Why Dairy Futures Seem Irrational

Dairy futures have been anything but calm. In just three weeks, prices across Class III, Class IV, cheese, butter and nonfat have surged, then whipped back and forth enough to exhaust even full-time market watchers.

In this episode of The Milk Check, Ted Jacoby and the T.C. Jacoby & Co. team break down why dairy futures can look irrational, even when the underlying fundamentals haven’t changed much.

What’s driving the chaos (beyond fundamentals)

Short squeezes 101: how a crowded short can turn into a domino effect

Flow first, narrative second: why the buying often hits before the story shows up

Realized vs. implied volatility: what the market did vs. what the options market is pricing in

Why nonfat may be the center of the storm: the team debates whether this is a true regime change

Why butter and cheese moved too: how spread relationships and algorithmic trading can drag correlated dairy contracts higher

Spot market feedback loops: how NDPSR-linked spot markets can amplify futures moves (tail-wagging-the-dog dynamics).

What usually happens next: why squeezes rarely park at the top

Plus: stick around for a director’s cut featuring the unedited, behind-the-scenes debate the team usually leaves on the cutting room floor.

Got questions?

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

Ask The Milk Check

Ted Jacoby III: [00:00:00] It has been wild and crazy every day for the last three weeks.

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.

We've got a special treat for you this week. We're gonna drop the director's cut of this podcast where we include some of the conversations that usually get edited out: how we debate internally about some of these market dynamics. So, stay tuned after the end of the podcast and listen to the off-takes.

My name is Ted Jacoby, CEO of T.C. Jacoby & Co., and joining me today is Jacob Menge, our Vice President of Risk Management and Trading Strategy, Josh White, our Vice President of Dairy Ingredients, and Joe Maixner, our Director of Sales. We are in week three of a very high level of volatility in the dairy markets.

We've had a very interesting last few weeks. It's February 9th, and since January 15th, our Class III March futures are up 18%. Our [00:01:00] March cheese futures are up over 15%. Butter futures are up over 26%. nonfat futures up 37% and Class IV milk futures up 36%. These markets have not gone up in a straight line.

There's been a massive amount of volatility, a lot of green, a lot of red, and then a lot of green, and then a lot of red again, enough to make all of us who talk these markets on a daily and an hourly basis to be flat out exhausted. The question becomes, what's causing this level of volatility?

We are gonna talk a little bit about market psychology. Why can markets do what they've done in the last three weeks, and why our actual fundamental market analysis hasn't really changed that much.

To quote the famous British economist, John Maynard Keynes, "Markets can remain irrational far longer than you and I can remain solvent." And I'll tell you that the last three weeks reminded me repeatedly of that phrase. It serves as a warning against over leveraging or trying to fight the tape, trading against trends, suggesting that just because you are right about a trend's [00:02:00] long-term direction, it's useless if you run out of capital.

Ted Jacoby III: And I have a feeling that based on what we've been experiencing lately, there's probably a few people out there that exactly that happened to. It has been wild and crazy every day for the last three weeks. Jake, why do markets do this?

Jacob Menge: You threw out your little soundbite anecdotes.

We will pull out some more of 'em during those podcasts, I'm sure, because those are all written by people that have been burned by short squeezes like we're see