Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

May 26, 2006

Markets Steady

· Cheese and butter prices rise slightly

· Demand seasonally strong

· USDA projects strong milk growth in 2006

Markets were generally strong this week at the Chicago Mercantile Exchange. Block cheese prices rose from $1.20 per pound on Monday, May 22 to $1.2250 per pound by Friday, May 26. Barrel cheese remained steady at $1.19 per pound the entire week. This is surprising since it was seasonal demand for barrel cheese that supported the entire cheese market. Grade AA butter prices also grew from $1.1725 per pound on Monday to $1.1775 per pound by Friday.

Nonfat dry milk prices in the West remained at support prices, trading at $0.80-$0.8150 per pound. Demand for powder in cheese production is limited due to discounted prices for milk and components. Trade with Mexico has been limited as production there has been strong. During the week of May 22-26 USDA purchased 8.9 million pounds of nonfat dry milk under the dairy price support program. Global prices for nonfat dry milk were $0.94 per pound in Australia/New Zealand and $1.05 per pound in Northern Europe.

USDA is projecting that U.S. milk production will grow 2.8 percent in 2006 relative to year ago levels. Much of this growth is due to higher cow numbers and greater milk per cow. Cow numbers are expected to continue to grow through the second half of 2007. As a result the all-milk price is expected to average $12.35-$12.85 per cwt this year, down $2.29-$2.79 per cwt from the year before.

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