Jacoby’s 75th Anniversary, Part 2: The Milkshed of the Globe

The Milk Check

Today, we share Part 2 of a special two-part episode celebrating TC Jacoby & Co’s 75th anniversary. We’ll talk about the milk industry from the ’90s to the dairy world of the future. Join Ted Jacoby II, Gus Jacoby, and Ted Jacoby III for the conclusion of our special 2-part episode as we discuss:

1. The first TC Jacoby & Co. cheese desk
2. Our projection for future growth in U.S. cheese exports
3. Our forecast for the future of the global dairy industry

We love the dairy industry and look forward to what the future will bring. So, raise your glass of milk, and let’s celebrate TC Jacoby’s 75 wonderful years in the U.S. dairy industry.

Intro audio (with music): Welcome to the Milk Check, a TC Jacoby & Co podcast where we share market insights and analysis with dairy farmers in mind.

Ted Jacoby III (T3): Hello, everyone, and welcome to The Milk Check. Today, we have a special edition of our monthly podcast because this year, 2024, TC Jacoby & Co celebrates 75 years of serving the dairy industry. In honor of this special anniversary, we are publishing a two-episode edition where, in the first part, my father, my brother Gus, and I discuss and – in my father’s case – tell tales of the first 50 years of our history. In part two, we share the more recent 25 years as well as our thoughts on what the future of the industry may hold. Welcome to part two.

There are a lot of other things that were going on in the 90s. I mean, that all started in the 90s. We started our office in Mexico in the 90s. When I came to work for TC Jacoby & Co. in 1996, I spent about four or five months in St. Louis, and then I moved down to Mexico to help us start that office. That was quite the experience, living for a year in Mexico. Ironically, trying to move cheese to Mexico led me back to the States, and starting to sell it in the States. Eventually, I worked with risk management.

At the time, we were moving nonfat dry milk into Mexico. We had a company in Mexico then, so we were TC Jacoby & Co in the U.S. selling to TC Jacoby & Co in Mexico. We were warehousing the product in a warehouse in Mexico, selling whey powder, nonfat dry milk, and various other powders to multiple distributors in the area, but then also moving a little bit of cheese. I had one of my suppliers, the cheddar cheese, cancel on me, and so I was calling around looking for cheddar cheese, and another supplier said, “Not only do I have a load of cheddar for you to ship to Mexico, but I also have about 50 other loads of cheese. You should call the guy who canceled on you and see if he needs any extra.”

Next thing I know, I’m moving more cheese back and forth in the U.S. than I’m moving to Mexico. And that was when I called you and said, “Dad, I think I’m going to move back to the States, and I’m going to start up a cheese desk.” That was in 1997, and that’s how we started trading cheese.

We went through the 50s, 60s, 70s, and 80s, and just about everything you, Uncle Bill, and Uncle Tom moved was mainly fluid. Then, in the 90s, we started moving powder. Bill, I think in the 80s, had begun moving powder and butter in the U.S.

Ted Jacoby II (T2): Billy used to move a lot of cream from California to the Midwest.

Gus Jacoby: Well, remember that was a big time for us because his development of California and the cost to move fluid product at that time was economically feasible in making cream and condensed products supplied by the California Central Valley and delivered on an annualized contractual basis to places as far as the upper Midwest and even into the Mideastern U.S. at time. Understanding the CDFA and the arbitrage between that and the Federal Orders was another thing we took advantage of for a few decades. So that was a big and successful time for us from a trading standpoint of fluid products.

T3: And then he was moving non-fat to many of the mozzarella guys in the Midwest when the mozzarella industry was in its infancy; that was when it was just the beginning of the pizza industry blowing up and becoming what it is today. These mozzarella manufacturers could extend their yields because of low moisture parts; skim mozzarella means less butter fat relative to protein. So, adding non-fat dry milk to the vat could increase the plant’s throughput. And then, on the butter side, he would ship bulk butter out of California and out of the Northwest into the Midwest. These butter manufacturers in the Midwest would microfix that bulk butter into quarters, one-pound solids, and even whipped butter. That was when we got into the dry side of the product, which was probably Bill, who started doing it more than anything else in the ‘80s.

In the 1990s, we expanded into Mexico, and that was when we started doing things internationally. In the late 1990s, I started trading cheese and shipping it to many converters.

Then, it was probably right around 1999 or 2000, right in there, when these converters started asking me if I could figure out a way to stabilize their cheese price because the restaurant chains they were selling the cheese to wanted to commit to one price for the year rather than have this cheese market move all over on them. That’s when we started our risk management department and we grew from there.

Meanwhile, in the early 90s, a 2,000-head dairy farm was a massive operation. By 2005, 2006, and 2007, these farms had grown to 5,000 or 8,000 heads.

Gus: Nowadays, 10,000, and I’ve heard permits of 25,000. Yep. Yeah, they’re getting much larger.

Our aptitude on the international scene since 95 grew quite a bit. We figured out loopholes. We moved UF milk under different tariff codes to Canada for a while. We added the Class VI and a Class VII pricing mechanism for handling their surplus solids to compete with what surplus we were putting up there, as well as our ability to develop markets in Southeast Asia and the Middle East – all over the last 20 years. We’ve come a long way.

T3: Yeah, we exported 3% of our milk solids in 1995, and this year, there’s an outside chance we export 20% of our milk solids, so that’s a lot of milk that now leaves the U.S. border and moves internationally.

Gus: You can make a case, Ted, considering the issues with Europe and a lack of development of other milk sheds worldwide, that the U.S. will probably increase that number from a trend standpoint over time. We have some hurdles at the moment with heifer supplies and so on, but I still think the opportunity will grow.

T3: Well, I’ll tell you, I was talking to someone just yesterday, and I was telling him how one of our biggest frustrations continues to be as a cheese exporter that we’re not in the market 12 months out of the year, that sometimes we have the best price. Sometimes Europe has the best price, sometimes Oceania has the best price, and our inability to consistently be the best price in the market makes it difficult to be a consistent exporter.

Their belief is that within the next five years, the U.S. will emerge as the dominant exporter of cheese in the world, and that we will be in that market 12 months a year because we’ll be in a position to have the most competitive price every day, every month of the year if we want it.

Gus: Yeah. I’m of the impression – I don’t know if it’s five years or six or seven – that that notion is accurate. I can’t see how that won’t materialize unless there’s some developing milk shed that we’re not aware of that will have significant supplies to export here at some point in the near term.

T3: No, I think you’re right.

T2: I think you’re right, too. I think you’ve got two years on the futures market. There’s no reason why. If you’ve got any liquidity, you can’t book cheese for at least a year or more at a flat price and hedge it out.

Speaker 2: I would agree.

Speaker 3: I don’t think you have the liquidity to do that right now, but I think it’s coming, too.

Speaker 2: I think it is. I believe that as the exports grow, the market will continue to develop, and even though it’s bound not just by export markets but domestic markets as well, stability becomes more and more critical over time.

Center Commercial: If you’re a dairy producer or a cooperative looking for a better market for your milk, or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby & Co. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support, and we’ll develop a sales or procurement strategy that meets all your targets. Please visit us online at www.jacoby.com to get started. Thanks for listening to The Milk Check. Back to the show.

T3: And that brings us to an exciting part of the conversation. We started talking about the 50s and 60s into the 70s and 80s, a lot of changes in the 90s into the early 2000s when the risk management markets continued to evolve. Our ability to export products continued to grow through the 2000s and the 2010s, and now we’re in mid-2024.

We talked a bit about some things we see as we look forward 10, 15, and 20 years and what the industry might be like at the 100th anniversary of TC Jacoby & Co. We just mentioned that we’re probably going to be in the export market 12 months a year, exporting cheese every day of the year versus in and out of the market like we are today. Our risk management tools will probably increase in liquidity as we use them more and more. What are some of the other things that Gus, Dad, you see?

Gus: We’ve discussed this already, touched on it, and even told a story about vertical integration concerning our partners in Select and their successes. Still, I don’t see that going away. I think vertical integration from larger producers is going to continue. We sat here and touched on the fact that we have heard in the industry that some folks have permits for 20, 25,000 cows. I don’t think many people would’ve thought that was a reasonable forecast just a decade and a half ago, but now it’s coming to fruition.

And with that kind of milk, you will certainly have the economies of scale to run successful milk processing plants. And then you add that you’ve already mentioned a demand for dairy solids in areas outside of the U.S. I think vertical integration will play a big part in our future. I think we’re going to see that more and more and more. We already talked about a group of larger producers, whether it be Fairlife, whether it be Hillmar, whether it be some other ventures that we’ve heard of more recently that have come of a, I can’t see why we’re not going to see that going forward from other larger guys. I firmly believe that this industry will be that much more than it is now, so ten years from now, and we’ve already seen quite a bit in the last 20 years.

T3: I agree with you Gus. I think vertical integration will continue to be a more significant part of our industry.

But I also believe that we’ll see this industry evolve in both directions. Vertical integration will probably continue to grow, especially at the commodity level. I think specialty dairy products, whether specialty cheese or other specialty dairy products at a smaller level, will continue to be one of our industry’s most critical growth spots.

I liken it to the craft beer industry or even the wine industry, where for every beer that becomes mass produced like a Bush and a Budweiser or a Miller, you’re going to get one or two more craft brewers that pop up that like to make it on a small scale. The same is true in cheese in the specialty cheese industry.

You’ve got different custom butter businesses, specialty butter industries, creams, and yogurts; all these other industries are getting more and more customized with unique products for the marketplace. And I think that will also continue to play a significant role in our industry.

Gus: I agree, with the transformation of marketing, social media, and the number of niche retail products we see succeeding today. I think dairy’s undoubtedly going to have that same maturation, right? They already have it to a degree, but I think there’s more potential for more, and we need it. We need that creativity. We need more niche products in our industry.

Fairlife’s success, for example, has been great for our industry as an avenue to show people that you can change packaging, find that health and wellness feature, and isolate protein. You can create a product that people will embrace, appreciate, and purchase. I would see more of those things happening as we move forward. For

T3: Sure. I agree. I see another thing happening as this industry continues to evolve. We haven’t spent much time talking about everything that’s happened in the whey industry in the last 30 years, and that’s also been a massive development.

Gus Good point.

T3: We went from the 1950s, when most cheese plants treated whey as a waste product, to the 1980s, when people started putting in dryers for their whey powder to feed it to the feed industry, to the late 90s.

I remember 1994 or 1993, I believe, was when Jerome Cheese was built out in Idaho, and they built the huge protein fractionation plant to make what we now call WPC 80 and ship it around the world. That fractionation is going to continue. Not only will we be able to separate hacine from whey proteins, but we will be able to take all the various whey proteins and splice out the lacto albumin; some of the other smaller chain proteins in whey, find particular uses for those. And I think that will extend beyond whey. I guess we’ll see more and more things that we can do with all of the milk proteins, the beta casine, the alpha casine, all of the different fatty acids in butter, the palmitic acid, stearic acid, the oleic acid, and start fractionating those if those have other uses, different functionalities at different melting points.

And then I think the hope for everybody in the dairy industry is to find better uses for the carbohydrates in milk because that’s the lowest value of the different components. And right now, Gus, how many calls a week do we field from people looking for better value out of the lactose in the carbohydrates because we just don’t have good value there?

Gus: Yeah, that’s certainly something that I think you can make a case about how the industry has changed so much as it relates to whey and, therefore, the value of other solids and how that’s changed quite a bit. And I think, as an industry, we’re still trying to figure that one out, to be frank. But you’re right; there’s some maturation there that I think we’ll see, which will also be helpful to the industry. Whey has come a long, long way in the last 25 years or so.

T3: No, absolutely.

So, we’ve just spent this time talking about our 75-year journey from when our grandfather started this company through the 35 years dad ran the business to where we’re at today and where we think this industry may be 25 years from now when TC Jacoby & Co celebrates our 100th anniversary.

I’d be remiss if I didn’t take this moment to remind all of our listeners that TC Jacoby & Co. is a family business. We’ve been around for 75 years, and frankly, we plan on being around for a lot more. We love working with everybody in this industry. We love this industry. We think the dairy industry just has a fantastic future. There’s so much more opportunity for this industry to continue to grow and thrive.

We look forward to working for everybody for a long, long time into the future. And at that, I think it’s time to wrap this up.

Exit Audio (with music): We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, email [e-mail]. Our theme music is composed and performed by Phil Keagy. The Milk Check is a production of TC Jacoby & Co.

T2: That was a traumatic experience.

T3: Well, when you’ve been around for 75 years, you’re not going to spend the whole time walking through a bed of roses.