Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

December 9, 2005

Headline: Fluid Demand Growing

· Total fluid beverage consumption up 1.2 percent in October

· Western prices for nonfat dry milk still strong

USDA released the October fluid milk sales report. That report was generally favorable. That’s good news since weak fluid milk sales would have resulted in more manufactured dairy products, which in turn would weaken commodity prices. Stronger fluid milk sales helps support market prices for butter, cheese and nonfat dry milk.

For the month of October packaged fluid sales for the entire U.S. were around 4.7 billion pounds, up 1.2 percent relative to a year ago. Adjusting for calendar composition, total fluid sales in October were up 1.4 percent. But estimates of fluid sales on a monthly basis can be misleading. Sales during the last few days of the month can rise or fall based on expected changes in next months Class I costs. And USDA’s statistical adjustment for calendar composition may not be a perfect adjustment. For me, the most important figure is year to date fluid beverage consumption. For the period January through October, according to my figures, total fluid beverage consumption was up 0.3 percent relative to the same period a year ago. (USDA has total beverage consumption up 0.1 percent). While not an impressive figure, it is at the very least a positive rate of growth.

In other news, western prices for nonfat dry milk were mostly $0.95-$1.02 per pound for low/medium heat. This is still a very favorable price. This week prices for nonfat dry milk in Western Europe were just $0.964-$1.02 per pound. This is a concern since these same prices were $1.04-$1.06 per pound during July – September. Why the change? Export demand for nonfat dry milk has slowed seasonally during December. And the value of the U.S. dollar has been rising. The good news is January starts a new year. The EU is not expected to produce much surplus nonfat dry milk, and milk production in Oceania is still depressed due to limited rainfall (New Zealand). Thus one can be modestly optimistic that 2006 will be another good year for U.S. exports of nonfat dry milk.

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