Dairy Market Update: October 2005

The dairy markets continue to exhibit strong growth in both supply and demand. The U.S. Department of Agriculture (USDA) last week estimated that September milk production was 4.5% greater than the same month last year. After two years of virtually no growth in milk production in 2003 and 2004, milk production so far in 2005 is up 3.6% (after adjusting for the extra leap day in 2004). Meanwhile, commercial disappearance through July 2005 is estimated to be 2.6% higher on a milk equivalent, milkfat basis over last year.

For the U.S. government's fiscal year ending September 30, 2005, USDA estimated that the farm supply of milkfat increased 3.8%, while the commercial disappearance of milkfat in all milk and dairy products increased only 2.5%. However, while the farm supply of nonfat solids also increased 3.8%, the commercial disappearance of nonfat solids increased a whopping 4.9%. For the fiscal year, USDA's preliminary estimate of the average farm all-milk price is $15.25 per hundredweight, compared to the record high seen in the last fiscal year of $16.05.

In other news, it has been one month since the Chicago Mercantile Exchange (CME) launched its latest product, the cash-settled butter futures contract. This was the first dairy market product offered by the CME to trade exclusively via GLOBEX, the CME's electronic trading platform. From the CME's first day of trading on September 19 through October 18, a total of 508 cash-settled butter futures contracts traded on the CME, representing a total volume of more than 10 million pounds of butter. Open interest for this contract on October 19 stood at 282, compared to 343 open-interest contracts for the CME's physical-delivery butter futures contract, which has traded for more than nine years.

In conjunction with the launch of this new contract, the CME and IDFA teamed up to offer a free series of educational workshops, which has attracted more than 150 attendees total. Seven workshops were held around the nation in September, and industry professionals have two final opportunities this week to attend this primer! In conjunction with Worldwide Food Expo, there will be a workshop on Tuesday, October 25 and Wednesday, October 26 in Chicago. For more information about the remaining two workshops, click here.

Posted October 24, 2005