Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

April 7, 2006

Cheese Prices Mysteriously Rally

• Both blocks and barrels gain
• Cheese production up in February
• MILC signup available till May 17

Cheese prices rallied this week at the Chicago Mercantile Exchange for unknown reasons. Blocks rose from $1.1225 per pound on Monday to $1.18 per cwt by Friday. Barrels also rose, from $1.1050 per pound on Monday to $1.13 by weeks end. Market fundamentals have not really changed—there is too much milk and cheese production and inventories are growing. About the only positive market news available is that USDA announced that members of the C.W.T. program voted this week to increase producer assessments from 5 to 10 cents per cwt beginning July 1. These additional funds will likely be used to more aggressively cull the nations herd size and to export more products abroad.

The increase in cheese prices will likely be very short lived. There was some discussion that demand picked up a bit for the Lenten Season. But the recent Dairy Products report indicates that cheese production is increasing, meaning availability will only increase through the spring months. Traders in Chicago and elsewhere will have little incentive to maintain current prices. February American cheese production was 302.8 million pounds, up 3.3 percent. And total cheese production was at 718.6 million pounds, up 1.6 percent.

There has been talk that we will likely face an unprecedented spring flush. A mild winter and early spring in the West is resulting in greater milk production levels. We could see U.S. daily average milk production peak in April rather than May. And the level of this peak could be 4-6 percent higher than last year. Recall that in 2005 daily average milk production peaked in May at 506.4 pounds, 4.6 percent ahead of a year ago. Surely the market must be wondering where all this milk is going to go.

Producers should be reminded that signup for the MILC payment program is due by May 17. Contact your local Farm Services Agency for sign up material, or you can look online at: http://www.fsa.usda.gov/pas/publications/facts/html/milc06.htm . If you are trying to determine which month will have the lowest milk prices, I would suggest you consider April and/or May.

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