Dairy Market Update: September 2005

Late summer and early fall are always interesting times for the dairy industry. Markets have to adjust to the industry supplying schools with fluid milk following the summer vacation. At the same time, the supply chain is gearing up to provide cheese, butter and other products highly demanded during the upcoming holiday season. However, the dairy markets have had even more factors than usual to manage over the past 12 months.

This time last year, the dairy industry had an added burden of sorting out the impacts of four major hurricanes in Florida. Milk prices reached levels never before seen in the summer of 2004, as milk production continued its no-growth pattern begun in 2003 and a strong national economy fueled demand growth for dairy products.

This year, we have already seen two of the largest hurricanes in recent years hit both Florida and the Gulf Coast, adding to concerns about fuel and energy prices that are already at record levels. Also in 2005, U.S. dry milk products are selling overseas in unprecedented volumes, giving dairy markets even more to contend with.

Even though the U.S. Department of Agriculture (USDA) reports that milk production in the past six months (through August 2005) has been about 4% higher than the same period last year, demand growth has continued to soak up all of that new milk. At the Chicago Mercantile Exchange (CME), the price of Grade AA butter reached a year-to-date high of $1.74 per pound on September 19, although the price fell during the week to close at $1.7025 on September 23. Meanwhile, that same day, the CME price for cheddar cheese in 40-pound blocks closed at $1.5950 per pound — well below the $1.7575 high for the year seen back in January, but still more than 20 cents above the $1.37 average since the start of the decade.

Posted September 26, 2005