Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

May 15, 2006

Cheese and Butter Stocks Building

• March cheese inventory up 8%
• March butter inventory up 27%
• Fluid milk sales up 2.7%

Market prices strengthened this week at the Chicago Mercantile Exchange. Barrel prices rose the most, from $1.1250 per pound on Monday, May 8 to $1.18 per pound on Friday, May 12. Block cheese prices rose a penny a pound from $1.16 per pound on Monday to $1.17 by Friday. Grade AA butter prices also strengthened from $1.1750 per pound on Monday to $1.1775 by Friday.

USDA reported that the Commodity Credit Corporation (CCC) purchased 198,000 pounds of Midwest process cheese at $1.1889 per pound this past week. This is the first process cheese purchased by the CCC since July 2003. It was very strange since the market price of barrel cheese strengthened much of the week. That said, cheese production has been growing. First quarter cheddar cheese production was up 1.8 percent. And the latest Cold Storage report indicates that American cheese inventory at the end of March was up 9 percent over a year ago.

Butter inventories and production are building. The Cold Storage report indicated that March inventories were up 27 percent. And butter production will continue to build as we enter the spring flush. Thus the market is expecting butter prices to decline slightly from current levels in the weeks ahead.

Another strange report came from USDA regarding March fluid beverage sales, which were reported to be up 2.7 percent over a year ago. That would be unprecedented sales growth. USDA noted that the timing of the Easter Holiday likely had a positive impact on the reported numbers. Thus we’ll monitor the cumulative sales of fluid beverage milk in order to assess sales trends.

The U.S. powder market remains depressed with prices of Western nonfat dry milk stuck at around $0.81 per pound. During the week of May 8-12 the CCC purchased 6 million pounds of nonfat dry milk from western sources. What is strange is that international prices still remain strong. During the first 12 days of May prices for skim milk powder were $1.03 per pound in Northern Europe and $0.94 per pound in Australian/New Zealand. The dollar has been falling relative to the Euro, which should make us more competitive in international markets. International sales from the EU, particularly of skim milk powder, are so far very limited. And Australia and New Zealand are ending their milk production season with very little surplus products. Thus it would seem to reason that the U.S. will have some opportunity for skim milk powder exports sometime this year.

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