USDA Expects High Prices for Milk, Dairy Products to Last Well into Next Year

The U.S. Department of Agriculture (USDA) recently released a decidedly bullish outlook for milk supply and demand, as well as for dairy product and farm milk prices for the balance of this year and well into 2008. In particular, USDA expects the Class III federal order price for milk used to make cheese to reach a record high this year, increasing by 37% over 2006 at an average price of $16.30 per hundredweight. This price far outstrips the previous record of $15.39 set in 2004. USDA also predicts the all-milk price paid to farmers in 2007 will average $17.30, also a record high.

The department forecasts that milk production for the remainder of the year will grow by about 1.2%, but expects demand growth to far outstrip this increase. In addition, demand for milkfat is forecast to increase by 2.7%, while skim solids demand is expected to grow by 2%. This difference will come mostly from inventories; USDA expects commercial stocks to be lower for both milkfat and skim solids at the end of 2007 than at the start of the year. After purchasing 64 million pounds of nonfat dry milk under the Dairy Price Support Program in 2006, USDA expects no program purchases in 2007.

U.S. farm milk marketing, according to USDA, also will grow by 2% in 2008. Milkfat exports are expected to increase by 4%, while skim solids exports will jump to 6% to keep up with the forecasted increase in dairy demand.

Interestingly, USDA expects commercial stocks of both milkfat and skim solids to fall again next year. (USDA does not separately forecast domestic and export demand.)

As can be expected any time demand growth outpaces the growth in milk production, USDA forecasts that prices for manufactured dairy products and farm milk will be higher in 2007 and will remain at relatively high levels throughout 2008. The midpoints of the predicted range of average wholesale dairy product prices for 2007 are $1.49 per pound for cheddar cheese (up 20% from 2006), $1.3750 per pound for butter (up 12%), $1.3950 for nonfat dry milk (up 57%) and $0.6950 for dry whey (up 81%).

These prices are expected to remain high in 2008, when the midpoint of the forecasted range for cheese is only one-half cent per pound lower than the 2007 forecast. The dry whey price is expected to be 2 cents per pound lower, with higher prices forecasted for butter (up 2 cents per pound) and nonfat dry milk (up 5 cents per pound).

While USDA forecasts the Class III price to decline by 50 cents per hundredweight in 2008 (to an average midpoint of $16.00), the department expects a higher all-milk price paid to farmers of $17.50 (an increase of 20 cents).

Posted May 29, 2007