Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

January 14, 2005

Cheese and Butter Markets Improve

· Both cheese and butter prices rose this week at the CME

· Demand for butter and American cheese strong for recent quarter

· Global demand for nonfat dry milk solid

Milk prices continued to strengthen this week at the Chicago Mercantile Exchange. In the cash market, both cheese and butter prices rose. Block cheese prices rose from $1.5075 per pound on Monday, January 10 to $1.63 per pound on Friday, January 14. Barrel cheese prices also rose from $1.4575 per pound on Monday to $1.60 per pound by Friday. Grade AA butter prices rose from $1.5850 per pound on Monday to $1.6325 per pound by Friday. No cheese actually traded at the Chicago Mercantile Exchange this week; only 5 carloads of butter traded. Nonfat dry milk prices continued to remain firm. West coast prices were $0.8850-$0.90 per pound for low/medium heat. And the milk futures reported today at the Chicago Mercantile Exchange provided an average Class III price of $14.04 per cwt for all of 2005. Dairy farmers may want to seriously consider locking in a small percent of their 2005 milk supplies at these prices!

Milk prices rose this week due to the complex interaction of supply and demand, speculative market conditions, and international exchange rates. (Interpretation: I’m really not sure why prices are rising at this moment!) Seriously, there is some buying currently underway for the Supper Bowl, but January is usually a slow month for sales. The big uncertainty in the market is what the milk supply is doing (rising or falling?). Milk output will likely be curtailed in California due to wet weather and nationally due to the CWT program which will reduce cow inventories. That said, output per cow may be recovering. There is a strong economic incentive to expand milk production. USDA’s milk production report will be released next week (January 18).

USDA released recent numbers for consumption during the period August through October 2004. During this period the milk supply grew 1.1 percent. Demand grew as follows relative to the same period a year ago: butter up 5.8 percent; American cheese up 2.5 percent; Other cheese up 0.7 percent; nonfat dry milk up 25.5 percent; and fluid milk down 1.7 percent. My interpretation of this report that is provides mixed results. Consumption of butter, American cheese and nonfat dry milk are good, however sales of other products are weak.

U.S. exports of nonfat dry milk through September were up 77 percent from a year ago. This was due to very strong world market demand. The U.S. is expected to continue to face strong market demand for nonfat dry milk in 2005 for a variety of reasons. First, the weak U.S. dollar makes our prices attractive to importing countries. Second, milk production in the European Union is expected to recover modestly this year, reducing production of nonfat dry milk. Exports of nonfat dry milk from Australia and New Zealand are expected to remain static. However, world market demand is anticipated to be strong due to strong economic growth in Asia and increased oil revenues from North Africa and Middle Eastern Countries.

Want to get a friendly weekly reminder via email that my dairy outlook report is available? Subscribe to my email service. To subscribe, send a blank email to join-dairyoutlook@lists.cas.psu.edu.