Dairy Market Update: November 2004

The dairy markets this month continue to provide evidence that 2004 has been a very unusual year for wholesale dairy prices. Following some swings in the October prices, butter and cheese market prices in the last three weeks steadily climbed upward.

Specifically, on November 19, the wholesale price of Grade AA butter at the Chicago Mercantile Exchange (CME) ended the week at $2.1025 per pound, up nearly 56 cents in only three weeks. Cheddar cheese in 40-lb. blocks ended last week at $1.795 per pound, up 22 and one-half cents in the same three weeks. So far in November, wholesale dairy product prices have, on average, been higher than the October prices used by the U.S. Department of Agriculture (USDA) to determine minimum farm milk prices in the Federal Milk Marketing Orders.

There has been relatively strong demand for dairy products this year. For January through August, USDA reports that commercial disappearance of butter was 1.7% higher than for the same period in 2003. This pattern holds true for other manufactured dairy products. American-type cheese demand is up 1.4%, other-than-American-type cheese is up 3.5% and nonfat dry milk (led by significant sales into the world market) is up 50.7%. Fluid milk is the one major dairy product that has not experienced growth so far this year, with commercial disappearance is down 1.5% through August.

While overall demand has been strong, U.S. milk production has lagged. USDA reports that total milk production is up only 0.3% for the January through October period, although production has increased an average of 1.2% in the most recent four months. Based on the combination of strong demand growth with sluggish milk production, USDA is forecasting that the annual average price for milk paid to farmers in 2004 will be $16.00, a record high. Only twice before has the all-milk price exceeded $15.00, reaching $15.43 in 1998 and $15.05 in 2001.

In addition to farm and wholesale prices, retail prices for milk and dairy products have also been generally higher so far this year. According to the U.S. Bureau of Labor Statistics, the U.S. all-city average retail price for a gallon of whole milk in October was $3.16, up 8.8% from October 2003. Other October retail dairy product prices and the percent change from one year earlier are: Grade AA butter, at $3.69 per pound, up 27.3%; Cheddar cheese, at $4.31 per pound, up 7.3%; and regular ice cream, at $3.79 per one-half gallon, down 2.3%.

Posted November 22, 2004