battles.

Josh White: Ted, can we talk a minute about the milk production outlook in both regions and how that’s shifted a bit over the past month or two? I’ll start within the U.S. We generally believe that the margins have not been squeezed to a point where we’re gonna see a massive [00:27:00] supply response, a negative supply response in the U.S. for the foreseeable future.

Ted Jacoby III: And the bounce off The bottom, if anything, we may be back into a place where we’re encouraging more production.

Josh White: We’ve got some big comparables. There’s maybe some vulnerabilities in the market. We’ve obviously been surprised with disease and other things in the past, so it’s not imminent, of course, but the math says we should expect to continue to have a good amount of milk out of the U.S. going forward. How does that look out of Europe presently?

Martijn Goedhart: I would say almost copy paste Josh. Skimmed has bounced back. Butter has stabilized. Cheese has stabilized up to a point where if I look at the valorization of gouda at €3,300/MT you’re well above the 40¢/kg mark, which is basically the pain point for European farmers. And then I’m taking into account sweet whey. Not even WPC, right? So, if you have your WPC return, that’ll add another few cents at least. So yeah, we didn’t go deep enough to encourage any decline in milk production. The big question is how that’s gonna turn out this year: if we see the same curve or more [00:28:00] corrected to normal seasonality.

But from a margin perspective, I think, just like Ted said, we bounced off the bottom, and it didn’t hurt enough or long enough for anything structural to change in 2026.

Josh White: Hey, Martijn, would you add a little bit of color to what you just mentioned a moment ago?

The two flush situation coming from the bluetongue outbreak and issue.

Martijn Goedhart: In early 2025 in Europe, there were cases of bluetongue and that spread quite quickly across Western Europe. Spring started, early temperatures went up, and mosquitoes that spread the virus sting cows and then they get infected.

It has an effect on calving. A lot of calves are not born in the right way, and also the cows, the output goes down, and it’s harder to get them pregnant. So, some cows, they first have to get over the bluetongue disease before they would start to calve.

Some cows would calve late and that means that the milk also starts flowing late. Where you’d typically see a peak, in March, April, and then in eastern Europe, it’s a bit later, but now you’ve seen a similar peak because margins were good, but a longer [00:29:00] plateau at that level as well.

Those cows get dried off later as well. So, are they gonna calve later again or is it like maybe some like refreshing of cows in the system, and the new ones will be set up according to the normal season? It’s a big question mark. We don’t know. Even the co-ops are struggling with that.

Ted Jacoby III: So, you could have a flush that does not hit the peak it usually does, but it’s just longer.

Martijn Goedhart: Yeah. If it’s the same as last year, that’s what’s gonna happen. If we somehow move back to a normal seasonal pattern, then you’ll see a higher peak than last year, but a bigger decline in the second half of the year.

Josh White: If we’re talking about demand being okay and large amounts of milk in both Europe and the U.S. likely to continue, is there anywhere in the world that is suffering on their milk production?

Do any of us have an idea of what’s going on with milk production in China?

Martijn Goedhart: I think margins there are low. It’s been flat until now, the output, but it’s hard to get consistent numbers from China.

But margins are still very low. So, that would not incentivize [00:30:00] growth.

Ted Jacoby III: Milk production in China popped over a two year period, about five, six years ago. Then held steady for a couple of years, then it pulled back. Now, after that pullback, it’s flatlining again.

Josh White: What we’re basically concluding from this is that we’re gonna have a lot of milk still, but, with the exception of some risk maybe on the cheese side and maybe in the butter situation in Europe, the rest of the products don’t seem to have concerning inventory levels as of right now.

Ted Jacoby III: I would agree. I think there’s enough supply, but there seems to be surprisingly good demand, especially for protein.

All right guys, we’re wrapping up here. Lightning round question. Do you think what’s happening in the nonfat market is a result of increased demand or less supply?

Josh, you go first.

Josh White: I wanna say both. We’re experiencing more demand across the entire curve that is both pulling more nonfat supply and is also pulling away skim solids from the dryer.

Ted Jacoby III: Martijn?

Martijn Goedhart: I agree with Josh. Some of it is fundamental SMD but a big part of it is demand waiting too long and needing to deliver.

Ted Jacoby III: Henk?

Henk-Jan Bouwman: yeah, I’m with you [00:31:00] guys.

Ted Jacoby III: I do not want a chicken out like you and say both, so I’m trying to decide which one.

I think it’s very subtle, but this is actually demand driven more than supply driven.

Martijn Goedhart: Yeah.

Ted Jacoby III: Yeah.

All right guys. Thanks for joining us again. We really appreciate all the time that you guys spent tuning in and listening to us.

 Keep milking those cows, and we’ll keep showing up and telling you what we’re seeing out there.

Ted Jacoby III: We’ll be back in two weeks for a market update with the Jacoby team. Looking forward to seeing you then. All right guys. Hey, Martijn. Henk, thank you so much for joining us today. Really appreciate the conversation.

Martijn Goedhart: Thanks guys. Huge pleasure.

Henk-Jan Bouwman: Thank you very much.

Martijn Goedhart: Cheers.