The Nonfat Short Squeeze

Nonfat prices have moved sharply higher in recent weeks. But the rally isn't being driven by a sudden surge in demand. It's being driven by a breakdown in where milk is actually flowing.

In this episode of The Milk Check, Ted Jacoby III and the Jacoby team unpack insights coming out of the IDFA Dairy Forum in Palm Springs and explain why nonfat prices have surged nearly 25 cents in just weeks, even as milk production remains strong.

The issue isn't price resistance. It's availability.

Milk that the market expected to move into dryers is instead being diverted into cheese plants, ultra-filtration, whey proteins and other higher-value protein streams. As a result, powder supply is far tighter than headline production numbers suggest.

Layer in heavy short positioning, processing disruptions, and new offtake agreements, and the market begins to resemble a classic short squeeze.

In this conversation, the team breaks down what's actually driving NDFM and why higher prices haven't unlocked new supply. We cover:

How protein economics are pulling milk away from powder

Why rising milk production hasn't translated into greater availability

Key structural differences between the U.S., Europe, and New Zealand

Where the market may find its next equilibrium, and what could disrupt it

If you're relying on historical assumptions about nonfat availability, this episode explains why those assumptions may no longer hold.

Listen to The Milk Check to understand what the evolving nonfat landscape means for pricing risk, exports and coverage decisions ahead. Available below or on Spotify, Apple Podcasts, Amazon Podcasts or YouTube.

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Ask The Milk Check

Jacob Menge: [00:00:00] There are just so many of these long-held assumptions, things that people who have been in the industry a while probably have, like, "Well, my gut tells me this." Question your gut.

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.

It is January 30th. We've all just got back from the Dairy Forum in Palm Springs, where it was a hell of a lot warmer than it is here in frigid St. Louis, Missouri. Joining me today is Diego Carvallo, the head of our international sales team and our head non -fat dry milk trader. We have Josh White, head of our dairy ingredients group, Jacob Menge, our VP of risk Management and Trading Strategy, and Mike Brown, VP of Jacoby Dairy Market Intelligence.

Guys, welcome.

What did we learn in Palm Springs? I think the biggest thing that came out of our visit and running into everybody at the Dairy Forum is that nonfat dry milk and skim milk powder really is tight.

We have a short squeeze going on in the nonfat dry milk [00:01:00] market. The market is up. I think it's 25 cents in the last three weeks. I'll let Diego explain to everybody what's really going on in the nonfat market right now.

Diego?

Diego Carvallo: Ted, that's a very loaded question right now. Everybody's scratching their heads. As of right now, today, Friday the 30th, the market just closed. The whole strip is limit up -- 4 cents up.

I think I hadn't seen this in quite some time. IDFA was very interesting for a lot of people to discover why the spot market has been tight for this long and have good discussions on what the outlook looks like. Let's start with the fundamentals. I think a few things are helping this market and supporting it and pushing it higher.

The first one is what a lot of people are discussing, which is the amount of UF being produced in regions like the Midwest. We all know that many of the plants have installed new capacity to have UF sales, and those solids are in great demand [00:02:00] for cheese fortification right now.

So that's one of the reasons why the Midwest especially feeling this tight. Another reason is that th