Will the U.S. dairy market grow fast enough over the next five years to sustain 2% milk production? 

The Milk Check crew welcomes back directors Don Street and Diego Carvallo and Jacob Menge, our futures & options trader, to take on the million-dollar question.

The crew dives in deep on a vital point of growth for the industry — U.S. exports and their ability to keep up with foreign markets. The conversation jumpstarts with a discussion on the impact of Cooperatives Working Together (CWT) and its effect on buyers foreign and domestic. 

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Anna: Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind.

T3: Hi. This is Ted Jacoby. I’m joined as usual by my father and Anna Donze. Today, we’re also joined by Don Street and Diego Carvallo from our milk powder team, who handle the majority of the exports for T.C. Jacoby & Co., as well as Jacob Menge from our risk management team. We start by asking a question. Will U.S. dairy exports be able to grow fast enough over the next five years to sustain a two percent milk production increase?

T3: Because if we continue to grow milk production at a two percent clip, we’re going to have to continue to grow dairy exports at a record clip. Now, the truth is we never end up answering the question specifically, but we go off on a tangent that ends up in a very interesting place.

T3: As usual, this podcast is about food for thought. This is a question of whether or not the dairy industry in the United States is set up properly, structurally to encourage exports. I hope you enjoy this conversation as much as we did. Thanks.

T3: I was reading that Matt Gould’s Dairy Market Analyst over the weekend. And he mentions at the beginning of his write-up that the price of cheese is weak. One of the factors that is contributing to weak cheese prices is weak exports. Then later on in the letter, he mentions that June exports as a percentage of milk solids is 8.1%.

T3: I did some research, and in April and May, it was 8.9%. The Q2 average as a percentage of total milk production, we exported 18.6% of our milk solid, which I believe is a quarterly record for the largest percentage of milk solids we’ve ever exported. It just occurs to me that there’s a real disconnect right now between what we’re hearing in a lot of places that we need to export more in order to get prices up, and at the same time, we’re exporting more milk solids than we ever have.

T3: It would lead to a really good discussion about what’s really the issue here. If we’re going to continue to have 2% milk production growth, and milk production growth continues to look strong. It means we’re going to have to export a larger and larger percentage of the milk solids that we’re creating in this country.

T3: The question is the export market capable of handling and taking on that additional volume? I think even more importantly, is it capable of handling that additional volume at decent milk prices? Because it’s one thing to say, “Hey, we’re going to export a ton of milk powder, and we’re going to do it at a dollar a pound.”

T3: It’s another thing to do it at a price like a dollar 28-29, like we are today, or even a dollar 50. I don’t think most dairy farmers are really interested in massive increases in export volume, if we’re doing it at super low milk prices because that really doesn’t add to the profitability. We’ve invited Don Street, who’s the Head of our powder group who handles the majority of the exports for our company, as well as Diego Carvallo.

T3: Then also joining us today is Jacob Menge, who manages the risk management for the company and usually has some great insights on markets. As well as the usual suspects, myself, my dad, and Anna Donze. Well, why don’t we start there? Do you think CWT, Don, is inhibiting us from growing our dairy exports?

Don: I don’t think it helps because it limits who can sell. It also says to the buyer, “Well, I’ll let you know as soon as I get somebody else’s approval to make the transaction.” It takes away any desired focus on what the market price is. I’m not a fan of CWT at all. I think politically, that’s a difficult thing to say in this industry, but long-term, it just hurts far more than it helps.

T2: I’d like to interrogate that a little bit. Why do you think it hurts, Don?

Don: Well, because if we believe in markets and price discovery, it’s a distortion to the price discovery, and it’s a delay in confirming business. Markets should reflect demand. And so now you’ve put in another layer that’s something other than demand. It’s more wishful thinking to cloud up the price negotiation process.

T2: I see your point, and I think it’s a very good point. But right now, we’re sitting at 18%. That’s rough numbers of the industry’s disappearance in the export market. We’re lamenting the fact that production is up from an average of maybe a 1.5 to 1.9 per year, up to three and four in some months. Where would we go? What would happen if we didn’t have the export markets as part of our disappearance on the dairy industry?

T3: Go on, Don.

Don: I was just going to say that the CWT piece is first, cheese, second, butter and/or whole milk powder. The two biggest categories of exports, which are whey derivative and skim milk powder have no CWT at all, and they’re functioning just fine. So why would you add that to products that you really want to grow in the future?

Don: Butter aside, because we can talk about that later. If cheese exports are supposed to grow, and everybody wants them to, I still think it just clouds the whole transaction process and expectations of the buyer.

T2: Well, cheese makes up 50 plus percent of our production right now, our disappearance right now. In reality, we want cheese to grow, but why would CWT inhibit growth?

Don: Again, it’s a bit of a philosophical argument, but if you as a seller, can’t do farm business that always has to be conditioned on CWT approval. I think that undermines your credibility to start with, and it delays the process of getting the buyers to focus on what the market is because they can always say, “Let’s see if CWT is higher next week.” It’s not the market that’s driving their decision. It’s the third party’s willingness to sweeten the deal.

Jacob: Don, just adding onto that really quick, from just pure book economics perspective, it’s preventing the domestic market and the international market from reaching a true equilibrium. If that were to happen, and I think you could argue that it really wouldn’t happen with cheese, but if that were to happen, your transaction efficiency just goes to basically be perfectly efficient.

Jacob: That would be very good for doing export business. So really, the person that’s hurt, you could argue, by CWT is the domestic consumer because ultimately, their price is marginally higher because the exports are being subsidized. It just muddies the water. It makes it very simple supply and demand, a wrench thrown in there. I see what Don’s driving at.

T2: The export market is based on… Don, you correct me if I’m wrong, but it’s based basically on the futures market, at least it has been in the past for cheese, CWT notwithstanding. But there’s quite a juxtaposition in the futures market and the cash market. How does that square with the influence of CWT? And what would happen to the futures market if CWT were gone?

Don: My gut is that the sellers today are using the futures markets anyway because you can’t sell products for shipment tomorrow. It’s always one to two to three or four months into the future.

Don: The futures markets are still being used by the seller, but I think that the buyer has a disincentive or to even look at that or to understand why or where a product is being priced like it is or would be without CWT because it’s more of the game of… Oh, maybe CWT provides more funding per ton next week.

T3: Jacob, my question would be this. Do you think that the fact that we export most of our cheese based on a futures price in an environment like we have today, where there’s arbitrage in the market, do you think that ultimately helps the dairy farmer in terms of the class three milk price or hurt the dairy farmer? Is it maybe a different issue, short-term and long-term? Does my question make sense?

Jacob: Yeah, a bit. I don’t know that it actually matters, rather it’s just kind of a function of the market. Commodity markets as a whole tend to have carry in the market. If you have some extremes between the current cash market and nearby futures that might impact exports in the short-term.

Jacob: But in the long-term, I think the carry is just a function of commodity markets and probably doesn’t make much of an impact.

T3: Even though, for example, the current spot market, cash market for blocks is $66, and if we wanted to go out and try and export cheese in the fourth quarter, we’d pay more like a dollar 79, a dollar 80. In that 14 cents may price us out of sales in the future. What it does do is it basically builds inventory, which we got to eventually move anyway. It ultimately comes out in the wash.

Jacob: If you believe the market’s efficient which I think for this discussion where you’re saying the market’s efficient, yeah. It’s all going to clear eventually.

T3: Dad, does that make sense to you?

T2: Well, I’m digesting it. We have sufficient carry and cheese, but we don’t have it in powder. Jacob, is that a correct statement?

Jacob: Yeah, the carry is basically no carry powder. That is true.

T2: That has affected the margins on powder to the point where it’s extremely difficult to actually buy in an arbitrage of future powder sales. Compare that to cheese, where we actually do have a carry and arbitrage, where you can take a position and curb less risk, let’s say. It’s hard for me to see how the CWT program interferes with that mechanic.

T3: I would argue this. What the non-fat market is currently telling manufacturers is, “Go ahead and be aggressive in the future, three months from now, six months from now. Make deals today to export powder six months from now.” The market is basically telling the manufacturers, “Be aggressive, make the sale.”

T3: Simultaneously, the market is telling cheddar cheese manufacturers, “The domestic market may need this product in the future. You should put it in a warehouse and hedge it out and wait to see if you really need it in three to four months.” And CWT, which is available year-round. It’s basically how CWT affects the futures market and the cash market, I would argue, it’s baked in.

T3: It’s already a part of the math that ends up calculating price. I would say that the futures market and the relationship between the futures market and the cash market and cheese is telling the market, “Don’t be aggressive exporting that cheese.” Now you and I can sit here and argue whether we believe that’s what the market should be telling the manufacturers. Essentially, that’s what it is telling the manufacturers. Do I make sense?

T2: Sounds a little bit of hypothetical. I think we need to acknowledge that export sales are usually months in advance, and therefore the futures market is what prevails. You’re not going to get a CWT bonus on sales right now, November and December of this year.

T2: So really it has no bearing on it, and as Don said, “Well, that causes everybody to sit around and wait, figuring maybe it will if they wait long enough.” And to that extent, I have to agree with Don’s point that it muddies the water with regard to determination of what market values are.

Jacob: I don’t want to get too in the weeds on it, but we’re not really disagreeing here. We’re just taking it one step further. You’re saying the expert deals are based on the futures, let’s just say, in Q1 right now. But those futures in Q1, there is a relationship there with what the market is doing today. That’s where Ted’s going in saying, “If there’s an aggressive carry, it’s implying that the domestic market is expecting big demand in Q1.”

Jacob: If there’s a flat market, more or less, we’re seeing a non-fat. There’s a penny a month carry, probably break-even. It’s saying, “Hey, if you can get the export deal done, do it. We’re not going to pay you, we being the futures market, we’re not going to pay you enough to just sit on this inventory.” So we’re really not disagreeing. We’re just taking the concept one step further, I would say.

T3: To be clear, I also agree with Don. CWT makes the market inefficient. It ends up having an effect, in my opinion, on the arbitrage because the arbitrage, I’m not sure how big an effect, but it probably has an effect on how much higher futures markets are, four or five months forward relative to the cash price today because they know that export deals will be discounted by CWT.

Don: I think that’s probably right, Ted, even though my premise was more of clouding or distorting the view of the buyer in this whole transaction process. But I take your point as well.

T3: I think the U.S. dairy market is in a different position internationally when it comes to cheese than it is when it comes to non-fat dry milk or many of the whey products. Non-fat dry milk, we export over 50% of the powder we make. Our domestic price for powder is really fully dependent on what the international market for powder is.

T3: I think that’s true in non-fat. I think that’s true in whey. I think that’s true in lactose, whey permeate. All of those markets are very global. But with cheese, we still export only about five percent of all the cheese we make. Or you can have a hiccup in the domestic market, and the domestic market is such a larger percentage of the total market, that it’s been very difficult for cheese manufacturers to be present in the international market, 12 months a year.

T3: I actually think that is having a big effect on the volume of exports that we’re making in cheese. The thing that I’m really curious about, that I’m going to be watching closely in the next, let’s say, next five years, is if we continue to grow our milk supply and cheese productions up five percent year over year right now, if we continue to grow our cheese production the way we are, we’re going to have to export a lot more of that cheese.

T3: Will we be able to become a consistent exporter of cheese in the world market? Or will we continue to struggle there because it’s such a small percentage of our total production? I don’t know the answer to that.

Jacob: I think the answer is very different for two years versus five years, personally. Especially one to two years, there’s a lot of short-term headwinds that we need to get through.

T3: Like what, Jacob?

Jacob: I think top of everyone’s mind is just the logistics situation right now, and that is such a burden to the export market today.

T3: You think it’s safe to assume that this problem goes away in two years, or could this be a long-term problem?

Jacob: I think it goes away at some point, whether it be six months, two years, three years, whatever it is. As reading the logistics managers index, they take a survey of a lot of big name people in the logistics world. It basically measures whether just logistics, that’s kind of everything, inventory levels. This is not just for dairy or commodities.

Jacob: This is for across the economy. It measures inventory levels, inventory costs, warehouse utilization, everything. Everything I just mentioned, inventory levels, inventory costs, warehouse utilization, warehouse prices, and transportation prices, all of those are growing. They’re increasing. So the costs for warehousing are increasing. The inventory levels are increasing. The only thing on the list that’s contracting is transportation capacity and warehouse capacity.

Jacob: Those things are all pressures. Everything on this list is pushing logistics cost higher. Now at some point, and I guess I’ll take one step back, they measure aggregate capacity and aggregate price. The thing of note on this is that the aggregate price for everything that’s storage and transportation is going up, and it’s about 175% of where it was a year ago.

Jacob: Meanwhile, aggregate capacity has stayed steady. It’s almost exactly where it was back in September of last year, and it’s slightly lower than it was two years ago. This is to say the price has, let’s just call it doubled. Capacity has stayed the same. What do we have? We’ve got a squeeze on logistics where there’s a ton of demand, not a ton of supply, so we’ve got the price going up.

Jacob: Now that aggregate capacity hasn’t moved. It hasn’t moved because it just takes a while to spin that kind of thing up. It takes a while to build new warehouse. It takes a while to build new containers. It takes a while to build all this stuff. That is in the works. How long it takes for that stuff to come in line. I don’t know. Your guess is probably as good as mine. I don’t think that stuff takes five years. I think that’s more of a 12 month horizon.

Diego: I would agree with what you just said, Jacob. In other industries, for example, in bulk freight, when you have a squeeze and you don’t have enough providers, enough vessels, and the rate costs go higher. It takes five, four years in order to build more vessels and to balance supply and demand.

Diego: In this case, many of the problems that we’re seeing in supply chain are things that can be solved in less than four or five years. Building new containers, improving the terminal logistics and other stuffs that are key to solve this problem can be solved easily or at least in less than four years.

Diego: I think this type of problem should be coming to an end next year. Going back to what you were saying that at the beginning, as you asked me, your production continues growing. I think if the milk production continues going higher, the U.S. market is going to need to start exporting more product.

Diego: I would estimate that the plans are going to start being built more towards exports, making U.S. products more competitive abroad. That’s going to be a requirement, our required outlet for choose production.

T2: Let me come into this conundrum from a little different perspective. Is it fair to say that most of the exports that we have are bulk commodity dairy products? We export cheese, powder, whole milk powder in bulk. We don’t really export. I don’t believe branded products as such to any great extent.

T2: I guess we do somewhat, but not to the extent that we import random cheese products and butter products and so on from on the short, but different countries. One of the effects of our CWT program is a legalized version of dumping, where it’s not being done by the state necessarily it’s being done by private entities because National Milk who runs the CWT program, basically is in a position to affect market balancing by doing, in affect a dumping program.

T2: Now, we don’t have the brand that Fonterra has, for example, or some of the European cooperative chance or proprietaries have. Maybe the disconnect that we’re seeing here is to a large extent due to that. We’re not really looking to export branded products or establish permanent markets in foreign countries. We’re basically approaching the problem on a short-term basis by getting rid of skim milk solids and whole milk powder and bulk cheese and so on. Is that angle of attack worthy of note, or am I looking at it wrong?

Don: I think a lot of what you said that is correct, but also Fonterra and New Zealand, Europe, a lot of the exports, it’s more of a balanced blend of exports between branded products, specked in products, even if they’re bulk and then slowly your more general bulk category.

Don: The U.S., certainly, on the powder space has tried to get into more of the spec-ed in product, meaning that it’s a multinational approved spec, so that they come back and buy it quarter after quarter, but there’s still a lot of, if you will, general bulk spec product that has to get moved as well.

T2: I guess what I’m searching far in this whole thing is consistent business. We have on the grocery store shelter in the U.S. We have products of European origin, which are continuously represented. Do we have our products in other countries, particularly Europe, any other country where our retail products are represented?

T3: I would say, we’re not doing as good a job marketing branded U.S. dairy products into retail or restaurant entities internationally. Our commodity-level brands, ingredients that have a brand identity, if you will. We probably do a decent job with that, companies like DairyAmerica, probably being at the foremost, because there’s so much DairyAmerica powder exported worldwide, but there’s other brands as well that carry some weight in the ingredient markets around the world.

T3: I think you’re right, dad. I think Europe has done a much better job than the U.S. in marketing and selling internationally high-value-added dairy products. To me, the bigger question is the Fonterra brand in the ingredient space still carries more weight than most American ingredient brands, the ingredient brands. The argument I would make that step one would be, how can we continue to cut into the Fonterra market share?

T3: How can we get to the point where our dairy products are priced at a level equal, if not greater for similar products in Fonterra. That’s where I get the feeling that we’ve failed a little bit.

Don: Today the measure isn’t higher than Fonterra on a price point, but more equal to Fonterra.

T3: I will also say that I think you need to have an honest discussion about whether it’s fun Tara, out of New Zealand, or it’s a couple of the really big European cooperatives like Friesland campaigner or Arla who have the ability to internally within their organizations subsidize their exports to a certain extent, but they also have built those brand identities in a way where those are the brands that the U.S. is competing against, and we have trouble competing with them.

T3: I would say that in many cases and all three of those companies, our biggest struggle, how do I put this price? Isn’t the real issue it’s consistent supply. Our price tends to be so volatile in the U.S. that we aren’t always competitive in the world marketplace. We tend to price ourselves in and out of the world marketplace in a way that makes it difficult for us to be successful.

T2: Which I might point out goes back to Don’s point, that CWT is part of that problem. In that it distorts the marketplace price and probably in effect, the price is more volatile rather than less, which then taking it one step further affects our ability to market branded products on the grocery store shelves in other countries.

T3: I agree. Here’s the billion-dollar question for the U.S. dairy industry, but I don’t think anybody has an answer for. How do you fix it? How do you put the U.S. dairy industry in a position to be competitive with those global players?

Don: It’s really difficult to play catch up. When you look at some of the Friesland companies that were around before internationally, before World War Two, and certainly a lot of investment immediately after World War Two. Take Greece, that was 75 years ago.

Jacob: FrieslandCampina has international subsidiaries, marketing local dairy products throughout Asia and Africa, correct?

Don: Correct. And South America

T3: And South America. One of their big advantages is their marketing, the companies they own and marketing through into the domestic marketplace of all of these countries, through their own entities. Something in the U.S. doesn’t really have.

T2: Correct. We don’t have any structure at this point to do that.

T3: It’s interesting I’m thinking of the U.S. dairy companies that are currently expanding internationally. The two that quickly came to mind, they’re big U.S. dairy companies, but they’re actually not owned in the U.S., their headquarters are in other countries. There’s no U.S.-based country that’s doing that.

Don: Even there, Ted, if I’m thinking of the two companies that might be to the north of the U.S. Part of that strategy is not marketing, it’s production as well.

T3: You’re right. You’re absolutely right. Don, let me ask you this. I don’t know enough about what FrieslandCampina’s strategy was 75 years ago, but when they expanded into those markets, was it production-oriented as well? Or was it purely market-driven?

Don: That was market-driven. Those were clearly milk deficit countries, and they were filling retail demand need with imported solids and local manufacturing.

T3: I think we’re asking ourselves an important question that we don’t have a good answer for, for the U.S. dairy industry. But that on a certain level is what we’re competing against when we’re trying to increase our market share of global trade, whether it’s Fonterra, FrieslandCampina some of the Canadian dairy companies, others.

T3: They’ve actually invested heavily in those foreign countries, which gives them better access than the U.S. does. Probably also ultimately, gives them the opportunity to get better prices.

T2: I need to point out that 30-40 years ago, basically craft was leading the marketing effort for cheese in the United States and worldwide. They’re basically no longer with us. They’re a minor factor in the market.

T3: I’d put it this way, dad. They’re owned by a French company now.

T2: That maybe, tells the story even more, that we don’t really have the ownership and proprietary factors in the industry today that would take those steps to set up shop and market products in foreign lands. I think what the U.S. deck is doing is certainly laudable and has been very beneficial for the U.S. dairy industry.

T2: I don’t think that they’ve been particularly successful in setting up retail distribution in various countries that they’ve been, am I wrong? I don’t think so. I think mostly it’s been setting up mechanics for dealing in basically bulk commodities when they’re available.

T3: I will say this dad in the U.S. defense, that’s not their job. They do invest marketing dollars in many of those countries to try and expand, basically did Made in the USA brand if you will. There is a lot of investment in marketing and marketing support in those countries, but that is a very big difference between investing in the quote-unquote U.S. brand, made in the USA brand versus companies with a major presence in those foreign countries, investing in a nationwide identification of that dairy brand.

T3: Think of Dannon in the U.S. which is a French yogurt company that came to the U.S. to develop the no-name in US Dannon brand and now it’s well-known a yogurt brand. I don’t think there’s any U.S. dairy companies that are doing that to the extent that many foreign dairy companies are doing.

T3: When you think about it in terms of the big brands out of Europe, some of them are family-owned or publicly traded. Some of them are cooperatives. There are farmer-owned cooperatives. I can think of three right off the top of my head in Europe that have made major investments, whether it’s in the U.S. or in Asia or other parts of the world to expand their global presence.

T3: There are not really any U.S. dairy cooperatives that have made the same kind of international investment. Fonterra’s a co-op, it’s done the same thing, making an international investment. Yet there aren’t any co-ops in the U.S. leading that charge. Of course, now we can circle back to the age-old argument that we tend to always default to, which is the federal order in the way it’s structured may have something to do with that.

T3: I think that’s a key component, but one of the things that’s holding U.S. dairy exports back. I think it’s going to reach a critical point here in the next five years, because I think if we keep expanding our milk production, we’re going to need to keep expanding our exports, especially as a percentage of total milk production. I don’t know if we’re going to be able to do that at prices that dairy farmers in the U.S. would find acceptable

T2: The current structure doesn’t support an international marketing environment. I mean it this way, I don’t think the federal order stands in the way of international marketing. I think that Capper–Volstead probably stands in the way more. 95% of our milk now is cooperatives.

T2: There’s really nothing wrong with that, except that when it comes time to set up a marketing organization internationally, you go to a vote of the dairy farmers. Now they’re looking at setting up a cost structure five or 10 years down the road. What group of dairy farmers in the United States is going to embrace that kind of vision today.

T3: Especially when their alternative is to build a cheese plant or a powder plant that is, I’m not going to call it risk-free, but it is at a much lower level of risks than making an international investment because of the make allowances embedded within the class-three price in the class-four price, you can invest in a powder plant or a cheese plant, and on a certain level, be guaranteed a certain return.

T3: Whereas you do something in China or in Japan, or you make up the country. That is an exponential higher level of risk. I’m going to argue that the reason the Europeans have been successful is that ultimately they had no choice. They had no alternative that was any better. They didn’t have a federal order system that was protecting them. They had more milk coming out of them.

T3: They had the common agricultural program that was on a certain level, subsidizing milk supply and protecting prices. They knew they had to find a home for their milk. They knew they weren’t going to find it in their backyard. They were even going to have to tell dairy farmers to stop producing milk, or they were going to have to find a new home for that milk somewhere else in the world. They had no choice.

T3: That’s why they made that leap of faith. I think the federal order system continues to give co-ops in the U.S. a safer alternative. I’m not going to call it a better alternative, but I’m going to say it’s a safer alternative.

Don: Look at the last big cheese plant in the U.S., in the Midwest. The second one in sort of the South-Midwest, announced and on the books, those are not export position plants, are they?

T2: No, they’re not. And they’re not manufacturing a retail product.

Don: No, it’s very much a bulk product for further processing, cut and wrap shredding final retail presentation.

Jacob: Ted, I guess I’ll ask when we started all this, you’d ask what, what exports are going to do? But in the foreseeable future here, what do you think the export landscape looks like five years from now?

T3: Unfortunately, I don’t think it looks much different than it does today. I don’t think we have the infrastructure in place to make a really successful leap into a better value-added presence, internationally.

T3: We may be able to export more value-added whey derivatives, but other than that, we’re still in a situation where the U.S. industry and the way that it is structured, incentivizes us to make commodity dairy products that I should define as commodities in the U.S. market rather than make investments in figuring out how to clear dairy products internationally. I think that ultimately is what’s holding the U.S. dairy industry back.

T3: I don’t think anybody is investing in a way that’s going to shift that. That concerns me. I’m hoping that I start hearing more conversations from companies about how they can build manufacturing specifically for export, but as long as the U.S. pricing system to dairy farmers doesn’t incentivize that, I struggle to see where it’s going to happen. Does anybody have an opposing viewpoint?

Don: On the assumption that in a post-COVID world, we’re probably looking at a lower population growth rate. Will that not ultimately force the industry to figure out how to do this? Because when demand domestically would grow one and a half, 2% a year, that was sort of the bread and butter.

T3: What I’m going to argue done is this, and I’m going to say this, and I’m going to hope I’m wrong. I think the way the U.S. dairy industry is structured. I think what we ultimately will incentivize is a reduction in milk production rather than an investment in dairy exports, because it’s going to be an issue of price and only price.

T2: I don’t know whether I want to agree with that or not, but I would observe that structurally, we do have cooperatives in the United States that do a very good job of marketing. I’ll take the liberty of mentioning people like Tillamook and Cabot and in fresh products people like Pray Farms who are getting into more of our products, our Jesus.

T2: But these people are very minor entities in our industry who have basically set an example for what, 90%, 80% of the rest of the industry who are strictly enamored with producing industrial products for further processing. The people that are going to have to go to the international market are the cooperatives that are producing retail products or proprietaries that are producing retail products.

T2: Those that are only producing milk products for further processing are stuck where exactly Ted says they are. They’re not going to go anywhere unless they succeed and giving away these products through subsidies into the international market, which in my view is strictly a stop-gap solution. In the long term, I don’t think that’s going to play.

T3: Don, Jacob, Diego. Thanks a lot for joining us today. I thought that was really helpful. I thought this ended up being a really good discussion.

Don: Glad to be a part of it. Thanks, Ted.