Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

 

February 10, 2004

 

Sorry for a late report, but snow and travel plans got in the way.

 

The milk futures market at the Chicago Mercantile Exchange provided some surprises this last week.  Futures prices for Class III milk showed some price strength for the months February through May, but actually dropped slightly for the second half of the year.  The peak price for Class III futures is now $14.55 for September.

 

I’m not convinced the industry has digested all available information on what is going to transpire with the milk supply over the next 11 months.  We have fairly low levels of cow numbers, feed prices are rising, commodity inventories are tight to adequate, and shipments of Monsanto’s supplemental rBST will be limited.  Even if all of this maintains our milk supply even with a year ago, that alone will have huge market implications.  Recall that the milk supply didn’t grow last year either.  I expect the milk futures to show even more price strengths in the weeks ahead.

 

Cash prices for butter and cheese at the Chicago Mercantile Exchange were steady to strong this past week.  Butter prices averaged $1.5958 for the week, block cheese averaged $1.3350 and barrel cheese averaged $1.2890.  For the month of February, these are fairly strong prices.

 

The Dairy Products report was released on February 4 and provides preliminary numbers for 2003 levels of processed dairy products.  These numbers reflect the limitation of the milk supply which was even with a year ago.  American cheese production for 2003 was down 0.9 percent.  The category for Italian cheese, however, grew 1.3 percent, mainly from production of Mozarrella.  Given the shortage of milk, there was less surplus components available for processing into butter and nonfat dry milk.  Butter production fell 8.5 percent in 2003 and nonfat dry milk production fell 4.9 percent.   

 

1See my table at http://dairyoutlook.aers.psu.edu/outlook/ClassIIIHist.htm .

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