Dairy Market Update: October 2004
By IDFA Chief Economist Bob Yonkers, PhD

Fall is often an unsettling time in dairy markets, and this year is no exception. Commercial disappearance of such dairy products as butter and cheese historically peak in the fourth quarter due in large part to the winter holidays. However, milk production is typically at its lowest point in the fourth quarter. If retailers miscalculate in the amount of these products that are needed at this time of year, the markets can swing significantly.

At the Chicago Mercantile Exchange (CME), the recent wholesale price changes for cheddar cheese in 40-lb blocks provide a good example. On October 1, the price stood at $1.585, but fell to $1.375 by October 8. As of October 22, the price has rebounded to $1.565.

A similar pattern was seen at the CME butter market, where the price per pound was at $1.815 on September 29, fell to $1.605 on October 8, climbed to $1.7275 by October 15, and fell again to $1.5975 on October 22.

As compared to earlier this year, overall farm milk production continues to rebound. The U.S. Department of Agriculture (USDA) reported a 1.1% increase in production during the third quarter this year compared to the same quarter last year. After adjusting for leap year, U.S. milk production year-to-date (through September) is up 0.5% as compared to the same period last year. Among the leading dairy states, milk production in September 2004 increased the most in Arizona (10.8%), Texas (7.7%), Florida (7.7%), California (4.9%) and Idaho (4.4%) compared to the same month last year. The biggest declines were seen in Iowa (-5.7%), Indiana (-5.3%), Michigan (-4.3%) and Washington (-4.2%).

On October 22, USDA announced that the November Class I minimum base price will be $14.29, down 49 cents from October. The federal order Class III minimum price for September increased 68 cents from August to $14.72. Due to the relatively high wholesale price of butter, the September Class IV minimum price of $13.00 was the second highest since the adoption of the four-class system in federal orders in 2000. (The October federal order minimum Class III and IV prices will be announced on November 5.)

Posted October 25, 2004