Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

October 28, 2005

Market Continues to Balance Heavy Milk Supplies

· September milk production up 4.5 percent

· Butter inventories down 8 percent

· American cheese inventories down 2 percent

The September milk production report indicated that estimated U.S. milk production was 4.5 percent ahead of a year ago. Cow numbers continued to grow month-after-month, dairy cow slaughter rates were down, and milk productivity was up from a year ago. For September, only 5 states out of 23 had zero or no growth in milk production. Coupled with no growth in the fluid milk sector, this would normally spell disaster for dairy commodity prices. But the recent Cold Storage report indicates that butter inventories at the end of September were down 8 percent from a year ago; American cheese inventories were down 2 percent from a year ago.

So, where are all the extra milk fat, protein, and lactose going? Well we know it’s not going into fluid consumption. Cumulative fluid beverage consumption through August of this year was down 0.3 percent relative to the same period a year ago. USDA reports that cumulative butter production was up 7.4 percent through August. So that explains where a lot of the milk fat is going. And more and more cream is being used in food processing. So it is not surprise that there is a ready market for surplus milk fat in the U.S. Much of the surplus protein and lactose is likely ending up in nonfat dry milk production. We have estimated that nonfat dry milk production through July was up 20.8 percent over a year ago. Most of this extra production is being exported abroad. Through August, total exports of nonfat dry milk have been 209,405 mt, up 71.8 percent from the same period a year ago.

As long as cheese and butter inventories remain in check, and as long as exports of nonfat dry milk remain strong, milk prices will continue to remain above long term market averages despite strong growth in milk production. Who would have thought we would be in a situation today where high milk prices were the result of export opportunities?

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.